UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1994
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
___________ ___________
Commission File Number 1-7418
______
ESSEX GROUP, INC.
______________________________________________________
(Exact name of registrant as specified in its charter)
MICHIGAN 35-1313928
__________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1601 WALL STREET, FORT WAYNE, INDIANA 46802
__________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (219) 461-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
10% Senior Notes due 2003 Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
__________________________________________________________________________
(Title of class)
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 the registrant's 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. [X]
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.<PAGE>
[X ] Yes [ ] No
No voting stock is held by non-affiliates of the registrant.
As of February 28, 1995 the registrant had outstanding 100 shares of $.01
Par Value Common Stock.
The registrant does not have a class of equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
DOCUMENTS INCORPORATED BY REFERENCE - None<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Essex Group, Inc. (the "Company") develops, manufactures and markets
electrical wire and cable and electrical insulation products. Among the
Company's products are building wire for residential and commercial
applications; magnet wire for electromechanical devices such as motors,
transformers and electrical controls; automotive wire and specialty wiring
assemblies for automobiles and trucks; industrial wires for applications
in appliances, construction and recreational vehicles; voice and data
communication wire and cable; and insulation products including mica paper
and mica-based composites. The Company's operations at December 31, 1994
included 26 domestic manufacturing facilities and employed approximately
3,850 persons.
The Company was founded in Detroit, Michigan in 1930 to manufacture
electrical wire harnesses for automobiles exclusively for the Ford Motor
Company. United Technologies Corporation ("UTC") acquired the Company in
1974 and operated it as a wholly-owned subsidiary. On February 29, 1988,
MS/Essex Holdings Inc. ("Holdings"), acquired the Company from UTC. The
outstanding common stock of Holdings was beneficially owned by the Morgan
Stanley Leveraged Equity Fund II, L.P., certain directors and members of
management of Holdings and the Company, and others.
On October 9, 1992, Holdings was acquired (the "Acquisition") by
merger (the "Merger") of B E Acquisition Corporation ("BE") with and into
Holdings with Holdings surviving under the name BCP/Essex Holdings Inc.
BE was a newly organized Delaware corporation formed for the purpose of
effecting the Acquisition. The shareholders of BE included Bessemer
Capital Partners, L.P. ("BCP"), affiliates of Goldman, Sachs & Co.
("Goldman Sachs"), affiliates of Donaldson, Lufkin & Jenrette, Inc.
("DLJ"), Chemical Equity Associates, A California Limited Partnership
("CEA"), and members of management and other employees of the Company. As
a result of the Merger, the stockholders of BE became stockholders of
Holdings. In 1993, BCP transferred its ownership interest in Holdings to
Bessemer Holdings, L.P. ("BHLP"), an affiliate of BCP. See note 2 to the
table included herein setting forth information regarding beneficial
ownership of Holdings common stock under the caption "Item 12. Security
Ownership of Certain Beneficial Owners and Management" for information
regarding BHLP.
PRODUCT LINES
The following table sets forth for each of the years in the three
year period ended December 31, 1994 the dollar amounts and percentages of
sales of each of the Company's major product lines and identifies the
division (defined below) with which each line is associated:
1<PAGE>
<TABLE>
<CAPTION>
Sales Percentage of Sales
------------------------------ -----------------------
1994 1993 1992 1994 1993 1992
------ ------ ------ ------ ------ ------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Building wire (WCD) $403.9 $332.2 $374.6 40% 38% 41%
Magnet wire (MWI) 306.9 240.9 230.3 30 28 25
Automotive & industrial wire (EPD) 132.0 114.0 108.3 13 13 12
Communication wire & cable (EPD) 119.3 135.9 154.0 12 16 17
Insulation products (MWI) 46.4 43.7 40.1 5 5 5
Other 1.6 2.1 2.1 --(a) --(a) --(a)
-------- ------ ------ ----- ----- -----
Total $1,010.1 $868.8 $909.4 100% 100% 100%
======== ====== ====== ===== ===== =====
</TABLE>
(a) Less than 1.0%.
DIVISION OPERATIONS
The Company classifies its operations into three major divisions
based on the markets served: Wire and Cable Division ("WCD"); Magnet Wire
and Insulation Division ("MWI") and Engineered Products Division ("EPD").
In 1994, the former Telecommunications Products Division ("TPD") was
merged with and into EPD. The electrical wire products manufactured and
sold by TPD were incorporated within a new Communications business unit of
EPD to facilitate the realignment of the Company's communication wire
manufacturing capacity from primarily outside-plant telecommunication
cables to a broader mix of voice and data communication wire and cable
products. A business overview of each major division is set forth below.
WIRE AND CABLE DIVISION
Products. WCD develops, manufactures and markets a complete line of
building wire and other related wire products. Specific examples include
service entrance cable, underground feeder wire and nonmetallic jacketed
wire and cable for the residential market and a variety of insulated wires
for the nonresidential commercial market. The ultimate end users are
electrical contractors and "do-it-yourself" consumers. WCD also develops,
manufactures and markets a line of industrial wire and cable consisting of
appliance wire, motor lead wire, submersible pump cable, welding cable,
and recreational vehicle wire. These wire and cable products are sold
primarily to appliance and power tool manufacturers, suppliers of
electrical and electronic original equipment and to welding products
distributors. The industrial wire and cable product line was transferred
from EPD to WCD in the fourth quarter 1994 to more effectively align the
related marketing and manufacturing efforts of the Company. For
accounting and reporting purposes this change did not become effective
until January 1, 1995.
Sales and Marketing. WCD has produced building wire and cable in the
United States since 1933. WCD has developed and maintained a large and
2<PAGE>
diverse customer base, selling primarily to electrical distributors,
hardware wholesalers and consumer product retailers. WCD products are
marketed nationally through manufacturers representatives and a Company
sales force. WCD also maintains distribution facilities throughout the
United States, and one in Canada.
Historically, approximately 65% of WCD's building wire market is
attributable to remodeling and repair activity while the remaining 35% is
attributable to new residential and nonresidential construction.
MAGNET WIRE AND INSULATION DIVISION
Products. MWI develops and manufactures magnet wire and insulation
products for the electrical equipment and electronics industries in the
United States. MWI offers a comprehensive line of insulation and magnet
wire products, including over 500 types of magnet wire used in a wide
variety of motors, coils, relays, generators, solenoids and transformers.
Sales and Marketing. Historically, 66% of MWI sales have been made
directly to end users and 34% of sales have been to distributors. The
Company distributes electrical insulating materials and certain appliance
and magnet wire products through its IWI distribution chain ("IWI"). IWI
is a national distributor providing the Company access to small original
equipment manufacturers and motor repair markets.
A joint venture between the Company and the Furukawa Electric
Company, LTD., Tokyo, Japan ("Femco") was established in 1988 to market
magnet wire products, with special emphasis on products required by
Japanese manufacturers for their production facilities in the United
States. In 1993, the Company completed construction of a new magnet wire
manufacturing facility that is occupied by both the Company and Femco.
ENGINEERED PRODUCTS DIVISION
Products. EPD develops, manufactures and markets a variety of
electrical wire products including automotive products (primary wire,
ignition wire, and battery cable), and a broad line of plastic insulated
and jacketed voice and data communication wire and cable. Further, the
acquisition of Interstate Industries, Inc. ("Interstate Industries") in
the fourth quarter 1993 provided EPD the manufacturing capability to
produce specialty wiring assemblies, including heavy truck harnesses, and
automotive ignition wire assemblies. Automotive products are sold
primarily to suppliers of automotive original equipment manufacturers
while communication wire products are marketed primarily in the United
States for local area networks and telephone networks applications, with
some sales to overseas markets. EPD's industrial wire product line was
transferred to WCD in the fourth quarter 1994 (see the Wire and Cable
Division business overview above.) New product design and materials
development activities for EPD and WCD are supported by EPD's product
development and materials engineering laboratory.
Sales and Marketing. Historically, EPD has had one principal
customer for its automotive products, although the importance of this
customer has declined in relative terms due to the expansion of the
division's overall customer base and inclusion of operations from another
division. The customer accounted for approximately 39%, 40% and 16% of
EPD's revenues in 1992, 1993 and 1994 respectively, although in absolute
terms, sales to this principal customer have remained steady during the
3<PAGE>
period. Diversification of the division's sales base has been achieved in
part as the result of the retention of an independent sales organization
to provide EPD with the means necessary to attract and service new
automotive customers. EPD's principal automotive customer continues to be
serviced by a dedicated sales representative who is a Company employee.
Sales representatives from MWI also service some of the division's other
automotive wire customers. Voice and data communication wire products are
sold principally to communications system contractors and domestic
telephone companies and to telephone companies and private contractors
overseas.
BUSINESS DEVELOPMENT
The Company has established plans to increase sales across many of
its product lines by expanding product offerings within compatible
markets, targeting new global markets for existing products and expanding
penetration in those overseas markets where a presence has already been
established. To accomplish this objective, the Company expects to make
business acquisitions and capital investments in new plant and equipment
as necessary in the United States and intends to pursue select investments
in strategic partners and participate in joint ventures off-shore. A
senior executive directs new business development and international
activities for the Company.
MANUFACTURING STRATEGY
The Company's manufacturing strategy is primarily focused on
maximizing product quality and production efficiencies. The Company has
achieved a high level of vertical integration through internal production
of its principal raw materials: copper rod, magnet wire enamels and
extrudable polymeric compounds. The Company believes one of its primary
cost advantages in the magnet wire business is the ability to produce most
of its enamel requirements internally. Similarly, the Company believes
its ability to develop and produce PVC and rubber compounds, which are
used as insulation and jacketing materials for many of its building wire,
automotive, industrial and communication wire products, provides cost
advantages because the process achieves greater control over the cost and
quality of essential components used in production. These operations are
supported by the Company's metallurgical, chemical and polymer development
laboratories.
To further optimize production efficiencies, the Company invests in
new plants and equipment, pursues plant rationalizations, and participates
in joint venture opportunities. During the period 1988 through 1991, the
Company invested an average $13.4 million per year on capital projects.
During the period 1992 through 1994 the Company invested an average $29.2
million per year on capital projects. The major projects in this most
recent period entailed increasing capacity and upgrading equipment. No
single capital project expenditure in 1994 exceeded $4.0 million.
MANUFACTURING PROCESS
Copper rod is the base component for most of the Company's wire
products. The Company buys copper cathode from a variety of producers and
dealers and also reclaims and reprocesses high grade scrap copper from its
own and other operations. See "Metals Operations." After the rod is
manufactured at the Company's rod mills, it is shipped to other
4<PAGE>
manufacturing facilities where it is processed into the wire and cable
products produced by the Company. See "Copper Rod Production."
The manufacturing processes for all of the Company's wire and cable
products require that the copper rod be drawn and insulated. Certain
products also require that the wire be "bunched" or "cabled".
Wire Drawing. Wire drawing is the process of reducing the metal
conductor diameter by pulling it through a converging die until the
specified product size is attained. Since the reduction is limited by the
breaking strength of the metal conductor, this operation is repeated
several times internally within the machine. As the wire becomes smaller,
less pulling force is required. Therefore, machines operating in specific
size ranges are required. Take-up containers or spools are generally
large, allowing one person to operate several machines.
Bunching. Bunching is the process of twisting together single wire
strands to form a concentric construction ranging from seven to over 200
strands. The major purpose of bunching is to provide improved flexibility
while maintaining current carrying capacity. For some applications (for
example, automotive uses), the final wire must be concentric, requiring
accurate control of the bare wire's mechanical properties, tension, and
diameter. In other applications, such as building wire, different
diameters are used within the single conductors to produce a round wire.
Insulating. The magnet wire insulating materials (enamels)
manufactured by the Company's chemical processing facility are polymeric
materials produced by one of two methods. One method involves the
blending of commercial resins which are dissolved in various solvents and
then modified with catalysts, pigments, cross-linking agents and dyes.
The other method involves building polymer resins to desired molecular
weights in reactor systems.
The enamelling process used in the manufacture of some magnet wire
involves applying several thin coats of liquid enamel and evaporating the
solvent in baking chambers. Some enamels require a specific chemical
reaction in the baking chamber to fully cure the film. Enamels are
generally applied to the wires in excess, which is then metered off with
dies or rollers; however, some applications apply only the required amount
of liquid enamel.
Most other wire products are insulated with thermoplastic, thermoset
or rubber compounds through an extrusion process. Extrusion involves the
feeding, melting and pumping of a compound through a die to shape it into
final form as it is applied to the wire. The Company has the capability
to manufacture all three types of jacketing and insulating compounds,
which are then extruded onto wire.
Once the wire is fabricated, it is packaged and shipped to regional
warehouses, distributors or directly to customers.
METALS OPERATIONS
Although the Company classifies its business into three principal
divisions (see "Division Operations" above) the metals operations, due to
cost efficiencies, are centrally organized. Copper is the critical
component of the Company's overall cost structure, comprising
approximately 56% of the Company's 1994 total production cost of sales.
5<PAGE>
Through centralization, the Company carefully manages its copper
procurement, internal distribution, manufacturing and scrap recycling
processes.
The Company's operations are vertically integrated in the production
of copper rod, and the Company believes that only a few of its competitors
are able to match this capability. The Company manufactures most of its
copper rod requirements and purchases the remainder from various
suppliers.
COPPER PROCUREMENT
The Company's copper procurement activities are centralized. In 1994
the Company purchased approximately 238,000 tons of copper. North
American copper producers and metals merchants constituted the source for
approximately 98% of such copper.
Under producer contracts, the Company commits to take a specified
tonnage per month. Most producer contracts have a one-year term. Pricing
provisions vary, but they are based on the New York Commodity Exchange,
Inc. ("COMEX") price plus a premium. Under merchant contracts, prices are
also based on the COMEX price plus a premium. Payment terms are
negotiated. Additionally, to a limited extent, the Company utilizes
forward fixed price and futures contracts to manage its commodity price
risk on this principal raw material. The company does not hold or issue
these contracts for investment or trading purposes.
Historically, the Company has had adequate supplies of raw materials
available to it from producers and dealers, both foreign and domestic.
Competition from other users of copper has not affected the Company's
ability to meet its copper procurement requirements. However, no
assurance can be given that the Company will be able to procure adequate
supplies of copper to meet its future needs.
COPPER ROD PRODUCTION
The production of copper rod is an essential part of the Company's
manufacturing process. Through vertical integration, the Company's
ability to manufacture rod provides greater control over the cost and
quality of the principal component used in producing most of the Company's
products. Copper rod is manufactured by a continuous casting process
where high quality copper cathodes are melted in a shaft furnace. The
molten copper is transferred to a holding furnace and siphoned directly
onto a casting wheel where it is cooled and subsequently rolled into
copper rod. The rod is subjected to quality control tests to determine
that it meets the high quality standards of the Company's products.
Numerous other quality tests are performed throughout the process to
determine rod characteristic and provide proper utilization of rod by
plants requiring specific processing requirements. Finally, the rod is
packaged for shipment via an automatic in-line coiling packaging device.
The Company's rod production facilities are strategically located
near its major wire producing plants to minimize freight costs. During
the third quarter 1994, the Company commenced production from a fifth
continuous casting unit at an existing facility to further supply its rod
requirements and reduce costs. With the addition of this unit, the
Company has the capability to produce approximately 85% of its rod
requirements, while purchasing the balance from external sources.
6<PAGE>
External rod purchases are used to cover rod requirements at manufacturing
locations where shipping Company-produced rod is not cost effective and
when the Company's rod requirements exceed its production capacity.
COPPER SCRAP RECLAMATION
The Company's Metals Processing Center receives clean, high quality
copper scrap from a majority of the Company's plants. Copper scrap is
processed in rotary furnaces, which also have refining capability to
remove impurities. A casting process is employed to manufacture copper
rod from scrap material. This continuous casting process is unique in the
industry in the conversion of scrap directly into rod. Manufacturing cost
economies, particularly in the form of energy savings, result from the
Company's direct production technique. Additionally, management believes
that internal reclamation of scrap copper provides greater control over
the cost to recover the Company's principal manufacturing by-product. The
Company also, from time to time, obtains scrap from other copper wire
producers and processes it along with the internal scrap.
EXPORTS
Sales of exported goods approximated $52.7 million, $70.6 million,
and $75.5 million for the years ended December 31, 1994, 1993, and 1992,
respectively. Communication cables are the Company's primary product
exports.
BACKLOG
The Company has no significant order backlog in that it follows the
industry practice of producing its products on an ongoing basis to meet
customer demand without significant delay. The Company believes the
ability to supply orders in a timely fashion is a competitive factor in
the markets in which it operates.
COMPETITION
In each of the Company's operating divisions, the Company experiences
competition from at least one major competitor. However, due to the
diversity of the Company's product lines as a whole, no single competitor
competes with the Company across the entire spectrum of the Company's
product lines. Many of the Company's products are made to industry
specifications, and are therefore essentially fungible with those of
competitors. Accordingly, the Company is subject in many markets to
competition on the basis of price, delivery time, customer service and
ability to meet specialty needs. The Company believes it enjoys strong
customer relations resulting from its long participation in the industry,
its emphasis on customer service, its commitment to quality control,
reliability, and its substantial production resources. The Company's
distribution networks enable it to compete effectively with respect to
delivery time. From time to time the Company has experienced reduced
margins in certain markets due to price cutting by competitors.
EMPLOYEES
As of December 31, 1994 the Company employed approximately 1,255
salaried and 2,595 hourly employees in 33 states. Labor unions represent
approximately 52% of the Company's work force. Collective bargaining
agreements expire at various times between 1995 and 1998. Contracts
7<PAGE>
covering approximately 28% of the Company's unionized work force will
expire at various times during 1995. The Company believes that it will be
able to renegotiate its contracts covering such unionized employees on
terms that will not be materially adverse to it, however, no assurance can
be given to that effect. The Company believes its relations with both
unionized and nonunionized employees have been good.
ITEM 2. PROPERTIES
At December 31, 1994 the Company operated 26 manufacturing facilities
in 12 states. Except as indicated below, all of the facilities are owned
by the Company or its subsidiaries. The Company believes its facilities
and equipment are reasonably suited to its needs and are properly
maintained and adequately insured.
