UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File Number 1-7418
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ESSEX GROUP, INC.
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(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: (219) 461-4000
None
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(Former name, former address and former fiscal year, if
changed since last report)
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.
[X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Number of Shares Outstanding
Common Stock As of September 30, 1997
-------------- ----------------------------
$.01 Par Value 100<PAGE>
ESSEX GROUP, INC.
FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation . . . . . . . 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 18
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ESSEX GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
In Thousands of Dollars (Unaudited)
--------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . $ 2,899 $ 5,587
Accounts receivable (net of allowance of
$5,239 and $5,890) . . . . . . . . . . . . . . . . . 189,717 229,005
Inventories . . . . . . . . . . . . . . . . . . . . . 217,643 225,293
Other current assets . . . . . . . . . . . . . . . . . 12,147 12,348
-------- --------
Total current assets . . . . . . . . . . . . . 422,406 472,233
Property, plant and equipment, (net of accumulated
depreciation of $112,108 and $129,428) . . . . . . . 280,489 277,337
Excess of cost over net assets acquired (net of
accumulated amortization of $17,388 and $20,550) . . 126,619 124,282
Other intangible assets and deferred costs (net of
accumulated amortization of $4,501 and $3,789) . . . 7,417 5,792
Other assets . . . . . . . . . . . . . . . . . . . . . 4,294 3,805
-------- --------
$841,225 $883,449
======== ========
See Notes to Consolidated Financial Statements
3<PAGE>
ESSEX GROUP, INC.
CONSOLIDATED BALANCE SHEETS - Continued
December 31, September 30,
1996 1997
In Thousands of Dollars, Except Per Share Data (Unaudited)
--------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable to banks . . . . . . . . . . . . . . . . $ 30,913 $ 42,951
Current portion of long-term debt . . . . . . . . . . 11,576 2,500
Accounts payable . . . . . . . . . . . . . . . . . . . 71,243 76,765
Accrued liabilities . . . . . . . . . . . . . . . . . 64,313 71,827
Deferred income taxes . . . . . . . . . . . . . . . . 15,151 13,809
Due to Essex International . . . . . . . . . . . . . . 5,153 61,074
-------- --------
Total current liabilities . . . . . . . . . . . 198,349 268,926
Long-term debt . . . . . . . . . . . . . . . . . . . . 421,340 331,075
Deferred income taxes . . . . . . . . . . . . . . . . 58,043 52,667
Other long-term liabilities . . . . . . . . . . . . . 12,427 14,900
Stockholder's equity:
Common stock, par value $.01 per share; 1,000 shares
authorized; 100 shares issued and outstanding; plus
additional paid in capital . . . . . . . . . . . . . 104,036 104,036
Retained earnings . . . . . . . . . . . . . . . . . . 47,030 111,845
-------- --------
Total stockholder's equity . . . . . . . . . . 151,066 215,881
-------- --------
$841,225 $883,449
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
4<PAGE>
ESSEX GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
In Thousands of Dollars, Except Per Share Data 1996 1997 1996 1997
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . $328,777 $445,166 $974,720 $1,309,275
Cost of goods sold . . . . . . . . . . . . . . 269,813 362,976 813,106 1,059,504
Selling and administrative expenses . . . . . . 28,881 37,643 86,331 112,954
Other (income) expense, net . . . . . . . . . . 507 (560) 310 (634)
-------- -------- -------- ----------
Income from operations . . . . . . . . . . . . 29,576 45,107 74,973 137,451
Interest expense . . . . . . . . . . . . . . . 9,555 8,562 29,879 29,836
-------- -------- -------- ----------
Income before income taxes . . . . . . . . . . 20,021 36,545 45,094 107,615
Provision for income taxes . . . . . . . . . . 8,500 14,500 19,500 42,800
-------- -------- -------- ----------
Net income . . . . . . . . . . . . . . . . . . $ 11,521 $ 22,045 $ 25,594 $ 64,815
======== ======== ======== ==========
</TABLE>
