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, 1995
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1601 WALL STREET, FORT WAYNE, INDIANA 46802
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (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
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(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 29, 1996 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"), founded in Detroit, Michigan in
1930 to manufacture automobile electrical wire harnesses, currently
develops, manufactures and markets a broad line of 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; voice and data communication wire; automotive wire and specialty
wiring assemblies for automobiles and trucks; industrial wires for
applications in appliances, construction and recreational vehicles and
insulation products including mica paper and mica-based composites. The
Company's operations at December 31, 1995 included 24 domestic
manufacturing facilities and employed approximately 4,102 persons. The
Company's principal executive offices are located at 1601 Wall Street,
Fort Wayne, Indiana.
On February 29, 1988, MS/Essex Holdings Inc. ("Predecessor" or
"Holdings"), acquired the Company from United Technologies Corporation
("UTC") (the "1988 Acquisition"). 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.
("Successor" or "Holdings"). BE was a newly organized Delaware
corporation formed for the purpose of effecting the Acquisition.
Shareholders of BE included Bessemer Holdings, L.P. (an affiliate and
successor in interest to Bessemer Capital Partners, L.P. ["BCP"])
("BHLP"), affiliates of Goldman, Sachs & Co. ("Goldman Sachs"), affiliates
of Donaldson, Lufkin & Jenrette Securities Corporation ("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. 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, 1995 the dollar amounts and percentages of
sales of each of the Company's major product lines:
1<PAGE>
<TABLE>
<CAPTION>
Sales(a) Percentage of Sales
------------------------------ -----------------------
1995 1994 1993 1995 1994 1993
------ ------ ------ ------ ------ ------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Building wire $406.1 $390.0 $332.2 34% 39% 38%
Magnet wire 388.2 306.9 240.9 32 30 28
Communication wire 177.5 119.3 135.9 15 12 16
Automotive wire 97.3 82.8 59.1 7 7 7
Other 132.6 111.1 100.7 12 12 11
------- ------ ------ ----- ----- -----
Total $1,201.7 $1,010.1 $868.8 100% 100% 100%
======== ======== ====== ===== ===== =====
</TABLE>
(a) Due to the third quarter 1995 reorganization as set forth below,
certain 1994 and 1993 product line sales have been reclassified.
SECTOR OPERATIONS
During the third quarter 1995, the Company reorganized its major
product lines and related business units to operate under two broad
sectors the Wire and Cable Sector ("WCS") and the Magnet Wire and
Insulation Sector ("MWIS"). This reorganization was undertaken to
increase the focus on each of the Company's major product lines. A
business overview of each sector and the product lines contained therein
is set forth below.
WIRE AND CABLE SECTOR
BUILDING WIRE
Products. The building wire business unit, which began manufacturing
building wire in 1933, develops, manufactures and markets a complete line
of building wire and 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.
Sales and Marketing. The market for building wire products is large
and diverse consisting primarily of electrical distributors, hardware
wholesalers and consumer product retailers. The ultimate end users are
electrical contractors and "do-it-yourself" consumers. Products are
marketed nationally through manufacturers representatives and a Company
sales force. Distribution facilities are maintained throughout the United
States, and one in Canada. Historically, approximately 67% of the
building wire market is attributable to remodeling and repair activity
while the remaining 33% is attributable to new residential and
nonresidential construction.
2<PAGE>
COMMUNICATION WIRE
Products. The communication business unit develops, manufactures and
markets a broad line of plastic insulated and jacketed voice and data
communication wire products.
Sales and Marketing. Communication wire products are marketed
primarily in the United States for local area networks and telephone
network applications, with some sales to overseas markets. Voice and data
communication wire products are sold principally to communications systems
contractors and domestic telephone companies and to telephone companies
and private contractors overseas.
AUTOMOTIVE WIRE
Products. The automotive wire business unit develops, manufactures
and markets automotive primary wire, ignition wire, battery cable and
specialty wiring assemblies, including heavy truck electrical wire
harnesses. New product design and materials development activities for
the sector are supported by this unit's product development and materials
engineering laboratory.
Sales and Marketing. Automotive wire products are sold primarily to
suppliers of automotive original equipment manufacturers. Historically,
there has been one principal customer for the unit's automotive products,
although the importance of this customer has declined in relative terms
due to the expansion of the unit's overall customer base. This principal
customer accounted for approximately 54%, 60% and 79% of the Company's
automotive wire revenues in 1995, 1994 and 1993, respectively, although in
absolute terms, sales to this principal customer have remained steady
during the period. Diversification of the automotive wire sales base has
been achieved, in part, as a result of the retention of an independent
sales organization to provide the means necessary to attract and service
new automotive customers. The principal automotive customer continues to
be serviced by a dedicated sales representative who is a Company employee.
Sales representatives from MWIS also service some of the other automotive
wire customers.
INDUSTRIAL WIRE
Products. The industrial wire business unit 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.
Sales and Marketing. Industrial wire and cable products are sold
primarily to appliance and power tool manufacturers, suppliers of
electrical and electronic original equipment manufacturers and to welding
products distributors. Industrial wire and cable sales are included in
"Other" sales within the "Product Lines" sales table under this caption.
MAGNET WIRE and INSULATION SECTOR
Products. MWIS develops and manufactures magnet wire and insulation
products for the electrical equipment and electronics industries in the
United States. MWIS offers a comprehensive line of magnet wire and
insulation products, including over 500 types of magnet wire used in a
3<PAGE>
wide variety of motors, coils, relays, generators, solenoids and
transformers.
Sales and Marketing. Magnet Wire products are sold principally to
original equipment manufacturers and to distributors. MWIS also
distributes its electrical insulating materials and certain appliance and
magnet wire products through its national distribution business unit which
provides a channel of distribution to small original equipment
manufacturers and motor repair markets. On September 29, 1995, the
Company acquired certain assets of Avnet, Inc.'s distribution operations,
which became part of MWIS' national distribution business unit upon
consummation of the asset purchase. Products sold through MWIS
distribution operations include magnet wire, electrical motors, electrical
insulation, motor repair parts and pump seals. Sales of electrical
insulating products, electric motors, motor repair parts and pump seals
are included in "Other" sales within the "Product Lines" sales table under
this caption.
BUSINESS DEVELOPMENT
The Company 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 plants 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 corporate development.
MANUFACTURING STRATEGY
The Company's manufacturing strategy is primarily focused on
maximizing product quality and production efficiencies while maintaining 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,
communication wire, automotive and industrial wire products, provides
competitive advantages because greater control over the cost and quality
of essential components used in production can be achieved. These
operations are supported by the Company's metallurgical, chemical and
polymer development laboratories. See "Metals Operations" under this
caption for a discussion of the Company's copper procurement and
manufacturing operations.
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 1992 through 1995, the
Company invested an average $28.5 million per year on capital projects.
The major projects during this period entailed primarily productivity
improvements and upgrading of equipment. In 1995, approximately $8.9
million was invested in magnet wire ovens to improve quality and increase
manufacturing productivity while approximately $4.9 million was invested
4<PAGE>
in the industrial wire business unit for quality and productivity
improvements and, to a lesser degree, capacity expansion.
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 operations and other copper wire producers. After the rod is
manufactured at the Company's rod mills, it is shipped to other Company
manufacturing facilities where it is processed into the wire and cable
products produced and sold by the Company. See "Metals Operations" under
this caption for a discussion of the Company's 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.
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.
Once the wire is fabricated, it is packaged and shipped to regional
service centers, stocking agents or directly to customers.
5<PAGE>
METALS OPERATIONS
Copper is the primary component of the Company's overall cost
structure, comprising approximately 60% of the Company's 1995 total
production cost of sales. Due to the critical nature of copper to its
business, the Company has centrally organized its metal operations.
Through centralization, the Company carefully manages its copper
procurement, internal distribution, manufacturing and scrap recycling
processes.
The Company's metal 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
1995, the Company purchased approximately 230,000 tons of copper, entirely
from North American copper producers and metals merchants.
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, 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 trading
purposes.
Historically, the Company has had adequate supplies of copper
available to it from producers and merchants, 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 and strategy. By manufacturing its own rod, the
Company is able to maintain greater control over the cost and quality of
this critical raw material.
Copper rod is manufactured by way of a continuous casting process
where high quality copper cathodes are melted in a shaft furnace. The
resultant molten copper is transferred to a holding furnace and
transferred directly onto a casting wheel where it is cooled and
subsequently rolled into copper rod. The rod is subjected to numerous
quality control tests to assure that it meets the high quality standards
of the Company's products. Finally, the rod is packaged for shipment via
an automatic in-line coiling and packaging device.
The Company's rod production facilities are strategically located
near its major wire producing plants to minimize freight costs. From its
five continuous casting units, the Company has the capability to produce
6<PAGE>
approximately 85% of its rod requirements, while purchasing the balance
from external sources. 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 the Company's magnet wire 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 consumption 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 magnet wire scrap from other
copper wire producers and processes it along with the internal scrap.
EXPORTS
Sales of exported goods approximated $55.5 million, $52.7 million and
$70.6 million for the years ended December 31, 1995, 1994 and 1993,
respectively. Communication cables are the Company's primary products
exported.
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 sectors, 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.
ENVIRONMENTAL COMPLIANCE
Management does not believe that compliance with environmental laws
and regulations will have a material effect on the level of capital
7<PAGE>
expenditures of the Company or its business, financial condition or
results of operations. The Company does not currently anticipate material
capital expenditures for environmental control facilities. No material
expenditures relating to these matters were made in 1995, 1994 or 1993.
In connection with the 1988 Acquisition and associated Stock Purchase
Agreement with UTC dated January 15, 1988 (the "1988 Acquisition
Agreement"), UTC indemnified the Company with respect to certain
environmental liabilities. See "Item 3. Legal Proceedings" for further
discussion of the Company's environmental liabilities and the UTC
indemnity.
EMPLOYEES
As of December 31, 1995 the Company employed approximately 1,478
salaried and 2,624 hourly employees in 33 states. Labor unions represent
approximately 48% of the Company's work force. Collective bargaining
agreements expire at various times between 1996 and 1998. Contracts
covering approximately 32% of the Company's unionized work force will
expire at various times during 1996. 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, 1995 the Company operated 24 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, 1995:
8<PAGE>
<TABLE>
<CAPTION>
Square
Operation Location Feet
--------- -------- ------
<S> <C> <C> <C>
Automotive . . . . . . . . . Kosciusko, MS 90,000(a)
Marion, IN 50,000
Orleans, IN 425,000
Building Wire . . . . . . . Anaheim, CA 174,000
Columbia City, IN 400,000
Lithonia, GA 144,000
Pauline, KS 501,000
Tiffin, OH 260,000
Communication . . . . . . . Chester, SC 218,000
Hoisington, KS 239,000
Industrial . . . . . . . . . Lafayette, IN 350,000
Pana, IL 110,000
Insulation . . . . . . . . . Newmarket, NH 132,000
(2 facilities)
Rutland, VT 61,000
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
Rockford, IL 319,000
Vincennes, IN 267,000
Metals Processing . . . . . Columbia City, IN 75,000
Jonesboro, IN 56,000
</TABLE>
(a) Approximately 30,000 square feet is leased.
(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.
