e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2008
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number:
000-51043
International Wire Group,
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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43-1705942
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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12 Masonic Ave.
Camden, NY
(Address of principal
executive offices)
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13316
(Zip Code)
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(315) 245-3800
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, par value $0.01 per share
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the registrants common stock
held by non-affiliates of the registrant was $56,121,307 based
on the last sale price as reported on the OTC Pink Sheets as of
June 30, 2008. Shares of Common Stock held by each
executive officer, director, and shareholders with beneficial
ownership of greater than 10% of the outstanding Common Stock of
the registrant and persons or entities known to the Company to
be affiliates of the foregoing have been excluded in that such
persons may be deemed to be affiliates. This assumption
regarding affiliate status is not necessarily a conclusive
determination for other purposes.
APPLICABLE ONLY TO ISSUERS INVOLVED
IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12,
13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a
court. Yes þ No o
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
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Class
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Outstanding at February 27, 2009
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Common Stock, $0.01 par value per share
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9,986,202 shares
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DOCUMENTS
INCORPORATED BY REFERENCE
The definitive proxy statement relating to the registrants
2009 annual meeting of stockholders is incorporated by reference
in Part III.
CAUTIONARY
STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS
International Wire Group, Inc. and its subsidiaries (which we
refer to as we, us, our or
other variations thereof or comparable terminology) makes
forward-looking statements in this
Form 10-K
that are based on managements beliefs and assumptions and
on information currently available to management.
Forward-looking statements include the information concerning
our possible or assumed future results of operations, business
strategies, financing plans, competitive position, potential
growth opportunities, the effects of competition, outlook,
objectives, plans, intentions and goals. For those statements,
we claim the protection of the safe harbor for forward-looking
statements provided for by Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements
include all statements that are not historical facts and can be
identified by the use of forward-looking terminology such as the
words believes, expects,
may, will, should,
seeks, pro forma,
anticipates, intends, plans,
estimates, or the negative of any thereof or other
variations thereof or comparable terminology, or by discussions
of strategy or intentions.
Forward-looking statements involve risks, uncertainties and
assumptions. Actual results may differ materially from those
expressed in these forward-looking statements. Undue reliance
should not be placed on any forward-looking statements. We do
not have any intention or obligation to update forward-looking
statements after we file this
Form 10-K,
except as required by Federal Securities laws. See
Item 1A. Risk Factors and Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations.
PART I
Overview
We, together with our subsidiaries, manufacture and market wire
products, including bare and tin-plated copper wire, engineered
products and high performance conductors, for other wire
suppliers, distributors and original equipment manufacturers or
OEMs. Our products include a broad spectrum of
copper wire configurations and gauges with a variety of
electrical and conductive characteristics and are utilized by a
wide variety of customers primarily in the aerospace, appliance,
automotive, electronics and data communications, general
industrial/energy and medical device industries. We manufacture
and distribute our products at 19 facilities located in the
United States, Belgium, France and Italy. We operate our
business in the following three segments:
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Bare Wire. Our bare and tin-plated copper wire
products (or conductors) are used to transmit digital, video and
audio signals or conduct electricity and are sold to a diverse
customer base of over 1,000 insulated wire manufacturers and
various industrial OEMs for use in electronics and data
communications, general industrial, energy, appliances, and
automotive markets.
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Engineered Wire Products
Europe. Our bare copper wire products are
engineered and used to conduct electricity either for power or
for grounding purposes and are sold to a diverse customer base
of various OEMs for use in electrical appliances, power
supply, aircraft, railway and automotive markets.
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High Performance Conductors. Our High
Performance Conductors segment manufactures specialty high
performance conductors which include tin, nickel and
silver-plated copper and copper alloy conductors including
standard and customized high and low temperature conductors as
well as specialty film insulated conductors and miniature tubing
products. These products are used by a variety of customers in
the commercial and military aerospace and defense, electronics
and data communication, industrial, automotive and medical
electronics and device markets.
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We were organized in 1995 as Omega Wire Corp. and subsequently
changed our name to International Wire Group, Inc. We are
incorporated in the state of Delaware. Our principal executive
offices are located at 12 Masonic Avenue, Camden, New York, and
our telephone number at such address is
(315) 245-3800.
Our internet address is
http://itwg.client.shareholder.com.
Our filings with the Securities and Exchange
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Commission, or SEC, are available free of charge through our
website as soon as reasonably practicable after being
electronically filed with or furnished to the SEC. Information
on our website is not part of this report.
Acquisitions
On January 2, 2008, we acquired the assets and operations
of Hamilton Products, Inc. and the related real estate owned by
JPS Holdings, LLC (collectively Hamilton Products).
Hamilton Products was formed in 1994 and is a manufacturer and
marketer of braided wire products serving the aerospace and
industrial markets. The acquisition of Hamilton Products
complements our existing braiding operations in both the United
States and Europe and expands our aerospace business. Under the
asset purchase agreement, we purchased the assets, operations
and certain liabilities for $9.3 million in cash, subject
to a working capital adjustment of ($0.1) million. The
acquired Hamilton Products manufacturing facility is
located in Sherburne, New York.
On July 1, 2008, we completed the acquisition of the
U.S. assets and operations of Global Wire Inc. and its
subsidiaries (Global Wire) and certain equipment
owned by an affiliated company. The acquired Global Wire
operations involve the manufacture and marketing of both bare
wire and high temperature silver and nickel plated products for
the aerospace, electronics and data communications and
industrial markets. The acquisition of Global Wire expands and
complements our existing operations in the United States,
especially in high temperature products for the aerospace
market. Under the terms of the asset purchase agreement, we
acquired the assets and operations of Global Wires plants
located in Littleton, New Hampshire and Jewett City,
Connecticut. The Littleton, New Hampshire plant was purchased
outright, and the Jewett City, Connecticut plant is leased, with
an option to purchase at a later date for $0.8 million,
subject to adjustment. In addition, certain equipment purchased
has been moved from Israel to the U.S. plants. We paid a
purchase price of $32.0 million in cash, subject to a
working capital adjustment of ($1.2) million.
Products
and Markets
A portion of our revenue is derived from processing
customer-owned (tolled) copper. The value of tolled
copper is excluded from both our sales and costs of sales, as
title to these materials and the related risks of ownership do
not pass to us at any time. The remainder of our sales include
non-customer owned (owned) copper. Accordingly, for
these sales, copper is included in both orders and cost of
sales. In order to compare tolled customers with non-tolled
customers, we sometimes refer to adder sales, which
is the net sales from our products less, if applicable, the
invoiced amounts of owned copper and certain other metals.
At December 31, 2008, we had three reportable segments:
Bare Wire, Engineered Wire Products Europe and High
Performance Conductors. These segments are strategic business
units organized around three product categories that follow
managements internal organization structure. We evaluate
segment performance based on segment operating income. See
Note 14 to our consolidated financial statements for
segment reporting. The following is a description of our primary
products and markets served:
Bare
Wire Segment (72% of 2008 Consolidated Net Sales)
Our external sales of bare wire products are primarily to wire
insulators, who apply insulating materials to the bare wire
through an extrusion process. These wire insulators are located
primarily in the United States, Canada and Mexico and sell their
insulated wire to a variety of customers in the following
markets:
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appliance (approximately 8% of total 2008 Bare Wire adder sales);
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automotive (approximately 16% of total 2008 Bare Wire adder
sales);
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electronics and data communications (approximately 27% of total
2008 Bare Wire adder sales) including broadcast/video,
audio/microphone/sound for entertainment, medical, safety and
security control, local area network (LAN) and
computer system applications; and
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industrial/energy (approximately 49% of total 2008 Bare Wire
adder sales) including heating, ventilating and air conditioning
(HVAC), circuit protection, digital and cellular
phone tower, elevator, mining
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and oil exploration, mass transit, utility power distribution,
wind turbine, oil and water well, transformers and fuse link,
welding and irrigation applications.
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We manufacture a broad array of bare and tin-plated copper
conductors including the following:
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Single End Wire. Single end wire is an
individual wire drawn to the customers size requirements
ranging from .16 to .00157 inches in diameter (6 American
Wire Gauge (awg) to 46 awg). Single end wire is
capable of transmitting signals or electrical currents between
two points and is used to transmit digital, video and audio
signals or low voltage current in a variety of wire products
used in motor controls, local area networks, security systems,
television or telephone connections and water sprinkler systems.
Single end wire is generally the least expensive form of wire to
produce due to its simple configuration.
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Stranded Wire. Stranded wire is comprised of a
number of single end wires twisted together in a specific
geometric pattern that preserves each individual wires
relative position for the length of the wire. Stranded wire,
like single end wire, transmits digital, video and audio signals
or low voltage current. However, stranded wire is more flexible
and capable of connecting multiple terminals allowing a wider
range of applications. Stranded wire is generally used in
products that connect peripherals to the personal computer
(PC), connect the internal components of the PC, and
control HVAC, security and other functions inside buildings. In
addition, stranded wire is used in antilock braking systems,
airbag systems, utility power distribution and circuit breakers.
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Bunched Wire. Bunched wire is formed by
twisting a number of single end wires in a random pattern.
Bunched wire allows increased flexibility while maintaining
conductivity. This type of wire is the primary wire used in
appliance and automotive wire harnesses. In addition, bunched
wire is commonly used for transmission of electrical current in
lighting fixture cords, extension cords and power cords for
portable, power hand tools.
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Cabled Wire and Braided Wire. Cabled wire and
braided wire are combinations of single, bunched or stranded
wire twisted together in various patterns and thickness. These
wires transmit electrical current and are typically used in
mining, mass transportation, automotive, utility power
distribution and other industrial applications.
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Shielding Wire. Shielding wire is comprised of
varying numbers of single end wires that are wound together in
parallel construction around a bobbin. Shielding wire does not
transmit signals or voltage but rather shields the signal
traveling through the core conductor from outside interference.
This type of wire is primarily used in data communication
applications, telecommunications equipment, cable television
equipment and security systems.
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Engineered
Wire Products Europe Segment (10% of 2008
Consolidated Net Sales)
Our sales of engineered wire products in Europe are primarily
specialty braids, ropes, connections and flexible bars. These
products are sold to OEMs who use our products as
component parts in items such as circuit breakers, panel boards,
transformers, power generating systems and transportation
equipment. Our sales are to a variety of customers in the
following markets:
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electrical appliances (approximately 40% of total 2008
Engineered Wire Products Europe net sales);
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power supply (approximately 29% of total 2008 Engineered Wire
Products Europe net sales);
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aircraft and railway (approximately 14% of total 2008 Engineered
Wire Products Europe net sales); and
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automotive (approximately 17% of total 2008 Engineered Wire
Products Europe net sales).
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We manufacture specialty braids, ropes, connections and flexible
bars using copper as the primary raw material with either
insulating material, strips or terminals. In addition, we
manufacture braided wire which is sold as a component part or we
apply either insulating material
and/or types
of terminals to meet customers specifications.
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High
Performance Conductors Segment (18% of 2008 Consolidated Net
Sales)
Our High Performance Conductors segment manufactures specialty
high performance conductors which include tin, nickel and silver
plated copper and copper alloy conductors including standard and
customized high and low temperature conductors as well as
specialty film insulated conductors and miniature tubing
products.
Our external sales of high performance conductors in the United
States, Europe and Asia are primarily directly to distributors
and to wire insulators that manufacture wire and cable products
by applying insulation, through a variety of processes, for
applications in high temperature environments. Our High
Performance Conductors segment film insulated and tubing
products are sold to medical device manufacturers either
directly or through our manufacturers representatives
specializing in the medical market which are sold under our
MinVasive brand. Our High Performance Conductors
segment products are sold to a variety of customers in the
following markets:
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commercial and military aerospace and defense (approximately 44%
of total 2008 High Performance Conductors net sales) including
commercial and military aircraft wiring, avionics, defense
weapons and security systems, commercial and defense satellite
systems;
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electronics and data communication (approximately 24% of total
2008 High Performance Conductors net sales) including consumer
electronics, test equipment, data and voice communication
systems;
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industrial and automotive (approximately 18% of total 2008 High
Performance Conductors net sales) including industrial power
systems, heat and freeze control systems, automotive and
geophysical applications; and
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medical electronics and devices (approximately 14% of total 2008
High Performance Conductors net sales) including medical
diagnostic and test equipment and components for minimally
invasive medical devices.
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Marketing
We sell our products through a combination of direct (company
employed) sales people and manufacturers representatives.
Our sales organization is supported by an internal marketing
staff and customer service groups. Collectively, these
departments act as a bridge between our customers and our
production and engineering staff. Our engineers work directly
with customers in manufacturing the wire products to the
customers exact specifications. In addition, engineers
work closely with our production managers, quality supervisors
and customer service representatives to ensure the timely
delivery of quality products.
Key
Customers
We sell our products primarily to copper wire insulators,
distributors and OEMs who then sell to a diverse array of
end users. For the year ended December 31, 2008, we had
significant sales to General Cable Corporation, which
represented 11% of our consolidated net sales.
International
Operations
We currently have operations in Belgium, France and Italy. For
the years ended December 31, 2008, 2007 and 2006,
approximately 10% of our consolidated net sales originated from
these foreign operations. We have a manufacturing facility in
Vinovo, Italy and two facilities in Saint-Chamond, France as
well as a sales/distribution facility in Puurs, Belgium. See
Note 14 to our consolidated financial statements included
herein for further information about our international
operations.
We are subject to risks generally associated with international
operations, including price and exchange controls and other
restrictive actions. In addition, fluctuations in currency
exchange rates may affect our results of operations. See
Item 1A. Risk Factors and Item 7A.
Qualitative Disclosures about Market Risk for further
discussion about our foreign currency risk.
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Raw
Materials
The principal raw material used in our products is 5/16 inch
copper rod, which is sourced either directly from world copper
producers or through rod mill operators in North America and
Europe. A significant percentage of our total copper is
purchased from four major suppliers. Copper rod prices are based
on market prices, which are generally established by reference
to the New York Mercantile Exchange, Inc. (COMEX)
prices, plus a premium charged to convert copper cathode to
copper rod and deliver it to the required location. Copper
prices are affected by a number of factors, including worldwide
demand, mining and transportation capacity, political
instability and financial markets. Copper supply is generally
affected by the number and capacity of the mines that produce
copper. For instance, production problems at a single major mine
can impact worldwide supply and therefore prices.
In order to reduce the potential negative impact of fluctuations
in the price of copper, we have copper price pass-through
arrangements with our customers based on variations of monthly
copper price formulas. These pass-through arrangements are less
effective when copper prices are volatile. Additionally, these
pass-through arrangements do not apply to the scrap which is
created in the production process (and subsequently sold as
scrap sales), as the base price for the copper in the scrap
sales may be more or less than the base price at the time we
acquired the copper. Changing copper prices may adversely affect
both profitability and liquidity depending on the magnitude of
these changes, the timing of purchases, quantity levels and the
applicable account receivable and payable payment terms.
Moreover, since we generally do not obtain long-term purchase
commitments, our customers may cancel, reduce or delay their
orders if they believe copper prices will be falling (in order
to purchase our products at lower prices in the future) or in
response to increases in copper prices. Additionally, declining
copper prices can result in inventory charges, increasing our
costs of goods sold and negatively impacting profitability.
Conversely, a severe increase in the price of copper can
negatively impact our short-term liquidity because of the period
of time between our purchase of copper at an increased price and
the time at which we receive cash payments after selling end
products to customers reflecting the increased price.
Tin is also a component in our products in the Bare Wire and
High Performance Conductors segments. The High Performance
Conductors segment also uses silver and nickel. The cost of
silver, nickel and tin is generally passed through to our
customers through a variety of pricing mechanisms. Our price of
silver includes a margin and market fluctuations in the price of
silver can result in an increase or decrease in profitability at
a given volume.
We order material based on purchase orders received and accepted
and seek to minimize the inventory of material not identified
for specific orders. We work with our suppliers to develop
just-in-time
supply systems which reduce inventory carrying costs. Generally,
we do not have long-term purchase agreements with our suppliers.
Manufacturing
and Distribution
We are committed to the highest quality standards for our
products, a standard maintained in part by continuous
improvements to our production processes and upgrades to and
investments in our manufacturing equipment. Our equipment can be
adapted to satisfy the changing needs of our customers. We
maintain advanced quality assurance and testing equipment to
ensure the products we manufacture will consistently meet
customer quality requirements. The following is a description of
our manufacturing and distribution facilities and processes for
our major product lines.
Bare
Wire
As of December 31, 2008, we had twelve facilities dedicated
to the production and distribution of bare wire products in the
United States. Eight of these facilities are located in New
York, one in Indiana, one in Texas, one in California and one in
Connecticut. The manufacturing of bare wire consists of one or
more of the following four processes: wire drawing, plating,
bunching and stranding and cabling.
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Wire Drawing Process. Wire drawing is a
multi-step process in which raw copper material, primarily
5/16-inch copper rod, is drawn through a series of dies of
decreasing diameter.
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Plating Process. After being drawn, our wire
products may be plated through an electroplating process. We
have the capability to plate copper wire with tin. Approximately
35% of our bare wire products are plated with tin. The plating
process prevents the bare copper from oxidizing and also allows
the wire to be soldered, which is an important quality in many
electrical applications.
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Bunching and Stranding Process. Bunching and
stranding is the process of twisting together single strand
wires to form a construction ranging from seven to over 200
strands. If the wire is bunched, the individual strands of wire
are twisted together in a random pattern. Stranded wire is
composed of a number of single end wires twisted together in a
specific geometric pattern where each strands relative
position is maintained throughout the length of the wire.
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Cabling Process. Cabling is the process of
twisting bunched wire to form a construction ranging from 49 to
47,000 strands.
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Engineered
Wire Products Europe
As of December 31, 2008, we had three facilities dedicated
to the production and distribution of specialty wire products in
Europe, two located in France and one located in Italy. The
manufacturing of the specialty wire engineered products in
Europe consists of obtaining copper stranding or strips and
applying either insulating material
and/or types
of terminals to meet the customers specifications.
High
Performance Conductors
Our High Performance Conductors segment has three facilities
dedicated to the production and distribution of high performance
conductor and medical device products in the United States, one
located in South Carolina, one located in Georgia and one
located in New Hampshire. In addition, there is a
sales/distribution facility in Belgium. The manufacturing of
high performance conductors consists of one or more of the
following four processes: wire drawing, plating, bunching and
stranding and cabling.
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Wire Drawing Process. Wire drawing is a
multi-step process in which raw materials, primarily copper, and
to a lesser extent, aluminum, copper-clad steel, copper-clad
aluminum and various copper alloys, are drawn through a series
of dies of decreasing diameter.
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Plating Process. After being drawn, our wire
products may be plated through a tin, silver or nickel
electroplating process. Approximately 95% of our high
performance conductors products are plated with one of these
materials. The plating processes are used to prevent the copper
wires from oxidizing. Additionally, silver and tin plating
improves the solderability of wires, and nickel plating allows
copper wires to be used in high-temperature applications.
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Bunching and Stranding Process. Bunching and
stranding is the process of twisting together single strand
wires to form a construction ranging from seven to over 100
strands. If the wire is bunched, the individual strands of wire
are twisted together in a random pattern. Stranded wire is
composed of a number of single end wires twisted together in a
specific geometric pattern where each strands relative
position is maintained throughout the length of the wire.
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Cabling Process. Cabling is the process of
twisting bunched wire to form a geometric construction ranging
from 49 to over 2,000 strands.
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Additionally, our facility in Georgia manufactures medical grade
products that utilize two additional processes: film insulated
and tubing.
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Film Insulated. Film insulating is the process
of coating bare or silver plated wires with insulating materials
such as polyethylene or polyimide. This process is performed
over multiple passes in an oven that cures the film being
applied.
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Tubing. Tubing is the process of removing the
copper mandrel (wire) from a previously film insulated product
in order to create a tube with very thin walls and a precise
internal dimension. This tube is then flushed with acid to
remove contaminant materials, rinsed, dried and cut to size.
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Competition
As a result of the diversity of our product offerings, we
believe that no single competitor competes with us across the
entire spectrum of our product lines. However, in each market
served, we experience competition from at least one major
competitor. We compete primarily on the basis of quality,
reliability, price, reputation, customer service and delivery
time. Several customers we serve have in-house or
captive wire production facilities, and we sell to
them to meet needs in excess of their internal production
capacity.
Backlog
Due to the manner in which we process orders, we have no
significant order backlog. We follow the industry practice of
producing our products on an ongoing basis to meet customer
demand without significant delay. Management believes the
ability to supply orders in a timely fashion is a competitive
factor in our market, and therefore, attempts to minimize order
backlog to the extent practicable.
Patents
and Trademarks
We have one patent and a number of trademarks. We do not believe
that our competitive position or operations are dependent on any
individual patent or trademark or groups thereof.
Employees
As of December 31, 2008, we employed approximately 1,600
full time employees. We believe that we have a good relationship
with our employees. None of our employees are represented by a
labor union.
Seasonality
We do not believe that our business is subject to significant
seasonal fluctuations.
Environmental
Matters
We are subject to a number of federal, state, local and foreign
environmental laws and regulations relating to the storage,
handling, use, emission, discharge, release or disposal of
materials into the environment and the investigation and
remediation of contamination associated with such materials.
These laws include, but are not limited to, the Comprehensive
Environmental Response Compensation and Liability Act
(CERCLA), the Water Pollution Control Act, the Clean
Air Act and the Resource Conservation and Recovery Act, the
regulations promulgated thereunder, and any state and foreign
analogs. We have been, and may be in the future, identified as
potentially responsible parties with respect to several sites
designated for cleanup under CERCLA or similar state laws, which
impose liability for cleanup of certain waste sites and for
related natural resource damages without regard to fault or the
legality of waste generation or disposal. Persons liable for
such costs and damages generally include the site owner or
operator and persons that disposed or arranged for the disposal
of hazardous substances found at those sites. Although CERCLA
imposes joint and several liability on all potentially
responsible parties, in application, the potentially responsible
parties typically allocate the investigation and cleanup costs
based upon, among other things, the volume of waste contributed
by each potentially responsible party. Also, our operations also
are governed by laws and regulations relating to employee health
and safety. We believe that we are in material compliance with
such applicable laws and regulations and that our existing
environmental controls are adequate. Further, we have no current
plans for substantial capital expenditures in this area.
As is the case with most manufacturers, we could incur costs
relating to environmental compliance, including remediation
costs related to historical hazardous materials handling and
disposal practices at certain facilities, although we do not
believe that such costs would materially and adversely affect
us. In the past, we
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have undertaken remedial activities to address
on-site soil
contamination caused by historic operations. None of these
activities have resulted in any material liability.
We currently do not anticipate that compliance with
environmental laws or regulations or the costs to remediate the
sites discussed above will have a material adverse effect on us.
As mentioned above, however, the risk of environmental liability
and remediation costs is inherent in the nature of our business
and, therefore, there can be no assurance that material
environmental costs, including remediation costs, will not arise
in the future. In addition, it is possible that future
developments (e.g., new regulations or stricter regulatory
requirements) could cause us to incur material costs to comply
with applicable environmental laws and regulations.
Executive
Officers of the Registrant
Set forth below are the names and positions of the executive
officers of our company as of December 31, 2008.
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Name
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Age
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Position(s)
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Rodney D. Kent
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61
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Director and Chief Executive Officer
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Glenn J. Holler
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61
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Senior Vice President, Chief Financial Officer and Secretary
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Donald F. DeKay
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54
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Vice President Finance
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Chrysant E. Makarushka
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68
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Vice President Purchasing and Logistics
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Martin G. Dew
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46
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President of IWG High Performance Conductors, Inc.
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Rodney D. Kent is Chief Executive Officer of our Company and has
held such position since June 1, 2005. Previously,
Mr. Kent served as our President and Chief Operating
Officer and he held that position from May 2000 to June 1,
2005. Mr. Kent also serves as a director of our Company and
has been a director since June 1995. He served as a director
when we filed for bankruptcy under Chapter 11 of the United
States Bankruptcy Code and throughout the bankruptcy
proceedings. Mr. Kent also serves as director of Oneida
Financial Corp. and Chairman of the Board and director of Prime
Materials Recovery, Inc.
Glenn J. Holler was named Senior Vice President &
Chief Financial Officer of our Company in July 2001, and
Secretary of our Company in October 2004.
Donald F. DeKay is Vice President Finance of our
Company and has held such position since July 2001.
Mr. DeKay also serves as director of Prime Materials
Recovery, Inc.
Chrysant E. Makarushka is Vice President Purchasing
and Logistics and has held such position since July 2000.
Martin G. Dew is President of IWG High Performance Conductors,
Inc. and has held this position with High Performance Conductors
since it was acquired by International Wire Group, Inc. in March
2006 and at its previous owner, Phelps Dodge Corporation, since
1999.
Available
Information
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange
Commission (SEC). These reports, proxy statements and other
information contain additional information about us. You may
read and copy these materials at the SECs Public Reference
Room at 100 F Street, N.E., Washington, D.C.
20549. Please call the SEC at
1-800-SEC-0330
for more information about the operation of the Public Reference
Room. The SEC also maintains a web site that contains reports,
proxy and information statements, and other information about
issuers who file electronically with the SEC. The Internet
address of the site is
http://www.sec.gov.
We maintain an Internet website at
http://itwg.client.shareholder.com
where our Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and all amendments to those
9
reports are available without charge, as soon as reasonably
practicable following the time they are filed with or furnished
to the SEC.
We will provide upon written request and without charge a
printed copy of our Annual Report on
Form 10-K.
To obtain such a copy, please write to Secretary, International
Wire Group, Inc., 12 Masonic Avenue, Camden, New York 13316.
Risks
Related to Our Business
As a
result of the current recession in the economies of the United
States and many other countries and volatility and uncertainty
in global capital and credit markets, a number of the risks we
normally face may increase. These include:
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Reduced consumer and industrial demand for the products our
customers manufacture, notably aerospace, automobiles,
electronics/data communications and industrial products,
resulting in lower demand for the products we sell.
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Increased price competition resulting in lower sales,
profitability and cash flow.
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Deterioration in the financial condition of our customers
resulting in reduced sales, an inability to collect receivables,
payment delays or potentially bankruptcy or insolvency which
would also reduce the borrowing base under our Revolving Credit
Facility.
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Increased risk of insolvency of financial institutions, which
may limit our liquidity in the future or adversely affect our
ability to use our Revolving Credit Facility.
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Increased turmoil in the financial markets which may limit our,
our customers or suppliers ability to access
required financing or may result in the imposition of terms for
such financing that are more restrictive or costly than in the
past. Specifically, our vendors may further reduce our payment
terms.
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Increased risk that our cash and cash equivalents may not be as
liquid as we anticipate.
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Demand
for a portion of our products is highly dependent on the
aerospace, automotive, appliance, electronics and data
communication, general industrial/energy and medical device
markets.
The demand for our products depends, in part, upon the general
economic conditions of the aerospace, automotive, appliance,
electronics and data communication, general industrial/energy
and medical device markets in which our customers compete. To
the extent these industries experience weakened demand, our
revenues and profitability could suffer. Downward economic
cycles may result in lower sales, which may reduce our ability
to make payments on our financial obligations or impact the
value of our common stock.