See Notes to Consolidated Financial Statements
5<PAGE>
ESSEX GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
In Thousands of Dollars 1996 1997
-------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . $25,594 $ 64,815
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . 25,489 25,308
Non cash interest expense . . . . . . . . . . . . . 1,585 1,500
Non cash pension expense . . . . . . . . . . . . . 2,170 2,774
Provision for losses on accounts receivable . . . . 958 1,192
Benefit for deferred income taxes . . . . . . . . . (2,664) (6,718)
Loss on disposal of property, plant and equipment 1,045 1,217
Changes in operating assets and liabilities:
Increase in accounts receivable . . . . . . . . . (15,572) (40,480)
Increase in inventories . . . . . . . . . . . . . (1,813) (7,650)
Increase (decrease) in accounts payable and
accrued liabilities . . . . . . . . . . . . . . . (5,349) 12,359
Net (increase) decrease in other assets and
liabilities . . . . . . . . . . . . . . . . . . . (9,377) 306
Increase in due to Essex International . . . . . . 2,980 9,899
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . 25,046 64,522
-------- --------
INVESTING ACTIVITIES
Additions to property, plant and equipment . . . . . (15,677) (22,981)
Proceeds from disposal of property, plant
and equipment . . . . . . . . . . . . . . . . . . . 405 3,328
Acquisitions . . . . . . . . . . . . . . . . . . . . (7,631) -
Other investments . . . . . . . . . . . . . . . . . (362) (900)
-------- --------
NET CASH USED FOR INVESTING ACTIVITIES . . . . . . . (23,265) (20,553)
-------- --------
See Notes to Consolidated Financial Statements
6<PAGE>
ESSEX GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
Nine Months Ended
September 30,
-----------------------
In Thousands of Dollars 1996 1997
-------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from long-term debt . . . . . . . . . . . . 110,800 328,600
Repayment of long-term debt . . . . . . . . . . . . (110,640) (427,941)
Proceeds from notes payable to banks . . . . . . . . 390,259 543,898
Repayment of notes payable to banks . . . . . . . . (391,483) (531,860)
Proceeds from Essex International . . . . . . . . . - 46,022
-------- --------
NET CASH USED FOR FINANCING ACTIVITIES . . . . . . . (1,064) (41,281)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . 717 2,688
Cash and cash equivalents at beginning of period . . 3,157 2,899
-------- --------
Cash and cash equivalents at end of period . . . . . $ 3,874 $ 5,587
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
7<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In Thousands of Dollars
-----------------------
NOTE 1 ORGANIZATION
Essex Group, Inc. (the "Company") is a wholly owned subsidiary of Essex
International Inc. ("Essex International") (formerly known as BCP/Essex
Holdings Inc.). The principal asset of Essex International is all of the
outstanding common stock of the Company.
On May 1, 1997, Essex International completed its initial public offering
(the "Offering") of 6,546,700 shares of common stock, including 3,546,700
shares sold by certain existing shareholders. The net proceeds to Essex
International, after underwriting commissions and other associated
expenses, were approximately $46,022 of which $29,497 was used to repay
the Company's senior unsecured note agreement and the remaining proceeds
were applied to the Company's revolving credit facility. In connection
with the Offering, BCP/Essex Holdings Inc.'s name was changed to Essex
International Inc.
NOTE 2 BASIS OF PRESENTATION
The unaudited interim consolidated financial statements contain all
adjustments, consisting of normal recurring adjustments, which are, in the
opinion of Company management, necessary to present fairly the
consolidated financial position of the Company as of September 30, 1997,
and the consolidated results of operations for the three and nine months
ended September 30, 1996 and 1997, respectively, and cash flows of the
Company for the nine months ended September 30, 1996 and 1997,
respectively. Results of operations for the periods presented are not
necessarily indicative of the results for the full fiscal year. These
financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1996.