The following table sets forth certain information with respect to
the manufacturing facilities of the Company at December 31, 1994:
<TABLE>
<CAPTION>
Square
Operation Location Feet
--------- -------- ------
<S> <C> <C>
Engineered Products . . . . . . Chester, SC 218,000
Hoisington, KS 239,000
Kosciusko, MS 90,000(a)
Lexington, MS 43,000
Marion, IN 50,000
Orleans, IN 425,000
Magnet Wire . . . . . . . . . . Charlotte, NC 26,000 (Leased)
Fort Wayne, IN 181,000
Franklin, IN 35,000(b)
Franklin, TN 289,000 (Leased)
Kendallville, IN 88,000
Newmarket, NH 132,000
(2 facilities)
Rockford, IL 319,000
Rutland, VT 61,000
Vincennes, IN 267,000
Metals Processing . . . . . . . Columbia City, IN 75,000
Jonesboro, IN 56,000
Wire and Cable . . . . . . . . Anaheim, CA 174,000
Columbia City, IN 400,000
Lafayette, IN(c) 350,000
Lithonia, GA 144,000
Marion, IN(c)(d) 254,000 (Leased)
Pana, IL(c) 110,000
Pauline, KS 501,000
Tiffin, OH 260,000
</TABLE>
(a) The Company is the lessee of approximately 30,000 square feet of the
Kosciusko, MS facility.
8<PAGE>
(b) The total square footage of the Franklin, IN facility is
approximately 70,000 of which 35,000 square feet is leased to Femco
as described in the third succeeding paragraph below.
(c) These facilities were transferred from the Engineered Products
Division to the Wire and Cable Division late in 1994. (See Division
Operations-Wire and Cable Division.)
(d) The Marion, IN (WCD) facility will be closed effective May 31, 1995.
In addition to the facilities described in the table above, the
Company owns or leases 24 warehouses throughout the United States, plus
one each in Canada and the Philippines, to facilitate the sale and
distribution of its products. The Company owns and maintains executive
and administrative offices in Fort Wayne, Indiana.
The Company believes its plants are generally adequate to service the
requirements of its customers. Overall, the Company's plants are utilized
to a substantial, but not full degree. The extent of current utilization
is generally consistent with historical patterns, and, in the view of the
Company, is satisfactory. The Company does not view any of its plants as
being substantially underutilized, except for Marion, IN (WCD), Lafayette,
IN (WCD) and Lexington, MS (EPD), at which less than 50% of the available
space and/or facility is utilized. Most plants operate on schedules of no
less than three eight hour shifts, five days a week. During 1994, the
Company's facilities operated overall at approximately 82% of capacity,
with MWI at nearly 100%, EPD at 66%, and WCD at 85% of capacity.
The property in Franklin, Indiana is a magnet wire manufacturing
facility occupied by both the Company and Femco. Half of the Franklin,
Indiana building is leased to Femco which was established in 1988 as a
joint venture between the Company and The Furukawa Electric Company, LTD.,
Tokyo, Japan. Femco manufactures and markets magnet wire with special
emphasis on products required by Japanese manufacturers with production
facilities in the United States. See Division Operations--Magnet Wire and
Insulation.
ITEM 3. LEGAL PROCEEDINGS
LEGAL AND ENVIRONMENTAL MATTERS
The Company is engaged in certain routine litigation arising in the
ordinary course of business. The Company does not believe that the
adverse determination of any pending litigation, either singly or in the
aggregate, would have a material adverse effect upon its business,
financial condition or results of operations.
Potential environmental liability to the Company arises from both
on-site contamination by, and off-site disposal of, hazardous substances.
On-site contamination at certain Company facilities is the result of
historic disposal activities, including activities attributable to Company
operations and those occurring prior to the use of a facility site by the
Company. Off-site liability would include cleanup responsibilities at
various sites to be remedied under federal or state statutes for which the
Company has been identified by the United States Environmental Protection
Agency (the "EPA") (or the equivalent state agency) as a Potentially
Responsible Party ("PRP").
9<PAGE>
The Company has been named in government proceedings which involve
environmental matters with potential remediation costs and, in certain
instances, sanctions. Once the Company has been named as a PRP, it
estimates the extent of its potential liability based upon, among other
things, the number of other identified PRPs and the relative contribution
of Company waste at the site. The Company believes that, subject to the
$4.0 million "basket" described below and four other identified sites, it
will not bear the cost of investigation and cleanup at any of these sites
because, pursuant to the Stock Purchase Agreement dated January 15, 1988
(the "1988 Acquisition Agreement") covering the 1988 Acquisition, UTC
agreed to indemnify the Company against all losses, as defined in the 1988
Acquisition Agreement, incurred under any environmental protection and
pollution control laws or resulting from or in connection with damage or
pollution to the environment, and arising from events, operations or
activities of the Company prior to February 29, 1988 or from conditions or
circumstances existing at or prior to February 29, 1988. Except for
certain matters relating to permit compliance, the Company believes that
it is fully indemnified with respect to conditions, events and
circumstances known to UTC prior to February 29, 1988, (i.e., matters
referred to in documents which were in UTC's possession, custody or
control prior to the 1988 Acquisition or matters identified to UTC through
the due diligence of Holdings.) Further, the Company is indemnified,
subject to a $4.0 million "basket" (the "Basket"), for losses related to
any environmental events, conditions, or circumstances identified prior to
February 28, 1993 to the extent such losses were not caused by activities
of the Company after February 29, 1988. None of the foregoing was
affected by the change in control of Holdings on October 9, 1992.
The Company is not aware of any inability or refusal on the part of
UTC to pay amounts which are owing under the UTC indemnity. There are
currently no disputes between the Company and UTC concerning matters that
are covered by the indemnification but the Company and UTC are discussing
application of the Basket to certain post-February 28, 1993 claims. There
are four identified sites not covered by the indemnity or the Basket as it
has been applied to date. The Company has made accruals to cover expected
liability where sufficient information is available to make an assessment.
The Company does not believe that, in light of the UTC indemnity, any of
the environmental proceedings in which it is involved and for which it may
be liable under the Basket or otherwise will, individually or in the
aggregate, have a material adverse effect upon its business, financial
condition or results of operations and none involves sanctions for amounts
of $0.1 million or more.
In 1967, following an investigation regarding the alleged violation
of United States antitrust laws, the Company agreed that in the future it
would refrain from tying the sale of magnet wire to the purchase of other
products.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of 1994.
10<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established public trading market for the common stock of
the Company or of its parent, Holdings. The common stock of the Company
and its parent has not been traded or sold publicly and accordingly no
information with respect to sales prices or quotations is available.
11<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth (i) selected historical consolidated
financial data of the Company prior to the Acquisition ("Predecessor") as
of and for the nine month period ended September 30, 1992 and each of the
years in the two year period ended December 31, 1991, (ii) selected
historical consolidated financial data of the Company after the
Acquisition ("Successor") as of and for the years ended December 31, 1994
and 1993 and the three month period ended December 31, 1992, and, (iii)
combined historical consolidated financial data of Successor for the three
month period ended December 31, 1992 and Predecessor for the nine month
period ended September 30, 1992. This data should be read in conjunction
with "Management's Discussion and Analysis of Results of Operations and
Financial Condition" and the consolidated financial statements and related
notes included elsewhere herein. The selected historical consolidated
financial data presented below as of and for each of the years in the two
year period ended December 31, 1991, were derived from the audited
consolidated financial statements of Predecessor (not presented herein).
The selected historical consolidated financial data presented below, as of
and for the years ended December 31, 1994 and 1993, the three month period
ended December 31, 1992 and the nine month period ended September 30,
1992, were derived from the consolidated financial statements of Successor
and Predecessor, which were audited by Ernst & Young LLP, independent
auditors, whose report with respect thereto, together with such financial
statements, appears elsewhere herein.
<TABLE>
<CAPTION>
SUCCESSOR COMBINED(a) PREDECESSOR
----------------------------- ---------- ------------------------
Three Twelve Nine
Month Month Month
Period Period Period
In Thousands of Year Ended Ended Ended Ended Year Ended
Dollars, Except December 31, December December September December 31,
Ratio Data ------------------- 31, 31, 30, ----------------
1994 1993 1992 1992 1992 1991 1990
------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Net sales $1,010,075 $868,846 $209,354 $909,351 $699,997$885,492 $992,001
Other income/(expense)
-net (910) 188 145 1,237 1,092 522 1,415
---------- -------- -------- -------- ---------------- --------
1,009,165 869,034 209,499 910,588 701,089 886,014 993,416
---------- -------- -------- -------- ---------------- --------
Cost of goods sold 846,611 745,875 186,026 780,148 594,122 753,077 838,048
Selling and
administrative 85,129 75,489 22,349 81,958 59,609 80,227 80,267
Interest(b) 24,554 25,241 8,086 22,591 14,505 24,969 31,893
Unusual items(c) - - - 18,139 18,139 - -
---------- -------- -------- -------- ---------------- --------
12<PAGE>
SUCCESSOR COMBINED(a) PREDECESSOR
----------------------------- ---------- ------------------------
Three Twelve Nine
Month Month Month
Period Period Period
In Thousands of Year Ended Ended Ended Ended Year Ended
Dollars, Except December 31, December December September December 31,
Ratio Data ------------------- 31, 31, 30, ----------------
1994 1993 1992 1992 1992 1991 1990
------------------- ------ ------ ------ ------ ------ ------ ------
Total costs and
expenses 956,294 846,605 216,461 902,836 686,375 858,273 950,208
------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes and
extraordinary charge 52,871 22,429 (6,962) 7,752 14,714 27,741 43,208
Provision (benefit)
for income taxes(d) 22,700 13,052 (1,900) 7,378 9,278 13,241 12,760
------- ------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary charge 30,171 9,377 (5,062) 374 5,436 14,500 30,448
Extraordinary charge
net of income tax
benefit(e) - 3,367 - 122 122 1,471 -
------- ------- ------- ------- ------- ------- -------
Net Income (loss) $30,171 $ 6,010 $(5,062) $ 252 $ 5,314 $13,029 $30,448
======= ======= ======= ======= ======= ======= =======
Pro-forma net income
reflecting income
taxes on a separate
return basis(d) $21,699
=======
Balance Sheet Data
(at end of period):
Working capital $191,062 $155,136 $123,935 $162,661$124,485 $164,293
Total assets 750,300 706,997 703,147 447,874 413,648 443,963
Long-term debt
(including current
portion) 200,000 200,000 221,289 189,890 193,580 247,426
Stockholder's equity 333,903 303,732 297,722 132,257 120,354 112,325
Other Data:
Additions to
property, plant and
equipment $30,109 $26,167 $14,705 $31,180 $16,475 $13,242 $19,072
Ratio of earnings to
fixed charges(f) 3.0 1.7 - 1.9 2.0 2.3
Deficiency of
earnings to fixed
charges(f) - - $7,078 - - -
</TABLE>
(Footnotes on following page)
13<PAGE>
(Footnotes continued from previous page)
(a) Represents a combination of Successor's three month period ended
December 31, 1992 and Predecessor's nine month period ended September
30, 1992. Such combined results are not directly comparable to the
consolidated results of operations of the Predecessor for each of the
two years ended December 31, 1991, nor are they necessarily
indicative of the results for the full year due to the effects of the
Acquisition and Merger and related refinancings and the concurrent
adoption of Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes," ("FAS 109"). (See Notes to
Consolidated Financial Statements.) Financial data of the Company as
of October 1, 1992 and thereafter reflect the Acquisition using the
purchase method of accounting, and accordingly, the purchase price
was allocated to assets and liabilities based upon their estimated
fair values. However, to the extent that Holdings management had a
continuing investment interest in Holdings' common stock, such fair
values (and contributed stockholder's equity) were reduced
proportionately to reflect the continuing interest (approximately
10%) at the prior historical cost basis.
(b) In connection with the Acquisition and Merger, debt issuance costs of
$1.5 million and $1.8 million associated with debt retired were
included in interest expense for the year ended December 31, 1993 and
the three month period ended December 31, 1992, respectively.
(c) In connection with the Acquisition and Merger, the Predecessor
recorded certain merger related expenses of $18.1 million consisting
primarily of bonus and option payments to certain employees and
certain merger fees and expenses, which have been charged to the
Predecessor's operations in the nine month period ended September 30,
1992.
(d) Holdings and the Company file a consolidated U.S. federal income tax
return. Through December 31, 1990 the deductible expenses of
Holdings (primarily interest) were included in the calculation of the
Company's income taxes under a tax sharing agreement with Holdings.
The tax sharing agreement was amended, effective January 1, 1991, to
provide that the Company's aggregate income tax liability be
calculated as if it were to file a separate return with its
subsidiaries. The tax benefit recorded in 1990 for the deductible
expenses of Holdings was $8.7 million. The pro forma net income
reflecting income taxes on a separate return basis is presented for
1990 as if such benefit had not been recorded.
(e) During 1993, Successor recognized extraordinary charges of $3.1
million, net of applicable tax benefit, representing the write off of
unamortized debt issuance costs associated with the repayment of the
outstanding balance of the Company's term loans, and $0.3 million,
net of applicable tax benefit, representing the net loss resulting
from the redemption of the Company's 12 3/8% Senior Subordinated
Debentures ("Debenture Repurchases"). During 1992 and 1991,
Predecessor made Debenture Repurchases which had a carrying value of
$13.8 million and $42.0 million, respectively. The net loss
resulting from these repurchases, which includes the write off of a
portion of unamortized debt issuance costs, was reflected as an
extraordinary charge of $0.1 million and $1.5 million, net of
14<PAGE>
applicable income tax benefit for Predecessor during 1992 and 1991,
respectively.
(f) For purposes of this computation, earnings consist of income before
income taxes plus fixed charges (excluding capitalized interest).
Fixed charges consist of interest on indebtedness (including
capitalized interest and amortization of deferred financing fees)
plus that portion of lease rental expense representative of the
interest factor (deemed to be one-third of lease rental expense).
Earnings of the Successor were insufficient to cover fixed charges by
the amount of $7.1 million for the three month period ended
December 31, 1992.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
INTRODUCTION
The Company is engaged in one principal line of business, the
production of electrical wire and cable. The Company classifies its
operations into three major divisions based on the markets served: Wire
and Cable Division, Magnet Wire and Insulation Division and Engineered
Products Division. In 1994, the former Telecommunications Products
Division was merged with and into the Engineered Products Division. See
"Business" for a description of the principal products offered by each
division and the total sales for each major product line for the years
ended 1994, 1993 and 1992.
For financial statement purposes, the Acquisition and Merger was
accounted for by Holdings as a purchase acquisition effective October 1,
1992. Because the Company is a wholly-owned subsidiary of Holdings, the
effects of the Acquisition and Merger have been reflected in the Company's
financial statements, resulting in a new basis of accounting to reflect
estimated fair values at that date. As a result, the Company's financial
statements for the periods subsequent to September 30, 1992 are presented
on the Successor's new basis of accounting, while the financial statements
for September 30, 1992 and prior periods are presented on the
Predecessor's historical cost basis of accounting. The consolidated
results of operations of the Company for the twelve month period ended
December 31, 1992 are not directly comparable to the consolidated results
of operations of the Predecessor due to the effects of the Acquisition and
Merger and related refinancings and the concurrent adoption of FAS 109.
See Notes 1 and 7 of Notes to Consolidated Financial Statements.
In connection with the Acquisition and Merger and concurrent adoption
of FAS 109, the Successor recognized $142.2 million of excess of cost over
net assets acquired that is being amortized over 35 years on the straight
line method.
RESULTS OF OPERATIONS
THE YEAR ENDED DECEMBER 31, 1994 COMPARED WITH THE YEAR ENDED
DECEMBER 31, 1993
Net sales for 1994 were $1,010.1 million or 16.3% higher than 1993,
reflecting product price increases, higher sales volumes and inclusion of
Interstate Industries sales (see Business-Division Operations-Engineered
Products Division). Sales volumes in 1994 were at record levels for the
15<PAGE>
third straight year, exceeding the 1993 sales volume by approximately
6.9%. The Company believes the improved sales volume resulted from
increased demand for wire products within the served markets which was
partially attributable to a growing economy and to increased usage of the
Company's wire in end products, especially as these factors affected the
markets served by the Magnet Wire and Insulation Division. Higher product
prices reflected a marked increase in copper costs and improved product
pricing. Copper is the Company's principal raw material. The 1994
average COMEX copper price rose 23.9% from 1993 and, notwithstanding the
magnitude of the price increase, copper costs were generally passed on to
customers through product pricing, as is customary in the Company's
business. For a discussion of the Company's practices with respect to the
purchase, internal distribution and processing of copper, see "Business-
Metals Operations." Also see "General Economic Conditions and Inflation"
under this caption.
Sales for the Magnet Wire and Insulation Division increased 24.1%
over 1993, driven by a 21.8% growth in sales volume and higher copper
prices, partially offset by a higher proportion of customer-owned copper
in the division's sales mix. Improved sales volumes were attributable to
increased demand for magnet wire products in the automotive, electric
motor and transformer markets as well as increased sales to distributors.
The Wire and Cable Division's sales increased 21.7% compared to 1993, due
principally to higher copper prices and improved product pricing.
Increased demand within the building wire market contributed to reduced
competitive pricing pressures which had adversely impacted this market in
1993. The Wire and Cable Division's sales volume was comparable to 1993.
The Engineered Products Division's sales were essentially flat compared to
1993 as sales growth due to higher automotive sales volume, higher copper
prices and inclusion of Interstate Industries was offset by lower
communication wire sales. Automotive wire volumes increased approximately
12.9% from 1993 due to a strengthening automotive market (new car and
light truck sales volume in the United States was approximately 10% higher
in 1994 than 1993), and the addition of several new customers. See
"Business-Division Operations-Engineered Products Division". Interstate
Industries provided approximately $14.0 million of additional sales in
1994. Communication wire sales volume decreased 19.1% from 1993 resulting
from a 46.6% decline in export sales, due primarily to increased pricing
pressures from foreign competitors, partially offset by an 8.8%
improvement in domestic communication wire sales.
Cost of goods sold increased 13.5% in 1994 compared with 1993 due
primarily to increased copper and other material costs (essentially
resins), higher sales volumes and inclusion of Interstate Industries,
partially offset by a change in product mix. The Company's cost of goods
sold as a percentage of net sales was 83.8% and 85.8% in 1994 and 1993,
respectively. The cost of goods sold percentage in 1994 was favorable to
1993 due primarily to improved product pricing and lower manufacturing
costs resulting from continued capital investments and higher
manufacturing volumes.
Selling and administrative expenses in 1994 were 12.8% higher than
1993 due primarily to increased sales commissions attributable to higher
sales, inclusion of Interstate Industries and higher incentive
compensation accruals related to improved 1994 operating results. These
expenses were partially offset, however, by lower amortization charges in
1994 due to the expiration in February 1993 of a non-compete agreement
16<PAGE>
with UTC. Amortization charges, in the amount of $1.1 million, were
recorded in 1993 in connection with this non-compete agreement.