In addition to the facilities described in the table above, the
Company owns or leases 44 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
9<PAGE>
is generally consistent with historical patterns, and, in the view of
management, is satisfactory. The Company does not view any of its plants
as being substantially underutilized, except for Lafayette, IN, which is
currently undergoing a capital expenditure program to make it the focus
plant for industrial wire products. Most plants operate on schedules of
no less than three eight hour shifts, five days a week. During 1995, the
Company's facilities operated overall at approximately 90% of capacity,
with MWIS at 99% and WCS at 85% of capacity.
The property in Franklin, Indiana is a magnet wire manufacturing
facility occupied by both the Company and a joint venture between the
Company and the Furukawa Electric Company, LTD., Tokyo, Japan ("Femco").
Half of the Franklin, Indiana building is leased to Femco which
manufactures and markets magnet wire with special emphasis on products
required by Japanese manufacturers with production facilities in the
United States.
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 individually 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 the
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").
The Company has been named in government proceedings which involve
environmental matters with potential remediation costs. 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 the Company waste at the site. Most
of the sites the Company is currently named in as a PRP are covered by an
indemnity from UTC which is part of the 1988 Acquisition Agreement. In
that agreement, UTC agreed to indemnify the Company against losses
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. In addition, in order to be
covered by this indemnity, the condition, event, and circumstance must
have been known to UTC prior to February 29, 1988. The sites covered by
this indemnity are handled directly by UTC, and all payments required to
be made are paid directly by UTC. These sites are all mature sites where
allocations have been settled and remediation is well underway or
completed. The Company is not aware of any inability or refusal on the
part of UTC to pay amounts that are owing under the indemnity. There are
10<PAGE>
no disputes between the Company and UTC concerning these matters that are
covered by the indemnification.
UTC also provided a second environmental indemnity, referred to as
the "basket indemnity." It relates to liabilities related to
environmental events, conditions, or circumstances existing at or prior to
February 29, 1988, which only became known to UTC in the five year period
commencing February 29, 1988. As to any such liabilities, the Company is
responsible for the first $4.0 million incurred. Thereafter, UTC has
agreed to fully indemnify the Company for any liabilities in excess of the
$4.0 million. The Company is currently named as a PRP in three sites
which meet the criteria for the basket indemnity. Those sites are Fisher
Calo Chemical and Solvents Corporation, Kingsbury, IN; Organic Chemicals,
Inc., Grandville, MI; and USS Lead Refinery Inc., East Chicago, IL. Based
on records showing very small quantities of material shipped to Organic
Chemicals and USS Lead Refinery, the Company has determined that its
liability, if any, will be de minimis, although activities at those sites
have not advanced sufficiently in order for the Company to make an
accrual. At Fisher Calo, the Company entered into a consent decree which
defined its share as 0.25% and an expected liability of $0.1 million,
which has been accrued. Expenses at these three sites, up to $4.0
million, will be incurred by the Company rather than UTC as the basket has
not been exhausted under the basket indemnity.
In addition, there are five sites where the Company is either named
as a PRP or a defendant in a civil lawsuit which are not covered by the
indemnity or the basket indemnity. They are Ascon Landfill, Huntington
Beach, CA; A-1 Disposal Corp., Allegan County, MI; Angola Soya Co.,
Angola, IN; Milford Mill, Beaver County, UT; and Uniontown Landfill,
Uniontown, IN. Ascon Landfill was an oil percolation refining center.
The Company received a request for information from the California
Department of Toxic Substance Control in 1994 and replied that it has no
records linking the Company to the site. A-1 Disposal Corp. stored and
treated hazardous waste. The Company was one of a number of PRPs who
entered into a consent decree with the Michigan Department of Natural
Resources to clean the site. The Company has paid its assessment for the
remediation and expects no further payments. Angola Soya was a solvent
reclamation facility in the 1950 s and 1960 s. The Company is cooperating
with the Indiana Department of Environmental Management to conduct a
limited removal of certain drums of spent solvents. The Milford Mill site
was a copper mill used by the Company for a few years in the early 1970 s.
The Company is one of the PRPs identified by the EPA. The EPA has
conducted a removal at the site and incurred $0.4 million in costs, for
which it seeks reimbursement from the PRPs. The Uniontown Landfill is the
subject of a civil lawsuit where the Company is one of several defendants
sued by the owner of the landfill to recover alleged site investigation
and groundwater remediation costs. The Company does not believe it is
responsible for any material taken to this site and is vigorously
defending itself. The Company has provided a reserve in the amount of
$0.6 million to cover contingencies associated with these five sites. The
accrual is based on management s best estimate of The Company s exposure
in light of relevant available information including the allocations and
remedies set forth in applicable consent decrees, third party estimates of
remediation costs, actual remediation costs incurred, the estimated
inability of other PRPs to pay their proportionate share of remediation
costs, the nature of each site, and the number of participating parties.
The Company does not believe that any of the environmental proceedings in
which it is involved and for which it may be liable will individually or
11<PAGE>
in the aggregate have a material adverse effect upon its business,
financial condition, or results of operations and none involves sanctions.
Since about 1990, the Company has been named as a defendant in a
limited number of product liability lawsuits brought by electricians and
other skilled tradesmen claiming injury from exposure to asbestos found in
electrical wire products produced a number of years ago. During 1995, the
number of cases filed against the Company increased significantly relative
to its historic average with the number of pending cases increasing from
about 25 to 60. The Company's strategy is to defend these cases
vigorously. The Company believes that its liability, if any, in these
matters and the related defense costs will not have a material adverse
effect either individually or in the aggregate upon its business or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of 1995.
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.
12<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 for the year
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, 1995, 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 "Item 7. 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 the three month period ended December 31,
1992 and the nine month period ended September 30, 1992 and as of and for
the year ended December 31, 1991, were derived from the audited
consolidated financial statements of Successor and Predecessor (not
presented herein). The selected historical consolidated financial data
presented below, as of and for the years ended December 31, 1995, 1994 and
1993, were derived from the consolidated financial statements of
Successor, which were audited by Ernst & Young LLP, independent auditors,
whose report with respect thereto, together with such financial
statements, appears elsewhere herein.
13<PAGE>
<TABLE>
<CAPTION>
SUCCESSOR COM- PREDECESSOR
BINED(a)
---------------------------------------- -------- -----------------
Three Twelve Nine Year
Month Month Month Ended
Period Period Period December
Year Ended Ended Ended Ended 31,
In Thousands of December 31, December December September
Dollars --------------------------- 31, 31, 30,
1995 1994 1993 1992 1992 1992 1991
------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Net sales $1,201,650 $1,010,075 $868,846 $209,354 $909,351 $699,997 $885,492
Other income/(expense)
-net (1,032) (910) 188 145 1,237 1,092 522
--------- ---------- -------- -------- -------- -------- --------
1,200,618 1,009,165 869,034 209,499 910,588 701,089 886,014
--------- ---------- -------- -------- -------- -------- --------
Cost of goods sold 1,030,511 846,611 745,875 186,026 780,148 594,122 753,077
Selling and
administrative 93,250 85,129 75,489 22,349 81,958 59,609 80,227
Interest expense(b) 34,683 24,554 25,241 8,086 22,591 14,505 24,969
Unusual items(c) - - - - 18,139 18,139 -
--------- ---------- -------- -------- -------- -------- --------
Total costs and
expenses 1,158,444 956,294 846,605 216,461 902,836 686,375 858,273
--------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes and
extraordinary charge 42,174 52,871 22,429 (6,962) 7,752 14,714 27,741
Provision (benefit)
for income taxes(d) 19,680 22,700 13,052 (1,900) 7,378 9,278 13,241
--------- ------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary charge 22,494 30,171 9,377 (5,062) 374 5,436 14,500
Extraordinary charge
net of income tax
benefit(e) 2,971 - 3,367 - 122 122 1,471
--------- ------- ------- ------- ------- ------- -------
Net Income (loss) $19,523 $30,171 $ 6,010 $(5,062) $ 252 $ 5,314 $13,029
========= ======= ======= ======= ======= ======= =======
14<PAGE>
SUCCESSOR COM- PREDECESSOR
BINED(a)
---------------------------------------- -------- -----------------
Three Twelve Nine Year
Month Month Month Ended
Period Period Period December
Year Ended Ended Ended Ended 31,
In Thousands of December 31, December December September
Dollars --------------------------- 31, 31, 30,
1995 1994 1993 1992 1992 1992 1991
------------------- ------ ------ ------ ------ ------ ------ ------
Balance Sheet Data
(at end of period):
Working capital $167,921 $191,062 $155,136 $123,935 $162,661 $124,485
Total assets 744,468 750,300 706,997 703,147 447,874 413,648
Long-term debt
(including current
portion) 412,750 200,000 200,000 221,289 189,890 193,580
Stockholder's equity 114,678 333,903 303,732 297,722 132,257 120,354
Other Data:
Additions to
property, plant and
equipment $28,555 $30,109 $26,167 $14,705 $31,180 $16,475 $13,242
Ratio of earnings to
fixed charges(f) 1.6 3.0 1.7 - 1.9 2.0
Deficiency of
earnings to fixed
charges(f) - - - $7,078 - -
</TABLE>
(Footnotes on following page)
15<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 the year
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." 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 stockholders' 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 were 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. 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.
(e) During 1995, Successor recognized an extraordinary charge of $3.0
million, net of applicable tax benefit, representing the write-off of
unamortized debt issuance costs associated with the termination of
the Company's former credit agreement. 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 termination of the Company's term credit
facility under its former credit agreement, and $0.3 million, net of
applicable tax benefit, representing the net loss resulting from the
redemption of the 12 3/8% Senior Subordinated Debentures due 2000
(the "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 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)
16<PAGE>
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
development, production and marketing of electrical wire and cable. The
Company's principal products are: building wire for the construction
industry; magnet wire for electromechanical devices such as motors,
transformers and electrical controls; voice and data communication wire;
wire for automotive and appliance applications; industrial wire and cable
products; and insulation products for the electrical industry. See "Item
1. Business Product Lines" for total sales by each major product line for
the years ended 1995, 1994 and 1993.
RESULTS OF OPERATIONS
1995 COMPARED WITH 1994
Net sales for 1995 were $1,201.7 million or 19.0% higher than 1994,
reflecting primarily a marked increase in product prices and higher sales
from the Company's distribution business as it relates to the acquired
distribution operations. See "Item 1. Business Sector Operations Magnet
Wire and Insulation Sector" and "Liquidity, Capital Resources and
Financial Condition" under this caption. Sales volumes in 1995
approximated those experienced in 1994. Higher product prices were
essentially the result of a significant increase in copper costs the
Company's principal raw material. Average COMEX copper prices in 1995
rose approximately 25% from 1994 and, notwithstanding the magnitude of the
price increase, 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 "Item 1. Business Metals
Operations." Also see "General Economic Conditions and Inflation" under
this caption.
Sales for the Magnet Wire and Insulation Sector increased
approximately 33% over 1994, driven by higher copper prices, increased
distribution sales attributable to the acquired distribution operations in
the amount of approximately $24.0 million, improved pricing and growth in
sales volumes. Magnet wire sales volumes and product pricing improved
during 1995 due to increased demand for its magnet wire products by
distributors and original equipment manufacturers. Communication voice
and data wire sales in 1995 also improved approximately 49% over 1994 due
to higher copper prices and domestic sales volumes and to strengthening
product prices. Export sales were essentially flat between 1995 and 1994.