NOTE 3 INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------- -------------
<S> <C> <C>
Finished goods . . . . . . . . . . . . . $171,213 $170,980
Raw materials and work in process . . . . 56,840 56,621
-------- --------
228,053 227,601
8<PAGE>
LIFO reserve . . . . . . . . . . . . . . (10,410) (2,308)
-------- --------
$217,643 $225,293
======== ========
</TABLE>
The Company values a major portion of its inventories at the lower of
cost or market based on a last-in, first-out ("LIFO") method. Principal
elements of cost included in the Company's inventories are copper,
purchased materials, direct labor and manufacturing overhead. Inventories
valued using the LIFO method amounted to $210,454 and $214,695 at December
31, 1996 and September 30, 1997, respectively.
9<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
(Unaudited)
In Thousands of Dollars
-----------------------
An actual valuation of inventory under the LIFO method can be made only
at the end of each year based on the inventory levels and costs at that
time. Accordingly, interim LIFO calculations must necessarily be based on
management's estimates of expected year-end inventory levels and costs.
Because these are subject to many forces beyond management's control,
interim results are subject to the final year-end LIFO inventory
valuation.
NOTE 4 LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------- -------------
<S> <C> <C>
10% Senior notes . . . . . . . . . . . $200,000 $200,000
Revolving loan . . . . . . . . . . . . 179,900 114,200
Lease obligation . . . . . . . . . . . 21,250 19,375
Term loan . . . . . . . . . . . . . . . 31,766 -
-------- --------
432,916 333,575
Less: current portion . . . . . . . . . 11,576 2,500
-------- --------
$421,340 $331,075
======== ========
</TABLE>
In connection with the Offering, the Company's revolving credit facility
was amended and restated. It continues to provide up to $370,000 in
revolving loans and maintains existing terms and conditions except that
revolving loans bear floating rates of interest, at the Company's option,
at bank prime plus 0.50% or a reserve adjusted Eurodollar rate ("LIBOR")
plus 1.50%. The spreads over the prime and LIBOR rates can be reduced to
0% and .375%, respectively, if a certain specified leverage ratio is
achieved. The average commitment fees during the revolving loan period
are between 0.125% to 0.375% of the average daily unused portion of the
available credit based upon certain financial ratios.
Through September 30, 1997, the Company fully complied with all of the
financial ratios and covenants under the agreements governing its
outstanding indebtedness.
NOTE 5 CONTINGENT LIABILITIES
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 of
10<PAGE>
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
(Unaudited)
In Thousands of Dollars
-----------------------
the Company by Essex International from United Technologies Corporation
("UTC"), 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 administrated 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 period 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, cash flows or results of operations. There can be no assurance,
however, that future developments will not alter this conclusion.
Since approximately 1990, the Company has been named as a defendant in a
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. At September 30,
1997, the number of cases filed against the Company was 109 involving
approximately 386 claims. 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, cash flows or results of operations. There can be no
assurance, however, that future developments will not alter this
conclusion.
11<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Introduction
Essex Group, Inc. (the "Company") is a wholly owned subsidiary of Essex
International Inc. ("Essex International") (formerly known as BCP/Essex
Holdings Inc.). The principal asset of Essex International is all of the
outstanding common stock of the Company.
In October 1992, Essex International was acquired by Bessemer Holdings,
L.P. ("BHLP") (an affiliate and successor in interest to Bessemer Capital
Partners, L.P.), affiliates of Goldman, Sachs & Co., affiliates of
Donaldson, Lufkin & Jenrette Securities Corporation, Chase Equity
Associates, and certain present and former employees of Essex.
On May 1, 1997, Essex International completed its initial public offering
(the "Offering") of 6,546,700 shares of common stock, including 3,546,700
shares sold by certain existing shareholders. The net proceeds to Essex
International, after underwriting commissions and other associated
expenses, were approximately $46.0 million of which $29.5 million was used
to repay the Company's senior unsecured note agreement and the remaining
proceeds were applied to the Company's revolving credit facility. In
connection with the Offering, BCP/Essex Holdings Inc.'s name was changed
to Essex International Inc.