Interest expense in 1994 was 2.7% below 1993 due primarily to lower
deferred debt amortization charges and a reduction in weighted average
debt outstanding, partially offset by an increase in the Company's average
interest rate from 9.7% to 10.4%. Deferred debt amortization charges
decreased from 1993 due primarily to the repayment in May 1993 of the term
loans (the "Term Credit") under the credit agreement entered into in
September 1992 (the "Credit Agreement") and the redemption in June 1993 of
the 12 3/8% Senior Subordinated Debentures due 2000 (the "Debentures"),
partially offset by the May 1993 issuance of the 10% Senior Notes due 2003
(the "Senior Notes"). The decrease in weighted average debt outstanding
resulted primarily from reduced usage of the Company's revolving credit
facility during 1994 compared to 1993. The increase in average interest
rate reflected the higher rate of interest payable on the Senior Notes
compared with the rate of interest on the Term Credit, which was repaid
from the sale of the Senior Notes, partially offset by the rate of
interest on the Debentures, which were also redeemed.
Other expense consists primarily of write-offs related to fixed asset
disposals occurring in the normal course of business.
Income tax expense was 42.9% of pretax income in 1994 compared with
58.2% in 1993. The effective income tax rate of the Company is higher
than the approximate statutory rate of 40% due to the effect of the
amortization of excess of cost over net assets acquired which is not
deductible for income tax purposes. With respect to the Omnibus Budget
Reconciliation Act of 1993 ("OBRA 1993"), the Company's 1993 tax balances
were adjusted to reflect the new federal statutory tax rate of 35%. The
adjustment increased income tax expense by approximately $2.3 million in
1993 or 10.0% of pretax income.
The Company recorded net income of $30.2 million in 1994 as compared
to net income of $6.0 million in 1993. The 1993 results include
extraordinary charges of $3.4 million ($5.5 million before applicable tax
benefits) associated with the repayment of the Term Credit and redemption
of the Debentures.
THE YEAR ENDED DECEMBER 31, 1993 COMPARED WITH THE TWELVE MONTHS ENDED
DECEMBER 31, 1992
Net sales for 1993 were $868.8 million or 4.5% lower than 1992.
Record sales volume in 1993 exceeded the previous record-level volume of
1992 by approximately 5.1% but was more than offset by reduced product
prices reflecting lower copper costs, the Company's principal raw
material, and competitive pricing pressures. Copper costs are generally
passed on to customers through product pricing. The average price for
copper on the COMEX declined 17.0% from 1992. The Company believes the
improved sales volume resulted from increased demand for wire products
within the served markets and was attributable to an improving economy,
especially as it affected the markets served by the Magnet Wire and
Insulation and Engineered Products Divisions. For a discussion of the
Company's practices with respect to the purchase, internal distribution
and processing of copper, see "Business-Metals Operations." Also see
"General Economic Conditions and Inflation" under this caption.
17<PAGE>
Sales for the Magnet Wire and Insulation Division were up 5.3%
compared to 1992. Sales volume increased 12.5% over 1992 resulting from
increased demand for magnet wire products in the automotive, electric
motor and transformer markets in addition to increased sales to
distributors. Product pricing was down approximately 6.9% due primarily
to lower copper prices in 1993 compared to 1992. The Engineered Products
Division experienced a 5.3% increase in sales over 1992 attributable
primarily to increased demand for the division's automotive wire products.
Automotive wire volumes increased approximately 21% from 1992 due in part
to improved demand from its primary customer and to several new accounts.
See "Business-Division Operations-Engineered Products Division". Of the
increased automotive sales volume, 27% resulted from new customers. Sales
of non-automotive products also experienced volume improvements despite
decreased demand for pump and welding cable products resulting from
flooding in the midwest during 1993. The Wire and Cable, and
Telecommunication Products Divisions experienced sales declines in 1993
compared with 1992. The Wire and Cable Division's sales were off 11.3%
from 1992 due principally to lower copper prices and reduced product
pricing. Volume was down slightly compared with 1992 due mainly to
selective market participation during part of the year. Sales by the
Telecommunication Products Division were down approximately 11.8% compared
with 1992. In addition to reduced product pricing, unit sales volume to
the domestic telephone markets was down 22.0% partially offset by a 19.3%
increase in export unit volume. Product demand within the domestic
markets was down due primarily to general uncertainty about the economy as
well as the ongoing restructuring of the U.S. telephone cable industry.
Cost of goods sold decreased 4.4% in 1993 compared with 1992 due
primarily to lower copper prices partially offset by higher sales volume
and additional depreciation expense resulting from the application of
purchase accounting in connection with the Acquisition and Merger and the
concurrent adoption of FAS 109 (See Notes 1 and 7 of Notes to Consolidated
Financial Statements). The Company's cost of goods sold as a percentage
of net sales was 85.8% in each of 1993 and 1992. The cost of goods sold
percentage in 1993 was adversely impacted by generally lower selling
prices and additional depreciation expense resulting from the application
of purchase accounting in connection with the Acquisition and Merger and
the concurrent adoption of FAS 109 partially offset by lower manufacturing
costs resulting from increased capacity utilization. Cost of goods sold
in 1992 includes a charge of $2.6 million relating to planned plant
consolidations, primarily costs to move equipment and personnel related
expenses. Expenditures in 1993 related to this charge and amounts
remaining to be spent are not material to the consolidated financial
statements. Raw material costs in 1993, excluding copper, were generally
unchanged from 1992.
Selling and administrative expenses in 1993 were 7.9% lower than 1992
due primarily to the expiration of a non-compete agreement with UTC in the
first quarter 1993 resulting in the elimination of the related
amortization charge, a $2.1 million reduction in the Company's health
insurance expense and a $1.5 million accrual in 1992 for the relocation of
a business unit in 1993. In connection with the 1988 Acquisition, UTC
agreed that until March 1, 1993, it would not engage in any business
directly competing with any business carried on by the Company on February
29, 1988. The $34.0 million purchase price allocated to the covenant not
to compete was amortized over five years on the straight line method. The
reduction in health insurance expense was attributable to favorable
experience in health related expenditures. Partially offsetting these
18<PAGE>
expense reductions was a $4.0 million amortization charge recorded in 1993
for excess of cost over net assets acquired compared to a $1.0 million
charge recorded in 1992 and a $2.5 million reduction in the Company's
allowance for doubtful accounts recorded in 1992. In connection with the
Acquisition and Merger and concurrent adoption of FAS 109, the Successor
recognized $142.2 million of excess of cost over net assets acquired that
is being amortized over 35 years on the straight line method. The
Company's allowance for doubtful accounts was reduced on the basis of the
collection of a substantial receivable which had been considered doubtful
as well as management's assessment of collection risk in the primary
markets served.
Interest expense in 1993 was $25.2 million as compared to $22.6
million in 1992. The increase was principally caused by $19.0 million in
additional weighted average debt outstanding and an increase in the
Company's average interest rate incurred (from 8.9% to 9.7%). The
additional debt outstanding was primarily attributable to Acquisition-
related borrowings and the May 1993 issuance and sale by the Company of
the Senior Notes. Average interest rates increased reflecting the higher
interest rate on the Senior Notes compared with the rate of interest on
the Term Credit which was repaid from the sale of the Senior Notes,
partially offset by the redemption of all outstanding Debentures which
were also repaid in connection with the issuance of the Senior Notes.
In connection with the Acquisition and Merger, the Company incurred
certain merger related expenses in the amount of $18.1 million consisting
primarily of bonus and option payments to certain employees, and certain
merger fees and expenses which were charged to operations of the
Predecessor in 1992. These Acquisition and Merger expenses had the effect
of reducing 1992 net income by $12.5 million (after applicable tax benefit
of $5.6 million). See Note 1 of Notes to Consolidated Financial
Statements.
Income tax expense was $13.1 million, or 58.2% of pretax income in
1993 compared with $7.4 million, or 95.2%, of pretax income in 1992. The
Company elected not to step up its tax bases in the assets acquired in
either the Acquisition or the 1988 Acquisition. Accordingly, the
Company's income tax bases in the assets acquired have not been changed
from those prior to the 1988 Acquisition. Depreciation and amortization
of the higher allocated financial statement bases are not deductible for
income tax purposes, thus causing the effective income tax rate of the
Predecessor to be generally higher than the combined federal and state
statutory rate. Because of the adoption of FAS 109 by the Successor,
concurrent with the Acquisition, deferred income taxes have been provided
for bases differences in all assets and liabilities other than excess of
cost over net assets acquired. With respect to OBRA 1993, the Company's
1993 tax balances were adjusted to reflect the new federal statutory tax
rate of 35%. The adjustment increased income tax expense by approximately
$2.3 million for 1993 or 10.0% of pretax income. See Note 7 of Notes to
Consolidated Financial Statements.
The Company recorded net income of $6.0 million in 1993 as compared
to net income of $0.3 million in 1992. The 1993 results include
extraordinary charges of $3.4 million ($5.5 million before applicable tax
benefits) associated with the repayment of the Term Credit and redemption
of the Debentures. The 1992 results include $18.1 million of Acquisition
and Merger related expenses, $12.5 million net of applicable tax benefit,
and a $0.1 million extraordinary charge ($0.2 million before applicable
19<PAGE>
tax benefit) resulting from the partial repurchase of a portion of the
outstanding Debentures.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
The Company had a ratio of debt (consisting of current and non-
current portions of long-term debt) to stockholder's equity of
approximately 0.6 to 1 at December 31, 1994 and 0.7 to 1 at December 31,
1993.
In general, the Company requires liquidity for working capital,
capital expenditures, cash interest expenses and taxes. Commencing in
November, 1995 the Company may also need to provide Holdings with
sufficient cash to enable Holdings to pay interest on any of its Senior
Discount Debentures due 2004 (the "Holdings Debentures") which may then be
outstanding. Of particular significance to the Company is its working
capital requirements which increase whenever the Company experiences
strong incremental demand in its business and/or a significant rise in
copper prices. Historically, the Company has satisfied its liquidity
requirements through a combination of funds generated from operating
activities together with funds available under its credit facilities.
Based upon historical experience and the substantial availability of funds
under its revolving credit facility, the Company expects that its usual
sources of liquidity will be more than sufficient to enable it to meet its
cash requirements for working capital, capital expenditures, interest,
taxes and payments to Holdings for 1995.
Net cash provided by operating activities in 1994 was $37.1 million,
compared to $60.7 million in 1993. The reduction was due primarily to
increased cash requirements to fund higher receivable balances resulting
from higher copper prices and increased sales volume in 1994, partially
offset by improved net income.
Capital expenditures of $30.1 million in 1994 were $3.9 million
greater than in 1993. No single capital project expenditure in 1994
exceeded $4.0 million. The major projects in 1994 entailed increasing
capacity and upgrading equipment. The Company expects to make capital
expenditures in 1995 approximating 1994 expenditure levels to expand
capacity, complete modernization projects, reduce costs and ensure
continued compliance with regulatory provisions. At December 31, 1994,
approximately $8.0 million was committed to outside vendors for capital
expenditures. The Company's Credit Agreement as restated and amended in
April 1993 (the "Restated Credit Agreement") imposes annual limits on the
Company's capital expenditures and business acquisitions.
During 1994, the Company also used its $175 million revolving credit
facility (the "Revolving Credit") to satisfy liquidity needs. This
facility is available to the Company under the Restated Credit Agreement.
The amount available for borrowing under the Revolving Credit at any time
is reduced by the amount of outstanding borrowings and letters of credit
and may be further reduced depending upon the amount of the Company's
"eligible assets" as defined. In addition, the amount of Revolving Credit
available to the Company is also subject to certain debt limitation
covenants contained in the indenture under which the Senior Notes were
issued (the "Indenture"). The Revolving Credit expires in 1998.
Revolving Credit loans bear interest at floating rates at bank prime rate
plus 1.25% or a reserve adjusted Eurodollar rate (LIBOR) plus 2.25%. The
effective interest rate can be reduced by 0.25% to 0.75% if certain
20<PAGE>
specified financial conditions are achieved. At December 31, 1994, the
amount of Revolving Credit available to the Company was $175.0 million
reduced by outstanding letters of credit of $12.1 million. During 1994,
average borrowings under the Company's revolving credit facility were $2.3
million compared to $10.1 million in 1993.
The Restated Credit Agreement and the Indenture contain provisions
which may restrict the liquidity of the Company. These include
restrictions on the incurrence of additional indebtedness and mandatory
principal repayment requirements for all indebtedness that exceeds the
Borrowing Base as defined in the Restated Credit Agreement or exceeds the
Indenture debt limitation covenants. Through December 31, 1994, the
Company fully complied with all of the financial ratios and covenants
contained in the Restated Credit Agreement and the Indenture.
CONSIDERATIONS RELATING TO HOLDINGS' CASH OBLIGATIONS
The Company expects that it may make certain cash payments to
Holdings or other affiliates from time to time to the extent cash is
available and to the extent it is permitted to do so under the terms of
the Restated Credit Agreement and the Indenture. Such payments may
include (i) cash interest in an amount sufficient to enable Holdings to
meet the first semi-annual cash interest payment on November 15, 1995 on
any of the Holdings Debentures then outstanding; (ii) an amount necessary
under the tax sharing agreement between the Company and Holdings to enable
Holdings to pay the Company's taxes as if computed on an unconsolidated
basis; (iii) an annual management fee to an affiliate of BHLP of up to
$1.0 million; (iv) amounts to redeem outstanding Holdings Debentures or to
repurchase them to the extent they may become available for repurchase in
the open market at prices which Holdings and the Company find attractive
and to the extent such redemptions or repurchases are permitted under the
terms of the instruments governing Holdings and the Company's
indebtedness; and (v) other amounts to meet ongoing expenses of Holdings
(such amounts are considered to be immaterial both individually and in the
aggregate, however, because Holdings has no operations, other than those
conducted through the Company, or employees). To the extent the Company
makes any such payments, it will do so out of operating cash flow,
borrowings under the Restated Credit Agreement or other sources of funds
it may obtain in the future and only to the extent such payments are
permitted under the terms of the Restated Credit Agreement and the
Indenture. Except for mandatory cash interest payments related to the
Holding Debentures, each of the foregoing payments is either completely
discretionary on the part of the Company or may be waived by an affiliate
of the Company.
The Holdings Debentures are unsecured debt of Holdings and are
effectively subordinated to all outstanding indebtedness of the Company,
including the Senior Notes, and will be effectively subordinated to other
indebtedness incurred by direct and indirect subsidiaries of Holdings, if
issued. The Holdings Debentures were issued at an original issue
discount. At December 31, 1994, the Holdings Debentures had a carrying
value, net of repurchases, of $259.0 million. They will accrete to their
full face value (an aggregate principal amount of $272.9 million, assuming
no further repurchases by the Company or Holdings) on May 15, 1995.
Commencing that date, the Holdings Debentures will accrue interest payable
semiannually in cash beginning November 15, 1995 at the rate of 16.0% per
annum. Holdings will have several alternatives with respect to the
Holdings Debentures: it could pay cash interest on the Holdings
21<PAGE>
Debentures (which would entail approximately $22 million in cash payments
semiannually assuming no change in the aggregate principal amount of
Holdings Debentures outstanding), or Holdings could redeem some or all of
the Holdings Debentures. In either case, Holdings will have cash needs
which are considerably greater than its present requirements.
Holdings' Series A Cumulative Redeemable Exchangeable Preferred
Stock, Liquidation Preference $25 Per Share (the "Series A Preferred
Stock"), which was issued in connection with the Acquisition and Merger,
provides that dividends may be paid in kind at the option of Holdings
until 1998 and is not subject to mandatory redemption until 2004 (except
upon the occurrence of certain specified events). The Series A Preferred
Stock may be redeemed at the option of Holdings after September 30, 1995
at a percentage of liquidation preference declining from 107.5% to 100%
beginning September 30, 1998, plus accumulated and unpaid dividends. For
the year ended December 31, 1994, Holdings recorded dividends in kind of
$6.0 million. The Restated Credit Agreement permits Holdings to pay
dividends in cash on the Series A Preferred Stock subject to certain
limitations. Although dividends on the Series A Preferred Stock have
historically been paid in additional shares of Series A Preferred Stock,
Holdings can make no assurances that future dividends will not be paid in
cash.
Because Holdings is a holding company with no operations and has
virtually no assets other than the outstanding capital stock of the
Company (all of which is pledged to the lenders under the Restated Credit
Agreement), Holdings' ability to meet its cash obligations will be
dependent upon the Company's ability to pay dividends, loan or to
otherwise advance or transfer funds to Holdings in sufficient amounts.
The Company believes that the Restated Credit Agreement and the Indenture
permit the Company to dividend or otherwise provide funds to Holdings to
enable Holdings to meet its known cash obligations during the next twelve
months provided that the Company meets certain conditions. Among such
conditions, however, are that the Company meet various financial
maintenance tests. There can be no assurance that such tests will be met
at any given time when Holdings may require cash, in which case the
Company would not be able to pay dividends to Holdings without the consent
of the percentage of the lenders specified in the Restated Credit
Agreement and/or the holders of the percentage of the Senior Notes
specified in the Indenture. There can be no assurance that the Company
would be able to obtain such consents, or meet the terms on which such
consents might be granted if they were obtainable. Moreover, a violation
of the Restated Credit Agreement and/or the Indenture could lead to an
event of default and acceleration of outstanding indebtedness under the
Restated Credit Agreement and to acceleration of the indebtedness
represented by the Senior Notes and the Holdings Debentures. Because the
capital stock of the Company and its subsidiaries, as well as virtually
all of the assets of the Company and its subsidiaries, are pledged to the
lenders under the Restated Credit Agreement, such lenders would have a
claim over such assets prior to holders of the Senior Notes and the
Holdings Debentures. In the event Holdings were unable to meet its cash
obligations, a sequence of events similar to that described above could
ultimately occur.
In light of the fact that the Holdings Debentures will begin to pay
cash interest for the first time during 1995, Holdings may give
consideration to effecting a redemption of such securities. Holdings will
also have the ability to effect a redemption of the Series A Preferred
22<PAGE>
Stock on or after September 30, 1995. If Holdings were to seek redemption
of either or both the Holdings Debentures and the Series A Preferred
Stock, it could have several sources from which to obtain the necessary
funds to effect such redemptions including funds from the Company's
operations, borrowings under the Restated Credit Agreement, the sale of
stock by either Holdings or the Company, the issuance of new debt
securities by either Holdings or the Company or some combination of the
foregoing. In any case, however, pursuit of each of the foregoing options
will be subject to covenants and restrictions contained in the Restated
Credit Agreement and the Indenture relating to debt incurrence,
transactions between the Company and Holdings, the ability of the Company
to pay dividends to Holdings or otherwise undertake payment of Holdings'
obligations and the pledge of the Company's outstanding common stock to
the lenders under the Restated Credit Agreement. There can be no
assurance that Holdings will decide to redeem either the Holdings
Debentures or the Series A Preferred Stock during 1995, or, if it seeks to
do so, that it will be successful in its ability to finance any such
redemption.