The
price of copper, the principal raw material used in our
products, as well as the prices of silver, nickel, and tin,
which are also used in our products, are subject to price
fluctuations and may negatively impact our profitability and/or
liquidity.
The principal raw material used in our products is 5/16 inch
copper rod, which is sourced either directly from world copper
producers or through rod mill operators in North America and
Europe. Copper rod prices are based on market prices, which are
generally established by reference to the New York Mercantile
Exchange, Inc. (COMEX) prices. As copper is a
world-traded
commodity, its price has historically been subject to
fluctuations. For the year 2008, the high monthly average COMEX
price was $3.94 per pound for April and the low monthly average
COMEX price was $1.39 per pound for December.
Volatile copper prices may adversely affect both profitability
and liquidity, depending on the magnitude of these changes, the
timing of purchases, quantity levels and the applicable account
receivable and payable payment terms. In addition, since we
generally do not obtain long-term purchase commitments (as
discussed further below), our customers may cancel, reduce or
delay their orders if they believe copper prices will be falling
(in order to purchase our products at lower prices in the
future) or in response to increases in copper
10
prices. Additionally, declining copper prices can result in
inventory charges, increasing our costs of goods sold and
negatively impacting profitability.
Severe increases in the price of copper could also negatively
impact our short-term liquidity because of the period of time
between our purchase of copper at an increased price and the
time at which we receive cash payments after selling end
products to customers reflecting the increased price. While we
expect the continued use of pass-through arrangements, there can
be no assurance that we will continue to be able to pass-through
the costs of copper or that our pass-through arrangements will
be effective in minimizing the impact to our profitability,
especially when copper prices are volatile.
While we expect the continued use of pass-through arrangements
for the cost of silver, nickel and tin, there can be no
assurance that we will continue to be able to pass-through the
costs of silver, nickel and tin or that our pass-through
arrangements will be effective in minimizing the impact to our
profitability, especially when raw material prices are volatile.
Additionally, since our price of silver includes a margin,
decreases in the price of silver decrease profitability at a
given volume.
Disruptions
in the supply of copper and other raw materials used in our
products could cause us to be unable to meet customer demand,
which could result in the loss of customers and net
sales.
The principal raw material used in our products is 5/16 inch
copper rod, which is sourced either directly from world copper
producers or through rod mill operators in North America and
Europe. Other significant raw materials that we use are silver,
nickel and tin. There are a limited number of domestic and
foreign suppliers of copper rod and these other raw materials. A
significant percentage of our total copper is purchased from
four major suppliers. Generally, we do not have long-term
purchase agreements with our suppliers. If we are unable to
maintain good relations with our suppliers or if there are any
business interruptions at our suppliers for any reason,
including, without limitation, natural catastrophes, their
business failure, financial difficulties, strikes or an
inability to obtain raw materials, we may not have access to a
sufficient supply of raw materials. If we lose one or more key
suppliers and are unable to locate an alternative supply, we may
not be able to meet customer demand, which could result in the
loss of customers and net sales.
We
generally do not obtain long-term volume purchase commitments
from customers, and, therefore, cancellations, reductions in
production quantities and delays in production by our customers
could reduce our operating income and cash flows.
We generally do not obtain firm, long-term purchase commitments
from our customers and we continue to experience reduced
lead-times in customer orders. Customers may cancel, reduce or
delay their orders. Order cancellations, reductions or delays by
a significant customer or by a group of customers have harmed
and could continue to harm our operating results. Furthermore,
our customers and potential customers could decide to
manufacture in-house the products we offer and could also sell
products that compete with us. To be successful, we must excel
in terms of service, product quality and price not only compared
to our direct competitors but also compared to our
customers internal manufacturing capabilities.
In addition, we make significant decisions, including
determinations regarding the level of business we will seek and
accept production schedules, component procurement commitments,
personnel needs and other resource requirements, based on our
estimates of customer requirements. The short-term nature of our
customers commitments and the possibility of rapid changes
in demand for their products impair our ability to estimate our
future customer requirements accurately. As a consequence of the
above factors, many of which are beyond our control, our
operating results may vary significantly.
The
loss of a significant customer could significantly reduce our
sales and impact our long-lived assets as well.
General Cable Corporation represented 11% of our consolidated
net sales for the year ended December 31, 2008. The loss of
General Cable Corporation or any other key customer, or any
material reduction in their orders or in their orders from their
customers, would reduce our revenues and could result in the
impairment of property, plant and equipment, goodwill or
identifiable intangibles.
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Some
of our large customers have in-house wire production facilities
and we may be disproportionately affected by an economic
downturn.
Some of our large customers have in-house or captive
wire production facilities. During economic downturns, customers
with in-house wire production facilities generally decrease
orders to outside suppliers before reducing in-house wire
production. As a result, we may be disproportionately impacted
by a downturn.
Changes
in revenue may not correlate with changes in our business,
because the changes in revenue may be caused by changes in the
price of copper and other raw materials or the proportion of
tolled copper.
We include the cost of non-customer owned copper and other raw
materials in both net sales and costs of good sold even though
we have price pass-through arrangements with our customers for
copper and certain other raw materials. This may result in our
net sales not correlating with changes in our business. For
example, our 2007 net sales decreased by $18.1 million
compared to 2006, but if copper prices had been the same as
2006, our net sales would have decreased by $53.5 million
assuming nothing else in 2007 would have changed. Additionally,
our 2006 net sales increased by $324.2 million
compared to 2005, but if copper prices had been the same as
2005, our net sales would have increased by $103.1 million
assuming nothing else in 2006 would have changed.
A portion of our revenue is derived from processing
customer-owned (tolled) copper, which means that our
customer supplies us the copper (instead of our buying the
copper). Unlike the remainder of our sales that are from
non-customer owned (owned) copper, the value of
tolled copper is excluded from both our sales and costs of
sales, as title to these materials and the related risks of
ownership do not pass to us at any time. This may result in our
net sales not correlating with changes in our business. For
example, our 2007 net sales decreased by $18.1 million
compared to 2006, but if the proportion of tolled copper had
remained the same as 2006, our net sales would have increased by
$78.2 million assuming nothing else in 2007 would have
changed.
We
have risks associated with inventory.
Our business requires us to maintain substantial levels of
inventory. We must identify the right mix and quantity of
products to keep in our inventory to meet customer orders.
Failure to do so could adversely affect our sales and earnings.
If our inventory levels are too high, we are at risk that an
unexpected change in circumstances, such as a shift in market
demand, drop in prices, or default or loss of a customer, could
have an unfavorable impact on the net realizable value of our
inventory.
The
wire manufacturing industry is highly competitive and we face
substantial domestic and foreign competition in each of our
business segments.
The results of vigorous competition could result in price
compression, reduced sales, margin pressure or loss of market
share, thereby affecting our future earnings. Moreover, wire
manufacturers must provide increasingly rapid product turnaround
for their customers. On occasion, customers may require rapid
increases in production, which can stress our resources and
reduce operating margins. We may not have sufficient capacity at
any given time to meet all of our customers demands
concurrently. In addition, because many of our operating
expenses are relatively fixed, a reduction in customer demand
can dramatically harm our gross margins and operating results on
a short term basis. Customers often expect decreased prices over
time. Furthermore, an increase in imports of products
competitive with our products could adversely affect our sales.
Our
inability to continue to achieve productivity improvements may
adversely affect profitability.
We have experienced pressures on the pricing of our products
over the past few years and expect pricing pressure to continue
for the foreseeable future. A component of our business strategy
is to increase our profitability by lowering costs through
improving our processes and productivity. In the event we are
unable to continue to implement measures improving our
manufacturing techniques and processes, we may not achieve
desired efficiency or productivity levels, and our profitability
may decline. In addition, productivity increases are related in
part to factory utilization rates.
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Growth
through acquisitions is a significant part of our strategy, and
we may not be able to successfully identify, finance or
integrate acquisitions in order to grow our
business.
Growth through acquisitions has been, and we expect it to
continue to be, a significant part of our strategy. We have
evaluated, and expect to continue to evaluate, a wide array of
potential strategic transactions. From time to time, we may
engage in discussions regarding potential acquisitions. Any of
these transactions could be material to our financial condition
and results of operations. We may not be successful in
identifying, financing and closing acquisitions on favorable
terms. Potential acquisitions may require us to obtain
additional financing or issue additional equity securities or
securities convertible into equity securities, and any such
financing and issuance of equity may not be available on terms
acceptable to us or at all. If we finance acquisitions by
issuing equity securities or securities convertible into equity
securities, our existing shareholders could be diluted, which,
in turn, could adversely affect the market price of our stock.
If we finance an acquisition with debt, it could result in
higher leverage and interest costs.
Our
acquisition and expansion plans may fail to perform as
expected.
The process of integrating our acquisitions or expanding our
business may create unforeseen operating difficulties and
expenditures and is risky. We may not be able to realize the
benefits expected from such acquisitions. The areas where we
face risks include:
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We may not be able to integrate the new acquisition or expansion
into our existing operations successfully. Integration may pose
risks with respect to production, customer service and market
share of existing operations.
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The property or asset may fail to meet our estimate of
profitability, either temporarily or for a longer time. We may
fail to achieve potential revenue enhancements and potential
cost savings.
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Our managements time and focus may be diverted from
operating our existing business.
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We may experience cultural challenges associated within
integrating employees from the acquired company into our
organization.
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We may be unable to retain key employees from the acquired
business.
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We may acquire businesses that are subject to technological or
competitive risks.
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We may incur future goodwill impairment charges with respect to
the acquired assets.
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We may
in the future incur goodwill, other intangible assets and
long-lived asset impairment charges.
At December 31, 2008, we had goodwill and other intangible
assets of $88.3 million and property, plant and equipment
of $113.0 million. While we believe the estimates and
judgments about future cash flows used in the goodwill, other
intangible assets and long-lived assets impairment tests are
reasonable, we cannot provide assurance that future impairment
charges will not be required if the expected cash flow estimates
as projected by management do not occur, especially if the
current economic recession continues for a lengthy period or
becomes more severe. We test for goodwill impairment annually
and between annual tests if an event occurs or if circumstances
change that indicate the fair value of a reporting unit is below
the units carrying amount.
If the
financial condition of our customers declines, our credit risks
could increase
Although we have a process to administer credit and believe our
reserve for bad debts is adequate, in the future we may
experience losses as a result of our inability to collect our
accounts receivable. If our customers fail to meet their payment
obligations to us, we could experience reduced cash flows and
losses in excess of amounts reserved. Some customers are thinly
capitalized
and/or
marginally profitable such as our customers supplying the
automotive market.
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We
depend heavily on our key employees, and the loss of key
employees could harm our business.
Our ability to provide high-quality products and levels of
service depends in part on our ability to retain our skilled
personnel in the areas of product engineering, manufacturing and
sales. Our success is also dependent on the management and
leadership skills of our senior management team. The loss of any
of these individuals or an inability to attract and retain
additional personnel could prevent us from implementing our
business strategy. The loss of our key employees who have
intimate knowledge of our manufacturing process could lead to
increased competition to the extent that those employees are
hired by a competitor and are able to recreate our manufacturing
process. We do not have employment agreements with any of our
key employees, except for Rodney D. Kent and Glenn J. Holler.
If our
relationship with our employees deteriorates, our business could
suffer.
Unions may attempt to organize our employees or we could be
subject to work stoppages, strikes or other types of conflicts
with our employees or organized labor in the future. Any such
event could result in increased costs, delay or reduce our
production, distract management from operating our business and
harm our relationships with key customers and suppliers, which
could damage our business, results of operations and financial
condition.
A
significant portion of our business depends on sales outside the
U.S.
Approximately 10% of our net sales for the year ended
December 31, 2008 were attributable to production
facilities located outside of the United States. Because we have
broad geographic coverage, we have exposure to political and
economic risks. Along with the risks associated discussed above,
international operations pose special, additional risks,
including:
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economic or political instability;
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foreign exchange rate fluctuations;
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difficulties in staffing and managing foreign personnel; and
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cultural differences.
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We are
subject to foreign currency fluctuations.
We have operations in Belgium, France and Italy. Our operations
may, therefore, be subject to volatility because of currency
fluctuations. Sales and expenses are denominated in the euro for
the Belgium, French and Italian operations. As a result, these
operations are subject to market risk with respect to
fluctuations in the relative value of currencies. We currently
do not have any currency hedging programs in place.
As a
U.S. corporation with international operations, we are subject
to the Foreign Corrupt Practices Act and a determination that we
violated this act may subject us to significant fines and other
penalties and damage our reputation.
As a U.S. corporation, we and our subsidiaries are subject
to the regulations imposed by the Foreign Corrupt Practices Act,
or the FCPA, which generally prohibits U.S. companies and
their intermediaries from making improper payments to foreign
officials for the purpose of obtaining or keeping business. Any
determination that we or any of our subsidiaries have violated
the FCPA could subject us to significant fines and other
penalties and damage our reputation.
We
might have difficulty protecting our intellectual property from
use by competitors, or competitors might accuse us of violating
their intellectual property rights.
Disagreements about patents and intellectual property rights
occur in our industry. Sometimes these disagreements are settled
through an agreement for one party to pay royalties to another.
The unfavorable resolution of an intellectual property dispute
could preclude us from manufacturing and selling certain
products, could require us to pay a royalty on the sale of
certain products, or could impair our competitive
14
advantage if a competitor wins the right to sell products for
which we believe we own the intellectual property. Intellectual
property disputes could result in legal fees and other costs.
We are
subject to environmental laws and regulations that expose us to
potential financial liability.
Our operations are regulated under a number of federal, state,
local and foreign environmental laws and regulations, which
govern, among other things, the discharge of hazardous materials
into the air and water as well as the handling, storage and
disposal of, or exposure to, hazardous materials and
occupational health and safety. Violations of these laws can
lead to material liability, fines or penalties. In addition, it
is possible that in the future new or more stringent
requirements could be imposed. Various federal, state, local and
foreign laws and regulations impose liability on current or
previous real property owners or operators for the cost of
investigating, cleaning up or removing contamination caused by
hazardous or toxic substances at the property. In addition,
because we are a generator of hazardous wastes, we, along with
any other person who arranges for the disposal of those wastes,
may be subject to potential financial exposure for costs
associated with the investigation and remediation of sites at
which such hazardous waste has been disposed, if those sites
become contaminated. Liability may be imposed without regard to
legality of the original actions and without regard to whether
we knew of, or were responsible for, the presence of such
hazardous or toxic substances, and we could be responsible for
payment of the full amount of the liability, whether or not any
other responsible party is also liable.
Changes
in industry standards and regulatory requirements may adversely
affect our business.
As a manufacturer of wire products, we are subject to a number
of industry standard setting authorities. In addition, some of
our products and our customers products are subject to the
requirements of federal, state, local or foreign regulatory
authorities. Changes in the standards and requirements imposed
by such authorities could have an adverse effect on us. In the
event that we are unable to meet any such standards when
adopted, our business could be adversely affected. In addition,
changes in the legislative environment could affect the growth
and other aspects of important markets served by us.
General
economic factors that are beyond our control may harm our
business by causing demand for our products to decline or
increasing our costs.
A number of factors beyond our control could decrease the demand
of our existing customers and impair our ability to attract new
customers. These include recessionary economic cycles and
cyclical downturns in our customers businesses.
Furthermore, customers encountering adverse economic conditions
may have difficulty paying for our products. Additionally,
terrorist activities, anti-terrorist efforts, war or other armed
conflicts involving the United States or its interests abroad
may have a material adverse effect on the U.S. and global
economies and on our business, results of operations or
financial condition. Finally, economic conditions can also cause
fluctuations in our expenses. The cost of raw materials, labor
and utilities are determined in part by general economic
conditions and demand.
Risks
Related to Our Financial Position
We
have substantial debt and other financial obligations, and we
may incur even more debt.
Our outstanding debt at December 31, 2008 was
$88.4 million, excluding amounts under letters of credit,
and can fluctuate significantly during the year. We may also
incur additional debt from time to time to finance working
capital, acquisitions, capital expenditures, dividends and other
general corporate purposes.
Our ability to make scheduled payments on our debt and other
financial obligations depends on our financial and operating
performance. Further, our ability to refinance our Revolving
Credit Facility and 10% Secured Senior Subordinated Notes at
maturity in 2011 will depend on both our financial condition and
the state of the credit markets at that time.
Our Revolving Credit Facility and 10% Secured Senior
Subordinated Notes contain affirmative and negative covenants
with which we must comply. These covenants restrict our
operational flexibility.
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Additionally, our Revolving Credit Facility contains a fixed
charge coverage ratio that becomes applicable in the event our
excess availability under the Revolving Credit Facility falls
below $30 million. While we do not anticipate that our
availability will fall below $30 million, if it did, there
could be no assurance that we would satisfy the required fixed
charge coverage ratio. Our failure to comply with the covenants
under our Revolving Credit Facility or 10% Secured Senior
Subordinated Notes would result in a default. Upon default, our
lenders could accelerate the indebtedness, foreclose against
their collateral or seek other remedies, which would jeopardize
our ability to continue our current operations.
Our indebtedness could have other important consequences to
holders of our common stock. For example, it could:
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require us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, reducing the
availability of our cash flow to fund working capital, capital
expenditures, acquisitions and other general corporate purposes;
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increase the amount of interest expense that we have to pay,
because certain of our borrowings are at variable rates of
interest, which, if interest rates increase, could result in
higher interest expense;
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increase our vulnerability to adverse general economic or
industry conditions;
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limit our flexibility in planning for, or reacting to, changes
in our business or the industry in which we operate; or
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place us at a competitive disadvantage compared to our
competitors that have less debt.
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See Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources.
We
have experienced losses in prior fiscal years and may not be
able to maintain our current profitability.
For the years ended December 31, 2008, 2007 and 2006 we had
net income of $6.5 million, $15.9 million and
$10.0 million but incurred net losses of $10.8 million
and $2.3 million for the two fiscal years ended
December 31, 2005 and 2004 (pro forma), respectively. We
cannot assure you that we will maintain profitability in the
near future, or at all. We sought protection under
Chapter 11 of the United States Bankruptcy Code in March
2004, and our equity ownership changed and a majority of our
board of directors was replaced in connection with our
reorganization.
Our
historical financial information is not comparable to our
current financial condition and results of
operations.
As a result of our emergence from bankruptcy on October 20,
2004, we are operating our business with a new capital
structure. In addition, we became subject to fresh-start
reporting upon emerging from bankruptcy under Statement of
Position
90-7,
Financial Reporting by Entities in Reorganization under the
Bankruptcy Code. Accordingly, our financial condition and
results of operations for the periods subsequent to
October 20, 2004 is not comparable to the financial
condition and results of operations reflected in our historical
financial statements for periods prior to the fresh-start date.
We may
not have the ability to repurchase our Notes upon a change of
control as required by the indenture governing our
Notes.
Upon the occurrence of specific kinds of change of control
events, we will be required to offer to repurchase all of our
outstanding 10% Secured Senior Subordinated Notes due 2011
(Notes) at 101% of the principal amount plus accrued
and unpaid interest to the date of repurchase. Our existing
credit facility limits the amount of Notes that can be purchased
in any year. In addition, our ability to repurchase our Notes in
cash may be limited by law or the terms of other agreements
relating to our debt outstanding at the time. If we fail to
repurchase any of our Notes submitted in a change of control
offer, it would constitute an event of default under the
indenture, which could, in turn, constitute an event of default
under our other debt instruments, even
16
if the change of control itself would not cause a default. This
could result in the acceleration of our payment obligations
under all of our debt instruments and, if we are unable to meet
those payment obligations, this could have an adverse material
effect on our business, financial condition and results of
operations.
Risks
Related to Our Common Stock
We
expect to experience volatility in our stock price, which could
negatively affect your investment.
An investment in our common stock involves substantial risks.
The stock market generally and the market for stocks of
companies with lower market capitalizations, like ours in
particular, have from time to time experienced and likely will
again experience significant price and volume fluctuations that
are unrelated to the operating performance of a particular
company.
Our
stock is traded on the Pink Sheets, which may make
it make it difficult for you to sell your stock and the
liquidity of our stock could decrease further if we deregister
our securities.
Our common stock is currently traded on the Pink Sheet
Electronic Quotation Service (Pink Sheets).
Broker-dealers often decline to trade in Pink Sheet stocks given
that the market for such securities is often limited, their
prices are more volatile, and the risk to investors is greater
than in the case of stocks listed on major exchanges. These
factors may reduce the potential market for our common stock by
reducing the number of potential investors. This may make it
more difficult for investors in our common stock to sell shares
to third parties or to otherwise dispose of them. This could
cause our stock price to decline. Additionally, there can be no
assurance that our stock will continue to trade on the Pink
Sheets.
In addition, since we have fewer than 300 record holders of our
stock, we have the ability to suspend registration of our stock
without shareholder approval. If we did so, the liquidity of our
stock could be impaired further.
Our
principal stockholders could exercise their influence over us to
the detriment of the other stockholders.
Substantially all of our Company is owned by a few shareholders.
The interests of those shareholders may differ from your
interests, and, as such, they may take actions which may not be
in your interest because, among other reasons, they may hold a
significant portion of our Notes.
We
cannot assure our stockholders that our stock repurchase program
will result in a positive return of capital to our stockholders
and stock repurchases could increase the volatility of the price
of our common stock.
On September 4, 2007, we announced that our Board of
Directors approved a stock repurchase program whereby we were
authorized to repurchase $3.7 million of our common stock
through open market or privately negotiated transactions from
time to time. On May 9, 2008, we announced that our Board
of Directors approved a $16.7 million increase in our share
repurchase program bringing the total amount approved for
repurchase to $20.0 million. The share repurchase program
may be increased in the future or suspended or terminated at any
time. The funding for the stock repurchases will be from our
operating cash flow
and/or
borrowings under our Revolving Credit Facility. See
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations Stock
Repurchase Program for additional information about our
stock repurchase program.
Any repurchases pursuant to our stock repurchase program could
affect our stock price and add volatility. There can be no
assurance that the repurchases will be made at the best possible
price. The existence of a stock repurchase program could also
cause our stock price to be higher than it would be in the
absence of such a program and could potentially reduce the
market liquidity for our stock.
There can be no assurance that stock repurchases will create
value for stockholders because the market price of the stock may
decline significantly below the levels at which we repurchased
shares of stock. Our
17
stock purchase program is intended to deliver stockholder value
over the long-term, but short-term stock price fluctuations can
reduce the programs effectiveness.
All or
substantially all of our assets are subject to security
interests, and if we default under our obligations, our
creditors could foreclose on our assets.
All or substantially all of our assets serve as collateral for
our Revolving Credit Facility and the Notes. If we default in
our agreements with these secured parties, they will have the
right to foreclose upon and sell, or otherwise transfer, the
collateral subject to their security interest.
|
|
Item 1B.
|
Unresolved
Staff Comments.
|
None.
We use owned or leased properties as manufacturing and
distribution facilities, warehouses and offices throughout the
United States, Belgium, France, and Italy. Our principal
executive offices are located in Camden, New York. All of our
domestic owned properties are pledged to secure our indebtedness
under our Revolving Credit Facility and the 10% Secured Senior
Subordinated Notes.
18
Listed below are the principal manufacturing and distribution
facilities we operated as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Square
|
|
|
Owned/
|
|
|
|
Location
|
|
Feet
|
|
|
Leased
|
|
|
Primary Products/End Use
|
|
BARE WIRE SEGMENT
|
|
|
|
|
|
|
|
|
|
|
Camden, New York
|
|
|
408,000
|
|
|
|
Owned
|
|
|
Single end, bunched, stranded, cabled and electroplated wire
|
Jewett City, Connecticut
|
|
|
210,000
|
|
|
|
Leased
|
(1)
|
|
Electroplated tin and nickel, stranded and cabled wire
|
Williamstown, New York
|
|
|
183,000
|
|
|
|
Owned
|
|
|
Single end, bunched, stranded and cabled wire
|
Camden, New York
|
|
|
159,000
|
|
|
|
Owned
|
|
|
Single end, bunched, stranded and cabled wire
|
Bremen, Indiana
|
|
|
153,000
|
|
|
|
Owned
|
|
|
Bunched wire
|
Jordan, New York
|
|
|
117,000
|
|
|
|
Owned
|
|
|
Single end, bunched, stranded, shielding and cabled wire
|
Rome, New York
|
|
|
107,000
|
|
|
|
Owned
|
|
|
Bunched, stranded, cabled and electroplated wire
|
El Paso, Texas
|
|
|
100,000
|
|
|
|
Owned
|
|
|
Bunched wire
|
Sherrill, New York
|
|
|
80,000
|
|
|
|
Owned
|
|
|
Single end, bunched, stranded, cabled and electroplated wire
|
Cazenovia, New York
|
|
|
74,000
|
|
|
|
Owned
|
|
|
Braided wire
|
Sherburne, New York
|
|
|
20,800
|
|
|
|
Owned
|
|
|
Metallic and harness braiding
|
Downey, California
|
|
|
20,000
|
|
|
|
Leased
|
(2)
|
|
Distribution
|
ENGINEERED WIRE PRODUCTS EUROPE SEGMENT
|
|
|
|
|
|
|
|
|
|
|
Saint-Chamond, France
|
|
|
60,000
|
|
|
|
Owned
|
|
|
Specialty braids, rope and cable products
|
Saint-Chamond, France
|
|
|
30,000
|
|
|
|
Owned
|
|
|
Specialty braids, rope and cable products
|
Vinovo, Italy
|
|
|
28,000
|
|
|
|
Owned
|
|
|
Braided wire
|
HIGH PERFORMANCE CONDUCTORS SEGMENT
|
|
|
|
|
|
|
|
|
|
|
Inman, South Carolina
|
|
|
315,000
|
|
|
|
Owned
|
|
|
Silver, nickel and tin plated continuous cast copper rod and
oxygen free wire
|
Trenton, Georgia
|
|
|
100,000
|
|
|
|
Owned
|
|
|
Ultra fine wire for tubing and wire components
|
Littleton, New Hampshire
|
|
|
80,000
|
|
|
|
Owned
|
|
|
Silver, nickel, and tin plated copper and copper alloy
conductors in single-end, stranded, shielding, flat wire, and
tinsel configurations
|
Purrs, Belgium
|
|
|
7,600
|
|
|
|
Leased
|
(3)
|
|
Distribution
|
|
|
|
(1) |
|
The lease expires December 31, 2009. We have an option to
purchase the Jewett City facility from Global Wire for
approximately $750,000, subject to an adjustment depending upon
environmental expenditures by Global Wire. |
|
(2) |
|
The lease expires March 31, 2009 with renewal provisions. |
|
(3) |
|
The lease expires April 30, 2015 with early termination
provisions. |
19
We believe our property and equipment include state-of-the-art
technology and are well maintained. We believe that our property
and equipment are suitable for their present and intended
purposes and adequate for our current level of operations and
expected demand for our products.
|
|
Item 3.
|
Legal
Proceedings.
|
We are a party to various legal proceedings and administrative
actions, all of which are of an ordinary or routine nature
incidental to our operations. We do not believe that such
proceedings and actions would materially affect us.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
Not applicable.