The Company, founded in 1930, is a leading developer, manufacturer and
marketer of diversified electrical wire and cable products. Among the
Company's products are building wire for commercial and residential
applications; magnet wire for electromechanical devices such as motors,
transformers and electrical controls; copper voice and datacom wire;
industrial wire for applications in appliances, construction, recreational
vehicles and industrial facilities; and automotive wire and specialty
wiring assemblies for automobiles and trucks.
Results of Operations
Product Lines
The following table sets forth for the three and nine months ended
September 30, 1996 and 1997, respectively, the dollar amounts of sales for
each of the Company's major product lines:
<TABLE>
<CAPTION>
Sales
-----------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1997 1996 1997
------ ------ ------ ------
(In millions)
<S> <C> <C> <C> <C>
Building wire . . . . . . . . . . $119.5 $203.7 $334.1 $589.5
Magnet wire . . . . . . . . . . . 97.2 102.2 295.0 317.4
Communication wire . . . . . . . 43.0 52.7 128.6 142.0
12<PAGE>
Industrial wire . . . . . . . . . 16.5 30.7 48.0 95.7
Automotive wire . . . . . . . . . 21.4 24.3 70.5 70.3
Other (a) . . . . . . . . . . . . 31.2 31.6 98.5 94.4
------ ------ ------ --------
Total . . . . . . . . . . . . . . $328.8 $445.2 $974.7 $1,309.3
====== ====== ====== ========
</TABLE>
13<PAGE>
------------
(a) Includes sales of third-party manufactured products, including
electrical insulating products, electric motors, motor repair parts and
pump seals sold through the Company's distribution business unit.
Three Months Ended September 30, 1997
Net sales for the third quarter 1997 were $445.2 million or 35.4% higher
than the comparable period in 1996 on improved sales volume, better
product pricing and higher copper prices, the Company's principal raw
material. During the third quarter 1997, the average price per pound of
copper on the New York Commodity Exchange, Inc. ("COMEX") was $1.02 versus
$.91 for the comparable period in 1996, a 12.1% increase. Copper costs
are generally passed on to customers through product pricing. Third
quarter 1997 sales volume was at record levels exceeding the third quarter
1996 by 26.3%. This growth in sales volume was attributable to increased
product demand across most of the Company's served markets and the October
1996 acquisition of Triangle Wire & Cable, Inc. ("Triangle"). The
Company's operating margin, expressed as a percentage of net sales,
improved significantly during the third quarter 1997 to 10.2% from 9.0% in
the third quarter 1996. The improved operating margin resulted primarily
from better conditions in the Company's building wire markets, economies
of scale derived from higher sales volume and lower per unit manufacturing
costs attributable to continued productivity improvements.
Building wire sales for the third quarter 1997 increased 70.5% as
compared to the third quarter 1996, due primarily to higher sales volume
and copper prices and improved product pricing (without regard to copper
costs). A substantial portion of the increased sales volume was
attributable to Triangle while the remaining improvement was the result of
increased demand within the served markets. Building wire demand
exhibited continued strength during the third quarter 1997 resulting from
new non-residential construction and, the Company believes, a sustained
expansion of the replacement and upgrade segment of the market. Building
wire operating margins during the third quarter 1997 improved
significantly over the comparable period in 1996 due to the
above-mentioned strength of product demand and improved productivity.
Additionally, the operations of Triangle have been integrated rapidly and
effectively, contributing to such productivity improvement.
Sales of magnet wire during the third quarter 1997 improved from the
comparable 1996 period due primarily to higher sales volume and higher
copper prices. Sales volume improvements were attributable to increased
demand for magnet wire in most served markets due, in part, to growth in
the domestic economy and greater use of magnet wire for increased energy
efficiency in electric motors. Magnet wire operating margins improved
during the third quarter 1997 as compared to the third quarter 1996
primarily due to lower production costs attributable to higher sales
volume.