GENERAL ECONOMIC CONDITIONS AND INFLATION
The Company faces various economic risks ranging from an economic
downturn adversely impacting the Company's primary markets to marked
fluctuations in copper prices. In the short-term, pronounced changes in
the price of copper tend to affect the Wire and Cable Division's gross
profits because such changes affect raw material costs more quickly than
those changes can be reflected in the pricing of the Wire and Cable
Division's products. In the long-term, however, copper price changes have
not had a material adverse effect on gross profits because cost changes
generally have been passed through to customers over time. In addition,
the Company believes that its sensitivity to downturns in its primary
markets is less significant than it might otherwise be due to its diverse
customer base and its strategy of attempting to match its copper purchases
with its needs. During 1994, the Company experienced general improvement
in most of its markets served coinciding with general economic conditions.
The Company cannot predict either the continuation of current economic
conditions or future results of its operations in light thereof.
The Company believes that it is not particularly affected by
inflation except to the extent that the economy in general is thereby
affected. Should inflationary pressures drive costs higher, the Company
believes that general industry competitive price increases would sustain
operating results, although there can be no assurance that this will be
the case.
SUBSEQUENT EVENT
Holdings presently intends to effect at least a partial redemption of
the Holdings Debentures at par value plus accrued interest on or about May
15, 1995, when the Holdings Debentures accrete to their full face value.
Holdings expects to finance this redemption through cash received from the
Company by way of repayment of an intercompany account payable and a
dividend. The Company expects to obtain the necessary funds for such cash
payments from borrowings under a new credit agreement and a capital lease
financing facility. To the extent a full redemption of the Holdings
Debentures is effected, additional financing is expected to be obtained by
the Company through an unsecured term loan.
23<PAGE>
The Company and certain lenders have agreed in principle to a new
credit agreement (the "New Credit Agreement") involving a senior secured
revolving credit facility of up to $260 million (the "New Revolving
Credit") subject to specified percentages of eligible assets. The New
Credit Agreement is expected to replace the existing Credit Agreement and
its $175 million revolving credit facility. The New Revolving Credit is
expected to have a five year maturity with interest rates, commitment
fees, collateral and covenants comparable to the existing Restated Credit
Agreement. Additionally, the Company and one of the lending banks have
agreed in principle to a capital lease facility (the "Capital Lease
Facility"), which is expected to generate proceeds of approximately $25
million, before associated fees and expenses, from the sale and leaseback
of certain of its fixed assets. The Company may have available for its
use an unsecured term loan facility (the "Term Loan Facility") to
refinance a portion of the Holdings Debentures. The applicable terms and
conditions of the New Credit Agreement, the Capital Lease Facility and the
Term Loan Facility have not yet been finalized.
There can be no assurance that Holdings will complete the redemption
and refinancing as described above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets:
Successor as of December 31, 1994 and 1993 . . . . . . F-2
Consolidated Statements of Operations:
Successor for the years ended December 31, 1994
and 1993, and the three month period ended
December 31, 1992 . . . . . . . . . . . . . . . . . . . F-3
Predecessor for the nine month period ended
September 30, 1992 . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Cash Flows:
Successor for the years ended December 31, 1994
and 1993, and the three month period ended
December 31, 1992 . . . . . . . . . . . . . . . . . . . F-4
Predecessor for the nine month period ended
September 30, 1992 . . . . . . . . . . . . . . . . . . F-4
Notes to Consolidated Financial Statements . . . . . . . . F-5
INDEX TO FINANCIAL STATEMENT SCHEDULES
II. Valuation and Qualifying Accounts . . . . . . . . . . . . . S-1
All other schedules have been omitted because they are not
applicable or not required or because the required information is included
in the consolidated financial statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
24<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the Directors
and Executive Officers of the Company:
Name Age Position
____ ___ ________
Stanley C. Craft 56 President and Chief Executive Officer; Director
(Chairman)
Steven R. Abbott 47 President - Wire and Cable Division; Director
Robert J. Faucher 50 President - Engineered Products Division;
Director
Robert D. Lindsay 40 Director
Charles W. McGregor 53 President - Magnet Wire and Insulation Division;
Director
David A. Owen 49 Executive Vice President and Chief Financial
Officer; Director
Thomas A. Twehues 62 Executive Vice President; Director
Ward W. Woods 52 Director
Messrs. Craft, Abbott and Twehues have been directors since 1988.
Messrs. Lindsay and Woods became directors of the Company in 1992.
Messrs. Owen and Faucher became directors in 1993, and Mr. McGregor was
elected as a director in April 1994. Directors of the Company are elected
annually to serve until the next annual meeting of stockholders of the
Company or until their successors have been elected or appointed and
qualified. Executive officers are appointed by, and serve at the
discretion of, the Board of Directors of the Company.
Mr. Craft is Chairman of the Board of Directors of the Company. He
has served as President and Chief Executive Officer of the Company since
March 1992 and as President since September 1991. Mr. Craft was Vice
President - Finance, Treasurer and Chief Financial Officer of the Company
from March 1988 to August 1991. He was Executive Vice President of the
European operations of the Company from November 1986 to February 1988.
Mr. Craft is also a Director of Holdings.
Mr. Abbott was appointed President of the Wire and Cable Division in
September 1993. He was President of the Magnet Wire and Insulation
Division from 1987 to 1993. Mr. Abbott has been employed by the Company
since 1967.
Mr. Faucher was appointed President of the Engineered Products
Division in January 1992. He was Vice President, Operations in the
Industrial Products Division from June 1988 to January 1992. He joined
the Company in 1985 as Vice President, Planning.
Mr. Lindsay is the sole shareholder and president of a corporation
which is a manager of a limited liability company that is the general
partner of BHLP. Mr. Lindsay is the sole shareholder of a corporation
that is the general partner of the partnership which is the general
partner of BCP. He is also the sole shareholder of corporations which are
the general partners of the two partnerships affiliated with BHLP and BCP
to which the Company and Holdings paid the fees described under Item 13
below. Mr. Lindsay was Managing Director of Bessemer Securities
25<PAGE>
Corporation ("BSC"), the principal limited partner of BHLP and BCP, from
January 1991 to June 1993. Prior to joining BSC, Mr. Lindsay was a
Managing Director in the Merchant Banking Division of Morgan Stanley &
Co., Incorporated. He is a Director of Stant Corporation and private
companies. Mr. Lindsay is also a Director of Holdings.
Mr. McGregor was appointed President of the Magnet Wire and
Insulation Division in September 1993. He was Director of Manufacturing
for the Division from 1987 to 1993. Mr. McGregor has been employed by the
Company in various technical assignments since January 1970.
Mr. Owen was appointed Executive Vice President and Chief Financial
Officer of the Company in March 1994. He had been appointed Vice
President Finance and Chief Financial Officer of the Company in March
1993, and Treasurer of the Company in April 1992. Prior to that time, Mr.
Owen was Director, Treasury and Financial Services for the Company. Mr.
Owen has been employed in various financial capacities by the Company
since 1976.
Mr. Twehues has been Executive Vice President since September 1993.
He had been President of the Wire and Cable Division since 1981. Mr.
Twehues started his career in sales with the Wire and Cable Division in
1960.
Mr. Woods is the sole shareholder and president of a corporation
which is the principal manager of a limited liability company that is the
general partner of BHLP. Mr. Woods is the sole shareholder of a
corporation that is the general partner of the partnership which is the
general partner of BCP. He is also the sole shareholder of corporations
which are the managing general partners of the two partnerships affiliated
with BHLP and BCP to which the Company and Holdings paid the fees
described under Item 13 below. Mr. Woods is President and Chief Executive
Officer of BSC, the principal limited partner of BHLP and BCP. Mr. Woods
joined BSC in 1989. For ten years prior to joining BSC, Mr. Woods was a
senior partner of Lazard Freres & Co., an investment banking firm. He is
chairman of Overhead Door Corporation and Stant Corporation. He is a
director of Boise Cascade Corporation, Freeport-McMoran Inc. and several
private companies. Mr. Woods is also Chairman of the Board of Directors
of Holdings.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The directors of the Company receive no compensation for their
service as directors except for reimbursement of expenses incidental to
attendance at meetings of the Board of Directors.
The following table sets forth the cash compensation paid by or
incurred on behalf of the Company to its Chief Executive Officer and four
other most highly compensated executive officers of the Company for each
of the three years ended December 31, 1994.
26<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation
Compensation Awards
----------------- ------------
Number of
Securities
Underlying
Options/ All Other
Salary Bonus SARs Compensation
Name and Principal Position Year ($) ($) (#) (1) ($) (2) (3)
--------------------------- ---- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Stanley C. Craft 1994 293,763 400,000 150,000 22,174
President and 1993 278,754 130,000 40,000 12,534
Chief Executive 1992 241,672 99,650 18,000 1,378,573
Officer (CEO)
Steven R. Abbott 1994 182,502 200,000 120,000 8,306
President - Wire 1993 172,500 72,000 25,000 8,599
and Cable Division 1992 151,120 49,275 15,000 908,158
David A. Owen 1994 145,257 165,000 100,000 6,894
Executive Vice 1993 132,682 53,000 25,000 6,312
President and Chief
Financial Officer (CFO)
Charles W. McGregor 1994 132,504 165,000 100,000 7,787
President - Magnet Wire 1993 103,215 50,000 25,000 8,547
and Insulation Division
Robert J. Faucher 1994 149,379 145,000 100,000 8,568
President - Engineered 1993 141,876 55,000 25,000 6,916
Products Division 1992 126,942 40,575 35,000 665,143
</TABLE>
(1) All awards are for options to purchase the number of shares of common
stock of Holdings indicated, provided, however, that the number of
shares for which all options are exercisable and the exercise price
therefor may be reduced by the Board of Directors of Holdings in
accordance with a specified formula. (See "Security Ownership of
Certain Beneficial Owners and Management.")
(2) All Other Compensation in 1994 consists of Company contributions to
the defined contribution and deferred compensation plans on behalf of
the executive officer and imputed income on excess Company-paid life
insurance premiums. The following table identifies and quantifies
these amounts for the named executive officers:
27<PAGE>
<TABLE>
<CAPTION>
S.C. Craft S.R. Abbott D.A. Owen C.W. McGregor R.J. Faucher
---------- ----------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Company matching under the
defined contribution and
deferred compensation plans $16,825 $7,209 $6,055 $6,482 $7,132
Imputed income on excess
life insurance premiums 5,349 1,097 839 1,305 1,436
-------- -------- -------- -------- --------
Total $22,174 $8,306 $6,894 $7,787 $8,568
======== ======== ======== ======== ========
</TABLE>
(3) All Other Compensation in 1992 includes principally divestiture and
retention bonuses paid in connection with the Acquisition and Merger.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term (2)
------------------------------------------------------------------------ ---------------------
Number of
Securities % of Total
Underlying Options/SARs
Options/SARs Granted to Exercise or
Granted Employees in Base Price Expiration
Name (#) (1) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
------------------- ------------- ------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stanley C. Craft 150,000 17.3 2.86 1/01/05 269,567 683,135
Steven R. Abbott 120,000 13.9 2.86 1/01/05 215,653 546,508
David A. Owen 100,000 11.6 2.86 1/01/05 179,711 455,423
Charles W. McGregor 100,000 11.6 2.86 1/01/05 179,711 455,423
Robert J. Faucher 100,000 11.6 2.86 1/01/05 179,711 455,423
</TABLE>
(1) In January 1995 options to purchase 865,000 shares of Holdings common
stock were granted in respect of performance for the year ended
December 31, 1994. All such options become exercisable on January 1,
1998.
(2) The potential realizable value assumes a per-share market price at
the time of the grant to be approximately $2.86 with an assumed rate
of appreciation of 5% and 10%, respectively, compounded annually for
10 years.
28<PAGE>
The following table details the December 31, 1994 year end estimated
value of each named executive officer's unexercised stock options. All
unexercised options are to purchase the number of shares of common stock
of Holdings indicated, provided, however, that the Board of Directors of
Holdings may require that, in lieu of the exercise of any options, such
options be surrendered without payment of the exercise price, in which
case the number of shares issuable upon exercise of such options shall be
reduced by the quotient of (i) the aggregate exercise price that would
have been otherwise payable divided by (ii) the amount paid for each share
of Holdings common stock in the Merger (approximately $2.86 per share).
See "Security Ownership of Certain Beneficial Owners and Management."
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Year-End (#) Year-End ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable (1)(2)
------------------- --------------- -------------- --------------- -------------------
<S> <C> <C> <C> <C>
Stanley C. Craft - - 583,000(E) 1,078,464(E)
190,000(U) - (U)
Steven R. Abbott - - 273,000(E) 503,367(E)
145,000(U) - (U)
David A. Owen - - 52,000(E) 93,844(E)
125,000(U) - (U)
Charles W. McGregor - - 45,500(E) 82,519(E)
125,000(U) - (U)
Robert J. Faucher - - 145,000(E) 260,598(E)
125,000(U) - (U)
</TABLE>
(E) Exercisable
(U) Unexercisable
(1) The estimated value of unexercised in-the-money stock options held at
the end of 1994 assumes a per-share fair market value of
approximately $2.86 and per-share exercise prices of $1.00 and $1.25
as applicable.
(2) The options to purchase Holdings common stock granted in 1995 and
1994 in respect of performance for the years ended December 31, 1994
and 1993, respectively, were issued with an exercise price of $2.86
per share.
29<PAGE>
Pension Plans. The Company provides benefits under a defined benefit
pension plan (the "Pension Plan") and a supplemental executive retirement
plan (the "SERP"). The following table illustrates the estimated annual
normal retirement benefits at age 65 that will be payable under the
Pension Plan and SERP.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
Years of Service
-----------------------------------------------------------
Remuneration 15 20 25 30 35
------------ -- -- -- -- --
<S> <C> <C> <C> <C> <C>
125,000 $ 28,125 $ 37,500 $ 46,875 $ 56,250 $ 65,625
150,000 33,750 45,000 56,250 67,500 78,750
175,000 39,375 52,500 65,625 78,750 91,875
200,000 45,000 60,000 75,000 90,000 105,000
225,000 50,625 67,500 84,375 101,250 118,125
250,000 56,250 75,000 93,750 112,500 131,250
300,000 67,500 90,000 112,500 135,000 157,500
400,000 90,000 120,000 150,000 180,000 210,000
450,000 101,250 135,000 168,750 202,500 236,250
500,000 112,500 150,000 187,500 225,000 262,500
</TABLE>
The remuneration utilized in calculating the benefits payable under
the plans is the compensation reported in the Summary Compensation Table
under the captions Salary and Bonus. The formula utilizes the
remuneration for the five consecutive plan years within the ten completed
calendar years preceding the participant's retirement date that produces
the highest final average earnings.
As of December 31, 1994, the years of credited service under the
Pension Plan for each of the executive officers named in the Summary
Compensation Table were as follows: Mr. Craft, twenty-five years and nine
months; Mr. Abbott, twenty-five years and seven months; Mr. Owen, eighteen
years and eight months; Mr. McGregor, twenty-four years and eleven months;
and Mr. Faucher, twenty-two years and six months.
The benefits listed in the Pension Plan Table are based on the
formula in the Pension Plan using a straight-life annuity and are subject
to an offset of 50% of the participant's annual unreduced Primary
Insurance Amount under Social Security. In addition, benefits for
credited service for years prior to 1974 are calculated using the formula
in effect at that time and would reflect a lesser benefit than outlined in
the Pension Plan Table for those years. Benefits under the Pension Plan
are also offset by benefits to which the participant is entitled under any
defined benefit plan of UTC (other than accrued benefits transferred to
the Pension Plan).
30<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Stanley C. Craft, Ward W. Woods and Robert Lindsay constitute
the Compensation Committee of the Board of Directors of the Company. See
footnote (2) under the caption "Security Ownership of Certain Beneficial
Owners and Management" for a description of the relationship between
Messrs. Lindsay and Woods and BHLP and the information set forth under the
caption "Certain Relationships and Related Transactions" for a description
of certain transactions between the Company and BCP or BHLP and between
Holdings and BCP or BHLP.
Mr. Lindsay is also a member of the Compensation Committee of the
Holdings Board of Directors. The other members of such committee are
Messrs. Joseph H. Gleberman and Gary B. Appel. Mr. Gleberman is a Partner
of Goldman Sachs and Mr. Appel is a Managing Director of DLJ. The
Holdings Compensation Committee fixes the compensation paid to the
Company's executive officers, based in part on the recommendation of Mr.
Craft. See the information set forth under the caption "Certain
Relationships and Related Transactions" for a description of certain
transactions between the Company and DLJ and Goldman Sachs and their
respective affiliates. The Holdings Compensation Committee considers
compensation of executive officers of the Company to the extent it is paid
by or affects Holdings, as is the case when options to purchase Holdings
stock are granted to executive officers of Holdings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the issued and outstanding common stock of the Company is
owned beneficially and of record by Holdings. Holdings has pledged such
stock to the lenders under the Restated Credit Agreement in support of its
guarantee of the Company's obligations thereunder. In the event of a
default by Holdings of its obligations under such guarantee, the lenders
under the Restated Credit Agreement could exercise their powers under such
pledge and thereby obtain control of the Company.
The following table sets forth certain information regarding the
beneficial ownership of the common stock of Holdings as of February 28,
1995 by (i) each beneficial owner of more than 5% of the outstanding
common stock of Holdings, (ii) each director of Holdings, (iii) all
directors and officers of Holdings as a group, (iv) all directors and
officers of the Company as a group, and (v) all directors, officers and
management of the Company as a group.
31<PAGE>
<TABLE>
<CAPTION>
Number of Shares Percentage Ownership
of Common Stock of Common Stock(1)
------------------------------------- -------------------------
Sole Shared Sole Shared
Voting Voting Voting Voting Com-
Name and Address Power Power Combined Power Power bined
---------------- --------- ----------- ---------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Bessemer Holdings, 24,496,331 6,465,862(3) 30,962,193 69.7% 16.5%(3) 79.1%
L.P.(2)
630 Fifth Avenue
New York, NY 10111
GS Capital Partners, 6,615,448 - 6,615,448 17.7 - 17.7
L.P.(4)
85 Broad Street
New York, NY 10004
DLJ International 5,487,925 - 5,487,925 14.2 - 14.2
Partners, C.V.(5)
140 Broadway
New York, NY 10005
Stanley C. Craft(6) - 883,000 883,000 - 2.5 2.5
1601 Wall Street
Fort Wayne, IN 46802
All directors and - 30,962,193 30,962,193 - 79.1 79.1
officers of Holdings
as a group
(6 persons)(7)
All directors and - 30,962,193 30,962,193 - 79.1 79.1
officers of the
Company as a group
(8 persons)(8)
All directors, officers - 30,962,193 30,962,193 - 79.1 79.1
and management of the
Company as a group
(43 persons)(9)
</TABLE>
(1) Percentages have been calculated assuming, in the case of each person
or group listed, the exercise of all warrants and options owned
(which are exercisable within sixty days following February 28, 1995)
by each such person or group, respectively, but not the exercise of
any warrants or options owned by any other person or group listed.