20
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity.
|
Our stock is currently being quoted under the symbol
ITWG.PK on the Pink Sheet Electronic Quotation
Service (Pink Sheets) maintained by Pink Sheets LLC.
The following table sets forth high and low closing sales prices
for our stock, as reported on the Pink Sheets in 2008 and 2007.
The prices shown represent over-the-counter market quotations
reflecting inter-dealer prices, without retail
mark-up,
mark-down or commission and may not necessarily represent actual
transactions.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2008
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
$
|
25.75
|
|
|
$
|
8.30
|
|
Third quarter
|
|
|
29.25
|
|
|
|
25.00
|
|
Second quarter
|
|
|
26.00
|
|
|
|
19.50
|
|
First quarter
|
|
|
22.50
|
|
|
|
20.25
|
|
2007
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
$
|
22.50
|
|
|
$
|
20.00
|
|
Third quarter
|
|
|
28.00
|
|
|
|
17.00
|
|
Second quarter
|
|
|
25.04
|
|
|
|
21.00
|
|
First quarter
|
|
|
18.45
|
|
|
|
18.25
|
|
As of February 27, 2009, the approximate number of holders
of record of our stock was 50.
The Company has not declared or paid any dividends on its
capital stock since emerging from bankruptcy on October 20,
2004 except on December 19, 2008, we declared a special
$1.08 per share dividend payable to shareholders and dividend
equivalent payable to option holders with a record date of
December 31, 2008 and payable on January 14, 2009. Our
Revolving Credit Facility and the indenture governing the Notes
contain covenants that limit payment of cash dividends. At the
present time, we are not able to declare additional dividends
because our restricted payment basket under the Notes is
currently depleted.
21
Performance
Graph
The chart below shows the cumulative total stockholder return
assuming the investment of $100 from October 20, 2004 to
December 31, 2008 in each of our common stock, the S&P
500 and a peer group of International Wire (Peer
Group) and assumes that all dividends are reinvested. The
Peer Group consists of General Cable Corporation (NYSE:BGC),
Belden CDT Inc. (NYSE:BDC), Draka Holding, N.V. (Euronext
Amsterdam Stock Exchange) and Nexans (Paris Stock Exchange).
Returns in the Peer Group are weighted by capitalization.
The stock price performance shown on the graph only reflects the
change in our Companys stock price relative to the noted
indices and is not necessarily indicative of future price
performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/20/2004
|
|
|
12/31/2004
|
|
|
12/31/2005
|
|
|
12/31/2006
|
|
|
12/31/2007
|
|
|
12/31/2008
|
ITWG
|
|
|
|
100.0
|
|
|
|
|
104.6
|
|
|
|
|
62.3
|
|
|
|
|
113.7
|
|
|
|
|
148.3
|
|
|
|
|
66.7
|
|
S&P 500
|
|
|
|
100.0
|
|
|
|
|
107.6
|
|
|
|
|
112.9
|
|
|
|
|
130.7
|
|
|
|
|
137.9
|
|
|
|
|
86.9
|
|
Peer Group
|
|
|
|
100.0
|
|
|
|
|
111.5
|
|
|
|
|
139.0
|
|
|
|
|
283.1
|
|
|
|
|
316.0
|
|
|
|
|
96.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes securities authorized for
issuance under our equity compensation plans as of
December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
Number of Securities to be
|
|
|
Weight Average
|
|
|
Future Issuance Under
|
|
|
|
Issued upon Exercise of
|
|
|
Exercise Price of
|
|
|
Equity Compensation Plans
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
(Excluding Securities
|
|
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Reflected in Column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Plan Category:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by security holders
|
|
|
1,072,300
|
|
|
$
|
15.71
|
|
|
|
422,500
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,072,300
|
|
|
$
|
15.71
|
|
|
|
422,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
Item 6.
|
Selected
Financial Data.
|
The following table sets forth selected consolidated financial
data and other operating information for our Company. The
following data should be read in conjunction with our
consolidated financial statements and related notes and
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations. The
historical results are not necessarily indicative of results to
be expected in any future period.
In connection with our emergence from bankruptcy on
October 20, 2004, we adopted fresh-start
reporting in accordance with Statement of Position
(SOP)
90-7,
Financial Reporting by Entities in Reorganization under the
Bankruptcy Code. Under fresh-start reporting,
the reorganization value of our Company is allocated to our
specific tangible and identified intangible net assets based on
their fair value. Excess reorganization value is reported as
goodwill. As a result of the adoption of such
fresh-start reporting, our post-emergence financial
statements (Successor Company) are not comparable
with our pre-emergence financial statements (Predecessor
Company).
On December 2, 2005, we sold certain assets of our
U.S. Insulated Wire business to Copperfield, LLC and ceased
our insulated wire operations in the United States. On
July 3, 2006, we sold our Philippines and Mexican insulated
wire operations to Draka Holding N.V. and Draka Holdings Mexico,
S.A. and ceased our remaining Insulated Wire business.
Accordingly, the results of operations for the Insulated Wire
business have been shown as discontinued operations
in the accompanying consolidated statements of operations data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor Company
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
For the Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 20
|
|
|
|
January 1
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 19,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
2004
|
|
Consolidated Statements of
Operations Data (in thousands,
except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
736,402
|
|
|
$
|
730,805
|
|
|
$
|
748,925
|
|
|
$
|
424,729
|
|
|
$
|
68,339
|
|
|
|
$
|
271,300
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, exclusive of depreciation expense and
amortization shown below
|
|
|
650,766
|
|
|
|
636,262
|
|
|
|
661,182
|
|
|
|
363,878
|
|
|
|
57,983
|
|
|
|
|
220,087
|
|
Selling, general and administrative expenses(1)
|
|
|
44,942
|
|
|
|
44,537
|
|
|
|
44,883
|
|
|
|
31,508
|
|
|
|
6,006
|
|
|
|
|
21,027
|
|
Depreciation
|
|
|
15,665
|
|
|
|
13,693
|
|
|
|
10,838
|
|
|
|
8,063
|
|
|
|
2,067
|
|
|
|
|
8,917
|
|
Amortization
|
|
|
2,876
|
|
|
|
3,007
|
|
|
|
3,164
|
|
|
|
3,169
|
|
|
|
712
|
|
|
|
|
1,288
|
|
Plant closing charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,632
|
|
|
|
|
262
|
|
Reorganization expenses(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,062
|
|
(Gain)/loss on sale of property, plant and equipment
|
|
|
26
|
|
|
|
(449
|
)
|
|
|
24
|
|
|
|
(721
|
)
|
|
|
(10
|
)
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss)
|
|
|
22,127
|
|
|
|
33,755
|
|
|
|
28,834
|
|
|
|
18,832
|
|
|
|
(51
|
)
|
|
|
|
16,758
|
|
Bankruptcy reorganization items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankruptcy reorganization expenses(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,710
|
)
|
Gain from debt forgiveness(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259,252
|
|
Other income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (excluding interest of $20,959 on liabilities
subject to compromise at October 19, 2004)
|
|
|
(10,095
|
)
|
|
|
(9,919
|
)
|
|
|
(13,491
|
)
|
|
|
(11,455
|
)
|
|
|
(2,280
|
)
|
|
|
|
(12,088
|
)
|
Amortization of deferred financing costs
|
|
|
(638
|
)
|
|
|
(634
|
)
|
|
|
(1,151
|
)
|
|
|
(646
|
)
|
|
|
(127
|
)
|
|
|
|
(6,813
|
)
|
Other, net
|
|
|
126
|
|
|
|
(43
|
)
|
|
|
96
|
|
|
|
20
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor Company
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
For the Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 20
|
|
|
|
January 1
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 19,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
2004
|
|
Income/(loss) from continuing operations before income tax
provision/(benefit)
|
|
|
11,520
|
|
|
|
23,159
|
|
|
|
14,288
|
|
|
|
6,751
|
|
|
|
(2,392
|
)
|
|
|
|
244,399
|
|
Income tax provision/(benefit)
|
|
|
5,036
|
|
|
|
7,954
|
|
|
|
4,401
|
|
|
|
(179
|
)
|
|
|
|
|
|
|
|
335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations
|
|
|
6,484
|
|
|
|
15,205
|
|
|
|
9,887
|
|
|
|
6,930
|
|
|
|
(2,392
|
)
|
|
|
|
244,064
|
|
Income/(loss) from discontinued operations, net of income taxes
of $25, ($749), ($137), ($2,407), ($34) and $331, respectively
|
|
|
45
|
|
|
|
656
|
|
|
|
121
|
|
|
|
(17,749
|
)
|
|
|
(8,370
|
)
|
|
|
|
(6,756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
6,529
|
|
|
$
|
15,861
|
|
|
$
|
10,008
|
|
|
$
|
(10,819
|
)
|
|
$
|
(10,762
|
)
|
|
|
$
|
237,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations
|
|
$
|
0.66
|
|
|
$
|
1.52
|
|
|
$
|
0.99
|
|
|
$
|
0.69
|
|
|
$
|
(0.24
|
)
|
|
|
$
|
244,064
|
|
Income/(loss) from discontinued operations
|
|
|
|
|
|
|
0.07
|
|
|
|
0.01
|
|
|
|
(1.77
|
)
|
|
|
(0.84
|
)
|
|
|
|
(6,756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) per basic share
|
|
$
|
0.66
|
|
|
$
|
1.59
|
|
|
$
|
1.00
|
|
|
$
|
(1.08
|
)
|
|
$
|
(1.08
|
)
|
|
|
$
|
237,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations
|
|
$
|
0.64
|
|
|
$
|
1.49
|
|
|
$
|
0.99
|
|
|
$
|
0.69
|
|
|
$
|
(0.24
|
)
|
|
|
$
|
244,064
|
|
Income/(loss) from discontinued operations
|
|
|
|
|
|
|
0.06
|
|
|
|
0.01
|
|
|
|
(1.77
|
)
|
|
|
(0.84
|
)
|
|
|
|
(6,756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) per diluted share
|
|
$
|
0.64
|
|
|
$
|
1.55
|
|
|
$
|
1.00
|
|
|
$
|
(1.08
|
)
|
|
$
|
(1.08
|
)
|
|
|
$
|
237,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Consolidated Balance Sheet Data
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,372
|
|
|
$
|
3,991
|
|
|
$
|
3,315
|
|
|
$
|
5,422
|
|
|
$
|
15,192
|
|
Working capital
|
|
|
85,825
|
|
|
|
107,004
|
|
|
|
110,198
|
|
|
|
123,540
|
|
|
|
122,503
|
|
Total assets
|
|
|
370,099
|
|
|
|
369,137
|
|
|
|
375,565
|
|
|
|
368,686
|
|
|
|
394,207
|
|
Total debt
|
|
|
88,387
|
|
|
|
93,148
|
|
|
|
113,555
|
|
|
|
135,416
|
|
|
|
166,649
|
|
Total stockholders equity
|
|
|
181,604
|
|
|
|
186,852
|
|
|
|
171,257
|
|
|
|
152,813
|
|
|
|
166,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor Company
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
For the Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 20
|
|
|
|
January 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
|
For the Year Ended December 31,
|
|
|
December 31,
|
|
|
|
October 19,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
2004
|
|
Other Financial Data (in thousands)(a)(b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
18,541
|
|
|
$
|
16,700
|
|
|
$
|
15,179
|
|
|
$
|
15,144
|
|
|
$
|
3,594
|
|
|
|
$
|
18,786
|
|
Capital expenditures
|
|
|
12,945
|
|
|
|
18,371
|
|
|
|
11,879
|
|
|
|
6,973
|
|
|
|
2,088
|
|
|
|
|
7,775
|
|
|
|
|
(a) |
|
Information based on total cash flows. |
24
|
|
|
(b) |
|
On December 19, 2008, our Board of Directors declared a
special $1.08 per share dividend payable to shareholders and
dividend equivalent payable to option holders with a record date
of December 31, 2008 and payable on January 14, 2009. |
|
(1) |
|
Includes stock-based compensation expense under Statement of
Financial Accounting Standards (SFAS)
No. 123(R) in the amount of $870, $2,770 and $5,966 for the
years ended December 31, 2008, 2007 and 2006, respectively. |
|
(2) |
|
Reorganization expenses consist primarily of legal and
consulting fees, and Bankruptcy reorganization expenses consist
of legal and consulting fees, key employee retention expenses,
deferred financing fees offset by the premium on the 11.75%
Series B Senior Subordinated Notes. |
|
(3) |
|
In connection with the reorganization plan, we recorded a gain
from debt forgiveness in respect of the exchange of our
11.75% Senior Subordinated Notes of $150,000, 11.75%
Series B Senior Subordinated Notes of $150,000 and
14% Senior Subordinated Notes of $5,000 plus accrued
interest at the time of filing bankruptcy (March 24,
2004) on these debt instruments of $29,359 for the 10%
Secured Senior Subordinated Notes of $75,000. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The following discussion and analysis should be read in
conjunction with Item 6. Selected Financial
Data and Item 8. Financial Statements and
Supplementary Data. This discussion contains
forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of
certain factors, including the risks discussed in
Item 1A. Risk Factors and elsewhere in this
Form 10-K.
Overview
We, together with our subsidiaries, manufacture and market wire
products, including bare and tin-plated copper wire, engineered
wire products and high performance conductors for other wire
suppliers, distributors and original equipment manufacturers or
OEMs. Our products include a broad spectrum of
copper wire configurations and gauges with a variety of
electrical and conductive characteristics and are utilized by a
wide variety of customers primarily in the aerospace, appliance,
automotive, electronics and data communications, general
industrial/energy and medical device industries. We manufacture
and distribute our products at 19 facilities located in the
United States, Belgium, France and Italy. For the year ended
December 31, 2008, we operated our business in the
following three segments:
|
|
|
|
|
Bare Wire. Our bare and tin-plated copper wire
products (or conductors) are used to transmit digital, video and
audio signals or conduct electricity and are sold to a diverse
customer base of over 1,000 insulated wire manufacturers and
various industrial OEMs for use in electronics and data
communications, general industrial, energy, appliances, and
automotive markets.
|
|
|
|
Engineered Wire Products
Europe. Our bare copper wire products are
engineered and used to conduct electricity either for power or
for grounding purposes and are sold to a diverse customer base
of various OEMs for use in electrical appliances, power
supply, aircraft, railway and automotive markets.
|
|
|
|
High Performance Conductors. Our high
performance conductors segment manufactures specialty high
performance conductors which include tin, nickel and silver
plated copper and copper alloy conductors including standard and
customized high and low temperature conductors as well as
specialty film insulated conductors and miniature tubing
products. These products are used by a variety of customers in
the commercial and military aerospace and defense, electronics
and data communication, industrial, automotive and medical
electronics and device markets.
|
Demand for our products is directly related to two primary
factors:
|
|
|
|
|
demand for the end products in which our products are
incorporated; and
|
|
|
|
our ability to compete with other suppliers in the industries we
serve.
|
25
Important indicators of demand for all of our products include a
number of general economic factors such as gross domestic
product, interest rates and consumer confidence. In specific
industries, management also monitors the following factors:
|
|
|
|
|
Electronics/data communications and
industrial/energy while the end user
applications are very diverse, some of the contributing factors
of demand in the markets include technology spending and major
industrial
and/or
infrastructure projects, including build-out of computer
networks, mining development, oil exploration and production
projects, mass transit and general commercial and industrial
real estate development.
|
|
|
|
Automotive market North American industry
production statistics, which are influenced by labor relations
issues, regulatory requirements and trade agreements. For the
year ended December 31, 2008, automotive industry
production volumes decreased 16.2% compared to the same period
for 2007 as lower consumer confidence, the credit crisis and
deepening U.S. recession reduced consumer demand. In
addition, industry production cut-backs are expected to continue
with extended plant idling, weak consumer demand and difficult
credit markets.
|
|
|
|
Additional factors relevant to the High Performance Conductors
segment include commercial aircraft deliveries and spending
levels in the military defense and electronics, electro-medical
equipment and medical devices, consumer electronics and the
industrial/energy markets. Deliveries of large civil aircraft in
the first nine months of 2008 increased over the same period in
2007. Deliveries in the fourth quarter of 2008 were impacted by
the Boeing machinists strike and the continued delay in
the production of the 787 Dreamliner. Demand for medical device
components remained strong due to the continuing trend in
acceptance and products available for minimally invasive
procedures and increased product development.
|
We compete with other suppliers of wire products on the basis of
price, quality, delivery and the ability to provide a sufficient
array of products to meet most of our customers needs. We
believe our state-of-the-art production equipment permits us to
provide a high quality product while also permitting us to
efficiently manufacture our products, which assists in our
ability to provide competitively priced products. Also, we
invest in engineering so that we can continue to provide our
customers with the array of products and features they demand.
Finally, we have located our production facilities near many of
our customers manufacturing facilities, which allows us to
meet our customers delivery demands, including assisting
with inventory management for
just-in-time
production techniques.
A portion of our revenue is derived from processing
customer-owned (tolled) copper. The value of tolled
copper is excluded from both our sales and costs of sales, as
title to these materials and the related risks of ownership do
not pass to us at any time. The remainder of our sales include
non-customer owned (owned) copper. Accordingly, for
these sales, copper is included in both net sales and cost of
sales. The main factor that causes fluctuations in the
proportion of tolled copper from one period to the next is the
decision by our customers on a sales order by sales order basis
whether to use their copper or purchase our owned copper. We
have some customers who only use their own tolled copper, others
who only purchase our owned copper and others who use some
tolled and some owned copper purchased from us. This decision is
based on each customers internal factors which are unknown
to us and out of our control.
Our costs and expenses in producing these products fall into
three main categories raw materials, including
copper, silver, nickel and tin, labor and, to a lesser extent,
utilities. Copper is the primary raw material incorporated in
all of our products. As copper is a world-traded commodity, its
price has historically been subject to fluctuations. The average
price of copper based upon The New York Mercantile Exchange,
Inc. (COMEX) decreased to $3.13 per pound for the
year ended December 31, 2008 from $3.22 per pound for the
year ended December 31, 2007, or 3%. From September 2008 to
December 2008, the monthly average copper price declined by
$1.75 per pound or 55.8%, an unprecedented decline for such a
short period of time. The average price of copper based upon
COMEX was $1.39 per pound for the month of December 2008.
In order to reduce the potential negative impact of fluctuations
in the price of copper, we have copper price pass-through
arrangements with our customers based on variations of monthly
copper price formulas.
26
These pass-through arrangements are less effective when copper
prices are volatile. Additionally, these pass-through
arrangements do not apply to the scrap which is created in the
production process (and subsequently sold as scrap sales) as the
base price for the copper in the scrap sales may be more or less
than the base price at the time we acquired the copper. Changing
copper prices may adversely affect both profitability and
liquidity depending on the magnitude of these changes, the
timing of purchases, quantity levels and the applicable account
receivable and payable payment terms.
Moreover, since we generally do not obtain long-term purchase
commitments, our customers may cancel, reduce or delay their
orders if they believe copper prices will be falling (in order
to purchase our products at lower prices in the future) or in
response to increases in copper prices. Additionally, declining
copper prices can result in inventory charges, increasing our
costs of goods sold and negatively impacting profitability.
Conversely, a severe increase in the price of copper can
negatively impact our short-term liquidity because of the period
of time between our purchase of copper at an increased price and
the time at which we receive cash payments after selling end
products to customers reflecting the increased price. Currently,
a $0.10 per pound fluctuation in the price of copper will have
approximately a $2.8 million impact on our working capital.
Increased working capital requirements cause us to increase our
borrowings, which increases our interest expense.
Other raw materials used include silver, nickel and tin. The
cost of silver, nickel and tin are generally passed through to
our customers through a variety of pricing mechanisms. Our price
of silver includes a margin and consequently market fluctuations
in the price of silver can result in an increase or decrease in
profitability at a given volume. For the year ended
December 31, 2008, the average price of silver increased by
12%, the average price of nickel decreased by 43% and the
average price of tin increased by 27% compared to the year ended
December 31, 2007. Silver prices declined by 16% from
September 2008 to December 2008.
Our labor and utility expenses are directly tied to our level of
production. While the number of employees we use in our
operations has fluctuated with sales volume, our cost per
employee continues to rise with increases in wages and the costs
of providing medical coverage, workers compensation and
other fringe benefits to employees. The cost of providing
medical coverage is impacted by continued inflation in medical
products and services. Utility rates vary by season and the
prices for coal, natural gas and other similar commodities which
are used in the generation of power. We attempt to manage our
utility rates through usage agreements which affect our power
usage during peak usage hours.
Acquisitions
On January 2, 2008, we acquired the assets and operations
of Hamilton Products, Inc. and the related real estate owned by
JPS Holdings, LLC (collectively Hamilton Products).
Hamilton Products was formed in 1994 and is a manufacturer and
marketer of braided wire products serving the aerospace and
industrial markets. The acquisition of Hamilton Products
complements our existing braiding operations in both the United
States and Europe and expands our aerospace business. Under the
asset purchase agreement, we purchased the assets, operations
and certain liabilities for $9.3 million in cash, subject
to a working capital adjustment of ($0.1) million. The
acquired Hamilton Products manufacturing facility is
located in Sherburne, New York.
On July 1, 2008, we completed the acquisition of the
U.S. assets and operations of Global Wire Inc. and its
subsidiaries (Global Wire) and certain equipment
owned by an affiliated company. The acquired Global Wire
operations involve the manufacture and marketing of both bare
wire and high temperature silver and nickel plated products for
the aerospace, electronics and data communications and
industrial markets. The acquisition of Global Wire expands and
complements our existing operations in the United States,
especially in high temperature products for the aerospace
market. Under the terms of the asset purchase agreement, we
acquired the assets and operations of Global Wires plants
located in Littleton, New Hampshire and Jewett City,
Connecticut. The Littleton, New Hampshire plant was purchased
outright, and the Jewett City, Connecticut plant is leased, with
an option to purchase at a later date for $0.8 million,
subject to adjustment.
27
In addition, certain purchased equipment was moved from Israel
to our U.S. plants. We paid a purchase price of
$32.0 million in cash, subject to a working capital
adjustment of ($1.2) million.
Strategic
Alternatives
On July 8, 2008, the Company announced the retention of
Jefferies & Company, Inc. as its exclusive financial
advisor to assist the Company in evaluating strategic
alternatives, including a possible sale of the Company.
Current
Outlook
Uncertainties in the financial and credit markets, along with
generally difficult business conditions, have contributed
recently to pressures on companies in the U.S. Because of
these difficult conditions, we have experienced a continued
slowdown in sales in the first quarter of 2009. We plan to
remain flexible in managing our business in the face of these
challenges and accordingly have considered implementing certain
cost savings initiatives such as reductions in headcount
and/or the
idling of one or more plants.
First
Nine Months and Fourth Quarter Operating Results
For the first nine months ended September 30, 2008,
operating income was $32.1 million compared to
$25.9 million in the 2007 period, or an increase of
$6.2 million, or 23.9%, with increases in all three
segments from a combination of increased sales volume, higher
customer pricing/mix and other factors.
In the fourth quarter, the global recessionary pressures and
difficult credit and financial markets resulted in lower sales
and reduced operating results. We experienced significant
inventory charges (LIFO cost of sales and scrap losses) as the
result of rapidly declining copper prices and the effects of the
acquired Global Wire inventories in our existing LIFO
inventories.
Operating loss for the three months ended December 31, 2008
was $10.0 million compared to operating income of
$7.9 million for the three months ended December 31,
2007, a decrease of $17.9 million. This decrease was due to
lower sales volume of $2.6 million, the LIFO cost of sales
impact of rapidly declining copper prices and the lack of a LIFO
liquidation impact in 2008 of $7.1 million, the impact of
the acquired Global Wire inventories in our existing LIFO
inventories of $2.8 million, increased scrap losses from
declining metals prices of $1.6 million, and higher
production costs, lower overhead absorption, and other, net of
$3.8 million. From September 2008 to December 2008, the
monthly average copper price declined by $1.75 per pound, or
55.8%, an unprecedented decline for such a short period of time.
Silver prices also declined by 15.5% in the same period.
28
Results
of Operations
The following table sets forth certain statement of operations
data in millions of dollars and percentage of net sales for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net sales
|
|
$
|
736.4
|
|
|
|
100.0
|
%
|
|
$
|
730.8
|
|
|
|
100.0
|
%
|
|
$
|
748.9
|
|
|
|
100.0
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, exclusive of depreciation and amortization
expense shown below
|
|
|
650.8
|
|
|
|
88.4
|
%
|
|
|
636.3
|
|
|
|
87.1
|
%
|
|
|
661.2
|
|
|
|
88.3
|
%
|
Selling, general and administrative expenses
|
|
|
44.9
|
|
|
|
6.1
|
%
|
|
|
44.5
|
|
|
|
6.1
|
%
|
|
|
44.9
|
|
|
|
6.0
|
%
|
Depreciation and amortization
|
|
|
18.6
|
|
|
|
2.5
|
%
|
|
|
16.7
|
|
|
|
2.3
|
%
|
|
|
14.0
|
|
|
|
1.9
|
%
|
Gain on sale of property, plant and equipment
|
|
|
|
|
|
|
|
%
|
|
|
(0.5
|
)
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
22.1
|
|
|
|
3.0
|
%
|
|
|
33.8
|
|
|
|
4.6
|
%
|
|
|
28.8
|
|
|
|
3.8
|
%
|
Other income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(10.1
|
)
|
|
|
(1.3
|
)%
|
|
|
(9.9
|
)
|
|
|
(1.3
|
)%
|
|
|
(13.4
|
)
|
|
|
(1.8
|
)%
|
Amortization of deferred financing costs
|
|
|
(0.6
|
)
|
|
|
(0.1
|
)%
|
|
|
(0.7
|
)
|
|
|
(0.1
|
)%
|
|
|
(1.2
|
)
|
|
|
(0.1
|
)%
|
Other, net
|
|
|
0.1
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
0.1
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax provision
|
|
|
11.5
|
|
|
|
1.6
|
%
|
|
|
23.2
|
|
|
|
3.2
|
%
|
|
|
14.3
|
|
|
|
1.9
|
%
|
Income tax provision
|
|
|
5.0
|
|
|
|
0.7
|
%
|
|
|
8.0
|
|
|
|
1.1
|
%
|
|
|
4.4
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
6.5
|
|
|
|
0.9
|
%
|
|
|
15.2
|
|
|
|
2.1
|
%
|
|
|
9.9
|
|
|
|
1.3
|
%
|
Income from discontinued operations
|
|
|
0.0
|
|
|
|
|
%
|
|
|
0.7
|
|
|
|
0.1
|
%
|
|
|
0.1
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6.5
|
|
|
|
0.9
|
%
|
|
$
|
15.9
|
|
|
|
2.2
|
%
|
|
$
|
10.0
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have three reportable segments: Bare Wire, Engineered Wire
Products Europe and High Performance Conductors. The
following table sets forth net sales and operating income for
the periods presented in millions of dollars and percentages of
totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bare Wire
|
|
$
|
530.8
|
|
|
|
72
|
%
|
|
$
|
543.2
|
|
|
|
74
|
%
|
|
$
|
611.3
|
|
|
|
82
|
%
|
Engineered Wire Products Europe
|
|
|
72.5
|
|
|
|
10
|
%
|
|
|
67.4
|
|
|
|
9
|
%
|
|
|
55.2
|
|
|
|
7
|
%
|
High Performance Conductors
|
|
|
135.1
|
|
|
|
18
|
%
|
|
|
122.2
|
|
|
|
17
|
%
|
|
|
83.0
|
|
|
|
11
|
%
|
Elimination
|
|
|
(2.0
|
)
|
|
|
|
%
|
|
|
(2.0
|
)
|
|
|
|
%
|
|
|
(0.6
|
)
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
736.4
|
|
|
|
100
|
%
|
|
$
|
730.8
|
|
|
|
100
|
%
|
|
$
|
748.9
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bare Wire
|
|
$
|
9.2
|
|
|
|
40
|
%
|
|
$
|
19.7
|
|
|
|
53
|
%
|
|
$
|
23.6
|
|
|
|
68
|
%
|
Engineered Wire Products Europe
|
|
|
4.8
|
|
|
|
21
|
%
|
|
|
4.5
|
|
|
|
12
|
%
|
|
|
3.6
|
|
|
|
10
|
%
|
High Performance Conductors
|
|
|
9.0
|
|
|
|
39
|
%
|
|
|
12.8
|
|
|
|
35
|
%
|
|
|
7.6
|
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
23.0
|
|
|
|
100
|
%
|
|
|
37.0
|
|
|
|
100
|
%
|
|
|
34.8
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22.1
|
|
|
|
|
|
|
$
|
33.8
|
|
|
|
|
|
|
$
|
28.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Year
Ended December 31, 2008 versus Year Ended December 31,
2007
Net sales were $736.4 million and $730.8 million for
the years ended December 31, 2008 and 2007, respectively.