The Company believes that communication wire pricing has strengthened due
to sharply higher demand for copper communication wire products coupled
with a recent decline in industry manufacturing capacity. The Company
cannot, however, provide assurances that such favorable communication
market conditions will continue in 1996. The Company's automotive wire
sales volume in 1995 was also up over 1994 by approximately 8%, although
17<PAGE>
North American new car and light truck sales volume increased just over 2%
in 1995. This improvement in sales volume was the result of a marked
increase in sales to other automotive accounts and, to a lesser degree,
improved sales to the Company's principal automotive wire customer, United
Technologies Automotive Group ("UTA"). See "Item 1. Business Sector
Operations." Building wire sales in 1995 increased approximately 4% over
1994 reflecting a combination of higher copper prices, lower sales volumes
and a steep decline in product pricing. Building wire product pricing
(without regard to copper costs) declined materially, and to a lesser
extent sales volumes, due to very competitive market conditions caused
primarily by excess industry capacity. It is the Company s belief that
although the overall building wire market is expected to experience
continued growth in the near term, there can be no assurance the
competitive market conditions currently present will not continue in 1996.
Cost of goods sold increased 21.7% in 1995 compared with 1994 due
primarily to increased copper and other material costs and increased
distribution cost of sales attributable to the acquired distribution
operations. The Company's cost of goods sold as a percentage of net sales
was 85.8% and 83.8% in 1995 and 1994, respectively. The cost of goods
sold percentage in 1995 was unfavorable compared to 1994 due primarily to
substantially higher copper prices and declining building wire product
pricing partially offset by lower manufacturing costs resulting from
continued capital investments and higher manufacturing volumes in the
communication and automotive business units.
Selling and administrative expenses in 1995 were 9.5% higher than
1994 due primarily to increased overhead expenses attributable to the
acquired distribution operations in the amount of approximately $5.1
million and to increased sales commissions associated with higher sales.
Interest expense in 1995 was 41.8% higher than in 1994 due primarily
to additional borrowings under the Company's new credit facilities to
effect the redemption (the "Redemption") on May 15, 1995 of all of
Holdings' outstanding Senior Discount Debentures due 2004 (the
"Debentures"). See "Liquidity, Capital Resources and Financial
Condition"under this caption. The Company's average interest rate
decreased from 10.4% in 1994 to 9.4% in 1995 due to the Redemption.
Other expense consists primarily of write-offs related to fixed asset
disposals occurring in the normal course of business.
Income tax expense was 46.7% of pretax income in 1995 compared with
42.9% in 1994. 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.
The Company recorded net income of $19.5 and $30.2 million in 1995
and 1994, respectively. The 1995 results include an extraordinary charge
of $3.0 million ($5.0 million before applicable tax benefit) for the
write-off of unamortized debt issuance costs associated with the Company s
former credit agreement.
1994 COMPARED WITH 1993
Net sales for 1994 were $1,010.1 million or 16.3% higher than 1993,
reflecting product price increases, higher sales volumes and the
18<PAGE>
inclusion of Interstate Industries' sales. Sales volumes in 1994 were at
record levels for the third straight year, exceeding the 1993 sales
volumes by approximately 6.9%. The Company believes the improved sales
volumes 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
Sector. 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 "Item 1. Business Metals Operations." Also see "General
Economic Conditions and Inflation" under this caption.
Sales for the Magnet Wire and Insulation Sector increased 24.1% over
1993, driven by a 21.8% growth in sales volumes and higher copper prices,
partially offset by a higher proportion of customer-owned copper in the
division's sales mix. Customer-owned copper refers to instances where
certain customers provide their own purchased copper for use in the
Company's wire production; the Company s sales to these customers include
only a value-added component. 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.
Building wire sales increased 17.4% 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. Building wire
sales volumes were comparable to 1993. Automotive wire volumes increased
approximately 12.9% from 1993 due to a strengthening automotive market
(new car and light truck sales volumes in the United States was
approximately 10% higher in 1994 than 1993), and the addition of several
new customers. Interstate Industries provided approximately $14.0 million
of additional sales in 1994. Communication wire sales volumes 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
19<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.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
The Company's financial position at December 31, 1995 was highly
leveraged. The Company's aggregate notes payable to banks plus long-term
debt was $424.5 million and its stockholder's equity was $114.7 million.
The resulting ratio of debt to stockholder's equity of approximately 3.7
to 1 compares to a ratio of 0.6 to 1 at December 31, 1994 reflecting
additional borrowings under the Company's new credit facilities to effect
the Redemption of the Debentures on May 15, 1995 as discussed below.
In general, the Company requires liquidity for working capital,
capital expenditures, debt repayments, interest and taxes. Of particular
significance to the Company is its working capital requirements which
increase whenever it 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
availability of funds under its credit facilities, the Company expects
20<PAGE>
that its usual sources of liquidity will be sufficient to enable it to
meet its cash requirements for working capital, capital expenditures, debt
repayments, interest and taxes for 1996. As of December 31, 1995, the
Company was in compliance with all covenants under the agreements
governing their outstanding indebtedness and was servicing their cash debt
obligations out of operating cash flow.
In April 1995, in connection with the Redemption of all of Holdings'
outstanding Debentures at their principal amount of $272.9 million, the
Company terminated its previous credit agreement (the "Former Credit
Agreement") and entered into three new facilities: (i) a $260.0 million
revolving credit agreement, dated as of April 12, 1995 by and among the
Company, Holdings, the lenders named therein and Chemical Bank, as agent
(the "Revolving Credit Agreement"); (ii) a $60.0 million senior unsecured
note agreement, dated as of April 12, 1995 by and among the Company,
Holdings, as guarantor, the lenders named therein and Chemical Bank, as
administrative agent (the "Term Loan", together with the Revolving Credit
Agreement, the "Credit Facilities"); and (iii) a $25.0 million agreement
and lease dated as of April 12, 1995 by and between the Company and Mellon
Financial Services Corporation #3 (the "Sale and Leaseback Agreement" and
together with the Credit Facilities the "New Company Facilities"). The
Company recognized an extraordinary charge of approximately $3.0 million,
net of applicable tax benefit, in the second quarter 1995 for the write-
off of unamortized deferred debt expense in connection with the
termination of the Former Credit Agreement. Holdings is a party to each
of the Credit Facilities and has guaranteed the Company's obligations
under the Revolving Credit Agreement. Holdings has secured its
obligations pursuant to the guarantee of the Revolving Credit Agreement by
a pledge of all of the outstanding stock of the Company to the lending
banks.
On May 12, 1995 the Company borrowed the full amounts available under
the Term Loan and Sale and Leaseback Agreement. These funds, together
with available cash and borrowings under the Revolving Credit Agreement,
were paid to Holdings in the form of a cash dividend ($238.8 million) and
repayment of a portion of an intercompany liability ($34.1 million)
totaling $272.9 million. Holdings applied such funds to effect the
redemption of its Debentures, at 100% of their principal amount of $272.9
million, on May 15, 1995.
The Revolving Credit Agreement provides for up to $260.0 million in
revolving loans, subject to specified percentages of eligible assets and
also provides a $25.0 million letter of credit subfacility. The Company's
ability to borrow under the Revolving Credit Agreement is restricted by
the financial covenants contained therein as well as those contained in
the Term Loan and certain debt limitation covenants contained in the
indenture under which the 10% Senior Notes due 2003 (the "Senior Notes")
were issued (the "Senior Note Indenture"). The Revolving Credit Agreement
terminates five years from its effective date of April 12, 1995. The
Revolving Credit Agreement loans bear floating rates of interest, at the
Company's option, at bank prime plus 1.25% or a reserve adjusted
Eurodollar rate (LIBOR) plus 2.25%. The effective interest rate can be
reduced by 0.25% to 1.25% if certain specified financial conditions are
achieved. Commitment fees during the revolving loan period are .375% or
0.5% of the average daily unused portion of the available credit based
upon certain specified financial conditions.
21<PAGE>
The Term Loan provides an aggregate $60.0 million in term loans, and
is to be repaid in 20 equal quarterly installments, subject to the loan's
excess cash provision, beginning August 15, 1995 and ending May 15, 2000.
The Term Loan bears floating rates of interest at bank prime plus 2.75% or
a reserve adjusted Eurodollar rate (LIBOR) plus 3.75%. The Term Loan
requires 50% of excess cash, as defined, to be applied against the
outstanding term loan balance. The excess cash calculation for the year
ended December 31, 1995, requires the Company to repay $12.4 million of
the term loan on or before April 15, 1996. After the 1996 excess cash
repayment, the remaining principal payments will be made in 17 equal
quarterly installments of $2.3 million. Amounts repaid with respect to
the excess cash provision may not be reborrowed.
The Sale and Leaseback Agreement provides $25.0 million for the sale
and leaseback of certain of the Company's fixed assets. The lease
obligation has a seven-year term expiring in May 2002. The principal
component of the rental is paid quarterly, with the amount of each of the
first 27 payments equal to 2.5% of Lessor's cost of the equipment, and the
balance due at the final payment. The interest component is paid on the
unpaid principal balance and is calculated by Lessor at LIBOR plus 2.5%.
The effective interest rate can be reduced by 0.25% to 1.125% if certain
specified financial conditions are achieved.
The Revolving Credit Agreement restricts incurrence of indebtedness,
liens, guarantees, mergers, sales of assets, lease obligations, payment of
dividends, capital expenditures and investments and, with certain
exceptions, limits prepayment of indebtedness, including the Senior Notes,
and early redemption of Holdings' outstanding Series B Preferred Stock.
Transactions with affiliates are also restricted subject to certain
exceptions. The Term Loan and the Senior Note Indenture prohibit, with
certain exceptions, the incurrence by the Company of any secured
indebtedness unless such indebtedness is equally and ratably secured. The
failure by Holdings or the Company to comply with any of the foregoing
covenants, if such failure is not timely cured or waived, could lead to
acceleration of the indebtedness covered by the applicable agreement and
to cross-defaults and cross-acceleration of other indebtedness of the
Company.
The Company also has uncommitted bank lines of credit which provide
unsecured borrowings for working capital of up to $25.0 million of which
$11.8 million was outstanding at December 31, 1995 and denoted as notes
payable to banks in the Consolidated Balance Sheets. These lines of
credit bear interest at rates subject to agreement between the Company and
the lending banks. At December 31, 1995, such rates of interest averaged
6.7%.
The Company has purchased interest rate cap protection through May
15, 1997 with respect to $150.0 million of debt with a strike rate of
10.0% (three month LIBOR).
Net cash provided by operating activities in 1995 was $55.7 million,
compared to $37.1 million during the same period in 1994. The increase in
cash provided by operating activities was primarily attributable to
reduced growth in accounts receivable, a higher level of accounts payable
and a reduction in other assets partially offset by the reduction of an
intercompany liability with Holdings. Holdings used the repayment of the
intercompany liability to fund part of its Debenture Redemption as
discussed above. Accounts payable increased during 1995 due to a more
22<PAGE>
active working capital management program while other assets declined due
to the collection in 1995 of a 1994 miscellaneous receivable.
Capital expenditures of $28.6 million in 1995 were $1.6 million less
than in 1994. In 1995, approximately $8.9 million was invested in magnet
wire ovens to improve product quality and increase manufacturing
productivity and approximately $4.9 million was invested in the industrial
wire business unit for new equipment to improve quality and productivity
and, to a lesser degree, expand capacity. Capital expenditures in 1996
are expected to be approximately 20%-25% below 1995 and will be used to
complete modernization projects, expand capacity, enhance efficiency and
ensure continued compliance with regulatory requirements. At December
31, 1995, approximately $4.6 million was committed to outside vendors for
capital expenditures. The Credit Facilities impose limitations on capital
expenditures, business acquisitions and investments. On September 29,
1995, the Company acquired from Avnet, Inc. certain assets of its
distribution operations, which became part of MWIS' national distribution
business unit upon consummation of the asset purchase. The acquisition
consisted primarily of inventory and some fixed assets which totalled
approximately $24.9 million, subject to final inventory adjustments, and
was financed from proceeds received under the Revolving Credit Agreement.