(2) BHLP is a limited partnership the only activity of which is to make
private structured investments. The primary limited partner of BHLP
is Bessemer Securities Corporation ("BSC"), a corporation owned by
trusts whose beneficiaries are descendants of Henry Phipps and
charitable trusts established by such descendants. Each of Messrs.
Ward W. Woods and Robert D. Lindsay, directors of Holdings, and Mr.
Michael B. Rothfeld, is a sole shareholder of a corporation which is
32<PAGE>
a manager of the limited liability company which is the sole general
partner of BHLP. In addition, each of Messrs. Woods, Lindsay and
Rothfeld are the sole shareholders of corporations which are the
general partners of each of the partnerships affiliated with BHLP and
BCP, respectively, to which the Company and Holdings paid the fees
described under Item 13 below. Mr. Woods is the President and Chief
Executive Officer of BSC. Each of Messrs. Woods, Lindsay and
Rothfeld disclaim beneficial ownership of the shares of common stock
of Holdings owned or controlled by BHLP.
(3) Consists of (a) all shares of common stock owned by officers,
employees, former employees and retirees of the Company and its
subsidiaries, or their respective estates (a total of 2,489,762
shares), which shares are subject to a proxy held by BHLP which
provides that BHLP may vote such shares on all matters presented to
stockholders other than (i) the sale or merger of Holdings or the
Company; (ii) any amendment to the certificate of incorporation of
Holdings which would adversely affect the terms of the common stock
and (iii) the election of directors in the event that BHLP does not
include at least one member of management of the Company in its
nominees for directors of Holdings and (b) all shares of common stock
issuable upon exercise of options held by officers, employees and
retirees of the Company and its subsidiaries, or their respective
estates (a total of 3,976,100 shares). Pursuant to the terms of the
applicable options agreements, the aggregate number of shares
issuable upon exercise of such options can be reduced. All shares
issuable upon exercise of the foregoing options are subject to the
proxy held by BHLP.
(4) Held by GS Capital Partners, L.P. (an affiliate of Goldman, Sachs)
and certain of its affiliates, and includes 2,241,103 shares issuable
upon exercise of warrants.
(5) Includes 3,425,635 shares issuable upon exercise of warrants held by
affiliates and employees of DLJ.
(6) Includes 583,000 shares issuable upon exercise of options held by Mr.
Craft, which, pursuant to the applicable option agreement, may be
reduced to 377,405 shares. All shares owned by Mr. Craft and all
shares issuable to Mr. Craft upon exercise of options are subject to
the proxy described in footnote (3) above. Mr. Craft is the only
director of Holdings who is a record owner of common stock.
(7) Consists of (a) the 24,496,331 shares of common stock owned by BHLP,
which, together with the shares described in (b), (c) and (d) below,
may be deemed to be beneficially owned by Messrs. Woods and Lindsay
(which beneficial ownership is disclaimed by Messrs. Woods and
Lindsay see footnote (2) above), (b) 550,637 shares of common stock
owned by the officers of Holdings included in this group, (c) 738,750
shares issuable to the officers of Holdings included in this group
upon exercise of options which, pursuant to the applicable option
agreements, may be reduced and (d) 1,939,125 shares of common stock
and 3,237,350 shares of common stock issuable upon exercise of
options (also subject to reduction) owned by other employees, former
employees and retirees of the Company and its subsidiaries, or their
respective estates. All shares described in (b), (c) and (d) are
subject to the proxy described in footnote (3) above.
33<PAGE>
(8) Consists of (a) 24,496,331 shares of common stock owned by BHLP,
which, together with the shares described in (b), (c) and (d) below,
may be deemed to be beneficially owned by Messrs. Woods and Lindsay
(which beneficial ownership is disclaimed by Messrs. Woods and
Lindsay see footnote (2) above), (b) 1,000,360 shares of common stock
owned by the other directors and officers of the Company included in
this group, (c) 1,778,250 shares issuable to the other directors and
officers of the Company included in this group upon exercise of
options which, pursuant to the applicable option agreements, may be
reduced and (d) 1,489,402 shares of common stock and 2,197,850 shares
of common stock issuable upon exercise of options (also subject to
reduction) owned by other employees, former employees and retirees of
the Company and its subsidiaries, or their respective estates. All
shares described in (b), (c) and (d) are subject to the proxy
described in footnote (3) above.
(9) Consists of (a) the 24,496,331 shares of common stock owned by BHLP,
which, together with the shares described in (b) and (c) below, may
be deemed to be beneficially owned by Messrs. Woods and Lindsay
(which beneficial ownership is disclaimed by Messrs. Woods and
Lindsay see footnote (2) above), (b) 2,489,762 shares of common stock
owned by officers, employees, former employees and retirees of the
Company and its subsidiaries, or their respective estates included in
this group and (c) 3,976,100 shares issuable to officers, employees,
former employees and retirees of the Company and its subsidiaries, or
their respective estates included in this group upon exercise of
options which, pursuant to the applicable options agreements, may be
reduced. All shares described in (b) and (c) are subject to the
proxy described in footnote (3) above.
MANAGEMENT STOCKHOLDER AGREEMENTS
The members of the Company's management who are stockholders of
Holdings (each a "Management Stockholder") are parties to various
agreements pertaining to their ownership of Holdings' common stock and
options therefor. Set forth below is a summary of certain provisions of
these agreements, each of which is filed as an exhibit to this Annual
Report. Capitalized terms set forth below and not otherwise defined have
the meanings assigned thereto in the relevant agreements.
Management Stockholders and Registration Rights Agreement. The
Management Stockholders and Registration Rights Agreements generally
prohibit Management Stockholders from transferring shares of common stock
of Holdings owned by them before the earlier of (i) an initial public
offering by Holdings (or any successor thereto) (an "IPO") and (ii)
October 9, 1996. Thereafter, if any Management Stockholder receives a
bona fide offer to purchase any of his common stock, such Management
Stockholder may transfer such common stock only after offering such common
stock first to Holdings and then, if not accepted by Holdings, to BHLP, in
each case on the same terms and conditions as such bona fide offer.
Any Management Stockholder who retires from the Company, dies or
becomes disabled prior to the earlier of (i) an IPO and (ii) October 9,
1996, will have a "put right" for 90 days (180 days in case of death) by
which he, or his estate may require Holdings to repurchase all his shares
of common stock of Holdings at a price equal, at the option of Holdings,
to (i) the higher of (x) the last price paid by BHLP, Holdings or a
Management Stockholder for shares of common stock of Holdings and (y)
34<PAGE>
approximately $2.86 per share or (ii) the fair market value of the shares
of common stock of Holdings as determined by an independent appraiser or
investment banking firm selected by the Board of Directors of Holdings
(the value determined pursuant to clause (i) or (ii) being the "Fair
Market Value"). Holdings will be required to repurchase such shares at
such price, unless such repurchase would violate any applicable law or
regulation or any agreement pursuant to which Holdings incurred any debt,
in which case Holdings may defer such repurchase until such repurchase
would no longer result in any such violation. Holdings will have a "call
right" for 365 days by which it can repurchase, at Fair Market Value, any
or all of the shares of common stock of Holdings belonging to the
Management Stockholder or his estate if, prior to the earlier of (i) an
IPO and (ii) October 9, 1996, the Management Stockholder's employment is
terminated for any reason, whether due to his retirement, resignation,
death, disability or otherwise. Under certain circumstances, Holdings may
pay the purchase price of any common stock of Holdings repurchased from a
Management Stockholder pursuant to the put rights and call rights
described above by delivery of a subordinated note.
Management Stockholders also have certain "piggyback" registration
rights in the event that Holdings registers shares of its common stock for
sale under the Securities Act of 1933.
Stock Option. Grants of options to purchase common stock of Holdings
have been made to management and employees of the Company pursuant to, and
are subject to the provisions of, an Amended and Restated Stock Option
Plan and individual stock option agreements. According to the terms of
the foregoing plan and form of agreement, any options granted in the
future thereunder will become exercisable upon the occurrence of: (i) the
passage of 3 years; (ii) the death, retirement or disability of the
optionee; (iii) a Company Sale (which shall be deemed to have occurred if
any person becomes the beneficial owner of 50% or more of the combined
voting power of Holdings' securities or acquires substantially all the
assets of Holdings or the Company), in proportion to the percentage of
Holdings' common stock sold; or(iv) the sale by BHLP (as successor in
interest to BCP) of 25% or more of the then outstanding common stock of
Holdings, in each case in proportion to the percentage of Holdings stock
sold by BHLP. Such options are generally not transferable. Options owned
by Management Stockholders are subject to the same put rights and call
rights applicable to shares of common stock owned by Management
Stockholders.
Holdings may require that an option be surrendered and cancelled
without payment of the exercise price. In this event, the optionee is
entitled to receive a number of shares of Holdings common stock equal to
the number specified in the grant, reduced by the quotient of the
aggregate exercise price otherwise payable and the fair market value per
share as of October 9, 1992.
INVESTORS SHAREHOLDERS AGREEMENT
Set forth below is a summary of certain terms of the Investors
Shareholders Agreement among Holdings, BHLP (as successor in interest to
BCP), affiliates of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), affiliates of Goldman Sachs and CEA. Capitalized terms used
below and not otherwise defined have the meaning assigned thereto in the
Investors Shareholders Agreement.
35<PAGE>
Holdings, BHLP, certain affiliates of DLJ, certain affiliates of
Goldman Sachs and CEA (collectively, the "Investor Shareholders") are
parties to an Investors Shareholders Agreement that provides restrictions
on the transferability of Holdings' common stock and other matters,
certain of which are summarized below.
Board of Directors. The Investors Shareholders Agreement provides
that the Board of Directors of Holdings shall consist of seven directors.
BHLP has the right to nominate five directors, at least one of whom will
be a member of all committees of the Board of Directors of Holdings and at
least one of whom will be a member of the management of the Company. The
Board of Directors of Holdings currently includes four BHLP nominees,
including Mr. Stanley C. Craft, Chief Executive Officer of the Company and
Holdings. Similarly, so long as affiliates of DLJ and affiliates of
Goldman Sachs hold at least a specified minimum percentage of the shares
of common stock of Holdings and Series A Preferred Stock originally
purchased by them (and under certain other limited circumstances), the
affiliates of DLJ have the right to nominate one director and the
affiliates of Goldman Sachs have the right to nominate one director, each
of whom will be a member of all of Holdings' Board Committees.
Each of the Investor Shareholders is required to vote all of its
voting shares in favor of the directors so nominated. If any vacancy is
created on the Board of Directors of Holdings, it will be filled in
accordance with the foregoing nomination procedures.
Significant Business Decisions. The Investors Shareholders Agreement
provides that certain specified significant transactions require approval
of the Holdings Board of Directors. In addition, amendments to Holdings'
Certificate of Incorporation and By-laws that adversely affect the terms
of the common stock, amendments to the Investors Shareholders Agreement,
certain significant acquisitions, dispositions, the incurrence of debt
beyond specified amounts and certain transactions with affiliates require,
in addition to the approval of a majority of the Board of Directors of
Holdings, the approval of at least one BHLP-nominated director and, so
long as the affiliates of DLJ or the affiliates of Goldman Sachs hold at
least a specified minimum investment in Holdings, one director nominated
by the affiliates of DLJ or by the affiliates of Goldman Sachs.
Other Rights. The Investors Shareholders Agreement also includes
various rights of first offer, tag-along and pre-emptive rights among the
Investor Shareholders. Holdings and the Investor Shareholders are also
parties to registration rights agreements relating to Holdings' common
stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incurred advisory fees of approximately $1.0 million,
$1.0 million and $0.2 million payable to affiliates of BHLP and BCP in
1994, 1993 and 1992, respectively. Pursuant to an advisory services
agreement among Holdings, the Company and an affiliate of BHLP, the
Company agreed to pay such affiliate an annual advisory fee of $1.0
million. The Company also incurred advisory fees of $0.2 million in 1992,
payable to Morgan Stanley & Co., Incorporated, an affiliate of the former
controlling shareholder of Holdings. In addition, the Company incurred
management fees to Holdings of $1.9 million in 1992. No such fee was
incurred in 1994 or 1993.
36<PAGE>
In connection with the Acquisition, the Company paid to an affiliate
of BCP a financial advisory fee of approximately $1.9 million and to
Morgan Stanley & Co., Incorporated a financial services fee of
approximately $3.6 million and Holdings paid to an affiliate of BCP an
acquisition advisory fee of approximately $1.9 million. See footnote (2)
under Item 12 above for a description of the relationship of Messrs. Woods
and Lindsay, directors of the Company, with such BCP affiliate.
Pursuant to an engagement letter dated July 22, 1992 among BCP, BE
and DLJ, as amended by a letter agreement dated October 9, 1992 among BCP,
BE, DLJ and Goldman Sachs (collectively, the "Engagement Letter"),
Holdings paid DLJ a financial advisory fee of $1.0 million upon
consummation of the Acquisition. In addition, Holdings paid an affiliate
of DLJ a $1.0 million commitment fee in connection with its commitment to
purchase Series A Preferred Stock of BE.
The engagement letter also gives DLJ and Goldman Sachs the right, but
not the obligation, subject to certain conditions, to act as financial
advisor to the Company and Holdings until the fifth anniversary of the
Acquisition on a co-exclusive basis in connection with all acquisition,
divestiture and other financial advisory assignments relating to Holdings
or the Company and to act as co-exclusive managing placement agents or co-
exclusive managing underwriters in connection with any debt or equity
financing which is either privately placed or publicly offered (excluding
commercial bank debt or other senior debt which is privately placed other
than any private placement which contemplates a registration of,
registered exchange offer for, or similar registration with respect to
such securities). In connection with any other senior debt financing
which is privately placed (excluding any private placement of senior debt
which contemplates a registration, registered exchange offer for, or
similar registration with respect to such securities), DLJ has the right,
but not the obligation, to act as co-managing placement agent or co-
managing underwriter, together only with Chemical Bank. Holdings has
retained the right to designate DLJ or Chemical Bank as lead placement
agent or lead managing underwriter.
Pursuant to such engagement, DLJ and Goldman Sachs acted as
underwriters in the offerings of the Senior Notes, and in such capacity
received aggregate underwriting discounts and commissions of $5.3 million.
For any further services performed by DLJ or Goldman Sachs pursuant to the
Engagement Letters, DLJ and Goldman Sachs are entitled to fees competitive
with those customarily charged by DLJ, Goldman Sachs and other major
investment banks in similar transactions and to customary out of pocket
fee and expense reimbursement and indemnification and contribution
agreements.
37<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements listed under Item 8 are filed as a
part of this report.
2. Financial Statement Schedules
The financial statement schedule listed under Item 8 is
filed as a part of this report.
3. Exhibits
The exhibits listed on the accompanying Index to Exhibits
are filed as a part of this report.
(b) No reports on Form 8-K were filed by the Company during the
fourth quarter of 1994.
38<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ESSEX GROUP, INC.
Date (Registrant)
March 29, 1995 By /s/ David A. Owen
______________ _____________________________________
David A. Owen
Executive Vice President,
Chief Financial Officer; Director
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Date
March 29, 1995 /s/ Stanley C. Craft
______________ _______________________________________
Stanley C. Craft
President and Chief Executive Officer;
Director
(Principal Executive Officer)
March 29, 1995 /s/ David A. Owen
______________ _______________________________________
David A. Owen
Executive Vice President,
Chief Financial Officer; Director
(Principal Financial Officer)
March 29, 1995 /s/ Steven R. Abbott
______________ _______________________________________
Steven R. Abbott
Director
March 29, 1995 /s/ Robert J. Faucher
______________ _______________________________________
Robert J. Faucher
Director
March 29, 1995 /s/ Charles W. McGregor
______________ _______________________________________
Charles W. McGregor
Director
March 29, 1995 /s/ Thomas A. Twehues
______________ _______________________________________
Thomas A. Twehues
Director
39<PAGE>
March 29, 1995 /s/ Robert D. Lindsay
______________ _______________________________________
Robert D. Lindsay
Director
March 29, 1995 /s/ Ward W. Woods, Jr.
______________ _______________________________________
Ward W. Woods, Jr.
Director
March 29, 1995 /s/ James D. Rice
______________ _______________________________________
James D. Rice
Senior Vice President,
Corporate Controller
(Principal Accounting Officer)
40<PAGE>
ESSEX GROUP, INC.
INDEX OF EXHIBITS
(Item 14(a)(3))
Exhibit
No. Description
--------------------------------------------------------------------------
2.01 Agreement and Plan of Merger, dated as of July 24, 1992 (the
"Merger Agreement"), between B E Acquisition Corporation and
BCP/Essex Holdings Inc. (then known as MS/Essex Holdings Inc.),
incorporated by reference to Exhibit 2.1 to BCP/Essex Holdings
Inc.'s (then known as MS/Essex Holdings Inc.) Current Report on
Form 8-K, filed with the Securities and Exchange Commission on
August 10, 1992 (Commission File No. 1-10211).
2.02 Amendment dated as of October 1, 1992, to the Agreement and Plan
of Merger between B E Acquisition Corporation and BCP/Essex
Holdings Inc. (then known as MS/Essex Holdings Inc.), incorporated
by reference to Exhibit 2.2 to BCP/Essex Holdings Inc.'s Current
Report on Form 8-K, filed with the Securities and Exchange
Commission on October 26, 1992 (Commission File No. 1-10211).
3.01 Certificate of Incorporation of the registrant (Incorporated by
reference to Exhibit 3.01 to the Company's Registration Statement
on Form S-1, File No. 33-20825).
3.02 By-Laws of the registrant, as amended. (Incorporated by reference
to Exhibit 3.02 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991).
4.01 Indenture under which the 10% Senior Notes Due 2003 are
outstanding, incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Pre-Effective Amendment No. 1
to Form S-2 (Commission File No. 33-59488).
9.01 Investors Shareholders Agreement dated as of October 9, 1992,
among B E Acquisition Corporation, Bessemer Capital Partners,
L.P., certain affiliates of Donaldson, Lufkin & Jenrette, Inc.,
certain affiliates of Goldman, Sachs & Co., and Chemical Equity
Associates, a California Limited Partnership, incorporated by
reference to Exhibit 28.1 to BCP/Essex Holdings Inc.'s Current
Report on Form 8-K, filed with the Securities and Exchange
Commission on October 26, 1992 (Commission File No. 1-10211).