Sales for the year ended December 31, 2008 were
$5.6 million, or 0.8%, above comparable 2007 levels,
primarily as a result of higher volume including sales from the
Hamilton Products and Global Wire acquisitions
($19.8 million), increased customer pricing/mix
($9.6 million), the impact of a stronger euro versus the
U.S. dollar ($5.0 million) and an increase in the
average cost and selling price of copper ($3.7 million).
Hamilton Products and Global Wire sales were $35.8 million
from January 2, 2008 and July 1, 2008, respectively.
These increases were partially offset by a higher proportion of
tolled copper shipped in the 2008 period compared to the 2007
period ($32.5 million). For sales of product comprised of
customer-owned (tolled) copper, the value of the
copper material processed is excluded from sales. Accordingly,
as the proportion of tolled sales increases, sales decrease. The
average price of copper based upon COMEX decreased to $3.13 per
pound for the year ended December 31, 2008 from $3.22 per
pound for the year ended December 31, 2007.
Bare Wire segment net sales for the year ended December 31,
2008 were $530.8 million, or a decrease of
$12.4 million, or 2.3%, from net sales of
$543.2 million for the year ended December 31, 2007.
This decrease was primarily the result of a higher proportion of
tolled copper shipped in the 2008 period compared to the 2007
period ($32.5 million). This decrease was partially offset
by increased customer pricing/mix, including higher tin prices
($10.2 million), an increase in the average cost and
selling price of copper ($1.0 million) and higher volume in
the industrial/energy and electronics/data communications
markets (including sales from the Hamilton Products and Global
Wire acquisitions) partially offset by lower volume in the
automotive and appliance markets ($8.9 million). Of the
total pounds processed for the year ended December 31, 2008
and 2007, respectively, 53.9% and 51.1% were from
customers tolled copper.
Engineered Wire Products Europe net sales of
$72.5 million for the year ended December 31, 2008
were $5.1 million, or 7.6%, higher than sales of
$67.4 million for the 2007 year. This increase was the
result of the impact of a stronger euro versus the
U.S. dollar ($5.0 million) and increased volume from
improved customer demand in major markets ($1.7 million),
which was partially offset by lower customer pricing/mix
($1.4 million) and a decrease in the average cost and
selling price of copper ($0.2 million).
High Performance Conductor sales of $135.1 million for the
year ended December 31, 2008 were $12.9 million, or
10.6%, higher than sales of $122.2 million for the
2007 year. This increase was the result of higher volume
due to improved customer demand in the aerospace (including
sales from the Hamilton Products and Global Wire acquisitions)
and medical device markets ($9.2 million), an increase in
the average cost and selling price of copper ($2.9 million)
and increased customer pricing/mix ($0.8 million).
Cost of goods sold, exclusive of depreciation and amortization,
as a percentage of sales increased to 88.4% for the year ended
December 31, 2008 from 87.1% for the year 2007. The
increase of 1.3 percentage points was due to an increase in
the cost and selling price of copper (0.1 percentage
points), the LIFO cost of sales impact of rapidly declining
copper prices primarily in the fourth quarter and the lack of a
LIFO liquidation impact in 2008 (0.7 percentage points),
the impact of the acquired Global Wire inventories in the
Companys existing LIFO inventory (0.4 percentage
points), increased scrap losses from declining metal prices in
the fourth quarter (0.3 percentage points) and increased
production costs including higher workers compensation and
utility costs and lower overhead absorption (0.8 percentage
points). These factors were partially offset by a higher
proportion of tolled copper sales in 2008 compared to 2007
(0.5 percentage points) and higher customer pricing/mix
(0.5 percentage points). For sales of product comprised of
customer-owned (tolled) copper, the value of the
copper material processed is excluded from sales and cost of
sales. Therefore, as the proportion of the tolled copper sales
increases, as in the year 2008 compared to 2007, sales and cost
of sales decrease and the cost of goods sold as a percentage of
sales decreases.
Selling, general and administrative expenses were
$44.9 million for the year ended December 31, 2008 and
$44.5 million for the year ended December 31, 2007.
This increase of $0.4 million was the result of increased
bad debt expense of $2.0 million and higher transportation
costs of $3.8 million partially offset by $2.2 million
lower management bonus expense, $1.9 million of reduced
stock-based compensation expense,
30
$1.2 million of lower professional fees and
$0.1 million of other, net. These expenses, as a percent of
net sales, remained consistent at 6.1% for the years ended
December 31, 2008 and December 31, 2007.
Depreciation and amortization was $18.6 million for the
year ended December 31, 2008 compared to $16.7 million
for the year ended December 31, 2007. This increase of
$1.9 million was primarily the result of the Hamilton
Products and Global Wire acquisitions and higher depreciation on
property, plant and equipment on the Sherrill, New York plant
that became operational in late 2007.
Operating income for the year ended December 31, 2008 was
$22.1 million compared to $33.8 million for the year
ended December 31, 2007, a decrease of $11.7 million,
or 34.6%, primarily from weak fourth quarter sales volume, the
LIFO cost of sales and scrap loss impact of rapidly declining
metals prices in the fourth quarter and the impact of the
acquired Global Wire inventories in the our existing LIFO
inventory. Bare Wire segments operating income of
$9.2 million for the year 2008 decreased by
$10.5 million, or 53.3%, from $19.7 million for the
year 2007, primarily from weak fourth quarter sales, the LIFO
cost of sales impact from rapidly declining copper prices in the
fourth quarter of 2008, the impact of including Global Wire
inventory in the our existing LIFO inventory and higher
depreciation and amortization. Engineered Wire Products-Europe
operating income was $4.8 million, an increase of
$0.3 million, or 6.7%, from the year 2007 of
$4.5 million due to increased sales volume and the impact
of a stronger euro versus the U.S. dollar. High Performance
Conductors operating income was $9.0 million, a decrease of
$3.8 million, or 29.7%, from the year 2007 of
$12.8 million due the impact of increased scrap costs from
rapidly declining metal prices in the fourth quarter of 2008,
the impact of the acquired Global Wire inventory in the our
existing LIFO inventory and higher depreciation and
amortization. Operating income in the 2008 year increased
by $2.3 million from reduced charges for stock-based
compensation and lower professional fees.
Interest expense was $10.1 million for the year ended
December 31, 2008 compared to $9.9 million for the
year ended December 31, 2007. This increase of
$0.2 million was the result of the impact of higher levels
of borrowings from the Hamilton Products and Global Wire
acquisitions, partially offset by lower interest rates in 2008.
Amortization of deferred financing fees was $0.6 million
for the year ended December 31, 2008 and $0.7 million
for the year ended December 31, 2007.
Income tax provision was $5.0 million and $8.0 million
for the years ended December 31, 2008 and 2007,
respectively. The Companys effective tax rate for the
years ended December 31, 2008 and 2007 was 43.7% and 34.3%,
respectively. The higher effective tax rate in 2008 was
principally the result of the need to include certain foreign
source earnings in our U.S. federal taxable income.
Income from continuing operations was $6.5 million, or
$0.66 per basic share and $0.64 per diluted share, for the year
2008 and $15.2 million, or $1.52 per basic share and $1.49
per diluted share, for the year ended December 31, 2007.
This decrease of $8.7 million was the result of lower
operating income, increased interest expense and a higher
effective tax rate.
Income from discontinued operations was $0.0 million and
$0.7 million for the years ended December 31, 2008 and
2007, respectively. The year 2007 included $0.2 million
from the gain on the sale of property, plant, and equipment of
the former Insulated Wire business and adjustments to the
effective tax rate partially offset by interest accrued under
FIN 48.
As a result of the aforementioned changes, net income was
$6.5 million, or $0.66 per basic share and $0.64 per
diluted share, and $15.9 million, or $1.59 per basic and
$1.55 per diluted share, for the years ended December 31,
2008 and 2007, respectively.
Year
Ended December 31, 2007 versus Year Ended December 31,
2006
Net sales were $730.8 million and $748.9 million for
the years ended December 31, 2007 and 2006, respectively.
Sales for the year ended December 31, 2007 were
$18.1 million, or 2.4%, below comparable 2006 levels,
primarily as a result of a higher proportion of tolled copper
shipped in the 2007 period compared to the 2006 period
($96.3 million). Accordingly, as the proportion of tolled
sales increases, sales decrease. The
31
tolled copper factor was partially offset by an increase in the
average cost and selling price of copper ($35.4 million),
higher customer pricing/mix ($4.8 million), the impact of a
stronger euro versus the U.S. dollar ($5.0 million),
higher sales volume ($1.8 million) and the acquisition of
HPC ($31.2 million) on March 31, 2006. The average
price of copper based upon COMEX increased to $3.22 per pound
for the year ended December 31, 2007 from $3.09 per pound
for the year ended December 31, 2006.
Bare Wire segment net sales for the year ended December 31,
2007 were $543.2 million, a decrease of $68.1 million,
or 11.1%, from net sales of $611.3 million for the year
ended December 31, 2006. This decrease was primarily the
result of the lower volume to customers supplying the
electronic/data communications and appliance markets
($7.3 million) and the impact of a higher proportion of
tolled copper shipped in the 2007 period compared to the 2006
period ($96.3 million). These decreases were partially
offset by the impact of an increase in the average cost and
selling price of copper ($30.7 million) and increased
customer pricing/mix, including higher tin prices
($4.8 million). Of the total pounds processed for the year
ended December 31, 2007 and 2006, respectively, 51.1%
and 42.5% were from customers tolled copper.
Engineered Wire Products Europe net sales of
$67.4 million for the year ended December 31, 2007
were $12.2 million, or 22.1%, higher than sales of
$55.2 million for the 2006 year. This increase was the
result of $3.7 million for the increase in the average cost
and selling price of copper, $5.0 million impact of a
stronger euro versus the U.S. dollar and $3.5 million
from increased volume from improved customer demand in all major
markets.
High Performance Conductor segment sales of $122.2 million
for the year ended December 31, 2007 were
$39.2 million, or 47.2%, higher than sales of
$83.0 million for the 2006 year. This increase was the
result of $1.0 million of increase in the average cost and
selling price of copper, $7.0 million of increased volume
from improved customer demand in the aerospace and medical
device markets, including higher silver, nickel and tin prices
and $31.2 million of High Performance Conductors segment
results for the three months ended March 31, 2007 with no
similar sales for the three months ended March 31, 2006 as
HPC was acquired on March 31, 2006.
Cost of goods sold, exclusive of depreciation and amortization,
as a percentage of sales decreased to 87.1% for the year ended
December 31, 2007 from 88.3% for the year 2006. The
decrease of 1.2 percentage points was due to the impact of
a higher proportion of toll copper sales in 2007 compared to
2006 (1.6 percentage points), higher customer pricing/mix
(0.6 percentage points) and the favorable contribution of
High Performance Conductors segment sales (0.4 percentage
points) partially offset by the increase in the average cost and
selling price of copper (0.7 percentage points), a reduced
LIFO liquidation impact in 2007 compared to 2006
(0.5 percentage points), and increased tin costs and lower
overhead absorption (0.2 percentage points). Selling,
general and administrative expenses were $44.5 million for
the year ended December 31, 2007 and
$44.9 million for the year ended December 31, 2006.
This decrease of $0.4 million was the result of
$3.2 million of lower stock-based compensation and
$0.7 million lower bad debts, which were partially offset
by $1.0 million of increased professional fees,
$2.4 million for the HPC acquisition on March 31,
2006, and $0.1 million other, net. These expenses, as a
percent of net sales, increased to 6.1% for the year ended
December 31, 2007 from 6.0% for the year ended
December 31, 2006, primarily from the impact of the effect
of a higher proportion of tolled copper in 2007 as compared to
2006.
Depreciation and amortization was $16.7 million for the
year ended December 31, 2007 compared to $14.0 million
for the year 2006. This increase of $2.7 million was the
result of depreciation from the HPC acquisition
($1.4 million) and higher depreciation on other property,
plant and equipment additions net of disposals
($1.3 million).
Operating income for the year ended December 31, 2007 was
$33.8 million compared to $28.8 million for the year
ended December 31, 2006, or an increase of
$5.0 million, primarily due to the contribution of the HPC
acquisition. Bare Wire segments operating income of
$19.7 million for the year 2007 decreased by
$3.9 million, or 16.5%, from $23.6 million for the
year 2006, primarily from lower sales volume, a reduced LIFO
liquidation impact, increased tin costs, lower overhead
absorption and higher depreciation expense partially offset by
higher customer pricing/mix. Engineered Wire Products-Europe
operating income was $4.5 million, or an increase of
$0.9 million, from the year 2006 of $3.6 million due
to increased sales volume
32
to all major markets and the impact of a stronger euro versus
the U.S. dollar. High Performance Conductors operating
income was $12.8 million, or an increase of
$5.2 million, from the year 2006 of $7.6 million due
to increased sales levels and a lack of results for the three
months ended March 31, 2006. Operating income in the
2007 year also increased by $2.8 million from reduced
charges for stock-based compensation, partially offset by higher
professional fees.
Interest expense was $9.9 million for the year ended
December 31, 2007 compared to $13.4 million for the
year ended December 31, 2006. This decrease of
$3.5 million was the result of the impact of lower levels
of borrowings from improved operating cashflows and a lower cost
debt structure.
Amortization of deferred financing fees was $0.7 million
for the year ended December 31, 2007 and $1.2 million
for the year ended December 31, 2006. This decrease of
$0.5 million was the result of the
write-off
fees associated with the Term Credit Facility that was
terminated in August 2006.
Income tax provision was $8.0 million and $4.4 million
for the years ended December 31, 2007 and 2006,
respectively. The Companys effective tax rate for the
years ended December 31, 2007 and 2006 was 34.3% and 30.8%,
respectively. The higher effective tax rate in 2007 was the
result of increased valuation allowance for certain states
partially offset by certain changes in state tax law.
Income from continuing operations was $15.2 million, or
$1.52 per basic share and $1.49 per diluted share, for the year
2007 and $9.9 million, or $0.99 per basic and diluted
share, for the year ended December 31, 2006. This increase
of $5.3 million was the result of higher operating income
and reduced interest expense partially offset by a higher
effective tax rate.
Income from discontinued operations was $0.7 million and
$0.1 million for the years ended
December 31, 2007 and 2006, respectively. The year
2007 included $0.2 million from the gain on the sale of
property, plant, and equipment of the former Insulated Wire
business and adjustments to the effective tax rate partially
offset by interest accrued under FIN 48. The 2006 amount
included the results of the Insulated Wire business that was
sold in July 2006.
As a result of the aforementioned changes, net income was
$15.9 million, or $1.59 per basic share and $1.55 per
diluted share, and $10.0 million, or $1.00 per basic and
diluted share, for the years ended December 31, 2007 and
2006, respectively.
Liquidity
and Capital Resources
Working
Capital and Cash Flows
Net cash provided by operating activities was $60.8 million
for the year ended December 31, 2008 compared to net cash
operating activities of $41.3 million for the year ended
December 31, 2007. This increase of $19.5 million was
primarily the result of lower accounts receivable impact of
$33.3 million, lower inventories of $3.1 million,
higher depreciation and amortization of $1.8 million and
$0.3 million of other, net. These factors were partially
offset by lower net income of $9.3 million, lower accounts
payable of $7.8 million and reduced non-cash stock based
compensation of $1.9 million. At the end of 2008, total
cash and cash equivalents were $7.4 million, up
$3.4 million from the year-end 2007. During 2008, cash
levels were relatively constant throughout the period as we used
excess cash to reduce long-term debt borrowings and increased at
year-end primarily due to lower working capital requirements
from declining copper prices.
Accounts receivable decreased $27.1 million, or 28.9%, from
year-end 2007. This decrease was primarily due to a decrease in
net sales of $34.1 million in the months of November and
December 2008 as compared to November and December 2007, from
lower pounds of finished goods shipped and a decline in metals
prices. The number of days sales outstanding of 56 days
were consistent with December 31, 2007. The allowances as a
percentage of accounts receivable increased from 1.4% at
December 31, 2007 to 4.5% as of December 31, 2008
reflecting an increase in the allowance for bad debts related to
customer specific and general economic concerns and a decrease
in the accounts receivable balance from December 31, 2007
to December 31, 2008.
33
Inventories of $62.6 million as of December 31, 2008
increased by $5.3 million from December 31, 2007. This
increase was the result of slightly higher quantities at the
Bare Wire and High Performance Conductors segments due primarily
to the Global Wire inventories acquired. The LIFO reserve
decreased $21.1 million at December 31, 2008 as
compared to December 31, 2007, primarily as a result of
lower copper prices. Inventory turns in 2008 were 5.6 as
compared to turns of 9.0 in 2007 from weak fourth quarter sales.
Accounts payable were $22.3 million as of December 31,
2008, a decrease of $6.5 million from December 31,
2007 levels, as fewer pounds of raw materials were purchased in
December 2008 there was a decline in metals prices, as compared
to December 2007 and the timing of payments differed.
Net cash used in investing activities was $53.7 million for
the year ended December 31, 2008, compared to
$18.2 million for the year ended December 31, 2007.
The 2008 year includes $41.1 million for the Hamilton
Products and Global acquisitions and the 2007 year includes
$3.0 million of final consideration paid for the HPC
acquisition. Capital expenditures were $12.9 million in
2008 compared to $18.4 million in 2007, including
$8.9 million for the new plant site in Sherrill, New York.
Proceeds from the sale of fixed assets were $0.2 million in
2008 as compared to $3.1 million in 2007.
Net cash used in financing activities was $3.9 million for
the year ended December 31, 2008 compared to
$22.7 million for the year ended December 31, 2007.
During the years 2008 and 2007, we had net reduction of
long-term debt of $4.9 million and $20.4 million,
respectively. In 2008 and 2007 we had $1.1 million and
$0.7 million in proceeds from the issuance of common stock
options exercised, respectively. In 2007, we repurchased
$3.0 million of common stock.
Financing
Arrangements
On August 28, 2006, the Company and the domestic
subsidiaries entered into an agreement with Wachovia Capital
Finance Corporation (Central) to amend the Companys
existing Credit Facility, dated October 20, 2004. Under the
amendment, the existing Revolving Credit Facility was increased
to $200 million subject to borrowing availability
(including a $25 million letter of credit facility), the
maturity was extended until August 22, 2011, the interest
rate margin was reduced in connection with the amendment, and
the existing Term Credit Facility was terminated.
On October 20, 2004, we issued 10% Secured Senior
Subordinated Notes due on October 15, 2011
(Notes) in an aggregate principal amount of
$75 million. Interest on the Notes accrues at the rate of
10% per annum and is payable semiannually in arrears on October
15 and April 15.
For a description of our Long-Term debt, see Note 9 to the
consolidated financial statements.
Liquidity
We require cash for working capital, capital expenditures, debt
service and taxes. Our working capital requirements generally
increase when demand for our products increases or when copper,
copper premiums or silver, nickel and tin costs increase
significantly or rapidly. Currently, a $0.10 per pound
fluctuation in the price of copper will have approximately a
$2.8 million impact on our working capital. The average
price of copper based upon COMEX decreased to $3.13 per pound
for the year ended December 31, 2008 from $3.22 per
pound for the year ended December 31, 2007. The average
price of copper based upon COMEX was $1.39 per pound for the
month of December 2008.
Our principal sources of cash are cash generated from operations
and availability under our Revolving Credit Facility. We expect
that ongoing requirements for working capital, capital
expenditures, debt service and taxes will be funded from
operating cash flow and borrowings under our Revolving Credit
Facility.
As of December 31, 2008, we had $7.4 million of
unrestricted cash and cash equivalents. Actual borrowings
availability under our Revolving Credit Facility is subject to a
borrowing base calculation, generally based upon a percentage of
eligible accounts receivable, inventory and property, plant and
equipment. As of December 31, 2008, the borrowing base was
$94.1 million and our outstanding indebtedness under the
Revolving Credit Facility (including outstanding letters of
credit and a reserve for the special
34
dividend declared as of December 31, 2008) was
$36.1 million, resulting in a remaining availability as of
such date of $58.0 million.
We expect our cash on hand, operating cash flow and available
borrowings under the Revolving Credit Facility will be
sufficient to meet our anticipated operating expenses, capital
expenditures and debt service requirements for the next twelve
months and the foreseeable future. Our ability to generate
sufficient cash flow to meet our operating needs could be
affected by general economic, financial, competitive,
legislative, regulatory, business and other factors beyond our
control. Any significant reduction in customer demand for our
products, change in competitive conditions, increases in our
major material components including copper and other metals, or
adverse changes in economic conditions in the United States or
worldwide could impact our ability to generate sufficient cash
flow to fund operations.
Stock
Repurchase Program
Our Board of Directors previously approved a stock repurchase
program pursuant to which we may repurchase up to
$20.0 million of our common stock through open market and
privately negotiated transactions from time to time. To date, we
have repurchased 144,000 shares of our common stock under
the program for an aggregate purchase price of
$3.0 million, resulting in an average purchase price of
$21.09 per share, inclusive of broker commissions.
Our ability to make restricted payments, including repurchases
of our common stock, is limited under our 10% Secured Senior
Subordinated Notes to the amount available from time to time
under a restricted payment basket as calculated under the
indenture governing such indebtedness. Because that basket at
present is fully depleted, we currently are unable to make any
further repurchases under the stock repurchase program.
Off-Balance
Sheet Arrangements
We have not historically utilized off-balance sheet financing
arrangements and have no such arrangements as of
December 31, 2008. However, we do finance the use of
certain facilities and equipment under lease agreements provided
by various institutions. Since the terms of these agreements
meet the definition of operating lease agreements, the sum of
future lease payments is not reflected on our consolidated
balance sheets. As of December 31, 2008, the future minimum
lease payments under these arrangements totaled
$5.7 million.
Contractual
Obligations
The following table sets forth our contractual obligations as of
December 31, 2008 for the periods shown (dollars in
millions):
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Less Than
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More Than
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Contractual Obligations(3)
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Total
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1 year
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1-3 Years
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3-5 Years
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5 Years
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Debt(1)
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$
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88.4
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$
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0.6
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$
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87.8
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$
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0.0
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$
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0.0
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Estimated interest on debt(2)
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32.8
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8.7
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24.1
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0.0
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0.0
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Open purchase orders
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16.5
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16.5
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0.0
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0.0
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0.0
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Operating leases
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5.7
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1.7
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3.1
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0.3
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0.6
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Total contractual cash obligations
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$
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143.4
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$
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27.5
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$
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115.0
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$
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0.3
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$
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0.6
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(1) |
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Debt obligations are exclusive of interest. |
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(2) |
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Interest was estimated using the debt balance outstanding at
December 31, 2008 and the interest rates in effect on
December 31, 2008. |
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(3) |
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Deferred compensation of $2.4 million was excluded from the
contractual obligations table as the timing of the payments is
dependent on the employees termination date. FIN 48
reserve of $4.9 million was excluded from the contractual
obligations table, as the timing of the payments is uncertain. |
35
Critical
Accounting Policies
The process of preparing financial statements in conformity with
accounting principles generally accepted in the United States
requires us to use estimates and assumptions regarding certain
types of our assets, liabilities, revenues and expenses. We base
these estimates and assumptions upon the best information
available at the time of the estimates or assumptions. Actual
results could differ materially from our estimates and
assumptions. The following is a discussion of our critical
accounting policies and the related management estimates and
assumptions necessary in determining the value of related assets
or liabilities.
Revenue
Recognition
We recognize revenue when all of the following criteria are
satisfied: persuasive evidence of an arrangement exists; risk of
loss and title transfer to the customer; the price is fixed and
determinable; and collectability is reasonably assured. A
provision for product returns is recorded based on historical
experience and any notification received of pending returns.
Such returns have historically been within our expectations and
the provisions established.
We recognize revenue from services performed to process
customer-owned (tolled) copper. Such revenue is
recognized at the time the product is received by the customer.
The value of tolled copper is excluded from both sales and cost
of goods sold, as title to these materials and the related risks
of ownership do not pass to us at any time.
Accounts
Receivable
We perform ongoing credit evaluations of our customers and
adjust credit limits based upon payment history and the
customers current creditworthiness, as determined by our
review of their current credit information. We continuously
monitor collections and payments from our customers and maintain
a provision for estimated credit losses based upon our
historical experience and any specific customer collection
issues that have been identified. While such credit losses have
historically been within our expectations and the provisions
established, we cannot guarantee that the historical credit loss
rates will continue in the future. Since we have a number of
relatively large customers, a significant change in the
liquidity or financial position of one of these customers could
have a material adverse impact on the collectability of our
accounts receivables and our future operating results.
Inventories
Inventories in the Bare Wire and High Performance Conductors
segments are valued at the lower of cost, determined using the
last in, first out (LIFO) method, or the current
estimated market value. Inventories in the Engineered Wire
Products Europe segment are valued at the lower of
cost, using the
first-in,
first-out (FIFO) method, or current estimated
market. Because the main component of our products is copper, a
worldwide traded commodity, the estimated fair market value of
the inventory is subject to wide fluctuations. Any significant
change in the average COMEX price of copper can result in an
inventory valuation adjustment. Any significant decline in
inventory quantities can result in an adjustment to the LIFO
reserve.