Future cash requirements of this operation are expected to be satisfied
through the Company's traditional sources of liquidity as previously
discussed.
Regarding long-term liquidity issues, capital expenditures are
anticipated to be at or below historical levels while the Senior Notes
mature in 2003 and are expected to be replaced by similar financing at
that time. The terms of the Sale and Leaseback Agreement include a
balloon payment of $8.1 million in 2002. The Company expects that its
traditional sources of liquidity will enable it to meet its long-term cash
requirements for working capital, capital expenditures, interest and
taxes, as well as its debt repayment obligations under both the Term Loan
and the Sale and Leaseback Agreement.
The Company's operations involve the use, disposal and clean-up of
certain substances regulated under environmental protection laws. The
Company has accrued $0.7 million for expected environmental site
remediation and restoration costs. The accruals were based upon
management's best estimate of the Company's exposure in light of relevant
available information including the allocations and remedies set forth in
applicable consent decrees, third party estimates of remediation costs,
the estimated ability of other potentially responsible parties to pay
their proportionate share of remediation costs, the nature of each site
and the number of participating parties. Subject to the difficulty in
estimating future environmental costs, the Company expects that any sum it
may have to pay in connection with environmental matters in excess of the
amounts recorded or disclosed will not have a material adverse effect on
its financial position, results of operations or cash flows. See "Item 3.
Legal Proceedings" for further discussion of the Company's environmental
liabilities.
CONSIDERATIONS RELATING TO HOLDINGS' CASH OBLIGATIONS
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
Revolving Credit Agreement. Accordingly, Holdings' ability to meet its
23<PAGE>
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'
obligations.
The Company expects that it may make certain cash payments to
Holdings from time to time to the extent cash is available and to the
extent it is permitted under the terms of the Credit Facilities and the
Senior Note Indenture. Such payments may include (i) 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; (ii) an annual management fee to an affiliate of BHLP of up to $1.0
million; (iii) amounts necessary to repurchase management stockholders'
shares of Holdings' common stock under certain specified conditions; and
(iv) 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 Revolving 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 Credit Facilities and the Senior Note Indenture.
At December 31, 1995, Holdings had outstanding 2,033,782 shares of
15% Series B Cumulative Redeemable Exchangeable Preferred Stock,
Liquidation Preference $25 Per Share, (the "Series B Preferred Stock").
The aggregate liquidation preference of the Series B Preferred Stock was
$50.8 million at December 31, 1995. The Series B Preferred Stock is
subject to mandatory redemption on September 30, 2004. At the option of
Holdings, the Series B Preferred Stock may be redeemed at a percentage of
liquidation preference declining from 107.5% beginning September 30, 1995
to 100% beginning September 30, 1998, plus accumulated and unpaid
dividends. The Revolving Credit Agreement permits the optional redemption
of the Series B Preferred Stock only out of proceeds of a Holdings primary
offering (public or private) of common stock, or in exchange for
debentures with terms similar to those of the Series B Preferred Stock or
in exchange for other preferred stock on terms no more onerous than those
presently existing. In order to redeem the Series B Preferred Stock under
the terms of the Senior Note Indenture, Holdings would be required, among
other things, to seek the consent of the holders of the Senior Notes,
refinance the Senior Notes after they become redeemable in May, 1998, or
obtain funds through the sale of equity securities.
Dividends on the Series B Preferred Stock are payable quarterly at a
rate of 15.0% per annum. Dividends accruing on or before September 30,
1998 may, at the option of Holdings, be paid in cash, paid in additional
shares of Series B Preferred Stock or in any combination thereof.
Dividends on the Series B Preferred Stock accruing after September 30,
1998 must be paid in cash. Holdings does not expect to pay cash dividends
on or prior to September 30, 1998. Each of the Credit Facilities and the
Senior Note Indenture restricts the payment of cash to Holdings. In order
to make cash dividend payments on the Series B Preferred Stock under the
terms of the Senior Note indenture, Holdings would be required, among
other things, to seek the consent of the holders of the Senior Notes,
refinance the Senior Notes after they become redeemable in May, 1998, or
obtain funds through the sale of equity securities.
24<PAGE>
In October 1995, Holdings filed with the Securities and Exchange
Commission a registration statement for an offer to exchange an equal
number of Series B Cumulative Redeemable Exchangeable Preferred Stock for
all outstanding shares of Series A Cumulative Redeemable Exchangeable
Preferred Stock due 2004 (the "Series A Preferred Stock"). The terms of
the Series A Preferred Stock and the Series B Preferred Stock are
identical in all material respects, except for certain transfer
restrictions relating to the Series A Preferred Stock. The exchange was
concluded in December 1995 for all outstanding shares of Series A
Preferred Stock.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company, to a limited extent, uses forward fixed price contracts
and derivative financial instruments to manage foreign currency exchange
and commodity price risks. To protect the Company's 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. Copper, the Company's principal raw
material, experiences marked fluctuations in market prices, thereby
subjecting the Company to copper price risk with respect to copper
purchases and 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. 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 within the underlying
contracts.
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 gross profits within the building wire
product line because such changes affect raw material costs more quickly
than those changes can be reflected in the pricing of building wire
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. 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.
25<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets:
As of December 31, 1995 and 1994 . . . . . . . . . . . F-2
Consolidated Statements of Operations:
For each of the three years in the period
ended December 31, 1995 . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Cash Flows:
For each of the three years in the period
ended December 31, 1995 . . . . . . . . . . . . . . . . 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.
26<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
---- --- ---------
Steven R. Abbott 48 President and Chief Executive Officer;
Director (Chairman)
Robert J. Faucher 51 Executive Vice President; Director
Robert D. Lindsay 41 Director
Charles W. McGregor 54 President - Magnet Wire and Insulation Sector;
Director
David A. Owen 50 Executive Vice President and
Chief Financial Officer; Director
Ward W. Woods 53 Director
Mr. Abbott has been a director 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. Abbott was appointed President and Chief Executive Officer of the
Company on February 26, 1996. He was President of the Wire and Cable
Sector from September 1995 to February 1996 and President of the Wire and
Cable Division from September 1993 to September 1995. 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. Abbott is also a Director of
Holdings.
Mr. Faucher was appointed Executive Vice President in September 1995.
He was President of the Engineered Products Division from January 1992 to
September 1995. 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
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 the Chairman of Metropolitan International,
27<PAGE>
Inc., and a director of Stant Corporation and several private companies.
Mr. Lindsay is also a Director of Holdings.
Mr. McGregor was appointed President of the Magnet Wire and
Insulation Sector in September 1995. He was President of the Magnet Wire
and Insulation Division from September 1993 to September 1995. He was
Director of Manufacturing for the Division from 1987 to 1993. Mr.
McGregor has been employed by the Company 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 by the Company since 1976.
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 managing 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., McMoran Oil & Gas Co., Freeport-
McMoran Copper & Gold, Inc., Graphic Controls Corporation, Kelly Oil & Gas
Corporation 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 and non-cash compensation
paid by or incurred on behalf of the Company to its Chief Executive
Officer and four other most highly compensated executive officers for each
of the three years ended December 31, 1995.
28<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)
--------------------------- ---- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Stanley C. Craft 1995 310,004 450,000 100,000 27,905
President and 1994 293,763 400,000 150,000 22,174
Chief Executive 1993 278,754 130,000 40,000 12,534
Officer (CEO) (3)
Steven R. Abbott 1995 193,757 250,000 75,000 12,999
President - Wire 1994 182,502 200,000 120,000 8,306
and Cable Division 1993 172,500 72,000 25,000 8,599
Charles W. McGregor 1995 157,503 210,000 65,000 9,684
President - Magnet Wire 1994 132,504 165,000 100,000 7,787
and Insulation Division 1993 103,215 50,000 25,000 8,547
David A. Owen 1995 157,503 185,000 50,000 8,120
Executive Vice President 1994 145,257 165,000 100,000 6,894
and Chief Financial 1993 132,682 53,000 25,000 6,312
Officer (CFO)
Robert J. Faucher 1995 157,503 175,000 50,000 11,356
President - Engineered 1994 149,379 145,000 100,000 8,568
Products Division 1993 141,876 55,000 25,000 6,916
</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 "Item 12. Security
Ownership of Certain Beneficial Owners and Management.")
(2) All Other Compensation in 1995 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:
29<PAGE>
<TABLE>
<CAPTION>
S.C. Craft S.R. AbbottC.W. McGregor D.A. Owen R.J. Faucher
---------- ------------------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Company matching under the
defined contribution and
deferred compensation plans $22,800 $11,831 $8,089 $7,202 $9,837
Imputed income on excess
life insurance premiums 5,105 1,168 1,595 918 1,519
-------- -------- -------- -------- --------
Total $27,905 $12,999 $9,684 $8,120 $11,356
======== ======== ======== ======== =======
</TABLE>
(3) Mr. Craft served as President and Chief Executive Officer of the
Company from October 1992 until February 26, 1996.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term (2)
------------------------------------------------------------------------ ---------------------
Number of
Securities % of Total
Underlying Options/SARs
Options/SARs Granted to Exercise or
Granted Employees in Base Price Expiration
Name (#) (1) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
------------------- ------------- ------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stanley C. Craft 100,000 13.3 2.86 1/01/06 179,711 455,423
Steven R. Abbott 75,000 10.0 2.86 1/01/06 134,783 341,567
Charles W. McGregor 65,000 8.7 2.86 1/01/06 116,812 296,025
David A. Owen 50,000 6.7 2.86 1/01/06 89,856 227,712
Robert J. Faucher 50,000 6.7 2.86 1/01/06 89,856 227,712
</TABLE>
(1) In January 1996 options to purchase 750,000 shares of Holdings'
common stock were granted in respect of performance for the year
ended December 31, 1995. All such options become exercisable on
January 1, 1999.
30<PAGE>
(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.
The following table details the December 31, 1995 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 $2.86 per share).
See "Item 12. Security Ownership of Certain Beneficial Owners and
Management."
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-Money
Options/SARs at Options/SARs at
Year-End (#) Year-End ($)
Exercisable(E)/ Exercisable(E)/
Shares Acquired Value Realized Unexercisable Unexercisable
Name on Exercise (#) ($) (U)(1) (U)(2)
------------------- --------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Stanley C. Craft - - 583,000(E) 1,078,464(E)
290,000(U) - (U)
Steven R. Abbott - - 273,000(E) 503,367(E)
220,000(U) - (U)
Charles W. McGregor - - 45,500(E) 82,519(E)
190,000(U) - (U)
David A. Owen - - 52,000(E) 93,844(E)
175,000(U) - (U)
Robert J. Faucher - - 145,000(E) 260,598(E)
175,000(U) - (U)
</TABLE>
(1) The options to purchase Holdings' common stock granted in 1996, 1995
and 1994 become exercisable three years from the date of grant. All
other options granted prior to those issued in 1994 are currently
exercisable.
31<PAGE>
(2) The estimated value of unexercised in-the-money stock options held at
the end of 1995 assumes a per-share fair market value of
approximately $2.86 and per-share exercise prices of $1.00 and $1.25
as applicable.