9.02 Management Stockholders and Registration Rights Agreement dated as
of October 9, 1992, among B E Acquisition Corporation, Bessemer
Capital Partners, L.P. and certain employees of the registrant and
its subsidiaries, incorporated by reference to Exhibit 28.3 to
BCP/Essex Holdings Inc.'s Current Report on Form 8-K, filed with
the Securities and Exchange Commission on October 26, 1992
(Commission File No. 1-10211).
9.03 Form of Irrevocable Proxy dated as of October 9, 1992, granted to
Bessemer Capital Partners, L.P. by certain employees of the
registrant and its subsidiaries, incorporated by reference to
Exhibit 28.4 to BCP/Essex Holdings Inc.'s Current Report on Form
8-K, filed with the Securities and Exchange Commission on October
26, 1992 (Commission File No. 1-10211).
10.01 Amendment and Restatement of Credit Agreement dated May 7, 1993,
incorporated by reference to Exhibit 28.7 to the Company's
Registration Statement on Pre-Effective Amendment No. 3 to Form
S-2 (Commission File No. 33-59488).
41<PAGE>
Exhibit
No. Description
--------------------------------------------------------------------------
10.02 Credit Agreement dated as of September 25, 1992, among B E
Acquisition Corporation, BCP/Essex Holdings Inc., the registrant,
the lenders named therein and Chemical Bank, as agent,
incorporated by reference to Exhibit 4.6 to BCP/Essex Holdings
Inc.'s Current Report on Form 8-K, filed with the Securities and
Exchange Commission on October 26, 1992 (Commission File No.
1-10211).
10.03 Engagement Letter dated July 22, 1992 among Bessemer Capital
Partners, L.P., B E Acquisition Corporation, and Donaldson, Lufkin
& Jenrette, Inc., incorporated by reference to Exhibit 10.10 to
registrant's Annual Report on Form 10-K for the year ended
December 31, 1992 (Commission File No. 1-7418).
10.04 Amendment dated October 9, 1992 among Bessemer Capital Partners,
L.P., B E Acquisition Corporation, Donaldson, Lufkin & Jenrette,
Inc. and Goldman, Sachs and Co., to Engagement Letter dated July
22, 1992 among Bessemer Capital Partners, L.P., B E Acquisition
Corporation and Donaldson, Lufkin & Jenrette, Inc., incorporated
by reference to Exhibit 10.11 to registrant's Annual Report on
Form 10-K for the year ended December 31, 1992 (Commission File
No. 1-7418).
12.01 Computation of Ratio of Earnings to Fixed Charges.
21.01 Subsidiaries of the registrant.
99.01 Registration Rights Agreement dated as of October 9, 1992, among
B E Acquisition Corporation, certain affiliates of Donaldson,
Lufkin & Jenrette, Inc., certain affiliates of Goldman, Sachs &
Co., and Chemical Equity Associates, A California Limited
Partnership, incorporated by reference to Exhibit 28.2 to
BCP/Essex Holdings Inc.'s Current Report on Form 8-K, filed with
the Securities and Exchange Commission on October 26, 1992
(Commission File No. 1-10211).
99.02 Amended and Restated Stock Option Plan of BCP/Essex Holdings Inc.,
incorporated by reference to Exhibit 4.7 to BCP/Essex Holdings
Inc.'s Current Report on Form 8-K, filed with the Securities and
Exchange Commission on October 26, 1992 (Commission File No. 1-
10211).
42<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Essex Group, Inc.
We have audited the accompanying consolidated balance sheets of Essex
Group, Inc. Successor as of December 31, 1994 and 1993 and the related
consolidated statements of operations and cash flows of Essex Group,
Inc. Successor for the years ended December 31, 1994 and 1993 and the
three month period ended December 31, 1992, and the consolidated
statements of operations and cash flows of Essex Group, Inc. Predecessor
for the nine month period ended September 30, 1992. Our audits also
included the financial statement schedule listed in the Index at Item 14
(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Essex Group, Inc. Successor at December 31, 1994 and 1993 and the
consolidated results of operations and cash flows of Essex Group,
Inc. Successor for the years ended December 31, 1994 and 1993, and the
three month period ended December 31, 1992, and of Essex Group,
Inc. Predecessor for the nine month period ended September 30, 1992, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Indianapolis, Indiana
January 27, 1995, except for Note 14 as to
which the date is March 21, 1995
F-1<PAGE>
ESSEX GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------
In Thousands of Dollars, Except Per Share Data 1994 1993
--------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . $16,894 $10,346
Accounts receivable (net of allowance of
$3,537 and $2,811 . . . . . . . . . . . . . . . . . . 144,595 116,733
Inventories . . . . . . . . . . . . . . . . . . . . . 145,706 139,357
Other current assets . . . . . . . . . . . . . . . . . 20,496 9,738
-------- --------
Total current assets . . . . . . . . . . . . . 327,691 276,174
Property, plant and equipment, net . . . . . . . . . . . 276,134 273,084
Excess of cost over net assets acquired (net of
accumulated amortization of $9,145 and $5,081) . . . . . 133,100 137,164
Other intangible assets and deferred costs
(net of accumulated amortization of $5,146
and $2,986) . . . . . . . . . . . . . . . . . . . . . . 11,563 13,921
Other assets . . . . . . . . . . . . . . . . . . . . . . 1,812 6,654
-------- --------
$750,300 $706,997
======== ========
See Notes to Consolidated Financial Statements
F-2<PAGE>
ESSEX GROUP, INC.
CONSOLIDATED BALANCE SHEETS - continued
December 31,
---------------------------
In Thousands of Dollars, Except Per Share Data 1994 1993
--------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . $47,421 $45,535
Accrued liabilities . . . . . . . . . . . . . . . . . 45,821 42,863
Deferred income taxes . . . . . . . . . . . . . . . . 10,408 14,277
Due to Holdings . . . . . . . . . . . . . . . . . . . 32,979 18,363
-------- --------
Total current liabilities . . . . . . . . . . . 136,629 121,038
Long-term debt . . . . . . . . . . . . . . . . . . . . . 200,000 200,000
Deferred income taxes . . . . . . . . . . . . . . . . . . 72,771 77,794
Other long-term liabilities . . . . . . . . . . . . . . . 6,997 4,433
Stockholders' equity:
Common stock, par value $.01 per share; 1,000 shares
authorized; 100 shares issued and outstanding; plus
additional paid in capital . . . . . . . . . . . . . 302,784 302,784
Retained earnings . . . . . . . . . . . . . . . . . . 31,119 948
-------- --------
Total stockholders' equity . . . . . . . . . . 333,903 303,732
-------- --------
$750,300 $706,997
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-3<PAGE>
ESSEX GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
-------------------------------------- ------------
Three Month Nine Month
Year Ended Year Ended Period Ended Period Ended
December 31, December 31, December 31, September 30,
In Thousands of Dollars 1994 1993 1992 1992
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Net sales $1,010,075 $868,846 $209,354 $699,997
Interest income 246 265 88 73
Other income 1,553 1,724 87 921
--------- -------- -------- --------
1,011,874 870,835 209,529 700,991
--------- -------- -------- --------
COSTS AND EXPENSES:
Cost of goods sold 846,611 745,875 186,026 594,122
Selling and administrative 85,129 75,489 22,349 59,609
Interest expense 24,554 25,241 8,086 14,505
Other expense (income) 2,709 1,801 30 (98)
Merger related expenses - - - 18,139
-------- -------- -------- --------
959,003 848,406 216,491 686,277
-------- -------- -------- --------
Income (loss) before income
taxes and extraordinary charge 52,871 22,429 (6,962) 14,714
Provision (benefit) for income
taxes 22,700 13,052 (1,900) 9,278
-------- -------- -------- --------
Income (loss) before
extraordinary charge 30,171 9,377 (5,062) 5,436
Extraordinary charge - debt
retirement, net of income tax
benefit - 3,367 - 122
-------- -------- -------- --------
Net income (loss) $30,171 $ 6,010 $ (5,062) $ 5,314
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-4<PAGE>
ESSEX GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
-------------------------------------- ------------
Three Month Nine Month
Year Ended Year Ended Period Ended Period Ended
December 31, December 31, December 31, September 30,
In Thousands of Dollars 1994 1993 1992 1992
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $30,171 $6,010 $(5,062) $5,314
Adjustments to reconcile net
income (loss) to cash
provided by operating
activities:
Depreciation and
amortization 31,420 29,879 8,743 16,913
Non cash interest expense 2,630 4,968 3,251 1,460
Non cash pension expense 2,328 2,124 591 2,852
Provision (credit) for
losses on accounts
receivable 1,332 850 75 (1,848)
Provision (benefit) for
deferred income taxes (8,964) (622) (1,581) 1,267
(Gain) loss on disposal of
property, plant and
equipment 1,354 436 (44) (389)
Loss on repurchase of debt - 5,519 - 200
Changes in operating assets
and liabilities:
(Increase) decrease in
accounts receivable (27,160) (5,314) 18,275 (24,426)
Increase in inventories (4,515) (5,659) (863) (5,130)
Increase (decrease) in
accounts payable and
accrued liabilities 4,575 (720) 1,750 10,901
Net (increase) decrease in
other assets and
liabilities (10,725) 4,908 (2,347) (2,589)
Increase (decrease) in due
to Holdings 14,616 18,288 (12,017) 18,128
-------- -------- -------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 37,062 60,667 10,771 22,653
-------- -------- -------- --------
See Notes to Consolidated Financial Statements
F-5<PAGE>
ESSEX GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUCCESSOR PREDECESSOR
--------------------------------------- ------------
Three Month Nine Month
Year Ended Year Ended Period Ended Period Ended
December 31, December 31, December 31, September 30,
In Thousands of Dollars 1994 1993 1992 1992
--------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property, plant
and equipment (30,109) (26,167) (14,705) (16,475)
Proceeds from disposal of
property, plant and
equipment 227 352 45 2,179
Investment in subsidiary and
joint venture (236) (4,970) - (1,220)
-------- -------- -------- --------
NET CASH USED FOR
INVESTING ACTIVITIES (30,118) (30,785) (14,660) (15,516)
-------- -------- -------- --------
FINANCING ACTIVITIES
Proceeds from senior notes - 200,000 - -
Proceeds from term loan - - 130,000 -
Retire prior indebtedness - - (94,000) -
Net increase (decrease) in
revolving loan - (11,000) 11,000 33,000
Net payments of other
long-term debt (396) (120,500) (9,500) (34,540)
Repurchase of 12 3/8% senior
subordinated debentures - (89,983) (11,692) (2,291)
Cash dividends paid - - (7,500) -
Debt issuance costs - (7,086) (17,232) (653)
-------- -------- -------- --------
NET CASH PROVIDED BY
(USED FOR) FINANCING
ACTIVITIES (396) (28,569) 1,076 (4,484)
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 6,548 1,313 (2,813) 2,653
Cash and cash equivalents at
beginning of period 10,346 9,033 11,846 9,193
-------- -------- -------- --------
Cash and cash equivalents at
end of period $16,894 $10,346 $9,033 $11,846
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-6<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In Thousands of Dollars
-----------------------
NOTE 1 ORGANIZATION AND ACQUISITION
ACQUISITION OF THE COMPANY
On February 29, 1988, MS/Essex Holdings Inc. ("Holdings"), acquired
Essex Group, Inc. (the "Company") from United Technologies Corporation
("UTC") (the "1988 Acquisition") and operated it as a wholly-owned
subsidiary ("Predecessor"). The outstanding common stock of Holdings was
beneficially owned by the Morgan Stanley Leveraged Equity Fund II, L.P.
("MSLEF II"), certain directors and members of management of Holdings and
the Company, and others.
On October 9, 1992, Holdings was acquired (the "Acquisition") by
merger (the "Merger") of B E Acquisition Corporation ("BE") with and into
Holdings with Holdings surviving under the name BCP/Essex Holdings Inc.
("Successor"). BE was a newly organized Delaware corporation formed for
the purpose of effecting the Acquisition. Shareholders of BE include
Bessemer Capital Partners, L.P. ("BCP"), affiliates of Goldman, Sachs &
Co. ("Goldman Sachs"), affiliates of Donaldson, Lufkin & Jenrette, Inc.
("DLJ"), Chemical Equity Associates, A California Limited Partnership and
members of management and other employees of the Company. Pursuant to the
Acquisition and Merger, (i) stockholders of Holdings, prior to the
Acquisition and Merger, became entitled to receive approximately $2.86 for
each outstanding share of common stock of Holdings held by them, (ii)
holders of options to purchase Holdings common stock, other than those
persons entering into an option continuation agreement, became entitled to
receive the difference between approximately $2.86 per share and the per
share exercise price of such options and (iii) the capital stock of BE was
converted into capital stock of Holdings. The Acquisition and Merger
resulted in a change in control of Holdings. Further, the Acquisition and
Merger occurred at the Holdings level and, therefore, did not directly
affect the Company's status as a wholly-owned subsidiary of Holdings. In
December 1993, BCP transferred its ownership interest in Holdings to
Bessemer Holdings, L.P. ("BHLP") an affiliate of BCP.
In connection with the Acquisition and Merger, the Company recorded
certain merger related expenses of $18,139 consisting primarily of bonus
and option payments to certain employees, and certain merger fees and
expenses, which were charged to operations as of September 30, 1992.
For financial statement purposes, the Acquisition and Merger was
accounted for by Holdings as a purchase acquisition effective October 1,
1992. Because the Company is a wholly-owned subsidiary of Holdings, the
effects of the Acquisition and Merger have been reflected in the Company's
financial statements, resulting in a new basis of accounting reflecting
estimated fair values for the Successor's assets and liabilities at that
date. However, to the extent that Holdings' management had a continuing
investment interest in Holdings' common stock, such fair values (and
contributed stockholder's equity) were reduced proportionately to reflect
the continuing interest (approximately 10%) at the prior historical cost
basis. As a result, the Company's financial statements for the periods
F-7<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
subsequent to September 30, 1992 are presented on the Successor's new
basis of accounting, while the financial statements for September 30, 1992
and prior periods are presented on the Predecessor's historical cost basis
of accounting.
The aggregate purchase price of Holdings and a reconciliation to the
initial capitalization of Successor are as follows:
Purchase price, including related fees:
Purchase price, excluding Seller's expenses . . . . $138,445
Related fees and expenses . . . . . . . . . . . . . 6,168
--------
144,613
Less reduction to reflect proportionate historical
cost basis for management's continuing common stock
interest . . . . . . . . . . . . . . . . . . . . . (15,259)
--------
129,354
Holdings debt ($191,645) and deferred debt
issuance costs, deferred and refundable income
taxes and other minor Holdings amounts not
reflected in Successor financial statements
(See Note 9) . . . . . . . . . . . . . . . . . . . 173,430
--------
Initial capitalization of Successor . . . . . . . . $302,784
========
The allocation of the purchase price to historical assets and
liabilities of the Company was as follows:
<TABLE>
<CAPTION>
<S> <C>
Net assets at prior historical cost . . . . . . . . . . . . . . . . . . $132,257
Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . 18,959
Increase in property, plant and equipment . . . . . . . . . . . . . . . 98,131
Deferred debt expense and changes in other assets and liabilities . . . 1,335
Long-term debt premium . . . . . . . . . . . . . . . . . . . . . . . . (5,812)
Adjust deferred income taxes to new basis . . . . . . . . . . . . . . . (84,331)
Excess of cost over net assets acquired . . . . . . . . . . . . . . . . 142,245
--------
$302,784
========
</TABLE>
F-8<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
The unaudited pro forma consolidated net loss for the twelve month
period ended December 31, 1992 would have been $6,026 assuming the
Acquisition and Merger had occurred on January 1, 1992 (no effect on
revenues). The primary pro forma effects are revised depreciation and
amortization charges, interest expense and income taxes.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION AND BUSINESS SEGMENT
The consolidated financial statements include the accounts of the
Company and all majority-owned subsidiaries. All intercompany accounts
and transactions have been eliminated in consolidation. The Company
operates in one industry segment. The Company develops, manufactures and
markets electrical wire and cable and insulation products. Among the
Company's products are magnet wire for electromechanical devices such as
motors, transformers and electrical controls; building wire for the
construction industry; wire for automotive and appliance applications;
voice and data communication wire and cable; and insulation products for
the electrical industry. The Company's customers are principally located
throughout the United States, without significant concentration in any one
region or any one customer. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not
require collateral.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less
at the date of purchase are considered to be cash equivalents.
INVENTORIES
Inventories are stated at cost, determined principally on the
last-in, first-out ("LIFO") method, which is not in excess of market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and depreciated
over estimated useful lives using the straight-line method.
INVESTMENT IN JOINT VENTURE
An investment in a joint venture is stated at cost adjusted for the
Company's share of undistributed earnings or losses.
INCOME TAXES
Effective October 1, 1992, concurrent with the new basis of
accounting, the Successor adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," ("FAS 109"). FAS 109
requires recognition of deferred tax liabilities and assets for the
F-9<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
expected future tax consequences of events that have been included in the
financial statements or tax returns. Using this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities. These
deferred taxes are measured by applying current tax laws. Through
September 30, 1992, deferred income taxes were provided by Predecessor for
significant timing differences in the recognition of revenue and expense
for tax and financial statement purposes.
Holdings and the Company file a consolidated U.S. federal income tax
return. The Company operates under a tax sharing agreement with Holdings
whereby the Company's aggregate income tax liability is calculated as if
it filed a separate tax return with its subsidiaries.
EXCESS OF COST OVER NET ASSETS ACQUIRED
Excess of cost over net assets acquired represents the excess of
Holdings contribution to capital, based on its purchase price over the
fair value of net assets acquired in the Acquisition, and is being
amortized by the straight-line method over 35 years.
OTHER INTANGIBLE ASSETS
In connection with the 1988 Acquisition, a covenant not to compete
agreement was entered into whereby, in general, UTC agreed that until
March 1, 1993, it would not engage in or carry on any business directly
competing with any business carried on by the Company on February 29,
1988. The $34,000 purchase price allocated by the Predecessor to the
covenant not to compete was classified as an intangible asset and was
amortized over five years through February 1993.
RECOGNITION OF REVENUE
Substantially all of the Company's revenue is recognized at the time
the product is shipped.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
In 1993, the Company adopted Statement of Financial Accounting
Standards No. 106 "Employers' Accounting for Postretirement Benefits Other
Than Pensions" and Statement of Financial Accounting Standards No. 112
"Employers' Accounting for Postemployment Benefits". The effect of
adopting the new rules was not material to the Company's 1993 consolidated
results of operations or financial condition.
UNUSUAL ITEMS
Included in Successor's cost of goods sold for the three month period
ended December 31, 1992 is a charge of approximately $2,600 to reflect the
estimated cost of plant consolidations, primarily costs to move equipment
and personnel related expenses. Amounts spent in 1993 and 1994, and
F-10<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
amounts remaining to be spent at December 31, 1994 are not material to the
consolidated financial statements. In the nine month period ended
September 30, 1992, Predecessor recorded a charge of approximately $1,500
to selling and administrative expenses for the relocation of a business
unit which was completed in 1993.