Long-Lived
Assets, Intangible Assets and Goodwill
Whenever indications of impairment exist, we review the net
realizable value of our long-lived assets through an assessment
of the estimated future cash flows related to those assets such
as the loss of a key customer. In the event we determine that
the carrying values of long-lived assets are in excess of
estimated gross future cash flows for those assets, we will
write-down the value of the assets to an estimated fair value
using a discounted cash flow analysis. This applies to property,
plant and equipment, identifiable intangibles and other
long-lived assets. As for goodwill, we compare the carrying
value of our reporting units to the fair value of such units. To
the extent the carrying value of the reporting unit exceeds its
fair value, the respective goodwill is written down to its fair
value using a residual goodwill calculation.
36
We test for goodwill impairment annually at December 31 of each
fiscal year and between annual tests if an event occurs or if
circumstances change that indicate the fair value of a reporting
unit is below the units carrying amount. The goodwill
impairment test involves a two-step process. The first step is a
comparison of the fair value of the Bare Wire reporting unit to
its carrying value. We estimate fair value using the best
information available, including market information and
discounted cash flow projections also referred to as the income
approach. The income approach uses a reporting units
projection of estimated operating results and cash flows that is
discounted using a weighted-average cost of capital that
reflects current market conditions. The projection uses
managements best estimates of economic and market
conditions over the projected period including growth rates in
net sales, cost of goods sold, estimates of future expected
changes in operating margins and cash expenditures. Other
significant estimates and assumptions include terminal value
growth rates, future estimates of capital expenditures and
changes in future working capital requirements. A market
approach estimates fair value by applying cash flow multiples to
the reporting units operating performance. The multiples
are derived from comparable publicly traded companies with
similar operating and investment characteristics of the Bare
Wire reporting unit. The Company weighted the results of the
income approach and the market approach to derive an estimate of
fair value.
If the carrying value of the reporting unit is higher than its
fair value, there is an indication that impairment may exist and
the second step must be performed to measure the amount of
impairment loss. The carrying value of the Bare Wire reporting
unit was less than its fair value as of December 31, 2008,
2007 and 2006 and, accordingly, a step two test was not required.
Stock-based
Compensation
The Company measures compensation cost for all stock awards at
fair value on the date of grant and recognizes compensation cost
over the service periods for awards expected to vest, in
accordance with SFAS No. 123(R), Share-Based
Payment. We determine the fair value of equity awards using
the Black-Scholes model which requires the use of certain
assumptions. The assumptions include the risk-free rate of
interest, expected dividend yield, expected volatility and the
expected life of the award. The risk-free rate is based on the
zero coupon U.S. Treasury rates appropriate for the
expected term of the award. The Company estimates a 5%
forfeiture rate in recording stock-based compensation expense.
Income
Taxes
We establish deferred tax assets and liabilities based on book
and tax basis differences of our assets and liabilities and
carry-forwards for tax purposes in each jurisdiction in which we
operate. Associated valuation allowances reflect the likelihood
of the recoverability of these assets. Our judgment of the
recoverability of these assets is based primarily on historical
results of operations, our estimate of current and expected
future earnings as well as prudent and feasible tax planning
strategies.
On January 1, 2007, we adopted Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109
(FIN 48) issued by the Financial Accounting
Standards Board (see Note 10). FIN 48 prescribes a
recognition threshold and a measurement attribute for the
financial statement recognition and measurement of tax positions
taken or expected to be taken in a tax return. For those
benefits to be recognized, a tax position must be
more-likely-than-not to be sustained upon examination by taxing
authorities.
Recently
Issued Accounting Standards
In December 2007, the Financial Accounting Standards Standards
Board (FASB) issued SFAS No. 141(R),
Business Combinations
(SFAS No. 141R).
SFAS No. 141R establishes principles and requirements
for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities
assumed, any noncontrolling interest in the acquiree and the
goodwill acquired. In addition, after the effective date,
reversals of valuation allowances related to acquired tax assets
and changes to acquired income tax uncertainties related to any
business combinations, even those completed prior to the
37
statements effective date, will be in earnings, except for
qualified measurement period adjustments. This statement is
effective for our fiscal year beginning January 1, 2009.
In December 2007, the FASB issued
SFAS No. 157-2,
which delays the effective date of SFAS No. 157,
Fair Value Measurements, for all non-financial assets and
non-financial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a
recurring basis (at least annually).
SFAS No. 157-2
partially defers the effective date of SFAS No. 157 to
fiscal years beginning after November 15, 2008, and interim
periods within those fiscal years for items within the scope of
the statement. Effective January 1, 2008, the Company
adopted SFAS No. 157 except as it applies to those
non-financial assets and non-financial liabilities as noted in
SFAS No. 157-2.
The Company is currently evaluating the potential impact on its
consolidated financial statements of adopting
SFAS No. 157-2.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160
establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the retained
interest and gain or loss when a subsidiary is deconsolidated.
This statement is effective for financial statements issued for
fiscal years beginning on or after December 15, 2008 with
earlier adoption prohibited. We are currently evaluating the
potential impact of the adoption of SFAS No. 160 will
have on its consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles.
SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting principles to be used
in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally
accepted accounting principles in the United States. This
statement will be effective 60 days following the
SECs approval of the Public Accounting Oversight
Boards amendment to United States Auditing Standards
section 411, The Meaning of Present Fairly in Conformity
with Generally Accepted Accounting Principles. We are
currently evaluating the impact of SFAS No. 162, but
do not expect the adoption of this pronouncement will have a
material impact on its consolidated financial statements.
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Item 7A.
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Quantitative
and Qualitative Disclosures about Market Risk.
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We do not ordinarily hold market risk sensitive instruments for
trading purposes. We do, however, recognize market risk from
interest rate, foreign currency exchange and commodity price
exposure.
Interest
Rate Risk
At December 31, 2008, approximately $13.4 million of
$88.4 million of long-term debt, specifically,
$12.8 million of borrowings under our Revolving Credit
Facility, bear interest at variable rates. A hypothetical 1%
increase in variable interest rates would increase our interest
rate expense by $0.1 million based on the debt outstanding
as of December 31, 2008. We are not currently engaged in
any hedging activities.
Foreign
Currency Risk
We have continuing operations in France, Italy and Belgium. Our
operations may, therefore, be subject to volatility because of
currency fluctuations. Sales and expenses are denominated in the
euro for the French, Italian and Belgium operations. As a
result, these operations are subject to market risk with respect
to fluctuations in the relative value of currencies. We evaluate
from time-to-time various currency hedging programs that could
reduce the risk.
In terms of foreign currency translation risk, we are exposed
primarily to the euro. Our net foreign currency investment in
foreign subsidiaries and affiliates translated into
U.S. dollars using year-end exchange rates at
December 31, 2008 and 2007 was $30.5 million and
$28.4 million, respectively.
At December 31, 2008, we had no financial instruments
outstanding that were sensitive to changes in foreign currency
rates.
38
Commodity
Price Risk
The principal raw material used in our products is
5/16
inch copper rod, which is sourced either directly from world
copper producers or through rod mill operators in North America
and Europe. A significant percentage of total copper is
purchased from four major suppliers. Copper rod prices are based
on market prices, which are generally established by reference
to the New York Mercantile Exchange, Inc. (COMEX)
prices, plus a premium charged to convert copper cathode to
copper rod and deliver it to the required location. Copper
prices are affected by a number of factors, including worldwide
demand, mining and transportation capacity, political
instability and financial markets. Copper supply is generally
affected by the number and capacity of the mines that produce
copper. For instance, production problems at a single major mine
can impact worldwide supply and therefore prices. The average
price of copper based upon COMEX decreased to $3.13 per pound
for the year ended December 31, 2008 from $3.22 per pound
for the year ended December 31, 2007, or 3%. From September
2008 to December 2008, the monthly average copper price declined
by $1.75 per pound, or 55.8%, an unprecedented decline for such
a short period of time.
In order to reduce the potential negative impact of fluctuations
in the price of copper, we have copper price pass-through
arrangements with our customers based on variations of monthly
copper price formulas. These pass-through arrangements are less
effective when copper prices are volatile. Additionally, these
pass-through arrangements do not apply to the scrap which is
created in the production process (and subsequently sold as
scrap sales) as the base price for the copper in the scrap sales
may be more or less than the base price at the time we acquired
the copper. Changing copper prices may adversely affect both
profitability and liquidity depending on the magnitude of these
changes, the timing of purchases, quantity levels and the
applicable account receivable and payable payment terms.
Moreover, since we generally do not obtain long-term purchase
commitments, our customers may cancel, reduce or delay their
orders if they believe copper prices will be falling (in order
to purchase our products at lower prices in the future) or in
response to increases in copper prices. Additionally, declining
copper prices can result in inventory charges, increasing our
costs of goods sold and negatively impacting profitability.
Conversely, a severe increase in the price of copper can
negatively impact our short-term liquidity because of the period
of time between our purchase of copper at an increased price and
the time at which we receive cash payments after selling end
products to customers reflecting the increased price. Currently,
a $0.10 per pound fluctuation in the price of copper will have
approximately a $2.8 million impact on our working capital.
Increased working capital requirements cause us to increase our
borrowings, which increases our interest expense.
Tin is also a component in our products in the Bare Wire and
High Performance Conductors segments. The High Performance
Conductors segment also uses silver and nickel. The cost of
silver, nickel and tin is generally passed through to our
customers through a variety of pricing mechanisms. Our price of
silver includes a margin and market fluctuations in the price of
silver can result in an increase or decrease in profitability at
a given volume. For the year ended December 31, 2008, the
average price of silver has increased by 12%, the average price
of nickel decreased by 43% and the average price of tin
increased by 27% compared to the year ended December 31,
2007. Silver prices declined by 15.5% from September 2008 to
December 2008.
39
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Item 8.
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Financial
Statements and Supplementary Data.
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INTERNATIONAL
WIRE GROUP, INC.
INDEX
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Consolidated Financial Statements and Consolidated Financial
Statement Schedule
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41
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42
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43
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44
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45
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46
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69
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40
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
International Wire Group, Inc.
Camden, New York
We have audited the accompanying consolidated balance sheets of
International Wire Group, Inc. and subsidiaries (the
Company) as of December 31, 2008 and 2007, and
the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2008. Our audits
also included the financial statement schedule listed in the
Index at Item 15. These financial statements and financial
statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
International Wire Group, Inc. and subsidiaries as of
December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2008, in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As discussed in Note 10 to the consolidated financial
statements, effective January 1, 2007, the Company adopted
Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2008, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 11, 2009 expressed an
unqualified opinion on the Companys internal control over
financial reporting.
/s/ Deloitte &
Touche LLP
Rochester, New York
March 11, 2009
41
INTERNATIONAL
WIRE GROUP, INC.
December 31,
2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,372
|
|
|
$
|
3,991
|
|
Accounts receivable, less allowances of $2,979 and $1,282
|
|
|
66,404
|
|
|
|
93,456
|
|
Refundable income taxes
|
|
|
6,632
|
|
|
|
3,283
|
|
Inventories
|
|
|
62,602
|
|
|
|
57,346
|
|
Prepaid expenses and other
|
|
|
7,526
|
|
|
|
6,446
|
|
Deferred income taxes
|
|
|
11,258
|
|
|
|
11,782
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
161,794
|
|
|
|
176,304
|
|
Property, plant and equipment, net
|
|
|
112,950
|
|
|
|
107,354
|
|
Goodwill
|
|
|
62,133
|
|
|
|
61,560
|
|
Identifiable intangibles, net
|
|
|
26,168
|
|
|
|
16,488
|
|
Deferred financing costs, net
|
|
|
1,768
|
|
|
|
2,321
|
|
Restricted cash
|
|
|
1,387
|
|
|
|
1,486
|
|
Other assets
|
|
|
3,899
|
|
|
|
3,624
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
370,099
|
|
|
$
|
369,137
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
595
|
|
|
$
|
1,126
|
|
Accounts payable
|
|
|
22,254
|
|
|
|
28,705
|
|
Accrued and other liabilities
|
|
|
10,971
|
|
|
|
8,757
|
|
Accrued workers compensation costs
|
|
|
7,596
|
|
|
|
5,775
|
|
Accrued payroll and payroll related items
|
|
|
7,472
|
|
|
|
10,701
|
|
Customers deposits
|
|
|
13,348
|
|
|
|
12,445
|
|
Accrued interest
|
|
|
1,723
|
|
|
|
1,791
|
|
Dividend payable
|
|
|
12,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
75,969
|
|
|
|
69,300
|
|
Long-term debt, less current maturities
|
|
|
87,792
|
|
|
|
92,022
|
|
Other long-term liabilities
|
|
|
8,452
|
|
|
|
8,006
|
|
Deferred income taxes
|
|
|
16,282
|
|
|
|
12,957
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
188,495
|
|
|
|
182,285
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 13)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 20,000,000 shares
authorized, 10,130,202 and 10,055,002 issued
|
|
|
102
|
|
|
|
101
|
|
Contributed capital
|
|
|
187,061
|
|
|
|
185,076
|
|
(Accumulated deficit)/retained earnings
|
|
|
(4,515
|
)
|
|
|
966
|
|
Treasury stock at cost, 144,000 shares at December 31,
2008 and 2007
|
|
|
(3,036
|
)
|
|
|
(3,036
|
)
|
Accumulated other comprehensive income
|
|
|
1,992
|
|
|
|
3,745
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
181,604
|
|
|
|
186,852
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
370,099
|
|
|
$
|
369,137
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
42
INTERNATIONAL
WIRE GROUP, INC.
Years
Ended December 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except share data)
|
|
|
Net sales
|
|
$
|
736,402
|
|
|
$
|
730,805
|
|
|
$
|
748,925
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, exclusive of depreciation and amortization
expense shown below
|
|
|
650,766
|
|
|
|
636,262
|
|
|
|
661,182
|
|
Selling, general and administrative expenses
|
|
|
44,942
|
|
|
|
44,537
|
|
|
|
44,883
|
|
Depreciation
|
|
|
15,665
|
|
|
|
13,693
|
|
|
|
10,838
|
|
Amortization
|
|
|
2,876
|
|
|
|
3,007
|
|
|
|
3,164
|
|
(Gain)/loss on sale of property, plant and equipment
|
|
|
26
|
|
|
|
(449
|
)
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
22,127
|
|
|
|
33,755
|
|
|
|
28,834
|
|
Other income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(10,095
|
)
|
|
|
(9,919
|
)
|
|
|
(13,491
|
)
|
Amortization of deferred financing costs
|
|
|
(638
|
)
|
|
|
(634
|
)
|
|
|
(1,151
|
)
|
Other income, net
|
|
|
126
|
|
|
|
(43
|
)
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax provision
|
|
|
11,520
|
|
|
|
23,159
|
|
|
|
14,288
|
|
Income tax provision
|
|
|
5,036
|
|
|
|
7,954
|
|
|
|
4,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
6,484
|
|
|
|
15,205
|
|
|
|
9,887
|
|
Income from discontinued operations, net of income tax
(provision)/benefit of ($25), $749 and $137 respectively
|
|
|
45
|
|
|
|
656
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,529
|
|
|
$
|
15,861
|
|
|
$
|
10,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.66
|
|
|
$
|
1.52
|
|
|
$
|
0.99
|
|
Income from discontinued operations
|
|
|
|
|
|
|
0.07
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.66
|
|
|
$
|
1.59
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.64
|
|
|
$
|
1.49
|
|
|
$
|
0.99
|
|
Income from discontinued operations
|
|
|
|
|
|
|
0.06
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.64
|
|
|
$
|
1.55
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average basic shares outstanding
|
|
|
9,956,495
|
|
|
|
9,983,015
|
|
|
|
10,000,002
|
|
Weighted-average diluted shares outstanding
|
|
|
10,224,575
|
|
|
|
10,200,393
|
|
|
|
10,003,973
|
|
See accompanying notes to the consolidated financial statements.
43
INTERNATIONAL
WIRE GROUP, INC.
Years
Ended December 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Accumulated Deficit)/
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
Common
|
|
|
Contributed
|
|
|
Retained
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock
|
|
|
Income/(Loss)
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance January 1, 2006
|
|
$
|
100
|
|
|
$
|
175,600
|
|
|
$
|
(21,581
|
)
|
|
$
|
|
|
|
$
|
(1,306
|
)
|
|
$
|
152,813
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
10,008
|
|
|
|
|
|
|
|
|
|
|
|
10,008
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,470
|
|
|
|
2,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,478
|
|
Stock-based compensation
|
|
|
|
|
|
|
5,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006
|
|
|
100
|
|
|
|
181,566
|
|
|
|
(11,573
|
)
|
|
|
|
|
|
|
1,164
|
|
|
|
171,257
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
15,861
|
|
|
|
|
|
|
|
|
|
|
|
15,861
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,581
|
|
|
|
2,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,442
|
|
Issuance of common stock
|
|
|
1
|
|
|
|
740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
741
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,036
|
)
|
|
|
|
|
|
|
(3,036
|
)
|
Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
(3,322
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,322
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
2,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
|
101
|
|
|
|
185,076
|
|
|
|
966
|
|
|
|
(3,036
|
)
|
|
|
3,745
|
|
|
|
186,852
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
6,529
|
|
|
|
|
|
|
|
|
|
|
|
6,529
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,753
|
)
|
|
|
(1,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,776
|
|
Issuance of common stock
|
|
|
1
|
|
|
|
1,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,116
|
|
Dividend on common stock
|
|
|
|
|
|
|
|
|
|
|
(12,010
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,010
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008
|
|
$
|
102
|
|
|
$
|
187,061
|
|
|
$
|
(4,515
|
)
|
|
$
|
(3,036
|
)
|
|
$
|
1,992
|
|
|
$
|
181,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
44
INTERNATIONAL
WIRE GROUP, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years Ended December 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash flows provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,529
|
|
|
$
|
15,861
|
|
|
$
|
10,008
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
15,665
|
|
|
|
13,693
|
|
|
|
11,684
|
|
Amortization
|
|
|
2,876
|
|
|
|
3,007
|
|
|
|
3,495
|
|
Amortization of deferred financing costs
|
|
|
638
|
|
|
|
634
|
|
|
|
1,151
|
|
Accounts receivable allowances provision/(benefit)
|
|
|
1,743
|
|
|
|
(251
|
)
|
|
|
1,024
|
|
Stock based compensation expense
|
|
|
870
|
|
|
|
2,770
|
|
|
|
5,966
|
|
Gain on sale of business
|
|
|
|
|
|
|
|
|
|
|
(787
|
)
|
Loss/(gain) on sale of property, plant and equipment
|
|
|
26
|
|
|
|
(699
|
)
|
|
|
(526
|
)
|
Deferred income taxes
|
|
|
4,408
|
|
|
|
5,028
|
|
|
|
2,414
|
|
Change in operating assets and liabilities, net of acquisition
and divestitures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
37,951
|
|
|
|
6,609
|
|
|
|
4,213
|
|
Inventories
|
|
|
5,426
|
|
|
|
2,332
|
|
|
|
8,667
|
|
Prepaid expenses and other assets
|
|
|
(1,646
|
)
|
|
|
(1,424
|
)
|
|
|
(1,290
|
)
|
Accounts payable
|
|
|
(10,516
|
)
|
|
|
(2,678
|
)
|
|
|
(2,115
|
)
|
Accrued and other liabilities and workers compensation
costs
|
|
|
3,131
|
|
|
|
30
|
|
|
|
342
|
|
Accrued payroll and payroll related items
|
|
|
(3,090
|
)
|
|
|
89
|
|
|
|
1,968
|
|
Customers deposits
|
|
|
(253
|
)
|
|
|
359
|
|
|
|
(964
|
)
|
Accrued interest
|
|
|
(68
|
)
|
|
|
(56
|
)
|
|
|
9
|
|
Accrued/refundable income taxes
|
|
|
(3,341
|
)
|
|
|
(4,329
|
)
|
|
|
759
|
|
Other long-term liabilities
|
|
|
467
|
|
|
|
326
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
60,816
|
|
|
|
41,301
|
|
|
|
46,020
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(12,945
|
)
|
|
|
(18,371
|
)
|
|
|
(11,879
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
236
|
|
|
|
3,070
|
|
|
|
1,758
|
|
Restricted cash
|
|
|
99
|
|
|
|
73
|
|
|
|
363
|
|
Proceeds from sale of business
|
|
|
|
|
|
|
|
|
|
|
36,959
|
|
Acquisition of Hamilton Products, net of $293 cash received
|
|
|
(9,137
|
)
|
|
|
|
|
|
|
|
|
Acquisition of Global Wire, net of $3 cash received
|
|
|
(31,969
|
)
|
|
|
|
|
|
|
|
|
Acquisition of Phelps Dodge High Performance Conductors of
SC & GA, Inc., net of $45 cash received in 2006
|
|
|
|
|
|
|
(3,000
|
)
|
|
|
(52,143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(53,716
|
)
|
|
|
(18,228
|
)
|
|
|
(24,942
|
)
|
Cash flows used in financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under long-term obligations
|
|
|
342,450
|
|
|
|
367,071
|
|
|
|
453,583
|
|
Repayment under long-term obligations
|
|
|
(347,353
|
)
|
|
|
(387,478
|
)
|
|
|
(475,444
|
)
|
Proceeds from issuance of common stock
|
|
|
1,116
|
|
|
|
741
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
(3,036
|
)
|
|
|
|
|
Financing fees
|
|
|
(85
|
)
|
|
|
|
|
|
|
(1,649
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(3,872
|
)
|
|
|
(22,702
|
)
|
|
|
(23,510
|
)
|
Effects of exchange rate changes on cash and cash equivalents
|
|
|
153
|
|
|
|
305
|
|
|
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
3,381
|
|
|
|
676
|
|
|
|
(2,107
|
)
|
Cash and cash equivalents at beginning of the year
|
|
|
3,991
|
|
|
|
3,315
|
|
|
|
5,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the year
|
|
$
|
7,372
|
|
|
$
|
3,991
|
|
|
$
|
3,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of capitalized interest of $0, $442 and $0
|
|
$
|
10,163
|
|
|
$
|
9,975
|
|
|
$
|
14,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid, net of refunds
|
|
$
|
3,568
|
|
|
$
|
5,961
|
|
|
$
|
738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount included in accounts payable and other for acquisition
and capital expenditures
|
|
$
|
1,137
|
|
|
$
|
777
|
|
|
$
|
3,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payable on common stock and stock options
|
|
$
|
12,010
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
45
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
|
|
1.
|
Business
Organization and Basis of Presentation
|
International Wire Group, Inc., a Delaware corporation (the
Company), together with its subsidiaries,
manufacture and market wire products (including bare,
tin-plated, nickel-plated and silver-plated copper wire) for
other wire suppliers, distributors and original equipment
manufacturers. The Companys products include a broad
spectrum of copper wire configurations and gauges with a variety
of electrical and conductive characteristics and are utilized by
a wide variety of customers primarily in the aerospace,
appliance, automotive, electronics and data communications,
general industrial/energy and medical device industries. The
Company manufactures and distributes its products at 19
facilities located in the United States, Belgium, France and
Italy.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation and Use of Estimates
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. Intercompany
balances and transactions have been eliminated in consolidation.
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue
Recognition
The Company recognizes revenue when all of the following
criteria are satisfied: persuasive evidence of an arrangement
exists; risk of loss and title transfer to the customer; the
price is fixed or determinable and collectability is reasonably
assured. Sales and related cost of goods sold are included in
income when goods are delivered to customers in accordance with
the invoice terms F.O.B. destination generally for the Bare Wire
segment and primarily with invoice terms F.O.B. shipping point
for the Engineered Wire Products Europe and the High
Performance Conductors segments. Our sales agreements and terms
contain right of inspection or acceptance provisions. A
provision for product returns is recorded based on historical
experience and any notification received of pending returns.
The Company also recognizes revenues from services performed to
process customer-owned (tolled) copper. Such revenue
is recognized at the time the product is received by the
customer and the above criteria are met. The value of tolled
copper is excluded from both sales and cost of goods sold, as
title to these materials and the related risks of ownership do
not pass to the Company at any time.
Shipping
and Handling Fees and Costs
Shipping and handling fees billed to customers are included in
net sales. Shipping and handling costs associated with outbound
freight for all segments are included in selling, general and
administrative expenses and totaled $16,377, $14,597 and $13,882
for the years ended December 31, 2008, 2007 and 2006,
respectively.
Cash and
Cash Equivalents
For purposes of the consolidated statement of cash flows, the
Company considers all highly liquid investments purchased with
maturities of three months or less to be cash equivalents.
46
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
Cash
At December 31, 2008 and 2007, the Company maintained
restricted cash in the amount of $1,387 and $1,486 respectively,
associated with deposits for self-insured workers
compensation programs.
Concentrations
of Credit Risk
Financial instruments that potentially expose the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents in bank deposit accounts in excess of the FDIC
insurance limits and accounts receivable. The Company has not
experienced significant losses related to cash and cash
equivalents and does not believe it is exposed to any
significant credit risks relating to its cash and cash
equivalents. The Company performs ongoing credit evaluations of
its customers and adjusts credit limits based upon payment
history and the customers current creditworthiness, as
determined by review of their current credit information. A
provision for estimated credit losses is based upon historical
experience and any specific customer issues that have been
identified. Account balances are charged off against the
allowance when the Company believes it is probable the
receivables will not be recovered. The Company does not have any
off-balance sheet exposure related to its customers.
Inventories
Inventories in the Bare Wire and High Performance Conductors
segments are valued at the lower of cost, using the
last-in,
first-out (LIFO) method, or current estimated
market. The LIFO method is utilized in determining inventory
value as it results in better matching of current costs and
revenues. Inventories in the Engineered Wire
Products Europe segment are valued at the lower of
cost, using the
first-in,
first-out (FIFO) method, or current estimated market.
Property,
Plant and Equipment
Property, plant and equipment acquired in connection with
acquisitions are recorded at fair market value; all other
additions are recorded at cost. Depreciation is calculated using
the straight-line method. The average estimated lives utilized
in calculating depreciation are as follows: building
25 to 45 years; building
improvements 10 to 25 years; machinery and
equipment 3 to 11 years; and furniture and
fixtures 3 to 7 years. Leasehold improvements
are amortized over the shorter of the term of the respective
lease or the life of the respective improvement. The cost and
related accumulated depreciation of assets sold, retired or
otherwise disposed of are removed from the respective accounts,
and any resulting gains or losses are included in the
consolidated statement of operations.
Goodwill
Goodwill represents the excess of the Companys
reorganization value at October 20, 2004 over the fair
value of net assets and, for acquired businesses, costs in
excess of fair values assigned to the underlying net assets.