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, 1995, 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-six years and nine
months; Mr. Abbott, twenty-six years and seven months; Mr. Owen, nineteen
years and eight months; Mr. McGregor, twenty-five years and eleven months;
and Mr. Faucher, twenty-three 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
32<PAGE>
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).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Abbott, Woods and Lindsay constitute the Compensation
Committee of the Board of Directors of the Company. See footnote (2)
under the caption "Item 12. 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 "Item 13. 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 and Mr. Woods are also members of the Compensation
Committee of the Holdings Board of Directors. The other member of such
committee is Mr. Gleberman. Mr. Gleberman is a Partner of Goldman Sachs
The Holdings Compensation Committee fixes the compensation paid to the
Company's executive officers, based in part on the recommendation of Mr.
Abbott. See the information set forth under the caption "Item 13. 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 Revolving 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 Revolving 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 29,
1996 by (i) each beneficial owner of more than 5% of the outstanding
common stock of Holdings, (ii) each director of Holdings, (iii) each of
the named executive officers, (iv) all directors and executive officers of
Holdings as a group, and (v) all directors and executive officers of the
Company as a group. Certain beneficial owners of the common stock of
Holdings are parties to an Investors Shareholder Agreement, which provides
restrictions on the transferability of Holdings' common stock and other
matters. The terms of the agreement are summarized in "Investors
Shareholders Agreement" under this caption.
33<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 6,384,848(3) 30,881,179 69.4% 16.3%(3) 79.0%
L.P.(2)
630 Fifth Avenue
New York, NY 10111
GS Capital Partners, 6,615,448 - 6,615,448 17.6 - 17.6
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
Steven R. Abbott(6) - 543,000 543,000 - 1.5 1.5
1601 Wall Street
Fort Wayne, IN 46802
Robert J. Faucher(7) - 307,977 307,977 - 0.9 0.9
1601 Wall Street
Fort Wayne, IN 46802
David A. Owen(8) - 106,828 106,828 - 0.3 0.3
1601 Wall Street
Fort Wayne, IN 46802
Charles W. McGregor(9) - 62,246 62,246 - 0.2 0.2
1601 Wall Street
Fort Wayne, IN 46802
All directors and - 30,881,179 30,881,179 - 79.0 79.0
officers of Holdings
as a group
(6 persons)(10)
All directors and - 30,881,179 30,881,179 - 79.0 79.0
officers of the
Company as a group
(6 persons)(11)
</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 29, 1996)
by each such person or group, respectively, but not the exercise of
any warrants or options owned by any other person or group listed.
34<PAGE>
(2) BHLP is a limited partnership the only activity of which is to make
private structured investments. The primary limited partner of BHLP
is BSC, a corporation owned by trusts whose beneficiaries are
descendants of Henry Phipps and charitable trusts established by such
descendants. Each of Messrs. Woods and Lindsay, directors of
Holdings, and Mr. Michael B. Rothfeld, is a sole shareholder of a
corporation which is 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 executive
officers, employees, former employees and retirees of the Company and
its subsidiaries, or their respective estates (a total of 2,635,498
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 executive officers,
employees and retirees of the Company and its subsidiaries, or their
respective estates (a total of 3,749,350 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 273,000 shares issuable upon exercise of options held by Mr.
Abbott which, pursuant to the applicable option agreement, may be
reduced to 176,152 shares. All shares owned by Mr. Abbott and all
shares issuable to Mr. Abbott upon exercise of options are subject to
the proxy described in footnote (3) above.
(7) Includes 145,000 shares issuable upon exercise of options held by Mr.
Faucher which, pursuant to the applicable option agreement, may be
reduced to 91,196 shares. All shares owned by Mr. Faucher and all
shares issuable to Mr. Faucher upon exercise of options are subject
to the proxy described in footnote (3) above.
35<PAGE>
(8) Includes 52,000 shares issuable upon exercise of options held by Mr.
Owen which, pursuant to the applicable option agreement, may be
reduced to 32,840 shares. All shares owned by Mr. Owen and all
shares issuable to Mr. Owen upon exercise of options are subject to
the proxy described in footnote (3) above.
(9) Includes 45,500 shares issuable upon exercise of options held by Mr.
McGregor which, pursuant to the applicable option agreement, may be
reduced to 28,877 shares. All shares owned by Mr. McGregor and all
shares issuable to Mr. McGregor upon exercise of options are subject
to the proxy described in footnote (3) above.
(10) 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) 324,828 shares of common stock
owned by the executive officers of Holdings included in this group,
(c) 325,000 shares issuable to the executive officers of Holdings
included in this group upon exercise of options which, pursuant to
the applicable option agreements, may be reduced and (d) 2,310,670
shares of common stock and 3,424,350 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.
(11) 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) 504,551 shares of common stock
owned by the other directors and executive officers of the Company
included in this group, (c) 515,500 shares issuable to the other
directors and executive officers of the Company included in this
group upon exercise of options which, pursuant to the applicable
option agreements, may be reduced and (d) 2,130,947 shares of common
stock and 3,233,850 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.
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
36<PAGE>
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)
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 Plan. 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
37<PAGE>
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 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.
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. Steven R. Abbott, 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. However,
following the consummation of a private placement of the Series A
Preferred Stock on June 5, 1995, DLJ no longer holds the minimum number of
shares specified by the Investors Shareholders Agreement and is no longer
entitled to nominate a director.
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. DLJ no
longer holds the specified minimum investment in Holdings.
38<PAGE>
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 for
each year during the three year period ending December 31, 1995, payable
to affiliates of BHLP and BCP. 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. See
footnote (2) under "Item 12. Security Ownership of Certain Beneficial
Owners and Management" for a description of the relationship of Messrs.
Woods and Lindsay, directors of both Holdings and the Company, with such
BHLP 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"), DLJ and
Goldman Sachs were given 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.
However, DLJ no longer has the right to act as financial advisor to the
Company and Holdings under the engagement letter because it no longer
holds a specified minimum investment in Holdings.
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 Letter, 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.
39<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 schedules listed under Item 8 are
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 1995.
40<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 8, 1996 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 8, 1996 /s/ Steven R. Abbott
-------------- --------------------------------------
Steven R. Abbott
President and Chief Executive Officer;
Director
(Principal Executive Officer)
March 8, 1996 /s/ David A. Owen
-------------- --------------------------------------
David A. Owen
Executive Vice President,
Chief Financial Officer; Director
(Principal Financial Officer)
March 8, 1996 /s/ Robert J. Faucher
-------------- --------------------------------------
Robert J. Faucher
Director
March 8, 1996 /s/ Charles W. McGregor
-------------- --------------------------------------
Charles W. McGregor
Director
March 8, 1996 /s/ Robert D. Lindsay
-------------- ---------------------------------------
Robert D. Lindsay
Director
March 8, 1996 /s/ Ward W. Woods, Jr.
-------------- --------------------------------------
Ward W. Woods, Jr.
Director
41<PAGE>
March 8, 1996 /s/ James D. Rice
-------------- --------------------------------------
James D. Rice
Senior Vice President,
Corporate Controller
(Principal Accounting Officer)
42<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 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).
43<PAGE>
10.02 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).
10.03 Advisory Services Agreement dated as of December 15, 1992, among
Bessemer Capital Partners, L.P., the registrant and Essex Group,
Inc. incorporated by reference to Exhibit 10.15 to the
registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 (Commission File No. 1-7418).
10.04 Credit Agreement dated as of April 12, 1995, among the registrant,
Essex, the lenders named therein and Chemical Bank, as agent,
incorporated by reference to Exhibit 10.1 to the registrant's
Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on May 12, 1995.
10.05 Senior Unsecured Note Agreement dated as of April 12, 1995, among
the registrant, as guarantor, Essex, the lenders named therein and
Chemical Bank, as administrative agent, incorporated by reference
to Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q,
filed with the Securities and Exchange Commission on May 12, 1995.
10.06 Agreement and Lease dated as of April 12, 1995, between Mellon
Financial Services Corporation #3 and Essex, incorporated by
reference to Exhibit 10.3 to the registrant's Quarterly Report on
Form 10-Q, filed with the Securities and Exchange Commission on
May 12, 1995.
10.07 First Amendment dated May 16, 1995 among the registrant, Essex,
the lenders named therein and Chemical Bank, as agent, to the
Credit Agreement dated April 12, 1995, among the registrant,
Essex, the lenders named therein and Chemical Bank, as agent
(Commission File No. 33-93232).
10.08 Form of Indenture for 15% Junior Subordinated Exchange Debentures
due September 30, 2004 (Commission File No. 33-93232).
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).
99.03 Amendment No. 1 dated as of June 5, 1995 to the 1992 Registration
Rights Agreement (Commission File No. 33-93232).
99.04 Registration Rights Agreement between the Company and Donaldson,
Lufkin & Jenrette Securities Corporation and Goldman, Sachs & Co.
dated as of June 5, 1995 (Commission File No. 33-93232).
44<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. as of December 31, 1995 and 1994 and the related consolidated
statements of operations and cash flows for each of the three years in the
period ended December 31, 1995. 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 schedule 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. at December 31, 1995 and 1994 and the consolidated
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, 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.