NOTE 3 INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1994 1993
---------- ----------
<S> <C> <C>
Finished goods . . . . . . . . . . . . . . $130,236 $97,332
Raw materials and work in process . . . . . 54,560 27,927
-------- --------
184,796 125,259
LIFO reserve . . . . . . . . . . . . . . . (39,090) 14,098
-------- --------
$145,706 $139,357
======== ========
</TABLE>
Principal elements of cost included in the Company's inventories are
copper, purchased materials, direct labor and manufacturing overhead.
Inventories valued using the LIFO method amounted to $141,847 and $136,980
at December 31, 1994 and 1993, respectively.
F-11<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
NOTE 4 PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1993
---------- ----------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . $ 9,319 $ 9,255
Buildings and improvements . . . . . . . . . 87,113 82,664
Machinery and equipment . . . . . . . . . . 225,343 201,871
Construction in process . . . . . . . . . . 11,486 9,667
-------- --------
333,261 303,457
Less: accumulated depreciation . . . . . . . 57,127 30,373
-------- --------
$276,134 $273,084
======== ========
</TABLE>
NOTE 5 ACCRUED LIABILITIES
Accrued liabilities include the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1993
---------- ----------
<S> <C> <C>
Salaries, wages and employee benefits . . . $15,418 $12,099
Amounts due customers . . . . . . . . . . . 5,352 4,328
Other . . . . . . . . . . . . . . . . . . . 25,051 26,436
-------- --------
$45,821 $42,863
======== ========
</TABLE>
NOTE 6 LONG-TERM DEBT
BANK FINANCING
In connection with the Acquisition and Merger, the Company entered
into a credit agreement dated September 25, 1992, among the Company,
F-12<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
Holdings, the lenders named therein and Chemical Bank, as agent (the
"Credit Agreement"). Under the Credit Agreement, the Company borrowed
$130,000 in term loans (the "Term Credit") of which $94,000 was used to
repay all indebtedness outstanding under the previous credit agreement and
the balance was used to pay a portion of the consideration payable to
Holdings' shareholders and option holders in the Merger and certain fees
and expenses in connection with the Acquisition and Merger and for other
general corporate purposes. In May 1993, the Company applied $111,000 of
the proceeds from the sale of its 10% Senior Notes due 2003 (the "Senior
Notes") to repay the outstanding balance under the Term Credit. See
Senior Notes below. The Company recognized an extraordinary charge of
$3,055, net of applicable tax benefit of $1,953, in the second quarter of
1993 representing the write-off of unamortized debt costs associated with
the outstanding Term Credit.
In May 1993, an amendment and restatement of the Credit Agreement
(the "Restated Credit Agreement") became effective. The Restated Credit
Agreement provides for $175,000 in revolving credit, subject to specified
percentages of eligible assets, reduced by outstanding letters of credit
($12,079 at December 31, 1994) (the "Revolving Credit"). Further, the
amount of Revolving Credit available to the Company is also subject to
certain debt limitation covenants contained in the indenture under which
the Senior Notes were issued. The Revolving Credit expires in 1998.
Revolving Credit loans bear interest at floating rates at bank prime rate
plus 1.25% or a reserve adjusted Eurodollar rate (LIBOR) plus 2.25%. The
effective interest rate can be reduced by 0.25% to 0.75% if certain
specified financial conditions are achieved. Commitment fees during the
revolving loan period are 0.5% of the average daily unused portion of the
available credit. At December 31, 1994 and 1993, the Company's
incremental borrowing rate under the Restated Credit Agreement, including
applicable margins, approximated 9.0% and 7.3%, respectively.
The Restated Credit Agreement contains various covenants which
include, among other things: (a) the maintenance of certain financial
ratios and compliance with certain financial tests and limitations; (b)
limitations on investments and capital expenditures; (c) limitations on
cash dividends paid; and (d) limitations on leases and the sale of assets.
Through December 31, 1994, the Company fully complied with all of the
financial ratios and covenants contained in the Restated Credit Agreement.
The indebtedness under the Restated Credit Agreement is guaranteed by
Holdings and all of the Company's subsidiaries, and is secured by a pledge
of the capital stock of the Company and its subsidiaries and by a first
lien on substantially all assets.
SENIOR NOTES
At December 31, 1994 and 1993 $200,000 aggregate principal amount of
its Senior Notes were outstanding which bear interest at 10% per annum
payable semiannually and are due in May 2003. Net proceeds in May 1993 to
the Company from the sale of the Senior Notes, after underwriting
F-13<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
discounts, commissions and other offering expenses, were $193,450. The
Company applied $111,000 of such proceeds to the repayment of the Term
Credit and in June 1993 applied the balance of such proceeds, together
with new borrowings under the Revolving Credit, to redeem all of its
outstanding 12 3/8% Senior Subordinated Debentures due 2000 (the
"Debentures").
The Senior Notes rank pari passu in right of payment with all other
senior indebtedness of the Company. To the extent that any other senior
indebtedness of the Company is secured by liens on the assets of the
Company, the holders of such secured senior indebtedness will have a claim
prior to any claim of the holders of the Senior Notes as to those assets.
At the option of the Company, the Senior Notes may be redeemed,
commencing in May 1998 in whole, or in part, at redemption prices ranging
from 103.75% in 1998 to 100% in 2001, or at 109% for up to $67,000 with
the proceeds from any public equity offering prior to June 30, 1996. Upon
a Change in Control, as defined in the indenture covering the Senior Notes
(the "Indenture"), each holder of Senior Notes will have the right to
require the Company to repurchase all or any part of such holder's Senior
Notes at a repurchase price equal to 101% of the principal amount thereof.
The Indenture contains various covenants which include, among other
things, limitations on debt, on the sale of assets, and on cash dividends
paid. Through December 31, 1994, the Company fully complied with all of
the financial ratios and covenants contained in the Indenture.
DEBENTURES
The Debentures were due in 2000 and bore interest at 12 3/8% per
annum payable semiannually. However, the Restated Credit Agreement
required the Debentures, which were callable at 106% commencing May 15,
1993, to be retired no later than June 30, 1993. Because of the mandatory
retirement, the Debentures were valued by the Successor at the expected
retirement cost, discounted at 11.5%. In June 1993, the Company redeemed
all outstanding Debentures at 106% of their principal amount, resulting in
a net loss of $312, net of applicable tax benefit of $199, which has been
reported as an extraordinary charge.
During 1992 the Company repurchased outstanding Debentures which had
a carrying value of $13,843. The net loss resulting from this repurchase,
which includes the write-off of a portion of unamortized debt costs,
totalled $122, net of applicable income tax benefit of $78, for
Predecessor, which has been reported as an extraordinary charge.
OTHER
The Company capitalized interest costs of $132, $1,599, $116 and $220
for Successor in 1994 and 1993 and Successor and Predecessor in 1992,
respectively, with respect to qualifying assets.
F-14<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
Total interest paid was $20,826, $20,961, $7,344 and $10,076, for
Successor in 1994 and 1993 and Successor and Predecessor in 1992,
respectively.
There are no maturities of long-term debt within the next five years,
although future amounts outstanding, if any, under the Restated Credit
Agreement would be due in 1998.
SUBSEQUENT EVENT
See Note 14 -- Subsequent Event.
NOTE 7 INCOME TAXES
Effective October 1, 1992, concurrent with the new basis of
accounting, the Successor adopted FAS 109. The Predecessor's statement of
operations for the nine month period ended September 30, 1992 reflects the
historical accounting method for income taxes and has not been restated to
reflect FAS 109. Under FAS 109 assets and liabilities acquired, and the
resulting charges or credits reflected in future statements of operations,
are stated at the gross fair value at the date of acquisition, whereas
under the previous historical method, assets and liabilities and the
resulting charges or credits were recorded at amounts net of the related
tax differences between fair value and the tax basis.
Deferred income taxes at December 31, 1994 and 1993 reflect the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and amounts used
for income tax purposes. Significant components of deferred tax
liabilities and assets are as follows:
F-15<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
<TABLE>
<CAPTION>
December 31,
-------------------------
1994 1993
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment . . . . $73,108 $75,923
Inventory . . . . . . . . . . . . . . 28,236 27,935
Other . . . . . . . . . . . . . . . . 4,201 4,274
-------- --------
Total deferred tax liabilities . . . 105,545 108,132
-------- --------
Deferred tax assets:
Accrued liabilities . . . . . . . . . 7,671 8,793
Alternative minimum tax ("AMT") credit
carryforward . . . . . . . . . . . . 4,984 -
Other . . . . . . . . . . . . . . . . 9,711 7,268
-------- --------
Total deferred tax assets . . . . . 22,366 16,061
-------- --------
Net deferred tax liabilities . . . $83,179 $92,071
======== ========
</TABLE>
The AMT credit carryforward is available to the Company indefinitely to
reduce future years federal income taxes subject to certain limitations.
F-16<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
The components of income tax expense (benefit) are:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
-------------------------------------- ------------
Three Month Nine Month
Year Ended Year Ended Period Ended Period Ended
December 31, December 31, December 31, September 30,
1994 1993 1992 1992
----------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Federal . . . . . . . . $27,157 $10,978 $(431) $6,868
State . . . . . . . . . 4,507 2,696 112 1,143
Deferred:
Federal . . . . . . . . (8,362) 127 (1,297) 1,109
State . . . . . . . . . (602) (749) (284) 158
-------- ------- -------- --------
$22,700 $13,052 $(1,900) $9,278
======== ======= ======== ========
</TABLE>
In compliance with the Omnibus Budget Reconciliation Act of 1993, the
Company's tax balances were adjusted in 1993 to reflect the increase in
the federal statutory tax rate from 34% to 35%. The adjustment had the
effect of increasing income tax expense by $2,250 for 1993.
Total income taxes paid were $11,484, $1,131, $8,608 and $6,604 for
Successor in 1994 and 1993 and Successor and Predecessor in 1992,
respectively.
The Predecessor's deferred tax provision is attributable to timing
differences in the recognition of revenue and expense for tax and
financial reporting purposes. Sources of these differences were primarily
related to depreciation and accruals deductible in different periods for
tax purposes.
Principal differences between the effective income tax rate and
the statutory federal income tax rate are:
F-17<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------------------------------------- -------------
Three Month Nine Month
Year Ended Year Ended Period Ended Period Ended
December 31, December 31, December 31, September 30,
1994 1993 1992 1992
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Statutory federal income tax rate . . . 35.0% 35.0% (34.0)% 34.0%
State and local taxes, net of
federal benefit . . . . . . . . . . . 4.8 5.6 (1.6) 5.8
Permanent differences from applying
purchase accounting . . . . . . . . . - - - 12.2
Amortization of excess of cost over net
assets acquired . . . . . . . . . . . 2.7 6.3 5.1 -
Federal rate increase . . . . . . . . . - 10.0 - -
Tax sharing agreement limitation . . . - - - 8.2
Other, net . . . . . . . . . . . . . . .4 1.3 3.2 2.9
------ ------ ------ ------
Effective income tax rate . . . . . . . 42.9% 58.2% (27.3)% 63.1%
====== ====== ====== ======
</TABLE>
The Company elected not to step up its tax bases in the assets
acquired. Accordingly, the income tax bases in the assets acquired have
not been changed from pre-1988 Acquisition values. Depreciation and
amortization of the higher allocated financial statement bases are not
deductible for income tax purposes, thus increasing the effective income
tax rate reflected in the Predecessor's consolidated financial statements.
Under FAS 109, the Successor has recorded deferred income taxes for such
differences.
F-18<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
NOTE 8 RETIREMENT BENEFITS
The Company participates in two defined benefit retirement
plans for substantially all salaried and hourly employees. The Company
also sponsors a supplemental executive retirement plan, which provides
retirement benefits based on the same formula as in effect under the
salaried employees' plan, but which only takes into account compensation
in excess of amounts that can be recognized under the salaried employees'
plan. Salaried plan retirement benefits are generally based on years of
service and the employee's compensation during the last several years of
employment. Hourly plan retirement benefits are based on hours worked and
years of service with a fixed dollar benefit level. The Company's funding
policy is based on an actuarially determined cost method allowable under
Internal Revenue Service regulations, the projected unit credit method.
Pension plan assets consist principally of fixed income and equity
securities and cash and cash equivalents.
The components of net periodic pension cost for the plans are as
follows:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------------------------------------- -------------
Three Month Nine Month
Year Ended Year Ended Period Ended Period Ended
December 31, December 31, December 31, September 30,
1994 1993 1992 1992
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Service cost benefits earned
during the period . . . . . . . . . . $2,964 $2,611 $628 $2,282
Interest costs on projected benefit
obligation . . . . . . . . . . . . . . 3,643 3,521 799 2,479
Actual return on plan assets . . . . . 2,409 (6,078) (841) (1,544)
Net amortization and deferral . . . . . (6,458) 2,573 5 (365)
-------- -------- -------- --------
Net periodic pension cost . . . . . . . $2,558 $2,627 $591 $2,852
======== ======== ======== ========
</TABLE>
The following table summarizes the funded status of these pension
plans and the related amounts that are recognized in the consolidated
balance sheets:
F-19<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
<TABLE>
<CAPTION>
December 31,
----------------------------------
1994 1993
---------------- -----------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested . . . . . . . . . . . . . . . . . . . . $29,469 $32,313
Nonvested . . . . . . . . . . . . . . . . . . 2,470 3,110
-------- --------
Accumulated benefit obligation . . . . . . . . 31,939 35,423
Effect of projected future salary increases . 9,566 15,409
-------- --------
Projected benefit obligation . . . . . . . . . 41,505 50,832
Plan assets at fair value . . . . . . . . . . . . . . 42,436 45,137
-------- --------
Fair value of plan assets in excess of
(less than) projected benefit obligation . . . . . . 931 (5,695)
Unrecognized net (gain) loss . . . . . . . . . . . . (7,703) 614
Unrecognized prior service cost . . . . . . . . . . . (353) -
-------- --------
Pension liability recognized in balance sheets . . . $(7,125) $(5,081)
======== ========
</TABLE>
Certain actuarial assumptions were revised in 1994 and 1993
resulting in a decrease of $13,883 and an increase of $3,448,
respectively, in the projected benefit obligation.
F-20<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
Following is a summary of significant actuarial assumptions used:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------------------------------------- -------------
Three Month Nine Month
Year Ended Year Ended Period Ended Period Ended
December 31, December 31, December 31, September 30,
1994 1993 1992 1992
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Discount rates . . . . . . . . 8.5% 7.0% 8.0% 7.1%
Rates of increase in
compensation levels . . . . . 5.0% 5.0% 6.0% 7.0%
Expected long-term rate of
return on assets . . . . . . . 9.0% 9.0% 9.0% 7.1%
</TABLE>
In addition to the defined benefit retirement plans as detailed
above, the Company also sponsors defined contribution savings plans which
cover substantially all salaried employees of the Company and certain
hourly employees, represented by collective bargaining agreements, who
negotiate this benefit into their contract. The hourly plan was
established in 1994. The purpose of these savings plans is generally to
provide additional financial security during retirement by providing
employees with an incentive to make regular savings. The Company's
contributions to the defined contribution plans are based on employee
contributions and totalled $1,088, $1,030, $276 and $733 for Successor in
1994 and 1993 and Successor and Predecessor in 1992, respectively.
During 1994, the Company implemented an unfunded, nonqualified
deferred compensation plan which permits certain key management employees
to annually elect to defer a portion of their compensation and earn a
guaranteed interest rate on the deferred amounts. The total amount of
participant deferrals and accrued interest, which is reflected in other
long-term liabilities, was $101 at December 31, 1994.
F-21<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
NOTE 9 STOCKHOLDERS' EQUITY
The following is an analysis of changes to the Company's
stockholders' equity:
<TABLE>
<CAPTION>
Common
Stock Plus
Additional Total
Paid In Retained Stockholder's
Capital Earnings Equity
---------- ---------- --------------
<S> <C> <C> <C>
PREDECESSOR
-----------
Balance at January 1, 1992 . . . . . . . . . . . . . . $58,000 $62,354 $120,354
Net income . . . . . . . . . . . . . . . . . . . . . . - 5,314 5,314
Merger related expenses payable by Holdings . . . . . . 14,089 - 14,089
Cash dividends paid to Holdings . . . . . . . . . . . . - (7,500) (7,500)
-------- -------- --------
Balance at September 30, 1992 . . . . . . . . . . . . . $72,089 $60,168 $132,257
======== ======== ========
SUCCESSOR
---------
Initial capitalization at October 1, 1992:
Initial capitalization . . . . . . . . . . . . . $318,043 $ - $318,043
Reduction of equity to reflect proportionate
historical cost basis for management's
continuing common stock interest . . . . . . . (15,259) - (15,259)
-------- -------- --------
302,784 - 302,784
Net loss . . . . . . . . . . . . . . . . . . . . . . . - (5,062) (5,062)
-------- -------- --------
Balance at December 31, 1992 . . . . . . . . . . . . . 302,784 (5,062) 297,722
Net income . . . . . . . . . . . . . . . . . . . . . . - 6,010 6,010
-------- -------- --------
Balance at December 31, 1993 . . . . . . . . . . . . . 302,784 948 303,732
Net income . . . . . . . . . . . . . . . . . . . . . . - 30,171 30,171
-------- -------- --------
Balance at December 31, 1994 . . . . . . . . . . . . . $302,784 $31,119 $333,903
======== ======== ========
</TABLE>
F-22<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
NOTE 10 RELATED PARTY TRANSACTIONS
Advisory services fees of $1,000, $1,000 and $229 were paid to
affiliates of BHLP and BCP for 1994, 1993 and the three month period ended
December 31, 1992, respectively, and to MSLEF II in the amount of $210
during the nine month period ended September 30, 1992. It is expected
that financial advisory fees to an affiliate of BHLP will continue to be
paid for such services in the future. Also, in connection with the
Acquisition and Merger, an affiliate of BCP received financial advisory
fees of $1,900 associated with the financing plus certain out of pocket
expenses. DLJ and Goldman Sachs acted as underwriters in the Senior Notes
offering, and in such capacity received aggregate underwriting discounts
and commissions of $5,300. In addition, during the nine month period
ended September 30, 1992, management fees to Holdings of $1,875 were
incurred.
In May 1989, Holdings issued $342,000 aggregate principal amount
($135,117 aggregate proceeds amount) of its senior discount debentures due
2004 (the "Holdings Debentures"), the proceeds of which were used to pay a
dividend to Holdings shareholders, cash bonuses to certain members of its
management, and related expenses. During 1992, the Company paid cash
dividends of $7,500 which were used to finance a portion of the
Acquisition. As of December 31, 1994, Holdings had a liability of
$258,960 related to the Holdings Debentures. The Holdings Debentures are
unsecured debt of Holdings and are effectively subordinated to all
outstanding indebtedness of the Company, including the Senior Notes, and
will be effectively subordinated to other indebtedness incurred by direct
and indirect subsidiaries of Holdings if issued. Cash payment of interest
at 16% is required to be made by Holdings semiannually commencing November
15, 1995.