Under the provisions of Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142),
goodwill is not amortized but is reviewed at least annually
for impairment using a fair-value-based test. The Company tests
for impairment of goodwill using a two-step approach as of
December 31 of each fiscal year or at any other time when
impairment indicators exist. In the first step, the Company
estimates the fair values of its reporting units using the
present value of future cash flows approach. If the carrying
amount of the reporting unit exceeds its fair value, the second
step of the goodwill impairment test is performed to measure the
amount of the impairment loss, if any. In the second step, the
implied fair value of the goodwill is estimated as the fair
value of the reporting unit used in the first step less the fair
values of all other net tangible and intangible assets of the
reporting unit. If the carrying amount of the goodwill exceeds
its implied fair market value, an impairment loss is recognized
in an amount equal to that excess, not to exceed the carrying
amount of the goodwill. In addition, goodwill of a reporting
47
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
unit is tested for impairment between annual tests if an event
occurs or circumstances change that would indicate that goodwill
may be impaired.
Identifiable
Intangibles
Identifiable intangible assets represent the fair market value
of alloys, customer contracts, customer relationships, trade
names, trademarks and favorable leases. Under the provisions of
SFAS No. 142, identifiable intangible assets are
amortized over their projected useful lives of 15 years for
customer contracts and relationships,
3-20 years
for trade names and trademarks and alloys (formulation of two or
more metals) and for the lease term for the favorable lease in
connection with the Global Wire acquisition.
Impairment
of Long-lived Assets
The Company periodically evaluates the recoverability of its
property and equipment and other long-lived assets, including
identifiable intangible assets, when circumstances indicate that
an event of impairment may have occurred in accordance with the
provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This periodic
review may result in an adjustment of estimated depreciable
lives or an asset impairment. When indicators of impairment are
present, the carrying values of the asset are evaluated in
relation to their operating performance and future undiscounted
cash flows of the underlying assets. If the future undiscounted
cash flows are less than their book value, impairment exists.
The impairment is measured as the difference between the book
value and the fair value of the underlying asset. Fair values
are based on estimates of the market prices and assumptions
concerning the amount and timing of estimated future cash flows
and assumed discount rates, reflecting varying degrees of
perceived risk. There were no impairment charges recorded in
continuing operations for the years ended December 31,
2008, 2007, and 2006.
Deferred
Financing Costs
Deferred financing costs, consisting of fees and other expenses
associated with debt financing, are amortized over the term of
the related debt using the straight-line method, which
approximates the effective interest method.
Stock-based
Compensation
The Company measures compensation cost for all stock awards at
fair value on the date of grant and recognizes compensation cost
over the service periods for awards expected to vest, in
accordance with SFAS No. 123(R), Share-Based
Payment (SFAS No. 123(R)). The Company
estimates a 5% forfeiture rate in recording stock-based
compensation expense. As of December 31, 2008, there was
$661 of total unrecognized compensation expense related to stock
options which is expected to be recognized over a
weighted-average period of one year. The Company recorded
stock-based compensation expense of $870, $2,770 and $5,966,
which is included in selling, general and administrative
expenses in the accompanying consolidated statements of
operations, and a related income tax benefit of $308, $981 and
$2,333 in 2008, 2007 and 2006, respectively. The stock options
are non-qualified which results in the creation of a deferred
tax asset until the time the option is exercised. As of
December 31, 2008, awards of 130,200 shares have been
exercised.
48
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair values of the options under SFAS No. 123(R)
were estimated at the date of the grants using the Black-Scholes
option pricing model with the following weighted-average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Stock Options and Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected life employees
|
|
|
6 years
|
|
|
|
6 years
|
|
|
|
6 years
|
|
Expected life non-employee directors
|
|
|
5.5 years
|
|
|
|
5.5 years
|
|
|
|
6 years
|
|
Expected volatility
|
|
|
50.0
|
%
|
|
|
50.0
|
%
|
|
|
58.0
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
3.0
|
%
|
|
|
4.2
|
%
|
|
|
4.9
|
%
|
The Company calculates expected volatility for stock options
using historical volatility of a group of companies in the wire
and cable industry. The risk-free interest rate is estimated
based on the Federal Reserves historical data for the
maturity of nominal treasury investments that corresponds to the
expected life of the option. The expected life was determined
using the simplified method as these awards meet the definition
of plain-vanilla options under the rules proscribed
by SAB No. 110.
Income
Taxes
The Company accounts for certain items of income and expense in
different periods for financial reporting and income tax
purposes. Deferred income taxes are provided to recognize the
effect of temporary differences between financial reporting and
income tax purposes. Such taxes are provided for using enacted
tax rates expected to be in place when such temporary
differences are realized. A valuation allowance is recorded to
reduce deferred tax assets if it is determined that it is more
likely than not that the full deferred tax asset would not be
realized.
Foreign
Currency Translation
The Company has operations in Belgium, France and Italy. The
euro is the functional currency for the Companys foreign
subsidiaries located in Europe. Accordingly, assets and
liabilities of these foreign subsidiaries are translated at the
rate of exchange in effect at the balance sheet date. Income and
expense items and cash flows of these subsidiaries are
translated at the average monthly rate of exchange. Resulting
translation gains and losses are reported in accumulated other
comprehensive income.
Exchange gains and losses arising from transactions in
currencies other than the functional currency of the subsidiary
involved are included in net income. To date, the effect of such
amounts on net income has not been material.
Fair
Value of Financial Instruments
SFAS No. 107, Disclosure about Fair Value of
Financial Instruments, requires disclosure of the fair value
of certain financial instruments. The Companys financial
instruments are carried at face amounts. The Company has
estimated the fair value of its Secured Senior Subordinated
Notes using current market data. The fair value of the Secured
Senior Subordinated Notes was approximately $67,500 and $76,500
at December 31, 2008 and 2007, respectively. The carrying
value of the borrowings under the Revolving Credit Facility
approximates fair value due to its variable interest rate.
Allocation
of Interest Expense to Discontinued Operations
Interest expense has been allocated to discontinued operations
under the provisions of Emerging Issues Task Force
(EITF)
87-24,
Allocation of Interest to Discontinued Operations.
Interest expense allocated to
49
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
discontinued operations was $0, $0 and $895, for the years ended
December 31, 2008, 2007 and 2006, respectively.
Net
Income Per Share
SFAS No. 128, Earnings per Share, requires the
computation of basic and diluted earnings per share. Basic
earnings per share is computed by dividing net income by the
weighted-average number of shares of common stock outstanding
during the year. Diluted earnings per share is determined by
giving effect to the exercise of diluted stock options using the
treasury stock method. The following table provides a
reconciliation of the number of shares outstanding for basic and
dilutive earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Weighted-average shares outstanding-basic
|
|
|
9,956,495
|
|
|
|
9,983,015
|
|
|
|
10,000,002
|
|
Dilutive effect of stock options
|
|
|
268,080
|
|
|
|
217,378
|
|
|
|
3,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding dilutive
|
|
|
10,224,575
|
|
|
|
10,200,393
|
|
|
|
10,003,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding for the years ended
December 31, 2008, 2007, and 2006 exclude 101,034, 64,984
and 706,200 options respectively, because they are anti-dilutive
since the exercise price plus any unearned compensation of these
options was greater than the average market price of the common
shares in the periods.
Significant
Customers
The Company had sales to two significant customers in the
periods included in the accompanying consolidated statements of
operations. Sales to General Cable Corporation represented 11%
of net sales for the year ended December 31, 2008, 12% of
net sales for the year ended December 31, 2007 and 23% for
the year ended December 31, 2006. Sales to AFL Automotive,
LP were 5%, 10% and 10% of net sales for the years ended
December 31, 2008, 2007 and 2006, respectively.
Concentration
of Copper Suppliers
The Companys principal raw material used in its products
is 5/16 inch copper rod, which is sourced either directly from
world copper producers or through rod mill operators in North
America and Europe. A significant percentage of total copper is
purchased from four major suppliers.
Segment
Information
The Company is in the business of manufacturing and marketing
wire and wire products. The Chief Executive Officer, who is the
Chief Operating Decision Maker, evaluates its business
activities for which discrete financial information is
available. As a result of this evaluation, the Company
determined that it has three reportable segments, Bare Wire,
Engineered Wire Products Europe and High Performance
Conductors.
Other
Comprehensive Income
SFAS No. 130, Reporting Comprehensive Income,
establishes standards for reporting and displaying
comprehensive income and its components in a full set of
general-purpose financial statements. For the years ended
December 31, 2008, 2007 and 2006, the Company had two
components of comprehensive income: net income and foreign
currency translation adjustments.
50
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Recently
Issued Accounting Standards
In December 2007, the Financial Accounting Standards Standards
Board (FASB) issued SFAS No. 141(R),
Business Combinations
(SFAS No. 141R).
SFAS No. 141R establishes principles and requirements
for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities
assumed, any noncontrolling interest in the acquiree and the
goodwill acquired. In addition, after the effective date,
reversals of valuation allowances related to acquired tax assets
and changes to acquired income tax uncertainties related to any
business combinations, even those completed prior to the
statements effective date, will be in earnings, except for
qualified measurement period adjustments. This statement is
effective for the Companys fiscal year beginning
January 1, 2009.
In December 2007, the FASB issued
SFAS No. 157-2,
which delays the effective date of SFAS No. 157,
Fair Value Measurements, for all non-financial assets and
non-financial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a
recurring basis (at least annually).
SFAS No. 157-2
partially defers the effective date of SFAS No. 157 to
fiscal years beginning after November 15, 2008, and interim
periods within those fiscal years for items within the scope of
the statement. Effective January 1, 2008, the Company
adopted SFAS No. 157 except as it applies to those
non-financial assets and non-financial liabilities as noted in
SFAS No. 157-2.
The Company is currently evaluating the potential impact on its
consolidated financial statements of adopting
SFAS No. 157-2.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160
establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the retained
interest and gain or loss when a subsidiary is deconsolidated.
This statement is effective for financial statements issued for
fiscal years beginning on or after December 15, 2008 with
earlier adoption prohibited. The Company is currently evaluating
the potential impact of the adoption of SFAS No. 160
will have on its consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles.
SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting principles to be used
in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally
accepted accounting principles in the United States. This
statement will be effective 60 days following the
SECs approval of the Public Accounting Oversight
Boards amendment to United States Auditing Standards
section 411, The Meaning of Present Fairly in Conformity
with Generally Accepted Accounting Principles. The Company
is currently evaluating the impact of SFAS No. 162,
but does not expect that the adoption of this pronouncement will
have a material impact on its consolidated financial statements.
On January 2, 2008, the Company acquired the assets and
operations of Hamilton Products, Inc. and the related real
estate owned by JPS Holdings, LLC (collectively Hamilton
Products). Hamilton Products was formed in 1994 and is a
manufacturer and marketer of braided wire products serving the
aerospace and industrial markets. The acquisition of Hamilton
Products complements our existing braiding operations in both
the United States and Europe and expands our aerospace business.
Under the asset purchase agreement, the Company purchased the
assets, operations and certain liabilities for $9,250 in cash,
subject to a working capital adjustment ($61). Hamilton
Products manufacturing facility is located in Sherburne,
New York.
This acquisition has been accounted for as a purchase on
January 2, 2008 and results of operations of Hamilton
Products have been included in the Bare Wire segment in the
accompanying consolidated statements of operations since the
date of acquisition.
51
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The total purchase price of the Hamilton Products acquisition
was $9,430 and the payment of related purchase price, fees and
costs is summarized as follows:
|
|
|
|
|
Purchase of assets and operations
|
|
$
|
9,250
|
|
Working capital adjustment
|
|
|
(61
|
)
|
Fees and costs
|
|
|
241
|
|
|
|
|
|
|
|
|
$
|
9,430
|
|
|
|
|
|
|
The total acquisition costs have been allocated to the acquired
net assets at fair value as follows:
|
|
|
|
|
Current assets
|
|
$
|
2,851
|
|
Property, plant and equipment
|
|
|
1,987
|
|
Identifiable intangibles
|
|
|
4,200
|
|
Goodwill
|
|
|
784
|
|
Current liabilities
|
|
|
(392
|
)
|
|
|
|
|
|
|
|
$
|
9,430
|
|
|
|
|
|
|
The allocation of total acquisition cost was based on fair
values as required under SFAS No. 141, Business
Combinations, including inventory, property, plant and
equipment, identifiable intangibles and certain liabilities. The
Company finalized this allocation in 2008. Identifiable
intangibles represent the fair market value of customer
contracts and relationships which will be amortized over
15 years.
On July 1, 2008, the Company completed the acquisition of
the U.S. assets and operations of Global Wire Inc. and its
subsidiaries (Global Wire) and certain equipment
owned by an affiliated company. The acquired Global Wire
operations involve the manufacture and marketing of both bare
wire and high temperature silver and nickel plated products for
the aerospace, electronics and data communications and
industrial markets. The acquisition of Global Wire expands and
complements our existing operations in the United States,
especially in high temperature products for the aerospace
market. Under the terms of the asset purchase agreement, the
Company acquired the assets and operations of Global Wires
plants located in Littleton, New Hampshire and Jewett City,
Connecticut. The Littleton, New Hampshire plant was purchased
outright, and the Jewett City, Connecticut plant is leased, with
an option to purchase at a later date for $750, subject to
adjustment. In addition, certain equipment purchased has been
moved from Israel to the U.S. plants. The Company paid a
purchase price of $32,000 in cash, subject to a working capital
adjustment ($1,176). The Company funded the acquisition with
borrowings under its Revolving Credit Facility.
This acquisition has been accounted for as a purchase on
July 1, 2008 and results of operations of Global Wire have
been included in the Bare Wire segment and in the High
Performance Conductors segment in the accompanying consolidated
statements of operations since the date of acquisition based
upon the operations as integrated into the business segments.
The total purchase price of the Global Wire acquisition was
$32,127 and the payment of related purchase price, fees and
costs is summarized as follows:
|
|
|
|
|
Purchase of assets and operations
|
|
$
|
32,000
|
|
Working capital adjustment
|
|
|
(1,176
|
)
|
Fees and costs
|
|
|
1,303
|
|
|
|
|
|
|
|
|
$
|
32,127
|
|
|
|
|
|
|
52
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2008, the Global Wire purchase price
allocation is preliminary and subject to revision as the Company
is in the process of obtaining third-party valuations of certain
property, plant and equipment and certain intangibles. The total
acquisition costs have been preliminarily allocated to the
acquired net assets at fair value as follows:
|
|
|
|
|
Current assets
|
|
$
|
23,719
|
|
Property, plant and equipment
|
|
|
7,025
|
|
Identifiable intangibles
|
|
|
7,253
|
|
Current liabilities
|
|
|
(5,870
|
)
|
|
|
|
|
|
|
|
$
|
32,127
|
|
|
|
|
|
|
The allocation of total acquisition cost was based on fair
values as required under SFAS No. 141, Business
Combinations, including inventory, property, plant and
equipment, identifiable intangibles and certain liabilities.
Based upon the preliminary allocation of the fair value of
assets acquired and liabilities assumed compared to the total
purchase price, there was an excess of fair value of net assets
acquired over purchase price, or negative goodwill,
of $10,916. Pursuant to the provisions of
SFAS No. 141, the excess was allocated on a pro rata
basis to the acquired property, plant and equipment and
identifiable intangible assets.
Identifiable intangibles represent the fair market value of the
customer relationships, trade names and a favorable lease
related to the Jewett City, Connecticut facility. The customer
relationships are being amortized over 15 years, the trade
names are being amortized over 3 years and the favorable
lease is being amortized over 18 months.
The following table shows summary unaudited pro forma results of
operations as if the Company, Hamilton Products and Global Wire
had been combined as of the beginning of each of the periods
presented. The unaudited pro forma results of operations are
based on estimates and assumptions and have been made solely for
purposes of developing such pro forma information. The pro forma
information for the years ended December 31, 2008 and 2007
reflects adjustments for depreciation, amortization, interest
expense and income taxes. The pro forma information is presented
for illustrative purposes only and is not necessarily indicative
of the operating results or financial position that would have
occurred if the acquisition had been consummated at the
beginning of each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
Net sales
|
|
$
|
793,436
|
|
|
$
|
836,574
|
|
Income from continuing operations
|
|
|
6,923
|
|
|
|
15,389
|
|
Net income
|
|
|
6,968
|
|
|
|
16,045
|
|
Basic net income per share
|
|
|
0.70
|
|
|
|
1.61
|
|
Diluted net income per share
|
|
|
0.68
|
|
|
|
1.57
|
|
On March 31, 2006, the Company completed the acquisition of
all of the outstanding common stock of Phelps Dodge High
Performance Conductors of SC & GA, Inc.
(HPC) for $42,000 plus an estimated working capital
adjustment payment at closing of $1,676. An additional working
capital adjustment of $2,671 was paid in August 2006.
Additionally, the Company purchased the copper inventory held on
consignment by HPC from Phelps Dodge Corporation for $5,057. In
addition, pursuant to the Purchase Agreement, there was a
contingency payment capped at $3,000 based on performance, and
in May 2007, the $3,000 payment was made. This acquisition has
been accounted for as a purchase on March 31, 2006 and
results of operations of
53
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
HPC have been included in the High Performance Conductors
segment in the accompanying consolidated statements of
operations since the date of acquisition.
The composition of inventories at December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Raw materials
|
|
$
|
22,034
|
|
|
$
|
16,712
|
|
Work-in-process
|
|
|
13,402
|
|
|
|
11,198
|
|
Finished goods
|
|
|
27,166
|
|
|
|
29,436
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
62,602
|
|
|
$
|
57,346
|
|
|
|
|
|
|
|
|
|
|
Inventories in the Bare Wire and High Performance Conductors
segments are valued at the lower of cost, using the
last-in,
first-out (LIFO) method, or current estimated
market. The primary components of inventory costs include raw
materials used in the production process (copper, tin, nickel,
silver, alloys and other) and production related labor and
overhead costs net of scrap sales. Had Bare Wire and High
Performance Conductors inventories been valued using the
first-in,
first-out (FIFO) method, inventories would have been
$16,618 and $37,691 higher as of December 31, 2008 and
2007, respectively. Inventories in the Engineered Wire
Products Europe segment are valued at the lower of
cost, determined using the FIFO method, or current estimated
market. During 2007, inventory quantities were reduced at Bare
Wire which resulted in a liquidation of LIFO inventory
quantities carried at lower costs prevailing in the prior year
as compared with the cost of 2007 purchases. The effect of this
reduction in inventory decreased cost of goods sold by $979 and
increased the net income by $628 or $0.06 per share for the year
ended December 31, 2007. During 2006, inventory quantities
were reduced at Bare Wire which resulted in a liquidation of
LIFO inventory quantities carried at lower costs prevailing in
the prior year as compared with the cost of 2006 purchases. The
effect of this reduction in inventory decreased cost of goods
sold by $4,587 and increased the net income by $2,793 or $0.28
per share for the year ended December 31, 2006.
|
|
5.
|
Property,
Plant and Equipment
|
The composition of property, plant and equipment at December 31
is as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Land
|
|
$
|
5,356
|
|
|
$
|
5,152
|
|
Building and improvements
|
|
|
36,126
|
|
|
|
31,771
|
|
Machinery and equipment
|
|
|
116,015
|
|
|
|
101,934
|
|
Construction in progress
|
|
|
4,244
|
|
|
|
2,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161,741
|
|
|
|
141,292
|
|
Less: accumulated depreciation
|
|
|
(48,791
|
)
|
|
|
(33,938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
112,950
|
|
|
$
|
107,354
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense from continuing operations was $15,665,
$13,693 and $10,838 for the years ended December 31, 2008,
2007 and 2006, respectively.
54
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Goodwill
and Intangible Assets
|
The changes in the carrying amounts of goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Balance, beginning of year
|
|
$
|
61,560
|
|
|
$
|
62,148
|
|
Reduction of deferred income tax valuation allowance
|
|
|
(211
|
)
|
|
|
(588
|
)
|
Purchase of Hamilton Products
|
|
|
784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
62,133
|
|
|
$
|
61,560
|
|
|
|
|
|
|
|
|
|
|
All goodwill is included in the Bare Wire segment. The Company
completed its annual impairment test at December 31, 2008,
2007 and 2006 and concluded that goodwill was not impaired.
The components of identifiable intangible assets at December 31
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Accumulated
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Cost
|
|
|
Amortization
|
|
|
Customer contracts and relationships
|
|
$
|
20,510
|
|
|
$
|
3,171
|
|
|
$
|
9,534
|
|
|
$
|
2,035
|
|
Trade names and trademarks
|
|
|
10,908
|
|
|
|
2,249
|
|
|
|
10,568
|
|
|
|
1,663
|
|
Favorable leases
|
|
|
137
|
|
|
|
46
|
|
|
|
2,671
|
|
|
|
2,671
|
|
Alloys
|
|
|
92
|
|
|
|
13
|
|
|
|
92
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable intangible assets
|
|
$
|
31,647
|
|
|
$
|
5,479
|
|
|
$
|
22,865
|
|
|
$
|
6,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for identifiable intangible assets from
continuing operations was $1,773, $1,881 and $2,054 for the
years ended December 31, 2008, 2007 and 2006, respectively.
The estimated amortization expense for identifiable intangible
assets held as of December 31, 2008 is as follows:
|
|
|
|
|
2009
|
|
$
|
2,100
|
|
2010
|
|
|
2,009
|
|
2011
|
|
|
1,952
|
|
2012
|
|
|
1,952
|
|
2013
|
|
|
1,952
|
|
Thereafter
|
|
|
16,203
|
|
|
|
7.
|
Discontinued
Operations
|
On June 28 and 30, 2006, the Company entered into Stock Purchase
Agreements (Cebu and Durango Purchase Agreements)
with Draka Holdings N.V. (Draka) and Draka Holdings
Mexico, S.A. (Draka Mexico). The sales were
completed on July 3, 2006. Pursuant to the terms of the
Cebu Purchase Agreement, Draka purchased all the stock of the
Companys Philippines insulated wire subsidiary,
IWG-Philippines, Incorporated, for a purchase price of $30,000,
plus an additional sum of $881 pursuant to a post closing
working capital adjustment. Pursuant to the terms of the Durango
Purchase Agreement, Draka and Draka Mexico purchased all the
stock of the Companys Mexican insulated wire subsidiaries,
IWG Services Company, S. de R.L. de C.V., Cables Durango, S. de
R. L. de C. V. and IWG Durango, S. de R.L. de C.V., for a
purchase price of $5,000. Accordingly, the entire insulated wire
business has been presented as a discontinued operation in the
accompanying consolidated statements of operations.
55
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The net sales of the insulated wire business included in
discontinued operations totaled $53,195 for the year ended
December 31, 2006.
|
|
8.
|
Related
Party Transactions
|
The Company sells a portion of its production scrap to Prime
Materials Recovery, Inc. (Prime) and Prime also
performs certain scrap processing services for the Company.
Prime is a closely held company and its major shareholder,
chairman and director is the Chief Executive Officer of the
Company. In addition, the Vice President of Finance of the
Company holds a minority ownership interest and is a director.
Sales to Prime for the years ended December 31, 2008, 2007
and 2006, were $21,329, $17,918 and $24,059, respectively. The
Company had outstanding accounts receivable from Prime related
to those sales of $765 and $3,460 at December 31, 2008 and
2007, respectively. The Company incurred scrap conversion costs
from Prime of $160, $797 and $0 for the years ended
December 31, 2008, 2007 and 2006, respectively. The Company
has outstanding accounts payable to Prime related to those
purchases of $0 and $291 at December 31, 2008 and 2007,
respectively.
The composition of long-term debt at December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Revolving Credit Facility
|
|
$
|
12,792
|
|
|
$
|
17,022
|
|
10% Secured Senior Subordinated Notes
|
|
|
75,000
|
|
|
|
75,000
|
|
Other
|
|
|
595
|
|
|
|
1,126
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
88,387
|
|
|
|
93,148
|
|
Less current maturities
|
|
|
595
|
|
|
|
1,126
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of long-term debt
|
|
$
|
87,792
|
|
|
$
|
92,022
|
|
|
|
|
|
|
|
|
|
|
Senior
Revolving Credit Facility
The Company and its domestic subsidiaries are parties to a
credit agreement (the Revolving Credit Facility)
with Wachovia Capital Financial Corporation (Central), formerly
known as Congress Financial Corporation (Central), as
administrative agent, and several banks, financial institutions,
and other parties. The Revolving Credit Facility is a senior
revolving credit facility in the amount of up to $200,000
subject to borrowing availability (including, as a sub-facility
of the Revolving Credit Facility, a $25,000 letter of credit
facility).
Borrowings under the Revolving Credit Facility are tied to a
borrowing base, which is calculated by reference to, among other
things, eligible accounts receivable, eligible inventory and
eligible real property and equipment. As of December 31,
2008, letters of credit in the amount of $11,219 were
outstanding, a reserve of $12,010 was established for the
dividend declared but not paid and $12,792 was drawn under the
Revolving Credit Facility. Availability under the Revolving
Credit Facility was $57,989 as of December 31, 2008.
The Company may choose to pay interest on advances under the
Revolving Credit Facility at either a Eurodollar rate or a base
rate plus the following applicable margin: (1) for base
rate Revolving Credit Facility advances, 0.00 percent
(2) for Eurodollar rate advances, 1.25 percent to
1.75 percent per annum, subject to adjustment in accordance
with a pricing grid based on excess availability and
(3) for letters of credit, 1.50 percent per annum. The
default rate is 2.00 percent above the rate otherwise
applicable. The Company also has an annual commitment fee of
0.25 percent on the unused balance of its Revolving Credit
Facility and an issuance letter of credit fee equal to
2.00 percent.
56
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company and its domestic subsidiaries are the primary
parties to the Revolving Credit Facility. The collateral for the
Revolving Credit Facility includes all or substantially all of
the Companys and its domestic subsidiaries assets,
including 65 percent of the capital stock of or other
equity interests in, the Companys foreign subsidiaries.
The Companys Revolving Credit Facility requires the
Company to observe conditions, affirmative covenants and
negative covenants (including financial covenants). These
covenants include limitations on the Companys ability to
pay dividends, make acquisitions, dispose of assets, incur
additional indebtedness, incur guarantee obligations, create
liens, make investments, engage in mergers, make negative
pledges, change the nature of its business or engage in certain
transactions with affiliates. The Company must also comply with
a fixed charge coverage ratio when either (1) the minimum
availability under the credit facility falls below $30,000 or
(2) there is a default or event of default.
The Companys Revolving Credit Facility commitment expires
on August 22, 2011.
The Company may prepay the loans or reduce the commitments under
its credit facility in a minimum amount of $5,000 and additional
integral amounts in multiples of $1,000 in respect of the
Revolving Credit Facility. The commitments under the Revolving
Credit Facility may not be reduced by more than $10,000 in any
twelve-month period.