Indianapolis, Indiana ERNST & YOUNG LLP
January 26, 1996
F-1<PAGE>
ESSEX GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------
In Thousands of Dollars, Except Per Share Data 1995 1994
--------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . $ 3,157 $16,894
Accounts receivable (net of allowance of
$3,930 and $3,537) . . . . . . . . . . . . . . . . . 154,584 144,595
Inventories . . . . . . . . . . . . . . . . . . . . . 166,076 145,706
Other current assets . . . . . . . . . . . . . . . . . 8,988 20,496
-------- --------
Total current assets . . . . . . . . . . . . . 332,805 327,691
Property, plant and equipment, net . . . . . . . . . . . 270,546 276,134
Excess of cost over net assets acquired (net of
accumulated amortization of $13,221 and $9,145) . . . . 129,943 133,100
Other intangible assets and deferred costs
(net of accumulated amortization of $3,102
and $5,146) . . . . . . . . . . . . . . . . . . . . . . 9,187 11,563
Other assets . . . . . . . . . . . . . . . . . . . . . . 1,987 1,812
-------- --------
$744,468 $750,300
======== ========
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 1995 1994
--------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank . . . . . . . . . . . . . . . . $11,760 -
Current portion of long-term debt . . . . . . . . . . 24,734 -
Accounts payable . . . . . . . . . . . . . . . . . . . $66,797 $47,421
Accrued liabilities . . . . . . . . . . . . . . . . . 45,864 45,821
Deferred income taxes . . . . . . . . . . . . . . . . 15,345 10,408
Due to Holdings . . . . . . . . . . . . . . . . . . . 384 32,979
-------- --------
Total current liabilities . . . . . . . . . . . 164,884 136,629
Long-term debt . . . . . . . . . . . . . . . . . . . . . 388,016 200,000
Deferred income taxes . . . . . . . . . . . . . . . . . . 66,809 72,771
Other long-term liabilities . . . . . . . . . . . . . . . 10,081 6,997
Stockholder's equity:
Common stock, par value $.01 per share; 1,000 shares
authorized; 100 shares issued and outstanding; plus
additional paid in capital . . . . . . . . . . . . . 104,036 302,784
Retained earnings . . . . . . . . . . . . . . . . . . 10,642 31,119
-------- --------
Total stockholder's equity . . . . . . . . . . 114,678 333,903
-------- --------
$744,468 $750,300
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-3<PAGE>
ESSEX GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------------------------
In Thousands of Dollars 1995 1994 1993
--------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Net sales $1,201,650 $1,010,075 $868,846
Interest income 409 246 265
Other income 1,531 1,553 1,724
---------- --------- --------
1,203,590 1,011,874 870,835
---------- --------- --------
COSTS AND EXPENSES:
Cost of goods sold 1,030,511 846,611 745,875
Selling and administrative 93,250 85,129 75,489
Interest expense 34,683 24,554 25,241
Other expense 2,972 2,709 1,801
--------- -------- --------
1,161,416 959,003 848,406
---------- -------- --------
Income before income
taxes and extraordinary charge 42,174 52,871 22,429
Provision for income taxes
19,680 22,700 13,052
---------- -------- --------
Income before
extraordinary charge 22,494 30,171 9,377
Extraordinary charge - debt
retirement, net of income tax
benefit 2,971 - 3,367
---------- -------- --------
Net income $19,523 $30,171 $ 6,010
========== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-4<PAGE>
ESSEX GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------------------------
In Thousands of Dollars 1995 1994 1993
--------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $19,523 $30,171 $6,010
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation and
amortization 34,205 31,420 29,879
Non cash interest expense 1,990 2,630 4,968
Non cash pension expense 1,947 2,328 2,124
Provision for losses on
accounts receivable 676 1,332 850
Benefit for deferred
income taxes (1,025) (8,964) (622)
Loss on disposal of
property, plant and
equipment 2,610 1,354 436
Loss on repurchase of debt 4,951 - 5,519
Changes in operating assets
and liabilities:
Increase in accounts
receivable (10,665) (27,160) (5,314)
(Increase) decrease in
inventories 3,762 (4,515) (5,659)
Increase (decrease) in
accounts payable and
accrued liabilities 18,901 4,575 (720)
Net (increase) decrease in
other assets and
liabilities 11,378 (10,725) 4,908
Increase (decrease) in due
to Holdings (32,595) 14,616 18,288
-------- -------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 55,658 37,062 60,667
-------- -------- --------
See Notes to Consolidated Financial Statements
F-5<PAGE>
ESSEX GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
December 31,
-----------------------------------------
In Thousands of Dollars 1995 1994 1993
--------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property, plant
and equipment (28,555) (30,109) (26,167)
Proceeds from disposal of
property, plant and
equipment 2,419 227 352
Acquisitions and other
investments (25,393) (236) (4,970)
Issuance of equity interest
in a subsidiary 1,063 - -
-------- -------- --------
NET CASH USED FOR
INVESTING ACTIVITIES (50,466) (30,118) (30,785)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from senior notes - - 200,000
Proceeds from long term debt 428,390 106,000 188,900
Repayments of long term debt (215,640) (106,396) (320,400)
Proceeds from notes payable
to banks 160,030 - -
Repayments from notes payable
to banks (148,270) - -
Repurchase of 12 3/8% senior
subordinated debentures - - (89,983)
Dividends paid to Holdings (238,748) - -
Debt issuance costs (4,691) - (7,086)
-------- -------- --------
NET CASH USED FOR
FINANCING ACTIVITIES (18,929) (396) (28,569)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (13,737) 6,548 1,313
Cash and cash equivalents at
beginning of year 16,894 10,346 9,033
-------- -------- --------
Cash and cash equivalents at
end of year $ 3,157 $16,894 $10,346
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-6<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In Thousands of Dollars
-----------------------
NOTE 1 ACQUISITION AND SIGNIFICANT ACCOUNTING POLICIES
ACQUISITION OF THE COMPANY AND HOLDINGS
On February 29, 1988, MS/Essex Holdings Inc. ("Predecessor" or
"Holdings"), acquired Essex Group, Inc. (the "Company") from United
Technologies Corporation ("UTC") (the "1988 Acquisition"). 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.
("Successor" or "Holdings"). BE was a newly organized Delaware
corporation formed for the purpose of effecting the Acquisition.
Shareholders of BE included Bessemer Holdings, L.P. (an affiliate and
successor in interest to Bessemer Capital Partners, L.P. ["BCP"])
("BHLP"), affiliates of Goldman, Sachs & Co. ("Goldman Sachs"), affiliates
of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Chemical
Equity Associates, A California Limited Partnership and members of
management and other employees of the Company. As a result of the Merger,
the stockholders of BE became stockholders of Holdings. The effects of
the Acquisition and Merger resulted in a new basis of accounting
reflecting estimated fair values for assets and liabilities as of October
1, 1992. However, to the extent that Holdings' management had a
continuing investment interest in Holdings' common stock, such fair values
(and contributed stockholders' equity) were reduced proportionately to
reflect the continuing interest (approximately 10%) at the prior
historical cost basis.
Holdings is a holding company with no operations and has virtually no
assets other than its ownership of all the outstanding stock of the
Company.
CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all majority-owned subsidiaries. All intercompany accounts
and transactions have been eliminated.
USE OF ESTIMATES
The consolidated financial statements were prepared in conformity
with generally accepted accounting principles thereby requiring management
to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
F-7<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
NATURE OF OPERATIONS
The Company operates in one industry segment. The Company develops,
manufactures and markets electrical wire and cable and insulation
products. The Company's principal products in order of revenue are:
building wire for the construction industry; magnet wire for
electromechanical devices such as motors, transformers and electrical
controls; voice and data communication wire and cable; wire for automotive
and appliance applications; 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.
INCOME TAXES
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.
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.
EXCESS OF COST OVER NET ASSETS ACQUIRED
Excess of cost over net assets acquired primarily represents the
excess of Holdings' purchase price over the fair value of the net assets
acquired in the Acquisition, and is being amortized by the straight-line
method over 35 years. Holdings' excess of cost over net assets acquired
is assessed for potential impairment whenever existing facts and
circumstances indicate the carrying value of those assets may not be
recoverable. The assessment process consists of estimating the future
undiscounted cash flows of the businesses for which the excess of cost
F-8<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
over net assets acquired relates and comparing the resultant amount to
their carrying value to determine if an impairment has occurred. If an
impairment has occurred, an impairment loss would be recognized for the
excess of the carrying value over the fair value, as measured on a
discounted cash flow basis, of the excess of cost over net assets
acquired. The adoption of Statement of Financial Accounting Standard No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" in 1995, did not have a material affect on the
Company's financial condition or results of operations.
OTHER TANGIBLE ASSETS AND DEFERRED COSTS
Other intangible assets and deferred costs consist primarily of
deferred debt issuance costs and are being amortized over the lives of the
applicable debt instruments using the straight line or bonds outstanding
method and charged to operations as additional interest expense.
OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist primarily of pension benefit
obligations under the Company sponsored defined benefit pension plans for
salary and hourly employees and the supplemental executive retirement
plan.
RECOGNITION OF REVENUE
Substantially all of the Company's revenue is recognized at the time
the product is shipped.
ACCOUNTING FOR OPTIONS ISSUED TO EMPLOYEES
Holdings periodically grants options to Company employees to purchase
shares of Holdings' common stock with an exercise price equal to the fair
value of the shares at the date of grant. Holdings accounts for stock-
based compensation issued to employees under the provisions of APB Opinion
No. 25 "Accounting for Stock Issued to Employees," and accordingly,
recognizes no compensation expense for the stock options granted.
F-9<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
NOTE 2 INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Finished goods . . . . . . . . . . . . . . $146,821 $130,236
Raw materials and work in process . . . . . 52,366 54,560
-------- --------
199,187 184,796
LIFO reserve . . . . . . . . . . . . . . . (33,111) (39,090)
-------- --------
$166,076 $145,706
======== ========
</TABLE>
Principal elements of cost included in inventories are copper, other
purchased materials, direct labor and manufacturing overhead. Inventories
valued using the LIFO method amounted to $161,449 and $141,847 at December
31, 1995 and 1994, respectively.
NOTE 3 PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1994
---------- ----------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . $ 8,877 $ 9,319
Buildings and improvements . . . . . . . . . 87,704 87,113
Machinery and equipment . . . . . . . . . . 240,257 225,343
Construction in process . . . . . . . . . . 18,049 11,486
-------- --------
354,887 333,261
Less accumulated depreciation . . . . . 84,341 57,127
-------- --------
$270,546 $276,134
======== ========
</TABLE>
F-10<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
NOTE 4 ACCRUED LIABILITIES
Accrued liabilities include the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1994
---------- ----------
<S> <C> <C>
Salaries, wages and employee benefits . . . $15,566 $15,417
Amounts due customers . . . . . . . . . . . 5,860 5,352
Other . . . . . . . . . . . . . . . . . . . 24,438 25,052
-------- --------
$45,864 $45,821
======== ========
</TABLE>
NOTE 5 LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1994
---------- ----------
<S> <C> <C>
10% Senior notes . . . . . . . . . . . . . . $200,000 $200,000
Revolving loan . . . . . . . . . . . . . . . 135,000 -
Term loan . . . . . . . . . . . . . . . . . 54,000 -
Lease obligation . . . . . . . . . . . . . . 23,750 -
-------- --------
412,750 200,000
Less current portion . . . . . . . . . 24,734 -
388,016 200,000
======= =======
</TABLE>
BANK FINANCING
In April 1995, in connection with the redemption (the "Redemption")
of all of Holdings' outstanding 16% Senior Discount Debentures due 2004
(the "Holdings Debentures"), the Company terminated its former credit
agreement and entered into three new facilities: (i) a $260,000 revolving
F-11<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
credit agreement, dated as of April 12, 1995 by and among the Company,
Holdings, the lenders named therein, and Chemical Bank, as agent (the
"Revolving Credit Agreement"); (ii) a $60,000 senior unsecured note
agreement, dated as of April 12, 1995 by and among the Company, Holdings,
as guarantor, the lenders named therein, and Chemical Bank, as
administrative agent (the "Term Loan," together with the Revolving Credit
Agreement, the "Credit Facilities"); and (iii) a $25,000 agreement and
lease, dated as of April 12, 1995 by and between the Company and Mellon
Financial Services Corporation #3 (the "Sale and Leaseback Agreement").
The Company recognized an extraordinary charge of $2,971, net of
applicable tax benefit ($1,980) in the second quarter 1995 for the write-
off of unamortized deferred debt expense in connection with the
termination of its former credit agreement.
On May 12, 1995 the Company borrowed the full amount available under
the Term Loan and the Sale and Leaseback Agreement. These funds, together
with available cash and borrowings under the Revolving Credit Agreement,
were paid to Holdings in the form of a cash dividend ($238,748) and
repayment of a portion of an intercompany liability ($34,102) totaling
$272,850. Holdings applied such funds to redeem all of its outstanding
Holdings Debentures at 100% of their principal amount of $272,850 on May
15, 1995.
The Revolving Credit Agreement provides for up to $260,000 in
revolving loans, subject to specified percentages of eligible assets and
also provides a $25,000 letter of credit subfacility. The Company's
ability to borrow under the Revolving Credit Agreement is restricted by
the financial covenants contained therein as well as those contained in
the Term Loan and to certain debt limitation covenants contained in the
indenture under which the 10% Senior Notes due 2003 (the "Senior Notes")
were issued (the "Senior Note Indenture"). The Revolving Credit Agreement
expires in 2000. Revolving Credit Agreement loans bear floating rates of
interest, at the Company's option, at bank prime plus 1.25% or a reserve
adjusted Eurodollar rate (LIBOR) plus 2.25%. The effective interest rate
can be reduced by 0.25% to 1.25% if certain specified financial conditions
are achieved. Commitment fees during the revolving loan period are .375%
or .5% of the average daily unused portion of the available credit based
upon the level of certain specified financial conditions. At December 31,
1995 and 1994, the incremental borrowing rate under the Revolving Credit
Agreement and former credit agreement, including applicable margins,
approximated 9.0%. Indebtedness under the Revolving 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.