Holdings is a holding company with no operations and has virtually
no assets other than its ownership of the outstanding common stock of the
Company. All of such stock is pledged, however, to the lenders under the
Restated Credit Agreement. Accordingly, Holdings' ability to meet its
obligations when due under the terms of its indebtedness will be dependent
on the Company's ability to pay dividends, to loan, or otherwise advance
or transfer funds to Holdings in amounts sufficient to service Holdings'
debt obligations.
NOTE 11 DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE INFORMATION
The Company, to a limited extent, uses forward fixed price contracts
and derivative financial instruments to manage foreign currency exchange
and commodity price risks. The Company does not hold or issue financial
instruments for investment or trading purposes. The Company is exposed to
credit risk in the event of nonperformance by counterparties for foreign
exchange forward contracts, metal forward price contracts and metals
futures contracts but the Company does not anticipate nonperformance by
any of these counterparties. The amount of such exposure is generally the
unrealized gains in the impacted contracts.
F-23<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars, Except Per Copper Data
-----------------------------------------------
FOREIGN EXCHANGE RISK MANAGEMENT
The Company engages in the sale and purchase of goods and services
which periodically require payment or receipt of amounts denominated in
foreign currencies. To protect the Company's related anticipated cash
flows from the risk of adverse foreign currency exchange fluctuations for
firm sales and purchase commitments, the Company enters into foreign
currency forward exchange contracts. At December 31, 1994, the Company
had Deutschemark forward exchange sales and purchase contracts of $5,360
and $1,260, respectively. The fair value of such contracts approximated
contract amount. Foreign currency gains or losses resulting from the
Company' operating and hedging activities are recognized in earnings in
the period in which the hedged currency is collected or paid. The related
amounts due to or from counterparties are included in other liabilities or
other assets.
COMMODITY PRICE RISK MANAGEMENT
Copper is the Company's principal raw material and, as a metal
commodity, experiences marked fluctuations in market prices, thereby
subjecting the Company to copper price risk with respect to firm and
anticipated customer sales contracts. Derivative financial instruments in
the form of copper futures contracts are utilized by the Company to reduce
those risks. At December 31, 1994, the Company had outstanding futures
contracts to hedge 2.8 million pounds of copper (approximately $2,400
contract amount; $3,700 fair value amount) for sale in 1995. Deferred and
unrealized gains on these futures contracts are included within other
assets and will be recognized in earnings in the period in which the
hedged copper is sold or at the point in time when a sale is no longer
expected to occur.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, exclusive of certain foreign
currency exchange and futures contracts as discussed above, generally
consist of cash and cash equivalents and the Company's long-term debt.
The carrying amounts of the Company's financial instruments approximate
fair value at December 31, 1994, except for the Senior Notes which exceed
fair value by approximately $12,000.
NOTE 12 CONTINGENT LIABILITIES AND COMMITMENTS
There are various claims and pending legal proceedings against the
Company including environmental matters and other matters arising out of
the ordinary course of its business. Pursuant to the 1988 Acquisition,
UTC agreed to indemnify the Company against all losses (as defined)
resulting from or in connection with damage or pollution to the
environment and arising from events, operations, or activities of the
Company prior to February 29, 1988 or from conditions or circumstances
existing at February 29, 1988. Except for certain matters relating to
permit compliance, the Company is fully indemnified with respect to
F-24<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars, Except Per Copper Data
-----------------------------------------------
conditions, events or circumstances known to UTC prior to February 29,
1988. Further, the Company believes it is indemnified, subject to a
$4,000 "basket" for losses related to any environmental events, conditions
or circumstances identified prior to February 28, 1993, to the extent such
losses were not caused by activities of the Company after February 29,
1988. After consultation with counsel, in the opinion of management, the
ultimate cost to the Company, exceeding amounts provided, will not
materially affect the consolidated financial position or results of
operations.
At December 31, 1994, the Company had purchase commitments of 448.8
million pounds of copper. This is not expected to be either a quantity in
excess of needs or at prices in excess of amounts that can be recovered
upon sale of the related copper products. The commitments are to be
priced based on the New York Commodity Exchange, Inc. ("COMEX") price in
the contractual month of shipment except for 37.8 million pounds of copper
that have been priced at fixed amounts through forward purchase contracts
covered by customer sales agreements at copper prices at least equal to
the Company's copper commitment.
At December 31, 1994, the Company had committed $7,959 to outside
vendors for certain capital projects.
The Company occupies space and uses certain equipment under lease
arrangements. Rent expense was $6,912, $6,224, $1,949 and $4,138 under
such arrangements for 1994 and 1993, the three month period ended December
31, 1992 and the nine month period ended September 30, 1992, respectively.
Rental commitments at December 31, 1994 under long-term noncancellable
operating leases were as follows:
Real Estate Equipment Total
----------- --------- -----
1995 $2,427 $2,316 $4,743
1996 1,838 2,186 4,024
1997 1,401 1,225 2,626
1998 1,232 1,015 2,247
1999 1,037 860 1,897
After 1999 12,665 - 12,665
------- ------ -------
$20,600 $7,602 $28,202
======= ====== =======
F-25<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
NOTE 13 QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1994 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
----------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . $231,832 $246,558 $265,897 $265,788
Gross margin . . . . . . . . . . . 40,184 38,680 42,375 42,225
Net income . . . . . . . . . . . . $7,783 $7,145 $7,998 $7,245
</TABLE>
<TABLE>
<CAPTION>
1993 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
----------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . $204,309 $230,465 $220,249 $213,823
Gross margin . . . . . . . . . . . 29,543 30,067 27,547 35,814
Income (loss) before
extraordinary charge (b) . . . . 1,536 2,583 (988) 6,246
Net income (loss) (a)(b) . . . . . $1,536 $(784) $(988) $6,246
</TABLE>
(a) In the second quarter 1993, the Company recognized an extraordinary
charge of $3,055 net of applicable income tax benefit of $1,953,
representing the write-off of unamortized debt costs associated with
retirement of the outstanding Term Credit. During 1993 the Company
repurchased outstanding Debentures resulting in extraordinary
charges of $312 net of applicable income tax benefits of $199 (See
Note 6).
NOTE 14 SUBSEQUENT EVENT
Holdings presently intends to effect at least a partial redemption of
the Holdings Debentures at par value plus accrued interest on or about May
15, 1995, when the Holdings Debentures accrete to their full face value.
Holdings expects to finance this redemption through cash received from the
Company by way of repayment of an intercompany account payable and a
dividend. The Company expects to obtain the necessary funds for such cash
payments from borrowings under a new credit agreement and a capital lease
financing facility. To the extent a full redemption of the Holdings
F-26<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
Debentures is effected, additional financing is expected to be obtained by
the Company through an unsecured term loan.
The Company and certain lenders have agreed in principle to a new
credit agreement (the "New Credit Agreement") involving a senior secured
revolving credit facility of up to $260,000 (the "New Revolving Credit")
subject to specified percentages of eligible assets. The New Credit
Agreement is expected to replace the existing Restated Credit Agreement
and its $175,000 revolving credit facility. The New Revolving Credit is
expected to have a five year maturity with interest rates, commitment
fees, collateral and covenants comparable to the existing Restated Credit
Agreement. Additionally, the Company and one of the lending banks have
agreed in principle to a capital lease facility (the "Capital Lease
Facility"), which is expected to generate proceeds of approximately
$25,000, before associated fees and expenses, from the sale and leaseback
of certain of its fixed assets. The Company may have available for its
use an unsecured term loan facility (the "Term Loan Facility") to
refinance a portion of the Holdings Debentures. The applicable terms and
conditions of the New Credit Agreement, the Capital Lease Facility and the
Term Loan Facility have not yet been finalized.
There can be no assurance that Holdings will complete the redemption
and refinancing as described above.
F-27<PAGE>
SCHEDULE II
ESSEX GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------------------------------------------ ---------------
Three Month Nine Month
Year Ended Year Ended Period Ended Period Ended
December 31, December 31, December 31, September 30,
In Thousands of Dollars 1994 1993 1992 1992
----------------------- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Balance at
beginning of period $2,811 $2,455 $2,462 $4,912
Provision 1,332 850 75 (1,848)
Write-offs (900) (765) (177) (763)
Recoveries 294 271 95 161
-------- -------- -------- --------
Balance at end of
period $3,537 $2,811 $2,455 $2,462
======== ======== ======== ========
</TABLE>
S-1<PAGE>
EXHIBIT INDEX
Location of Exhibit
Exhibit in Sequential
Number Description of Document Numbering System
--------------------------------------------------------------------------
2.01 Agreement and Plan of Merger, dated as of July 24, 1992 (the
"Merger Agreement"), between B E Acquisition Corporation and
BCP/Essex Holdings Inc. (then known as MS/Essex Holdings Inc.),
incorporated by reference to Exhibit 2.1 to BCP/Essex Holdings
Inc.'s (then known as MS/Essex Holdings Inc.) Current Report on
Form 8-K, filed with the Securities and Exchange Commission on
August 10, 1992 (Commission File No. 1-10211).
2.02 Amendment dated as of October 1, 1992, to the Agreement and Plan
of Merger between B E Acquisition Corporation and BCP/Essex
Holdings Inc. (then known as MS/Essex Holdings Inc.), incorporated
by reference to Exhibit 2.2 to BCP/Essex Holdings Inc.'s Current
Report on Form 8-K, filed with the Securities and Exchange
Commission on October 26, 1992 (Commission File No. 1-10211).
3.01 Certificate of Incorporation of the registrant (Incorporated by
reference to Exhibit 3.01 to the Company's Registration Statement
on Form S-1, File No. 33-20825).
3.02 By-Laws of the registrant, as amended. (Incorporated by reference
to Exhibit 3.02 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991).
4.01 Indenture under which the 10% Senior Notes Due 2003 are
outstanding, incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Pre-Effective Amendment No. 1
to Form S-2 (Commission File No. 33-59488).
9.01 Investors Shareholders Agreement dated as of October 9, 1992,
among B E Acquisition Corporation, Bessemer Capital Partners,
L.P., certain affiliates of Donaldson, Lufkin & Jenrette, Inc.,
certain affiliates of Goldman, Sachs & Co., and Chemical Equity
Associates, a California Limited Partnership, incorporated by
reference to Exhibit 28.1 to BCP/Essex Holdings Inc.'s Current
Report on Form 8-K, filed with the Securities and Exchange
Commission on October 26, 1992 (Commission File No. 1-10211).
9.02 Management Stockholders and Registration Rights Agreement dated as
of October 9, 1992, among B E Acquisition Corporation, Bessemer
Capital Partners, L.P. and certain employees of the registrant and
its subsidiaries, incorporated by reference to Exhibit 28.3 to
BCP/Essex Holdings Inc.'s Current Report on Form 8-K, filed with
the Securities and Exchange Commission on October 26, 1992
(Commission File No. 1-10211).
9.03 Form of Irrevocable Proxy dated as of October 9, 1992, granted to
Bessemer Capital Partners, L.P. by certain employees of the
registrant and its subsidiaries, incorporated by reference to
Exhibit 28.4 to BCP/Essex Holdings Inc.'s Current Report on Form
8-K, filed with the Securities and Exchange Commission on October
26, 1992 (Commission File No. 1-10211).
10.01 Amendment and Restatement of Credit Agreement dated May 7, 1993,
incorporated by reference to Exhibit 28.7 to the Company's
Registration Statement on Pre-Effective Amendment No. 3 to Form S-
2 (Commission File No. 33-59488).<PAGE>
Location of Exhibit
Exhibit in Sequential
Number Description of Document Numbering System
--------------------------------------------------------------------------
10.02 Credit Agreement dated as of September 25, 1992, among B E
Acquisition Corporation, BCP/Essex Holdings Inc., the registrant,
the lenders named therein and Chemical Bank, as agent,
incorporated by reference to Exhibit 4.6 to BCP/Essex Holdings
Inc.'s Current Report on Form 8-K, filed with the Securities and
Exchange Commission on October 26, 1992 (Commission File No. 1-
10211).
10.03 Engagement Letter dated July 22, 1992 among Bessemer Capital
Partners, L.P., B E Acquisition Corporation, and Donaldson, Lufkin
& Jenrette, Inc., incorporated by reference to Exhibit 10.10 to
registrant's Annual Report on Form 10-K for the year ended
December 31, 1992 (Commission File No. 1-7418).
10.04 Amendment dated October 9, 1992 among Bessemer Capital Partners,
L.P., B E Acquisition Corporation, Donaldson, Lufkin & Jenrette,
Inc. and Goldman, Sachs and Co., to Engagement Letter dated July
22, 1992 among Bessemer Capital Partners, L.P., B E Acquisition
Corporation and Donaldson, Lufkin & Jenrette, Inc., incorporated
by reference to Exhibit 10.11 to registrant's Annual Report on
Form 10-K for the year ended December 31, 1992 (Commission File
No. 1-7418).Agreement and Plan of Merger, dated as of July 24,
1992 (the "Merger Agreement"), between B E Acquisition Corporation
and BCP/Essex Holdings Inc. (then known as MS/Essex Holdings
Inc.), incorporated by reference to Exhibit 2.1 to BCP/Essex
Holdings Inc.'s (then known as MS/Essex Holdings Inc.) Current
Report on Form 8-K, filed with the Securities and Exchange
Commission on August 10, 1992 (Commission File No. 1-10211).
12.01 Computation of Ratio of Earnings to Fixed Charges.
21.01 Subsidiaries of the registrant.
99.01 Registration Rights Agreement dated as of October 9, 1992, among
B E Acquisition Corporation, certain affiliates of Donaldson,
Lufkin & Jenrette, Inc., certain affiliates of Goldman, Sachs &
Co., and Chemical Equity Associates, A California Limited
Partnership, incorporated by reference to Exhibit 28.2 to
BCP/Essex Holdings Inc.'s Current Report on Form 8-K, filed with
the Securities and Exchange Commission on October 26, 1992
(Commission File No. 1-10211).
99.02 Amended and Restated Stock Option Plan of BCP/Essex Holdings Inc.,
incorporated by reference to Exhibit 4.7 to BCP/Essex Holdings
Inc.'s Current Report on Form 8-K, filed with the Securities and
Exchange Commission on October 26, 1992 (Commission File No. 1-
10211).<PAGE>
EXHIBIT 12.01
ESSEX GROUP, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
SUCCESSOR
---------------------------------------------
Three Month
Year Ended Year Ended Period Ended
December 31, December 31, December 31,
In Thousands of Dollars, Except Ratio Data 1994 1993 1992
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) before
taxes and extraordinary
charge $52,871 $22,429 $(6,962)
Add:
Interest Expense 24,554 25,241 8,086
Portion of rents
representative of
interest factor 2,302 2,073 650
Current period
amortization of
interest capitalized
in prior periods 95 8 -
------- ------- -------
Income as adjusted $79,822 $49,751 $1,774
======= ======= =======
Fixed charges:
Interest incurred:
Amount expensed $24,554 $25,241 $8,086
Amount capitalized 132 1,599 116
Portion of rents
representative of
interest factor 2,302 2,073 650
------- ------- -------
Total fixed charges $26,988 $28,913 $8,852
======= ======= =======
Ratio of earnings to
fixed charges (a) 3.0 1.7 -
=== === ===
</TABLE>
(a) Earnings of the Successor were insufficient to cover fixed charges by
the amount of $7,078 for the three month period ended December 31,
1992.<PAGE>
EXHIBIT 12.01
ESSEX GROUP, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - Continued
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------
Nine Month
Period Ended Year Ended Year Ended
September 30, December 31, December 31,
In Thousands of Dollars, Except Ratio Data 1992 1991 1990
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) before
taxes and extraordinary
charge $14,714 $27,741 $43,208
Add:
Interest Expense 14,505 24,969 31,893
Portion of rents
representative of
interest factor 1,379 1,876 1,856
Current period
amortization of
interest capitalized
in prior periods 48 63 56
------- ------- -------
Income as adjusted $30,646 $54,649 $77,013
======= ======= =======
Fixed charges:
Interest incurred:
Amount expensed $14,505 $24,969 $31,893
Amount capitalized 220 - 107
Portion of rents
representative of
interest factor 1,379 1,876 1,856
------- ------- -------
Total fixed charges $16,104 $26,845 $33,856
======= ======= =======
Ratio of earnings to
fixed charges (a) 1.9 2.0 2.3
=== === ===
/TABLE
<PAGE>
EXHIBIT 21.01
ESSEX GROUP, INC. (MICHIGAN)
SUBSIDIARIES OF THE REGISTRANT
Essex Group, Inc. . . . . . . . . . . . . . . . . . . Delaware
Essex International, Inc. . . . . . . . . . . . . . . Delaware
Essex Wire Corporation . . . . . . . . . . . . . . . Michigan
Diamond Wire & Cable Co. . . . . . . . . . . . . . . Illinois
ExCel Wire and Cable Co. . . . . . . . . . . . . . . Illinois
US Samica Corporation . . . . . . . . . . . . . . . . Vermont
Bristol Wire Company . . . . . . . . . . . . . . . . Delaware
Femco Magnet Wire Corporation . . . . . . . . . . . . Indiana
Essex Group Export Inc. . . . . . . . . . . . . . . . U.S. Virgin Islands
Interstate Industries Holdings Inc. . . . . . . . . . Delaware
Interstate Industries, Inc. . . . . . . . . . . . . . Mississippi
Essex Group Mexico Inc. . . . . . . . . . . . . . . . Delaware
Essex Group Mexico S.A. de C.V. . . . . . . . . . . . Mexico<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K AS
OF DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000033565
<NAME> ESSEX GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 16,894
<SECURITIES> 0
<RECEIVABLES> 144,595
<ALLOWANCES> 3,537
<INVENTORY> 145,706
<CURRENT-ASSETS> 327,691
<PP&E> 276,134
<DEPRECIATION> 57,127
<TOTAL-ASSETS> 750,300
<CURRENT-LIABILITIES> 136,629
<BONDS> 200,000
<COMMON> 302,784
0
0
<OTHER-SE> 31,119
<TOTAL-LIABILITY-AND-EQUITY> 750,300
<SALES> 1,010,075
<TOTAL-REVENUES> 1,011,874
<CGS> 846,611
<TOTAL-COSTS> 846,611
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,554
<INCOME-PRETAX> 52,871
<INCOME-TAX> 22,700
<INCOME-CONTINUING> 30,171
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,171
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