The Company must prepay the loans under the Revolving Credit
Facility by the following amounts (subject to certain
exceptions):
|
|
|
|
|
An amount equal to 100 percent of the net proceeds of any
incurrence of indebtedness by the Company or any of its
subsidiaries;
|
|
|
|
An amount equal to 100 percent of the net proceeds of any
non-ordinary course sale or other disposition by us or any of
its subsidiaries of any assets, except for certain exceptions.
|
Secured
Senior Subordinated Notes
The 10% Secured Senior Subordinated Notes due 2011
(Notes) are: senior subordinated obligations of the
Company; senior in right of payment to any of future
subordinated obligations; guaranteed by the Companys
domestic subsidiaries; and secured by a second-priority lien on
all or substantially all of the Companys and its domestic
subsidiaries assets, including 65 percent of the capital
stock of, or other equity interests in, the Companys
foreign subsidiaries.
The Company issued the Notes in aggregate principal amount of
$75,000. The Notes will mature on October 15, 2011.
Interest on the Notes accrues at the rate of 10% per annum and
is payable semiannually in arrears on October 15 and
April 15. Interest on overdue principal accrues at
2 percent per annum in excess of the above rate and pay
interest on overdue installments of interest at such higher rate
to the extent lawful.
At any time after October 15, 2007, the Company may at its
option redeem all or part of the Notes at the redemption prices
(expressed percentages of the principal amount) set forth below,
plus accrued and unpaid interest thereon, if any, to the
applicable redemption date if redeemed during the twelve-month
period beginning on October 15 of the years indicated below:
|
|
|
|
|
|
|
Redemption
|
|
|
|
Price
|
|
|
2008
|
|
|
102.50
|
%
|
2009
|
|
|
101.25
|
%
|
2010
|
|
|
100.00
|
%
|
2011
|
|
|
100.00
|
%
|
The Companys ability to redeem the Notes is also subject
to restrictions in its Revolving Credit Facility.
57
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company is not required to make any mandatory redemption or
sinking fund payments with respect to the Notes. However, upon a
change of control of the Company, it may be required to offer to
purchase the Notes at 101 percent of the principal amount
thereof plus accrued and unpaid interest thereon, if any, to the
date fixed for the closing of such offer to purchase.
The indenture governing the Notes contains restrictive covenants
which, among other things, limit the Companys ability and
some of its subsidiaries to (subject to exceptions): incur
additional debt; pay dividends or distributions on, or redeem or
repurchase, capital stock; restrict dividends or other payments;
transfer or sell assets; engage in transactions with affiliates;
create certain liens; engage in sale/leaseback transactions;
impair the collateral for the Notes; make investments; guarantee
debt; consolidate, merge or transfer all or substantially all of
its assets and the assets of the Companys subsidiaries;
and engage in unrelated businesses.
Upon the occurrence of events of default specified in the
indenture, the trustee for the Notes or the holders of at least
25 percent of the principal amount of the outstanding Notes
may declare the principal amount then outstanding of, and
accrued but unpaid interest, if any, on, all of the Notes to be
due and payable. Upon the happening of other events of default
specified in the indenture, the principal amount then
outstanding of, and accrued but unpaid interest, if any, on, all
of the Notes will automatically become due and payable without
any action by the trustee or the holders of the Notes.
Other
Debt
Other debt includes $595 and $1,126 of European debt
collaterized by accounts receivable as of December 31, 2008
and 2007, respectively.
Scheduled
Maturities of Debt
Scheduled maturities of debt at December 31, 2008 are as
follows:
|
|
|
|
|
2009
|
|
$
|
595
|
|
2010
|
|
|
|
|
2011
|
|
|
87,792
|
|
|
|
|
|
|
Total
|
|
$
|
88,387
|
|
|
|
|
|
|
The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes
(SFAS No. 109). Under
SFAS No. 109, deferred tax assets and liabilities are
recognized based on temporary differences between the financial
statement and tax basis of assets and liabilities using enacted
tax rates in effect in the years in which the differences are
expected to reverse. SFAS No. 109 requires current
recognition of net deferred tax assets to the extent that it is
more likely than not that such net assets will be realized. To
the extent that the Company believes that its net deferred tax
assets will not be realized, a valuation allowance must be
recorded against those assets.
58
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The income tax provision consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(535
|
)
|
|
$
|
928
|
|
|
$
|
859
|
|
State
|
|
|
413
|
|
|
|
(345
|
)
|
|
|
198
|
|
Foreign
|
|
|
750
|
|
|
|
1,256
|
|
|
|
468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
628
|
|
|
|
1,839
|
|
|
|
1,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
3,705
|
|
|
|
5,904
|
|
|
|
2,826
|
|
State
|
|
|
10
|
|
|
|
537
|
|
|
|
(109
|
)
|
Foreign
|
|
|
693
|
|
|
|
(326
|
)
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,408
|
|
|
|
6,115
|
|
|
|
2,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision for continuing operations
|
|
|
5,036
|
|
|
|
7,954
|
|
|
|
4,401
|
|
Tax provision (benefit) on discontinued operations
|
|
|
25
|
|
|
|
(749
|
)
|
|
|
(137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
5,061
|
|
|
$
|
7,205
|
|
|
$
|
4,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The U.S. and foreign components of income from continuing
operations before income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Domestic
|
|
$
|
7,685
|
|
|
$
|
19,647
|
|
|
$
|
12,472
|
|
Foreign
|
|
|
3,835
|
|
|
|
3,512
|
|
|
|
1,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
$
|
11,520
|
|
|
$
|
23,159
|
|
|
$
|
14,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation between the statutory income tax rate and
effective tax rate in dollars is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Federal income tax at statutory rate of 35%
|
|
$
|
4,032
|
|
|
$
|
8,106
|
|
|
$
|
5,001
|
|
State income taxes, net of federal tax benefit
|
|
|
275
|
|
|
|
58
|
|
|
|
433
|
|
Foreign rate differential
|
|
|
101
|
|
|
|
(299
|
)
|
|
|
(9
|
)
|
Impact of foreign operations
|
|
|
(20
|
)
|
|
|
(328
|
)
|
|
|
(713
|
)
|
State tax credits
|
|
|
(637
|
)
|
|
|
(790
|
)
|
|
|
(525
|
)
|
Change in valuation allowance
|
|
|
1,117
|
|
|
|
2,043
|
|
|
|
|
|
Change in state effective rate on deferred income taxes
|
|
|
(480
|
)
|
|
|
(521
|
)
|
|
|
181
|
|
Other
|
|
|
648
|
|
|
|
(315
|
)
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,036
|
|
|
$
|
7,954
|
|
|
$
|
4,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax effects of significant temporary differences
representing deferred tax assets and liabilities at December 31
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accounts receivable allowances
|
|
$
|
1,068
|
|
|
$
|
370
|
|
Accrued liabilities not yet deductible
|
|
|
4,713
|
|
|
|
4,915
|
|
Net operating loss carryforward
|
|
|
5,940
|
|
|
|
9,881
|
|
Alternative minimum tax credit carryforward
|
|
|
1,521
|
|
|
|
1,876
|
|
State tax credits
|
|
|
1,952
|
|
|
|
1,315
|
|
Stock-based compensation
|
|
|
2,901
|
|
|
|
2,977
|
|
Other
|
|
|
534
|
|
|
|
431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,629
|
|
|
|
21,765
|
|
Valuation allowance
|
|
|
(3,162
|
)
|
|
|
(2,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
15,467
|
|
|
|
19,509
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
20,240
|
|
|
|
19,737
|
|
Inventories
|
|
|
251
|
|
|
|
947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,491
|
|
|
|
20,684
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(5,024
|
)
|
|
$
|
(1,175
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
$
|
11,258
|
|
|
$
|
11,782
|
|
Net non-current deferred liabilities
|
|
|
(16,282
|
)
|
|
|
(12,957
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred tax liability
|
|
$
|
(5,024
|
)
|
|
$
|
(1,175
|
)
|
|
|
|
|
|
|
|
|
|
The Company has federal NOL carryforwards available to offset
future federal taxable income of approximately $12,500 as of
December 31, 2008, of which the benefit of $1,100 will
credit Contributed Capital when realized. These NOL
carryforwards expire in varying amounts in the years 2023 to
2026 if not utilized. At December 31, 2008, the Company has
state net operating loss carryforwards for Indiana, New York and
California totaling $19,625, $2,503 and $452 respectively.
Additionally, the Company has foreign net operating loss
carryforwards of $42 and alternative minimum tax credit
carryforwards of $1,521 which are available to further reduce
income taxes over an infinite period.
A valuation allowance is required against deferred tax assets
if, based on the weight of available evidence, it is
more-likely-than-not that some or all of the deferred tax assets
will not be realized. Valuation allowances continue to be
recorded against NOLs and other deferred tax assets since
it is not more-likely-than-not the tax benefits will be realized.
The valuation allowance for deferred taxes was $3,162 and $2,256
at December 31, 2008 and 2007, respectively. The Company
recorded net changes to the valuation allowance of $906, $726
and ($963) for the years ended December 31, 2008, 2007 and
2006, respectively.
On January 1, 2007, the Company adopted FIN 48, which
resulted in an increase in the liability for unrecognized tax
benefits, net of deferred income taxes, with a corresponding
increase in the Companys accumulated deficit totaling
$3,322. The Companys unrecognized tax benefits at
December 31, 2008 relate to federal and various state
jurisdictions.
60
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the activity related to the
Companys unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Balance at beginning of year
|
|
$
|
4,369
|
|
|
$
|
4,260
|
|
Increases related to current year tax positions
|
|
|
36
|
|
|
|
146
|
|
Increases related to prior year tax positions
|
|
|
|
|
|
|
225
|
|
Decreases related to prior year tax positions
|
|
|
|
|
|
|
(262
|
)
|
Expiration of statute of limitations for the assessment of taxes
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
4,405
|
|
|
$
|
4,369
|
|
|
|
|
|
|
|
|
|
|
The total unrecognized tax benefits balance at December 31,
2008 and 2007 is comprised of tax benefits that, if recognized,
would affect the effective rate.
The Company accrued interest and penalties of $280 and $177
related to these unrecognized tax benefits during 2008 and 2007,
respectively, and as of December 31, 2008 and 2007, the
liability for potential penalties and interest totals $465 and
$185, respectively. The Company recognizes interest and
penalties accrued related to unrecognized tax benefits in income
tax expense. The Company does not expect its unrecognized tax
benefits to change significantly over the next twelve months.
The Company is subject to taxation in the United States and
various state and foreign jurisdictions. The Companys tax
years from 2001 to 2008 are subject to examination by the taxing
authorities due to the Companys net operating loss
carryforwards.
|
|
11.
|
Retirement
Benefits and Stock Option Plans
|
The Company sponsors a defined contribution retirement plan,
which provides retirement benefits for eligible employees.
Company contribution expense related to the retirement plan for
the years ended December 31, 2008, 2007 and 2006 amounted
to $1,057, $1,093 and $983, respectively.
On May 11, 2006, the Companys stockholders approved
the 2006 Management Stock Option Plan and the 2006 Stock Option
Plan for Non-Employee Directors. Under the 2006 Management Stock
Option Plan, options for up to 1,300,000 shares of common
stock are available for grant to the eligible members of
management. All other material terms of the stock options,
including without limitation, vesting and exercisability, will
be determined by the Compensation Committee of the Board of
Directors. Under the 2006 Stock Option Plan for Non-Employee
Directors, options for up to 300,000 shares of common stock
are available for grant to non-employee directors. The options
will be granted at no less than 100% of the fair market value of
the Companys stock on the date of the grant and have a
life of no longer than 10 years.
On November 9, 2006, the Compensation Committee of the
Board of Directors accelerated the vesting of the 861,000
management options such that two-thirds of the options granted
vested immediately and one-third of the options granted vest on
October 20, 2007. Accordingly, additional stock-based
compensation expense of approximately $3,632, ($2,506, net of
tax) was recorded in the fourth quarter of 2006.
61
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Shares issued upon exercise have been registered with the
Securities and Exchange Commission. Information regarding the
Companys stock options is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term in Years
|
|
|
Value(1)
|
|
|
Outstanding at January 1, 2008
|
|
|
1,124,400
|
|
|
$
|
15.49
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
23,100
|
|
|
$
|
22.35
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(75,200
|
)
|
|
$
|
14.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
1,072,300
|
|
|
$
|
15.71
|
|
|
|
9.0
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at December 31, 2008
|
|
|
1,018,685
|
|
|
$
|
15.71
|
|
|
|
9.0
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2008
|
|
|
968,200
|
|
|
$
|
15.37
|
|
|
|
8.8
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The aggregate intrinsic value was calculated using the
difference between the market price of the Companys common
stock at December 31 and the grant price for only those awards
that have a grant price less than the market price of the
Companys common stock at December 31. |
At December 31, 2008, there were options available for
grants to purchase 238,000 shares of common stock under the
2006 Management Stock Option Plan and 184,500 shares under
the 2006 Stock Option Plan for Non-Employee Directors. The
intrinsic value of stock options exercised during 2008 and 2007
was $649 and $379, respectively.
Details regarding options to purchase common stock outstanding
as of December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
Number of Options
|
|
|
Weighted-Average
|
|
|
Contractual
|
|
|
|
|
Outstanding
|
|
|
Exercise Prices
|
|
|
Life in Years
|
|
|
Options Exercisable
|
|
|
|
936,100
|
|
|
$
|
15.00
|
|
|
|
7.3
|
|
|
|
899,100
|
|
|
48,000
|
|
|
$
|
17.83
|
|
|
|
7.8
|
|
|
|
32,000
|
|
|
42,000
|
|
|
$
|
21.86
|
|
|
|
8.7
|
|
|
|
14,000
|
|
|
23,100
|
|
|
$
|
22.25
|
|
|
|
8.8
|
|
|
|
23,100
|
|
|
23,100
|
|
|
$
|
22.35
|
|
|
|
9.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,072,300
|
|
|
|
|
|
|
|
|
|
|
|
968,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
Special
Common Stock Dividend and Stock Repurchase Program
|
On December 19, 2008, the Company declared a common stock
dividend and dividend equivalent payable to option holders
totaling $12,010 which is payable on January 14, 2009.
On September 4, 2007, the Company announced that its Board
of Directors approved a $3,700 stock repurchase program. Under
this stock repurchase program, the Company was authorized to
repurchase up to $3,700 of its common stock through open market
and privately negotiated transactions from time to time. On
May 9, 2008, the Company announced that its Board of
Directors approved a $16,300 increase in its share repurchase
program to acquire the Companys shares in the open market
or in privately negotiated transactions from time to time,
bringing the total amount approved for repurchase to $20,000.
The stock repurchase program may be terminated at any time
without prior notice. Prior to January 1, 2008, the Company
has repurchased 144,000 shares of its common stock for an
aggregate price of $3,036 including broker commissions,
resulting in an average price of $21.09 per share. The Company
had no purchases in 2008.
62
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
13.
|
Commitments
and Contingencies
|
The Company leases certain property, transportation vehicles and
other equipment under operating leases. Total rental expense
under operating leases was $4,678, $4,107 and $4,427 for the
years ended December 31, 2008, 2007 and 2006, respectively.
Future minimum lease payments under operating leases for the
years ended December 31 are as follows:
|
|
|
|
|
2009
|
|
$
|
1,680
|
|
2010
|
|
|
1,458
|
|
2011
|
|
|
1,060
|
|
2012
|
|
|
627
|
|
2013
|
|
|
296
|
|
Thereafter
|
|
|
611
|
|
|
|
|
|
|
Total
|
|
$
|
5,732
|
|
|
|
|
|
|
The Company is subject to legal proceedings and claims that
arise in the normal course of business. In the opinion of
management, the ultimate liabilities with respect to these
actions will not have a material adverse effect on the
Companys financial condition, results of operations or
cash flows.
|
|
14.
|
Business
Segment Information
|
The Company has three reportable segments: Bare Wire,
Engineered Wire Products Europe and High Performance
Conductors. These segments are strategic business units
organized around three product categories that follow
managements internal organization structure. The Company
evaluates segment performance based on segment operating income.
The Bare Wire segment manufactures bare and tin-plated copper
wire products (or conductors) used to transmit digital, video
and audio signals or conduct electricity and sells to insulated
wire manufacturers and various industrial original equipment
manufacturers (OEMs) for use in electronics
and data communications products, general industrial, energy,
appliances, and automobiles. The Bare Wire segment is in the
primary business of copper fabrication. The Company may provide
such copper to its customers or use their copper in the
fabrication process. While the Company bills its customers for
copper it provides, it does not distinguish in its records these
customer types and it is therefore not practical to provide such
disclosure.
The Engineered Wire Products Europe segment
manufactures and engineers connections and bare copper wire
products (or conductors) to conduct electricity either for power
or for grounding purposes and are sold to a diverse customer
base of various OEMs for use in electrical appliances,
power supply, aircraft , railway, and automotive markets.
The High Performance Conductors segment manufactures specialty
high performance conductors which include tin, nickel and silver
plated copper and copper alloy conductors including high and low
temperature standard and customized conductors as well as
specialty film insulated conductors and miniature tubing
products.
63
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Summarized financial information for the Companys
reportable segments from continuing operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wire
|
|
|
High
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products-
|
|
|
Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
Bare Wire
|
|
|
Europe
|
|
|
Conductors
|
|
|
Corporate
|
|
|
Elimination
|
|
|
Total
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2008
|
|
$
|
530,789
|
|
|
$
|
72,544
|
|
|
$
|
135,145
|
|
|
$
|
|
|
|
$
|
(2,076
|
)
|
|
$
|
736,402
|
|
For the year ended December 31, 2007
|
|
|
543,231
|
|
|
|
67,408
|
|
|
|
122,234
|
|
|
|
|
|
|
|
(2,068
|
)
|
|
|
730,805
|
|
For the year ended December 31, 2006
|
|
|
611,356
|
|
|
|
55,151
|
|
|
|
82,980
|
|
|
|
|
|
|
|
(562
|
)
|
|
|
748,925
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2008
|
|
|
9,169
|
|
|
|
4,808
|
|
|
|
9,022
|
|
|
|
(872
|
)
|
|
|
|
|
|
|
22,127
|
|
For the year ended December 31, 2007
|
|
|
19,699
|
|
|
|
4,525
|
|
|
|
12,818
|
|
|
|
(3,287
|
)
|
|
|
|
|
|
|
33,755
|
|
For the year ended December 31, 2006
|
|
|
23,634
|
|
|
|
3,592
|
|
|
|
7,583
|
|
|
|
(5,975
|
)
|
|
|
|
|
|
|
28,834
|
|
Income from continuing operations before income tax
provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2008
|
|
|
9,169
|
|
|
|
4,940
|
|
|
|
9,022
|
|
|
|
(11,611
|
)
|
|
|
|
|
|
|
11,520
|
|
For the year ended December 31, 2007
|
|
|
19,699
|
|
|
|
4,468
|
|
|
|
12,818
|
|
|
|
(13,826
|
)
|
|
|
|
|
|
|
23,159
|
|
For the year ended December 31, 2006
|
|
|
23,658
|
|
|
|
3,592
|
|
|
|
7,583
|
|
|
|
(20,545
|
)
|
|
|
|
|
|
|
14,288
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
62,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,133
|
|
As of December 31, 2007
|
|
|
61,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,560
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
235,688
|
|
|
|
41,463
|
|
|
|
70,861
|
|
|
|
25,509
|
|
|
|
(3,422
|
)
|
|
|
370,099
|
|
As of December 31, 2007
|
|
|
240,145
|
|
|
|
43,979
|
|
|
|
64,309
|
|
|
|
25,508
|
|
|
|
(4,804
|
)
|
|
|
369,137
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2008
|
|
|
10,643
|
|
|
|
748
|
|
|
|
1,554
|
|
|
|
|
|
|
|
|
|
|
|
12,945
|
|
For the year ended December 31, 2007
|
|
|
15,798
|
|
|
|
251
|
|
|
|
2,322
|
|
|
|
|
|
|
|
|
|
|
|
18,371
|
|
For the year ended December 31, 2006
|
|
|
9,446
|
|
|
|
1,057
|
|
|
|
1,375
|
|
|
|
1
|
|
|
|
|
|
|
|
11,879
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2008
|
|
|
13,471
|
|
|
|
1,326
|
|
|
|
3,742
|
|
|
|
2
|
|
|
|
|
|
|
|
18,541
|
|
For the year ended December 31, 2007
|
|
|
12,391
|
|
|
|
1,149
|
|
|
|
3,143
|
|
|
|
17
|
|
|
|
|
|
|
|
16,700
|
|
For the year ended December 31, 2006
|
|
|
11,314
|
|
|
|
903
|
|
|
|
1,776
|
|
|
|
9
|
|
|
|
|
|
|
|
14,002
|
|
The following table presents net sales by period and by
geographic region based on the country or region in which the
legal subsidiary is domiciled.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
United States
|
|
$
|
656,511
|
|
|
$
|
657,512
|
|
|
$
|
681,549
|
|
Europe
|
|
|
79,891
|
|
|
|
73,293
|
|
|
|
67,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
736,402
|
|
|
$
|
730,805
|
|
|
$
|
748,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents property, plant and equipment at
December 31 by geographic region based on the location of the
asset:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
$
|
103,623
|
|
|
$
|
96,618
|
|
Europe
|
|
|
9,327
|
|
|
|
10,736
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
112,950
|
|
|
$
|
107,354
|
|
|
|
|
|
|
|
|
|
|
15. Quarterly
Financial Information (unaudited)
Selected unaudited quarterly financial data for the years ended
December 31, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
4th Qtr.
|
|
|
3rd Qtr.
|
|
|
2nd Qtr.
|
|
|
1st Qtr.
|
|
|
|
(In thousands, except share data)
|
|
|
Net sales
|
|
$
|
126,672
|
|
|
$
|
203,361
|
|
|
$
|
199,863
|
|
|
$
|
206,506
|
|
Gross profit, exclusive of depreciation and amortization
|
|
|
5,346
|
(a)
|
|
|
24,044
|
|
|
|
26,887
|
|
|
|
29,359
|
|
Operating income/(loss)
|
|
|
(10,017
|
)
|
|
|
7,827
|
|
|
|
10,893
|
|
|
|
13,424
|
|
Income/(loss) from continuing operations
|
|
|
(8,620
|
)
|
|
|
2,438
|
|
|
|
5,551
|
|
|
|
7,115
|
|
Income/(loss) from discontinued operations
|
|
|
(76
|
)
|
|
|
(4
|
)
|
|
|
6
|
|
|
|
119
|
|
Net income/(loss)
|
|
|
(8,696
|
)
|
|
|
2,434
|
|
|
|
5,557
|
|
|
|
7,234
|
|
Earnings/(loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.87
|
)
|
|
$
|
0.24
|
|
|
$
|
0.56
|
|
|
$
|
0.73
|
|
Diluted
|
|
$
|
(0.85
|
)
|
|
$
|
0.24
|
|
|
$
|
0.54
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
4th Qtr.
|
|
|
3rd Qtr.
|
|
|
2nd Qtr.
|
|
|
1st Qtr.
|
|
|
|
(In thousands, except share data)
|
|
|
Net sales
|
|
$
|
176,656
|
|
|
$
|
179,994
|
|
|
$
|
200,030
|
|
|
$
|
174,125
|
|
Gross profit, exclusive of depreciation and amortization
|
|
|
23,787
|
(b)
|
|
|
23,541
|
|
|
|
23,850
|
|
|
|
23,365
|
|
Operating income
|
|
|
7,889
|
|
|
|
9,273
|
|
|
|
8,318
|
|
|
|
8,275
|
|
Income from continuing operations
|
|
|
2,472
|
|
|
|
4,599
|
|
|
|
4,224
|
|
|
|
3,910
|
|
Income from discontinued operations
|
|
|
24
|
|
|
|
492
|
|
|
|
73
|
|
|
|
67
|
|
Net income
|
|
|
2,496
|
|
|
|
5,091
|
|
|
|
4,297
|
|
|
|
3,977
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.25
|
|
|
$
|
0.51
|
|
|
$
|
0.43
|
|
|
$
|
0.40
|
|
Diluted
|
|
$
|
0.24
|
|
|
$
|
0.50
|
|
|
$
|
0.42
|
|
|
$
|
0.40
|
|
|
|
|
(a) |
|
Includes $8,915 of LIFO cost of sales impact from declining
copper prices, which includes the impact of including the Global
Wire inventories in the Companys existing LIFO inventories. |
|
(b) |
|
Includes $979 of LIFO liquidation effect. |
65
|
|
Item 9.
|
Changes
in and Disagreement with Accountants on Accounting and Financial
Disclosure.
|
None
|
|
Item 9A.
|
Controls
and Procedures.
|
Disclosure
Controls and Procedures
Based on an evaluation of our disclosure controls and procedures
(as defined in
Rule 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934) as of the end of
the period covered by this
Form 10-K,
conducted under the supervision of and with the participation of
our chief executive officer (CEO) and chief financial officer,
(CFO), such officers have concluded that our disclosure controls
and procedures are designed to ensure that information required
to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SECs
rules and forms, and are operating in an effective manner.
Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file or
submit under the Exchange Act is accumulated and communicated to
our management, including our CEO and CFO, to allow timely
decisions regarding required disclosure.
Managements
Annual Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Our internal
control system is a process designed by, or under the
supervision of, our principal executives and principal financial
officers, or persons performing similar functions, and effected
by our board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with U.S. generally
accepted accounting principles.
A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Because of the
inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues
and instances of fraud, if any, within our organization have
been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by
management override of the control. The design of any system of
controls also is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance
that any design will succeed in achieving our stated goals under
all potential future conditions; over time, controls may become
inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in the design of an internal
control system, misstatements due to error or fraud may occur
and not be detected. However, these inherent limitations are
known features of the financial reporting process. Therefore, it
is possible to design into the process safeguards to reduce,
though not eliminate, this risk.
Our management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2008.
In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control
Integrated Framework. Our management excluded from its
assessment the internal control over financial reporting at the
acquired Global Wire, Inc. operations and related business,
which was acquired on July 1, 2008 and whose financial
statements constitute 6.0% of net assets, and 3.8% of net sales
of the consolidated financial statement amounts as of and for
the year ended December 31, 2008. Based on its assessment
and the exclusion of the acquired Global Wire, Inc. operations
and related business, our management concluded that, as of
December 31, 2008, our internal control over financial
reporting was effective based on those criteria.
Our independent registered public accounting firm,
Deloitte & Touche LLP, has issued an attestation
report on our internal controls over financial reporting, a copy
of which is included below .
66
Changes
in Internal Control over Financial Reporting
During the quarter ended December 31, 2008, there have been
no changes in our internal control over financial reporting that
have materially affected, or that are reasonably likely to
materially affect, our internal control over financial reporting.
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
International Wire Group, Inc.
Camden, New York
We have audited the internal control over financial reporting of
International Wire Group, Inc. and subsidiaries (the
Company) as of December 31, 2008, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. As described in
Managements Annual Report on Internal Control over
Financial Reporting, management excluded from its assessment the
internal control over financial reporting at the acquired Global
Wire, Inc. operations and related business, which was acquired
on July 1, 2008 and whose financial statements constitute
6.0% of net assets and 3.8% of net sales of the consolidated
financial statement amounts as of and for the year ended
December 31, 2008. Accordingly, our audit did not include
the internal control over financial reporting at the acquired
Global Wire, Inc. operations and related business. The
Companys management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion
on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
67
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2008 of
the Company and our report dated March 11, 2009 expressed
an unqualified opinion on those financial statements and
financial statement schedule.