The Revolving 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, 1995, the Company fully complied with all of the
F-12<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
financial ratios and covenants contained in the Revolving Credit
Agreement.
The Term Loan provides for an aggregate $60,000 in term loans, and
is to be paid in 20 equal quarterly installments, subject to the loan's
excess cash provision, beginning August 15, 1995 and ending May 15, 2000.
The Term Loan bears floating rates of interest at bank prime plus 2.75% or
a reserve adjusted Eurodollar rate (LIBOR) plus 3.75%. The Term Loan
requires 50% of excess cash, as defined, to be applied against the
outstanding term loan balance. The excess cash calculation for the year
ended December 31, 1995 requires the Company to repay $12,427 of the term
loan on or before April 15, 1996. After the 1996 excess cash repayment,
principal payments will be made in 17 equal quarterly installments of
$2,269. Amounts repaid with respect to the excess cash provision may not
be reborrowed.
The Sale and Leaseback Agreement provides $25,000 for the sale and
leaseback of certain of the Company s fixed assets. The Sale and
Leaseback Agreement has a seven-year term expiring in May 2002. The
principal component of the rental is paid quarterly, with the amount of
each of the first 27 payments equal to 2.5% of lessor's cost of the
equipment, and the balance due at the final payment. The interest
component is paid on the unpaid principal balance and is calculated by
lessor at LIBOR plus 2.5%. The effective interest rate can be reduced by
0.25% to 1.125% if certain specified financial conditions are achieved.
The fixed assets subject to the Sale and Leaseback Agreement (all of which
are machinery and equipment) are included in property, plant and equipment
in the Consolidated Balance Sheets and have a gross cost of $30,819 and
accumulated amortization of $1,557 at December 31, 1995.
The Company also has uncommitted bank lines of credit which provide
unsecured borrowings for working capital of up to $25,000 of which $11,760
was outstanding at December 31, 1995 and denoted as notes payable to banks
in the Consolidated Balance Sheets. These lines of credit bear interest
at rates subject to agreement between the Company and the lending banks.
At December 31, 1995 such rates of interest averaged 6.7%.
The Company has purchased interest rate cap protection through May
15, 1997 with respect to $150,000 of debt with a strike rate of 10.0%
(three month LIBOR).
SENIOR NOTES
At December 31, 1995 and 1994, $200,000 aggregate principal amount of
the Senior Notes were outstanding. The Senior Notes bear interest at 10%
per annum payable semiannually and are due in May 2003. The net proceeds
to the Company from the sale of the Senior Notes in May 1993, after
underwriting discounts, commissions and other offering expenses, were
$193,450. The Company applied $111,000 of such proceeds to the repayment
of the term credit facility under its former credit agreement and in June
1993 applied the balance of such proceeds, together with new borrowings
F-13<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
under the former credit agreement, to redeem all of its outstanding 12
3/8% Senior Subordinated Debentures due 2000 (the "Debentures"). The
Company recognized an extraordinary charge of $3,055, net of applicable
tax benefit of $1,953, in 1993 representing the write-off of unamortized
debt costs associated with the repayment of the term credit facility under
the former credit agreement.
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 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 Senior Note 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 Senior Note 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, 1995 the Company fully complied with all of the financial
ratios and covenants contained in the Senior Note Indenture.
DEBENTURES
The Debentures were due in 2000 and bore interest at 12 3/8% per
annum payable semi-annually. In June 1993 the Company redeemed all of
the outstanding Debentures at 106% of their principal amount, resulting
in a loss of $312, net of applicable tax benefit of $199, which has been
reported as an extraordinary charge.
OTHER
The Company capitalized interest costs of $565, $132 and $1,599 in
1995, 1994 and 1993, respectively, with respect to qualifying assets.
Total interest paid was $32,312, $20,826 and $20,961 in 1995, 1994
and 1993, respectively.
F-14<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
Aggregate annual maturities of long-term debt for the next five years
are:
1996 . . . . . . . . . . . . . . . . $ 24,734
1997 . . . . . . . . . . . . . . . . 11,576
1998 . . . . . . . . . . . . . . . . 11,576
1999 . . . . . . . . . . . . . . . . 11,576
2000 . . . . . . . . . . . . . . . . 142,038
The year 2000 includes repayment of the Company's revolving
loan in the amount of $135,000.
NOTE 6 INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the deferred tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment . . . . $68,553 $73,108
Inventory . . . . . . . . . . . . . . 28,485 28,236
Other . . . . . . . . . . . . . . . . 3,844 4,201
-------- --------
Total deferred tax liabilities . . . 100,882 105,545
-------- --------
Deferred tax assets:
Accrued liabilities . . . . . . . . . 6,650 7,671
Alternative minimum tax credit
carryforward . . . . . . . . . . . . 1,384 4,984
Other . . . . . . . . . . . . . . . . 10,694 9,711
-------- --------
Total deferred tax assets . . . . . 18,728 22,366
-------- --------
Net deferred tax liabilities . . . $82,154 $83,179
======== ========
</TABLE>
F-15<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Current:
Federal . . . . . . . . $14,872 $27,157 $10,978
State . . . . . . . . . 5,833 4,507 2,696
Deferred (Credit):
Federal . . . . . . . . 1,135 (8,362) 127
State . . . . . . . . . (2,160) (602) (749)
-------- -------- -------
$19,680 $22,700 $13,052
======== ======== =======
</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 $45,839, $11,484 and $1,131 in
1995, 1994 and 1993, respectively.
F-16<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
Principal differences between the effective income tax rate and
the statutory federal income tax rate are:
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------------------
1995 1994 1993
------------- ------------- ------------
<S> <C> <C> <C>
Statutory federal income tax rate . . . 35.0% 35.0% 35.0%
State and local taxes, net of
federal benefit . . . . . . . . . . . 5.8 4.8 5.6
Federal rate increase . . . . . . . . . - - 10.0
Excess of cost over net assets
acquired amortization . . . . . . . . 3.4 2.7 6.3
Other, net . . . . . . . . . . . . . . 2.5 .4 1.3
------ ------ ------
Effective income tax rate . . . . . . . 46.7% 42.9% 58.2%
====== ====== ======
</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 consolidated financial statements.
NOTE 7 RETIREMENT BENEFITS
The Company sponsors two defined benefit retirement plans for
substantially all salaried and hourly employees. The Company also has 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
F-17<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
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>
Year Ended
December 31,
--------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Service-cost benefits earned
during the period . . . . . . . . . . $2,365 $2,964 $2,611
Interest costs on projected benefit
obligation . . . . . . . . . . . . . . 3,923 3,643 3,521
Actual return on plan assets . . . . . (13,597) 2,409 (6,078)
Net amortization and deferral . . . . . 9,751 (6,458) 2,573
-------- -------- --------
Net periodic pension cost . . . . . . . $2,442 $2,558 $2,627
======== ======== ========
</TABLE>
F-18<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
The following table summarizes the funded status of these pension
plans and the related amounts that are recognized in the Consolidated
Balance Sheets:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1995 1994
---------------- -----------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested . . . . . . . . . . . . . . . . . . . . $42,052 $29,469
Nonvested . . . . . . . . . . . . . . . . . . 3,656 2,470
-------- --------
Accumulated benefit obligation . . . . . . . . 45,708 31,939
Effect of projected future salary increases . 17,195 9,566
-------- --------
Projected benefit obligation . . . . . . . . . 62,903 41,505
Plan assets at fair value . . . . . . . . . . . . . . 55,447 42,436
-------- --------
Fair value of plan assets in excess of
(less than) projected benefit obligation . . . . . . (7,456) 931
Unrecognized net (gain) loss . . . . . . . . . . . . (1,312) (7,703)
Unrecognized prior service cost . . . . . . . . . . . (326) (353)
-------- --------
Pension liability recognized in balance sheets . . . $ (9,094) $ (7,125)
======== ========
</TABLE>
Certain actuarial assumptions were revised in 1995 and 1994
resulting in an increase of $13,262 and a decrease of $13,883,
respectively, in the projected benefit obligation.
F-19<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>
Year Ended
December 31,
--------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Discount rates . . . . . . . . 7.0% 8.5% 7.0%
Rates of increase in
compensation levels . . . . . 5.0% 5.0% 5.0%
Expected long-term rate of
return on assets . . . . . . . 9.0% 9.0% 9.0%
</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 and non-union hourly employees of the
Company and certain other hourly employees, represented by collective
bargaining agreements, who negotiate this benefit into their contract.
The hourly plans were established in 1995 and 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 $1,123, $1,088 and $1,030
in 1995, 1994 and 1993, 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 $609 and $101 at December 31, 1995 and 1994,
respectively.
F-20<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
NOTE 8 STOCKHOLDER'S EQUITY
The following is an analysis of stockholder's equity:
<TABLE>
<CAPTION>
Common
Stock Plus
Additional Total
Paid In Retained Stockholder's
Capital Earnings Equity
---------- ---------- --------------
<S> <C> <C> <C>
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
Net Income . . . . . . . . . . . . . . . . . . . . . . - 19,523 19,523
Cash dividends paid to Holdings . . . . . . . . . . . . (198,748) (40,000) (238,748)
--------- -------- ---------
Balance at December 31, 1995 . . . . . . . . . . . . . $104,036 $10,642 $114,678
========= ======== ========
</TABLE>
NOTE 9 RELATED PARTY TRANSACTIONS
Advisory services fees of $1,000 were paid to affiliates of BHLP and
BCP for 1995, 1994, and 1993. It is expected that financial advisory fees
to an affiliate of BHLP will continue to be paid for such services in the
future.
At December 31, 1995, Holdings had outstanding 2,033,782 shares of
15% Series B Cumulative Redeemable Exchangeable Preferred Stock,
Liquidation Preference $25 Per Share, (the Series B Preferred Stock ).
The accreted balance of the Series B Preferred Stock was $48,820 at
December 31, 1995. The Series B Preferred Stock is subject to mandatory
redemption on September 30, 2004. At the option of Holdings, the Series B
Preferred Stock may be redeemed at a percentage of liquidation preference
declining from 107.5% beginning September 30, 1995 to 100% beginning
September 30, 1998, plus accumulated and unpaid dividends. The Revolving
Credit Agreement permits the optional redemption of the Series B Preferred
F-21<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
Stock only out of proceeds of a Holdings primary offering (public or
private) of common stock, or in exchange for debentures with terms similar
to those of the Series B Preferred Stock or in exchange for other
preferred stock on terms no more onerous than those presently existing.
In order to redeem the Series B Preferred Stock under the terms of the
Senior Note Indenture, Holdings would be required, among other things, to
seek the consent of the holders of the Senior Notes, refinance the Senior
Notes after they become redeemable in May 1998, or obtain funds through
the sale of equity securities.
Dividends on the Series B Preferred Stock are payable quarterly at a
rate of 15.0% per annum. Dividends accruing on or before September 30,
1998 may, at the option of Holdings, be paid in cash, paid in additional
shares of Series B Preferred Stock or in any combination thereof.
Dividends on the Series B Preferred Stock accruing after September 30,
1998 must be paid in cash. Holdings does not expect to pay cash dividends
on or prior to September 30, 1998. Each of the Credit Facilities and the
Senior Note Indenture restricts the payment of cash to Holdings. In order
to make cash dividend payments on the Series B Preferred Stock under the
terms of the Senior Note indenture, Holdings would be required, among
other things, to seek the consent of the holders of the Senior Notes,
refinance the Senior Notes after they become redeemable in May 1998, or
obtain funds through the sale of equity securities.
In October 1995, Holdings filed with the Securities and Exchange
Commission a registration statement for an offer to exchange an equal
number of Series B Preferred Stock for all of its outstanding shares of
15% Series A Cumulative Redeemable Exchangeable Preferred Stock due 2004
(the "Series A Preferred Stock"). The terms of the Series A Preferred
Stock and the Series B Preferred Stock are identical in all material
respects, except for certain transfer restrictions relating to the Series
A Preferred Stock. The exchange was concluded in December 1995 for all
outstanding shares of the Series A Preferred Stock.
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
Revolving 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'
obligations.
NOTE 10 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
F-22<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
futures contracts but the Company does not anticipate nonperformance by
any of these counterparties. The amount of such exposure is generally the
unrealized gains within the underlying contracts.
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, 1995 and 1994, the
Company had Deutschemark forward exchange sales contracts of $1,145 and
$5,360, respectively, and purchase contracts of $886 and $1,260,
respectively. The fair value of such contracts approximated contract
amount. Foreign currency gains or losses resulting from the Company's
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, the Company's principal raw material, experiences marked
fluctuations in market prices, thereby subjecting the Company to copper
price risk with respect to copper purchases and 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.
Purchase or "long" contracts are utilized by the Company to hedge
firm and anticipated sales contracts while sales or "short" contracts are
employed with respect to "carryover" copper purchases. Copper carryover
purchases represent that portion of the Company's current month's copper
purchase commitments priced at the current month's average New York
Commodity Exchange, Inc. ("COMEX") price, but not delivered until the
following month. Short contracts are utilized to mitigate risk that
copper prices, at the time of copper receipt, are likely to be below the
average COMEX price of the incoming copper carryover.
Purchase contracts at December 31, 1995 and 1994 totalled 14.7 and
2.8 million copper pounds, respectively, with contract amounts of $17,100
and $2,400 and estimated fair values of $16,900 and $3,700, respectively.
Sales contracts at December 31, 1995 totalled 13.5 million copper pounds,
with a contract amount of $16,600 and a fair value of $16,300. Deferred
and unrealized gains or losses on these futures contracts ($100 and $1,300
gain at December 31, 1995 and 1994, respectively) are included within
other assets and will be recognized in earnings in the period in which the
hedged copper is sold to customers and the underlying contracts are
liquidated, when a sale is no longer expected to occur or when the
carryover copper is received.
F-23<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
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 long-term debt. The carrying
amounts of the Company's cash and cash equivalents approximated fair value
at December 31, 1995 and 1994 while the carrying amount of the Senior
Notes exceeded fair value by approximately $4,000 and $12,000,
respectively. Fair values with respect to the Company's foreign currency
forward exchange and copper futures contracts are determined based on
quoted market prices.
NOTE 11 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
conditions, events or circumstances known to UTC prior to February 29,
1988. The sites covered by this indemnity are handled directly by UTC and
all payments required to be made are paid directly by UTC. The amounts
related to this environmental contingency are not material to the
Company's consolidated financial statements. UTC also provided a second
environmental indemnity which deals with losses related to environmental
events, conditions or circumstances existing at or prior to February 29,
1988, which only became known in the five year window commencing February
29, 1988. As to any such losses, the Company is responsible for the first
$4,000 incurred. Management and its legal counsel periodically review the
probable outcome of pending proceedings and the costs reasonably expected
to be incurred. The Company accrues for these costs when it is probable
that a liability has been incurred and the amount of the loss can be
reasonably estimated. After consultation with counsel, in the opinion of
management, the ultimate cost to the Company, exceeding amounts provided,
will not materially affect its consolidated financial position or results
of operations.
At December 31, 1995, the Company had purchase commitments of 514.4
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 COMEX price in the contractual month of shipment
except for 50.9 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.
F-24<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
At December 31, 1995, the Company had committed $4,637 to outside
vendors for certain capital projects.
The Company occupies space and uses certain equipment under lease
arrangements. Rent expense was $7,478, $6,912 and $6,224 under such
arrangements for 1995, 1994 and 1993, respectively. Rental commitments at
December 31, 1995 under long-term noncancellable operating leases were as
follows:
<TABLE>
<CAPTION>
Real Estate Equipment Total
----------- --------- -----
<S> <C> <C> <C>
1996 $2,929 $2,821 $5,750
1997 2,132 2,099 4,231
1998 1,682 1,990 3,672
1999 1,791 1,048 2,839
2000 1,589 903 2,492
After 2000 11,341 633 11,974
------- ------ -------
$21,464 $9,494 $30,958
======= ====== =======
</TABLE>
NOTE 12 QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1995 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
----------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . $289,649 $288,534 $308,288 $315,179
Gross margin . . . . . . . . . . . 42,426 37,598 44,765 46,350
Income before extraordinary charge 9,184 4,044 6,117 3,149
Net income (a) . . . . . . . . . . $9,184 $1,073 $6,117 $3,149
</TABLE>
F-25<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
<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>
(a) In the second quarter 1995, the Company recognized an extraordinary
charge of $2,971 ($.08 per share), net of applicable income tax
benefit of $1,980, representing the write-off of unamortized debt
expense in connection with the termination of its former credit
agreement (see Note 5).
F-26<PAGE>
SCHEDULE II
ESSEX GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------------------------------
In Thousands of Dollars 1995 1994 1993
----------------------- ---------------------------------------------
<S> <C> <C> <C>
Allowance for doubtful
accounts:
Balance at beginning
of year . . . . . . . . $3,537 $2,811 $2,455
Provision . . . . . . . 676 1,332 850
Write-offs . . . . . . (476) (900) (765)
Recoveries . . . . . . 193 294 271
-------- -------- --------
Balance at end of year
$3,930 $3,537 $2,811
======== ======== ========
</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 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).<PAGE>
Location of Exhibit
Exhibit in Sequential
Number Description of Document Numbering System
--------------------------------------------------------------------------
10.02 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).
10.03 Advisory Services Agreement dated as of December 15, 1992, among
Bessemer Capital Partners, L.P., the registrant and Essex Group,
Inc. incorporated by reference to Exhibit 10.15 to the
registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 (Commission File No. 1-7418).
10.04 Credit Agreement dated as of April 12, 1995, among the registrant,
Essex, the lenders named therein and Chemical Bank, as agent,
incorporated by reference to Exhibit 10.1 to the registrant's
Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on May 12, 1995.
10.05 Senior Unsecured Note Agreement dated as of April 12, 1995, among
the registrant, as guarantor, Essex, the lenders named therein and
Chemical Bank, as administrative agent, incorporated by reference
to Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q,
filed with the Securities and Exchange Commission on May 12, 1995.
10.06 Agreement and Lease dated as of April 12, 1995, between Mellon
Financial Services Corporation #3 and Essex, incorporated by
reference to Exhibit 10.3 to the registrant's Quarterly Report on
Form 10-Q, filed with the Securities and Exchange Commission on
May 12, 1995.
10.07 First Amendment dated May 16, 1995 among the registrant, Essex,
the lenders named therein and Chemical Bank, as agent, to the
Credit Agreement dated April 12, 1995, among the registrant,
Essex, the lenders named therein and Chemical Bank, as agent
(Commission File No. 33-93232).
10.08 Form of Indenture for 15% Junior Subordinated Exchange Debentures
due September 30, 2004 (Commission File No. 33-93232).
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).
99.03 Amendment No. 1 dated as of June 5, 1995 to the 1992 Registration
Rights Agreement (Commission File No. 33-93232).
99.04 Registration Rights Agreement between the Company and Donaldson,
Lufkin & Jenrette Securities Corporation and Goldman, Sachs & Co.
dated as of June 5, 1995 (Commission File No. 33-93232).<PAGE>
EXHIBIT 12.01
ESSEX GROUP, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
SUCCESSOR
--------------------------------------------
Three Month
Year Ended Period Ended
December 31, December 31,
-------------------------------
In Thousands of Dollars 1995 1994 1993 1992
<S> <C> <C> <C> <C>
Income (loss) before
taxes and
extraordinary $22,494 $52,871 $22,429 $(6,962)
charge
Add:
Interest Expense 34,683 24,554 25,241 8,086
Portion of rents
representative of
interest factor 2,490 2,302 2,073 650
Current period
amortization of
interest capitalized
in prior periods 120 95 8 -
------- ------- ------- -------
Income as adjusted $59,787 $79,822 $49,751 $1,774
======= ======= ======= =======
Fixed charges:
Interest incurred:
Amount expensed $34,683 $24,554 $25,241 $8,086
Amount capitalized 565 132 1,599 116
Portion of rents
representative of
interest factor 2,490 2,302 2,073 650
------- ------- ------- -------
Total fixed charges $37,738 $26,988 $28,913 $8,852
====== ======= ======= =======
Ratio of earnings to
fixed charges (a) 1.6 3.0 1.7 -
=== === === ===
/TABLE
<PAGE>
(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.
<TABLE>
<CAPTION>
PREDECESSOR
----------------------------------
Nine Month
Period Ended Year Ended
September 30, December 31,
In Thousands of Dollars, Except Ratio Data 1992 1991
-----------------------------------------------------------------------------
<S> <C> <C>
Income (loss) before
taxes and extraordinary
charge $14,714 $27,741
Add:
Interest expense 14,505 24,969
Portion of rents
representative of
interest factor 1,379 1,876
Current period
amortization of
interest capitalized
in prior periods 48 63
------- -------
Income as adjusted $30,646 $54,649
======= =======
Fixed charges:
Interest incurred:
Amount expensed $14,505 $24,969
Amount capitalized 220 -
Portion of rents
representative of
interest factor 1,379 1,876
------- -------
Total fixed charges $16,104 $26,845
======= =======
Ratio of earnings to
fixed charges (a) 1.9 2.0
=== ===
</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 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
US Samica Corporation . . . . . . . . . . . . . . . . Vermont
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
SX Mauritius Holding Inc. . . . . . . . . . . . . . . Mauritius<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K AS
OF DECEMBER 31, 1995 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-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,157
<SECURITIES> 0
<RECEIVABLES> 154,584
<ALLOWANCES> 3,930
<INVENTORY> 166,076
<CURRENT-ASSETS> 332,805
<PP&E> 270,546
<DEPRECIATION> 84,341
<TOTAL-ASSETS> 744,468
<CURRENT-LIABILITIES> 164,884
<BONDS> 388,016
<COMMON> 104,036
0
0
<OTHER-SE> 10,642
<TOTAL-LIABILITY-AND-EQUITY> 744,468
<SALES> 1,201,650
<TOTAL-REVENUES> 1,203,590
<CGS> 1,030,511
<TOTAL-COSTS> 1,030,511
<OTHER-EXPENSES> 96,222
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,683
<INCOME-PRETAX> 42,174
<INCOME-TAX> 19,680
<INCOME-CONTINUING> 22,494
<DISCONTINUED> 0
<EXTRAORDINARY> 2,971
<CHANGES> 0
<NET-INCOME> 19,523
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