/s/ Deloitte &
Touche LLP
Rochester, New York
March 11, 2009
|
|
Item 9B.
|
Other
Information.
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
A list of our executive officers and biographical information
appears in Part I, Item 1 of this report.
Information about our Directors may be found under the caption
Our Management of our Proxy Statement for the 2009
Annual Meeting of Shareholders (the Proxy
Statement). That information is incorporated herein by
reference.
The information in the Proxy Statement set forth under the
captions Section 16(a) Beneficial Ownership Reporting
Compliance and Information about the Board and its
Committees Committees of the Board of
Directors is incorporated herein by reference.
We have adopted the Code of Business Conduct, a code of ethics
that applies to our Chief Executive Officer, Chief Financial
Officer and other salaried organization employees. The code of
ethics is publicly available on our website at
http://itwg.client.shareholder.com/conduct.cfm.
If we make any substantive amendments to our code of ethics or
grant any waiver from a provision of our code to our Chief
Executive Officer and Chief Financial Officer, we will disclose
the nature of such amendment or waiver on our website or in a
report on
Form 8-K.
In addition, we will make available, free of charge upon
request, a copy of our Code of Business Conduct. For a copy of
this code, please contact Glenn Holler, International Wire
Group, Inc., 12 Masonic Avenue, Camden, New York 13316.
|
|
Item 11.
|
Executive
Compensation
|
The information in the Proxy Statement set forth under the
captions Executive Compensation and
Information About the Board and its Committees
Compensation Committee Interlocks and Insider Participation in
Compensation Decisions is incorporated herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
The information in the Proxy Statement set forth under the
caption Security Ownership of Certain Beneficial
Ownership is incorporated herein by reference.
68
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
The information set forth under the captions Certain
Relationships and Related Person Transactions,
Proposal 1: Election of Directors and
Information about the Board and its Committees
Committees of the Board of Directors of the Proxy
Statement is incorporated herein by reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services.
|
Information concerning principal accountant fees and services
appears in the Proxy Statement under the heading
Independent Auditors and is incorporated herein by
reference.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedule.
|
1. Financial Statements. See Index to Financial
Statements and Financial Statement Schedule in
Item 8. Financial Statements and Supplementary
Data on page 40 of this report.
2. Financial Statement Schedule:
INTERNATIONAL
WIRE GROUP, INC.
SCHEDULE II VALUATION AND QUALIFYING
ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collection of
|
|
|
|
|
Allowances Deducted from
|
|
Balance at
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
Accounts Receivables in the
|
|
Beginning
|
|
|
|
|
|
|
|
|
Written
|
|
|
Balance at
|
|
Balance Sheet
|
|
of Period
|
|
|
Provision
|
|
|
Write-Offs
|
|
|
off Accounts
|
|
|
End of Period
|
|
|
Year ended December 31, 2008
|
|
$
|
1,282
|
|
|
$
|
1,743
|
|
|
$
|
(46
|
)
|
|
$
|
|
|
|
$
|
2,979
|
|
Year ended December 31, 2007
|
|
$
|
1,738
|
|
|
$
|
(251
|
)
|
|
$
|
(205
|
)
|
|
$
|
|
|
|
$
|
1,282
|
|
Year ended December 31, 2006
|
|
$
|
3,036
|
|
|
$
|
1,024
|
|
|
$
|
(2,322
|
)
|
|
$
|
|
|
|
$
|
1,738
|
|
69
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibit Description
|
|
2.1
|
|
Second Amended and Restated Joint Plan of Reorganization of
International Wire Group, Inc., et. al., under Chapter 11
of the Bankruptcy Code, dated June 24, 2004 (filed as Exhibit
T3E-2 to the Companys Application for Qualification of
Trust Indentures on Form T3 filed on July 29, 2004 and
incorporated herein by reference).
|
2.2
|
|
Stock Purchase Agreement, dated March 4, 2006, between Phelps
Dodge Corporation, a New York corporation, and International
Wire Group, Inc., a Delaware corporation (filed as Exhibit 2.1
to the Companys Current Report on Form 8-K filed March 7,
2006 and incorporated herein by reference).
|
2.3
|
|
Amendment No. 1 to Stock Purchase Agreement, dated March 31,
2006, between Phelps Dodge Corporation, a New York corporation,
and International Wire Group, Inc., a Delaware corporation
(filed as Exhibit 2.1 to the Companys Current Report on
Form 8-K filed April 4, 2006 and incorporated herein by
reference).
|
2.4
|
|
Asset Purchase Agreement, dated June 3, 2008, between
International Wire Group, Inc., a Delaware corporation, Global
Wire Inc., a Delaware corporation, Montgomery Wire Corporation,
a Delaware corporation, Wyre Wynd Corporation, a Delaware
corporation, Negev Wire Trading Inc., a Delaware corporation,
and Global Wire Ltd., an Israeli corporation (filed as Exhibit
2.1 to the Companys Current Report on Form 8-K filed June
4, 2008 and incorporated herein by reference).
|
3.1
|
|
Amended and Restated Certificate of Incorporation of
International Wire Group, Inc. (filed as Exhibit 3.1 to the
Companys Registration Statement Form S-1 filed November
24, 2004 and incorporated herein by reference).
|
3.2
|
|
Amended and Restated Bylaws of International Wire Group, Inc.
(filed as Exhibit 3.1 to the Companys Current Report on
Form 8-K filed February 28, 2007 and incorporated herein by
reference).
|
4.1
|
|
Indenture, dated as of October 20, 2004, among International
Wire Group, Inc., the guarantors party thereto, and BNY Midwest
Trust Company, as Trustee (filed as Exhibit 4.1 to the
Companys Registration Statement Form S-1 filed November
24, 2004 and incorporated herein by reference).
|
4.2
|
|
Form of 10% Secured Senior Subordinated Note due 2011 (filed as
Exhibit A to the Indenture filed as Exhibit 4.1 to the
Companys Registration Statement Form S-1 filed November
24, 2004 and incorporated herein by reference).
|
10.1
|
|
Loan and Security Agreement, dated as of October 20, 2004, among
the borrowers and guarantors specified therein, the several
lenders from time to time parties thereto and Congress Financial
Corporation (Central), as agent (filed as Exhibit 10.1 to the
Companys Registration Statement Form S-1 filed November
24, 2004 and incorporated herein by reference).
|
10.2
|
|
Collateral Agreement, dated as of October 20, 2004, among
International Wire Group, Inc., the subsidiaries of
International Wire Group, Inc. identified therein, and BNY
Midwest Trust Company, as collateral agent (filed as Exhibit
10.3 to the Companys Registration Statement Form S-1 filed
November 24, 2004, and incorporated herein by reference).
|
10.3
|
|
Intercreditor Agreement, dated as of October 20, 2004, among
Congress Financial Corporation (Central), as working capital
loan and security agreement agent, Silver Point Finance, LLC, as
term loan agreement agent, and BNY Midwest Trust Company, as
trustee (filed as Exhibit 10.4 to the Companys
Registration Statement Form S-1 filed November 24, 2004, and
incorporated herein by reference).
|
10.4
|
|
International Wire Group, Inc. 2004 Stock Option Plan (filed as
Exhibit 10.6 to the Companys Registration Statement Form
S-1 filed November 24, 2004, and incorporated herein by
reference).*
|
10.5
|
|
Amended and Restated Registration Rights Agreement, dated as of
November 24, 2004, among International Wire Group, Inc. and the
holders specified therein (filed as Exhibit 10.7 to the
Companys Registration Statement Form S-1 filed November
24, 2004, and incorporated herein by reference).
|
10.6
|
|
Third Amended and Restated Employment Agreement, dated April 25,
2008, by and among Glenn J. Holler, International Wire Group,
Inc. and certain subsidiaries of International Wire Group, Inc.
(filed as Exhibit 10.2 to the Companys Current Report on
Form 8-K filed April 29, 2008, and incorporated herein by
reference).*
|
70
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibit Description
|
|
10.7
|
|
Third Amended and Restated Employment Agreement, dated April 25,
2008, by and among Rodney D. Kent, International Wire Group,
Inc. and certain subsidiaries of International Wire Group, Inc.
(filed as Exhibit 10.1 to the Companys Current Report on
Form 8-K filed April 29, 2008, and incorporated herein by
reference).*
|
10.8
|
|
Nonqualified Stock Option Agreement, dated August 1, 2005,
between International Wire Group, Inc. and William Lane
Pennington (filed with the Companys Registration Statement
Form S-1 filed August 2, 2005, and incorporated herein by
reference).*
|
10.9
|
|
Form of Indemnification Agreement (filed as Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q filed on September
14, 2005, and incorporated herein by reference).
|
10.10
|
|
Supplement No. 1 to the Indenture, dated as of March 31, 2006,
among International Wire Group, Inc., the guarantors party
thereto, and BNY Midwest Trust Company, as Trustee (filed as
Exhibit 10.4 to the Companys Current Report on Form 8-K
filed April 4, 2006, and incorporated herein by reference).
|
10.11
|
|
Supplement No. 1 to the Collateral Agreement, dated as of March
31, 2006, among International Wire Group, Inc., the subsidiaries
of International Wire Group, Inc. identified therein, and BNY
Midwest Trust Company, as collateral agent (filed as Exhibit
10.5 to the Companys Current Report on Form 8-K filed
April 4, 2006, and incorporated herein by reference).
|
10.12
|
|
Letter agreement, dated April 4, 2006, between International
Wire Group, Inc. and William Lane Pennington (filed as Exhibit
10.6 to the Companys Current Report on Form 8-K filed
April 4, 2006, and incorporated herein by reference).*
|
10.13
|
|
Amended and Restated International Wire Group, Inc. 2006
Management Stock Option Plan (filed as Exhibit 10.3 to the
Companys Current Report on Form 8-K filed April 29, 2008,
and incorporated herein by reference).*
|
10.14
|
|
Amended and Restated International Wire Group, Inc. 2006 Stock
Option Plan for Nonemployee Directors (filed as Exhibit 10.4 to
the Companys Current Report on Form 8-K filed April 29,
2008, and incorporated herein by reference).*
|
10.15
|
|
Amendment Number 1 to International Wire Group, Inc. 2006 Stock
Option Plan for Nonemployee Directors (filed as Exhibit 10.3 to
the Companys Current Report on Form 8-K filed May 17,
2006, and incorporated herein by reference).*
|
10.16
|
|
Letter agreement regarding Amended and Restated Registration
Rights Agreement, dated June 14, 2006, among International Wire
Group, Inc., GSCP (NJ), Inc., Special Value Absolute Return
Fund, LLC and Special Value Opportunities Fund, LLC (filed as
Exhibit 10.1 to the Companys Current Report on Form 8-K
filed June 19, 2006, and incorporated herein by reference).
|
10.17
|
|
Amendment No. 2 Loan and Security Agreement, dated as of June
28, 2006, by and among International Wire Group, Inc., its
domestic subsidiaries, the parties to the Loan Agreement as
lenders and Wachovia Capital Finance Corporation (Central),
formerly known as Congress Financial Corporation (Central)
(filed as Exhibit 10.1 to the Companys Current Report on
Form 8-K filed July 5, 2006, and incorporated herein by
reference).
|
10.18
|
|
Amendment No. 3 to Loan and Security Agreement, dated as of
August 22, 2006, by and among International Wire Group, Inc.,
its domestic subsidiaries, the parties to the Loan Agreement and
Security as lenders and Wachovia Capital Finance Corporation
(Central), formerly known as Congress Financial Corporation
(Central) (filed as Exhibit 10.1 to the Companys Current
Report on Form 8-K filed August 28, 2006, and incorporated
herein by reference).
|
10.19
|
|
International Wire Group Inc. Key Management Incentive Plan
Summary (filed as Exhibit 10.2 to the Companys Quarterly
Report on Form 10-Q filed April 30, 2007, and incorporated
herein by reference).*
|
10.20
|
|
Amended Form of Stock Agreement (filed as Exhibit 10.3 to the
Companys Current Report on Form 8-K filed November 14,
2006, and incorporated herein by reference).*
|
10.21
|
|
Letter agreement, dated March 26, 2007, between International
Wire Group, Inc. and William Lane Pennington (filed as Exhibit
10.39 to the Companys Annual Report on Form 10-K filed
April 30, 2007, and incorporated herein by reference).*
|
71
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibit Description
|
|
10.22
|
|
Letter agreement regarding Amended and Restated Registration
Rights Agreement, dated April 24, 2007, among International Wire
Group, Inc., GSCP (NJ), Inc., Special Value Absolute Return
Fund, LLC and Special Value Opportunities Fund, LLC (filed as
Exhibit 10.1 to the Companys Current Report on Form 8-K
filed April 27, 2007, and incorporated herein by reference).
|
10.23
|
|
Amendment No. 4 to Loan and Security Agreement, dated as of
October 26, 2007, by and among International Wire Group, Inc.,
its domestic subsidiaries, the parties to the Loan Agreement and
Security as lenders and Wachovia Capital Finance Corporation
(Central), formerly known as Congress Financial Corporation
(Central) (filed as Exhibit 10.1 to the Companys Current
Report on Form 8-K filed October 26, 2007, and incorporated
herein by reference).
|
10.24
|
|
Consent to Dividends and Capital Stock Repurchases, dated
December 19, 2008, by and among IWG, its domestic subsidiaries
and Wachovia Capital Finance Corporation (Central), formerly
known as Congress Financial Corporation (Central), acting on
behalf of the required lenders (filed as Exhibit 10.1 to the
Companys Current Report on Form 8-K filed December 19,
2008, and incorporated herein by reference).
|
21.1
|
|
Subsidiaries of International Wire Group, Inc. (filed herewith).
|
23.1
|
|
Consent of Deloitte & Touche LLP (filed herewith).
|
31.1
|
|
Certification of Principal Executive Officer Required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended ,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (filed herewith).
|
31.2
|
|
Certification of Principal Financial Officer Required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (filed herewith).
|
32.1
|
|
Certification of Principal Executive Officer Required by Rule
13a-14(b) of the Securities Exchange Act of 1934, as amended,
and 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
|
32.2
|
|
Certification of Principal Financial Officer Required by Rule
13a-14(b) of the Securities Exchange Act of 1934, as amended,
and 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
|
|
|
|
* |
|
Indicates a management contract or compensatory plan or
arrangement. |
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this annual report on
Form 10-K
for the fiscal year ended December 31, 2008 to be signed on
its behalf by the undersigned, thereunto duly authorized as of
March 12, 2009.
International Wire Group, Inc.
Rodney D. Kent
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
in the capacities and as of March 12, 2009.
|
|
|
|
|
Signature
|
|
Capacity
|
|
|
|
|
/s/ Rodney
D. Kent
Rodney
D. Kent
|
|
Chief Executive Officer and Director
|
|
|
|
/s/ Glenn
J. Holler
Glenn
J. Holler
|
|
Senior Vice President, Chief Financial Officer (Principal
Accounting Officer) and Secretary
|
|
|
|
/s/ Mark
Holdsworth
Mark
Holdsworth
|
|
Chairman of the Board
|
|
|
|
/s/ William
Lane Pennington
William
Lane Pennington
|
|
Vice Chairman of the Board
|
|
|
|
/s/ Peter
Blum
Peter
Blum
|
|
Director
|
|
|
|
/s/ David
M. Gilchrist, Jr.
David
M. Gilchrist, Jr.
|
|
Director
|
|
|
|
/s/ David
H. Robbins
David
H. Robbins
|
|
Director
|
|
|
|
/s/ Lowell
W. Robinson
Lowell
W. Robinson
|
|
Director
|
|
|
|
/s/ John
T. Walsh
John
T. Walsh
|
|
Director
|
73
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibit Description
|
|
|
2
|
.1
|
|
Second Amended and Restated Joint Plan of Reorganization of
International Wire Group, Inc., et. al., under Chapter 11
of the Bankruptcy Code, dated June 24, 2004 (filed as Exhibit
T3E-2 to the Companys Application for Qualification of
Trust Indentures on Form T3 filed on July 29, 2004 and
incorporated herein by reference).
|
|
2
|
.2
|
|
Stock Purchase Agreement, dated March 4, 2006, between Phelps
Dodge Corporation, a New York corporation, and International
Wire Group, Inc., a Delaware corporation (filed as Exhibit 2.1
to the Companys Current Report on Form 8-K filed March 7,
2006 and incorporated herein by reference).
|
|
2
|
.3
|
|
Amendment No. 1 to Stock Purchase Agreement, dated March 31,
2006, between Phelps Dodge Corporation, a New York corporation,
and International Wire Group, Inc., a Delaware corporation
(filed as Exhibit 2.1 to the Companys Current Report on
Form 8-K filed April 4, 2006 and incorporated herein by
reference).
|
|
2
|
.4
|
|
Asset Purchase Agreement, dated June 3, 2008, between
International Wire Group, Inc., a Delaware corporation, Global
Wire Inc., a Delaware corporation, Montgomery Wire Corporation,
a Delaware corporation, Wyre Wynd Corporation, a Delaware
corporation, Negev Wire Trading Inc., a Delaware corporation,
and Global Wire Ltd., an Israeli corporation (filed as Exhibit
2.1 to the Companys Current Report on Form 8-K filed June
4, 2008 and incorporated herein by reference).
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of
International Wire Group, Inc. (filed as Exhibit 3.1 to the
Companys Registration Statement Form S-1 filed November
24, 2004 and incorporated herein by reference).
|
|
3
|
.2
|
|
Amended and Restated Bylaws of International Wire Group, Inc.
(filed as Exhibit 3.1 to the Companys Current Report on
Form 8-K filed February 28, 2007 and incorporated herein by
reference).
|
|
4
|
.1
|
|
Indenture, dated as of October 20, 2004, among International
Wire Group, Inc., the guarantors party thereto, and BNY Midwest
Trust Company, as Trustee (filed as Exhibit 4.1 to the
Companys Registration Statement Form S-1 filed November
24, 2004 and incorporated herein by reference).
|
|
4
|
.2
|
|
Form of 10% Secured Senior Subordinated Note due 2011 (filed as
Exhibit A to the Indenture filed as Exhibit 4.1 to the
Companys Registration Statement Form S-1 filed November
24, 2004 and incorporated herein by reference).
|
|
10
|
.1
|
|
Loan and Security Agreement, dated as of October 20, 2004, among
the borrowers and guarantors specified therein, the several
lenders from time to time parties thereto and Congress Financial
Corporation (Central), as agent (filed as Exhibit 10.1 to the
Companys Registration Statement Form S-1 filed November
24, 2004 and incorporated herein by reference).
|
|
10
|
.2
|
|
Collateral Agreement, dated as of October 20, 2004, among
International Wire Group, Inc., the subsidiaries of
International Wire Group, Inc. identified therein, and BNY
Midwest Trust Company, as collateral agent (filed as Exhibit
10.3 to the Companys Registration Statement Form S-1 filed
November 24, 2004, and incorporated herein by reference).
|
|
10
|
.3
|
|
Intercreditor Agreement, dated as of October 20, 2004, among
Congress Financial Corporation (Central), as working capital
loan and security agreement agent, Silver Point Finance, LLC, as
term loan agreement agent, and BNY Midwest Trust Company, as
trustee (filed as Exhibit 10.4 to the Companys
Registration Statement Form S-1 filed November 24, 2004, and
incorporated herein by reference).
|
|
10
|
.4
|
|
International Wire Group, Inc. 2004 Stock Option Plan (filed as
Exhibit 10.6 to the Companys Registration Statement Form
S-1 filed November 24, 2004, and incorporated herein by
reference).*
|
|
10
|
.5
|
|
Amended and Restated Registration Rights Agreement, dated as of
November 24, 2004, among International Wire Group, Inc. and the
holders specified therein (filed as Exhibit 10.7 to the
Companys Registration Statement Form S-1 filed November
24, 2004, and incorporated herein by reference).
|
|
10
|
.6
|
|
Third Amended and Restated Employment Agreement, dated April 25,
2008, by and among Glenn J. Holler, International Wire Group,
Inc. and certain subsidiaries of International Wire Group, Inc.
(filed as Exhibit 10.2 to the Companys Current Report on
Form 8-K filed April 29, 2008, and incorporated herein by
reference).*
|
74
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibit Description
|
|
|
10
|
.7
|
|
Third Amended and Restated Employment Agreement, dated April 25,
2008, by and among Rodney D. Kent, International Wire Group,
Inc. and certain subsidiaries of International Wire Group, Inc.
(filed as Exhibit 10.1 to the Companys Current Report on
Form 8-K filed April 29, 2008, and incorporated herein by
reference).*
|
|
10
|
.8
|
|
Nonqualified Stock Option Agreement, dated August 1, 2005,
between International Wire Group, Inc. and William Lane
Pennington (filed with the Companys Registration Statement
Form S-1 filed August 2, 2005, and incorporated herein by
reference).*
|
|
10
|
.9
|
|
Form of Indemnification Agreement (filed as Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q filed on September
14, 2005, and incorporated herein by reference).
|
|
10
|
.10
|
|
Supplement No. 1 to the Indenture, dated as of March 31, 2006,
among International Wire Group, Inc., the guarantors party
thereto, and BNY Midwest Trust Company, as Trustee (filed as
Exhibit 10.4 to the Companys Current Report on Form 8-K
filed April 4, 2006, and incorporated herein by reference).
|
|
10
|
.11
|
|
Supplement No. 1 to the Collateral Agreement, dated as of March
31, 2006, among International Wire Group, Inc., the subsidiaries
of International Wire Group, Inc. identified therein, and BNY
Midwest Trust Company, as collateral agent (filed as Exhibit
10.5 to the Companys Current Report on
Form 8-K
filed April 4, 2006, and incorporated herein by reference).
|
|
10
|
.12
|
|
Letter agreement, dated April 4, 2006, between International
Wire Group, Inc. and William Lane Pennington (filed as Exhibit
10.6 to the Companys Current Report on Form 8-K filed
April 4, 2006, and incorporated herein by reference).*
|
|
10
|
.13
|
|
Amended and Restated International Wire Group, Inc. 2006
Management Stock Option Plan (filed as Exhibit 10.3 to the
Companys Current Report on Form 8-K filed April 29, 2008,
and incorporated herein by reference).*
|
|
10
|
.14
|
|
Amended and Restated International Wire Group, Inc. 2006 Stock
Option Plan for Nonemployee Directors (filed as Exhibit 10.4 to
the Companys Current Report on Form 8-K filed April 29,
2008, and incorporated herein by reference).*
|
|
10
|
.15
|
|
Amendment Number 1 to International Wire Group, Inc. 2006 Stock
Option Plan for Nonemployee Directors (filed as Exhibit 10.3 to
the Companys Current Report on Form 8-K filed May 17,
2006, and incorporated herein by reference).*
|
|
10
|
.16
|
|
Letter agreement regarding Amended and Restated Registration
Rights Agreement, dated June 14, 2006, among International Wire
Group, Inc., GSCP (NJ), Inc., Special Value Absolute Return
Fund, LLC and Special Value Opportunities Fund, LLC (filed as
Exhibit 10.1 to the Companys Current Report on Form 8-K
filed June 19, 2006, and incorporated herein by reference).
|
|
10
|
.17
|
|
Amendment No. 2 Loan and Security Agreement, dated as of June
28, 2006, by and among International Wire Group, Inc., its
domestic subsidiaries, the parties to the Loan Agreement as
lenders and Wachovia Capital Finance Corporation (Central),
formerly known as Congress Financial Corporation (Central)
(filed as Exhibit 10.1 to the Companys Current Report on
Form 8-K filed July 5, 2006, and incorporated herein by
reference).
|
|
10
|
.18
|
|
Amendment No. 3 to Loan and Security Agreement, dated as of
August 22, 2006, by and among International Wire Group, Inc.,
its domestic subsidiaries, the parties to the Loan Agreement and
Security as lenders and Wachovia Capital Finance Corporation
(Central), formerly known as Congress Financial Corporation
(Central) (filed as Exhibit 10.1 to the Companys Current
Report on Form 8-K filed August 28, 2006, and incorporated
herein by reference).
|
|
10
|
.19
|
|
International Wire Group Inc. Key Management Incentive Plan
Summary (filed as Exhibit 10.2 to the Companys Quarterly
Report on Form 10-Q filed April 30, 2007, and incorporated
herein by reference).*
|
|
10
|
.20
|
|
Amended Form of Stock Agreement (filed as Exhibit 10.3 to the
Companys Current Report on Form 8-K filed November 14,
2006, and incorporated herein by reference).*
|
|
10
|
.21
|
|
Letter agreement, dated March 26, 2007, between International
Wire Group, Inc. and William Lane Pennington (filed as Exhibit
10.39 to the Companys Annual Report on Form 10-K filed
April 30, 2007, and incorporated herein by reference).*
|
75
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibit Description
|
|
|
10
|
.22
|
|
Letter agreement regarding Amended and Restated Registration
Rights Agreement, dated April 24, 2007, among International Wire
Group, Inc., GSCP (NJ), Inc., Special Value Absolute Return
Fund, LLC and Special Value Opportunities Fund, LLC (filed as
Exhibit 10.1 to the Companys Current Report on Form 8-K
filed April 27, 2007, and incorporated herein by reference).
|
|
10
|
.23
|
|
Amendment No. 4 to Loan and Security Agreement, dated as of
October 26, 2007, by and among International Wire Group, Inc.,
its domestic subsidiaries, the parties to the Loan Agreement and
Security as lenders and Wachovia Capital Finance Corporation
(Central), formerly known as Congress Financial Corporation
(Central) (filed as Exhibit 10.1 to the Companys Current
Report on Form 8-K filed October 26, 2007, and incorporated
herein by reference).
|
|
10
|
.24
|
|
Consent to Dividends and Capital Stock Repurchases, dated
December 19, 2008, by and among IWG, its domestic subsidiaries
and Wachovia Capital Finance Corporation (Central), formerly
known as Congress Financial Corporation (Central), acting on
behalf of the required lenders (filed as Exhibit 10.1 to the
Companys Current Report on Form 8-K filed December 19,
2008, and incorporated herein by reference).
|
|
21
|
.1
|
|
Subsidiaries of International Wire Group, Inc. (filed herewith).
|
|
23
|
.1
|
|
Consent of Deloitte & Touche LLP (filed herewith).
|
|
31
|
.1
|
|
Certification of Principal Executive Officer Required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (filed herewith).
|
|
31
|
.2
|
|
Certification of Principal Financial Officer Required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (filed herewith).
|
|
32
|
.1
|
|
Certification of Principal Executive Officer Required by Rule
13a-14(b) of the Securities Exchange Act of 1934, as amended,
and 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
|
|
32
|
.2
|
|
Certification of Principal Financial Officer Required by Rule
13a-14(b) of the Securities Exchange Act of 1934, as amended,
and 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
|
|
|
|
* |
|
Indicates a management contract or compensatory plan or
arrangement. |
76