Communication wire sales for the third quarter 1997 were above the
comparable period in 1996 due to higher outside plant ("OSP") and datacom
wire sales volume and higher copper prices. OSP sales volume was 16.1%
higher than the third quarter 1996 which the Company believes is
attributable to improved business conditions within this segment of the
copper communication cable business. Third quarter 1997 datacom wire
sales volume improved from the comparable period in 1996, reflecting
14<PAGE>
increased product demand in expanding markets such as local area networks
("LANs"), Internet connectivity and other premise applications. Third
quarter 1997 communication wire operating margins decreased from the third
quarter 1996 due to competitive pricing pressure in high end datacom wire,
partially offset by lower production costs attributable to higher sales
volume.
Industrial wire sales in the third quarter 1997 were more than double the
third quarter 1996 due primarily to increased sales volume attributable to
Triangle. Industrial wire operating margins for the third quarter 1997
remain unchanged from the comparable period in 1996.
15<PAGE>
Automotive wire sales in the third quarter 1997 were above those in the
comparable period in 1996 due primarily to improved sales volume and
higher copper prices. Automotive operating margins improved due to a
reduction in overhead expenses. Additionally, in conjunction with its
recent QS 9000 certification, the unit has become an approved supplier to
Delphi Packard, the primary wire harness supplier to General Motors.
Other sales in the third quarter 1997 increased from the comparable
period in 1996 due primarily to higher distribution business unit sales of
electrical insulation products.
Cost of goods sold for the third quarter 1997 was 34.5% higher than the
same period in 1996 due primarily to higher sales volume and higher copper
prices. The Company's cost of goods sold as a percentage of net sales was
82.1% and 81.5% in the third quarter 1996 and 1997, respectively. The
cost of goods sold percentage decrease resulted primarily from the impact
of improved building wire product pricing, as well as lower per unit
manufacturing costs attributable to continued productivity programs,
including capital investments. Also, the operations of Triangle have been
integrated rapidly and effectively, and have resulted in substantial
improvements in productivity.
Selling and administrative expenses for the third quarter 1997 were 30.3%
above the comparable 1996 period, due primarily to incremental commission,
selling and warehouse expenses associated with Triangle. However, selling
and administrative expenses, as a percentage of sales, were 8.5% in the
third quarter of 1997, compared to 8.8% in the same period in 1996,
reflecting general and administrative economies of scale derived from
higher sales volume and improved building wire market conditions.
Interest expense in the third quarter 1997 was 10.4% below the comparable
period in 1996. The reduction in interest expense was due to lower debt
levels and lower rates of interest on the Company's outstanding debt. The
Company's average rate of interest for the third quarter 1997 declined
nearly 40 basis points from the third quarter 1996 due primarily to an
improved leverage ratio resulting in a reduced interest "spread" over
LIBOR, as defined, on the Company's senior credit facilities. Debt has
been reduced due to the application of the proceeds received in the
Offering, as well as a portion of the strong cash flows provided by
operating activities, partially offset by incremental borrowings to
finance the acquisition of Triangle. See "Liquidity, Capital Resources
and Financial Condition" within this section.
Income tax expense was 39.7% of pretax income in the third quarter 1997
compared with 42.5% for the same period in 1996 due to the increase in
pretax income reducing the impact of the amortization of excess cost over
net assets acquired, which is not deductible for income tax purposes.
Nine Months Ended September 30, 1997
Net sales for the first nine months of 1997 were $1,309.3 million or
34.3% higher than the comparable period in 1996 resulting from improved
sales volume and better product pricing. Copper prices were essentially
unchanged. During the first nine months of 1997, the average price per
pound of COMEX copper was $1.09 versus $1.08 for the comparable period in
1996. First nine months 1997 sales volume was at record levels, exceeding
the first nine months of 1996 by 29.0%. This growth in sales volume was
attributable to increased product demand across most of the Company's
16<PAGE>
served markets and Triangle. The Company's operating margin, expressed as
a percentage of net sales, improved significantly during the first nine
months of 1997 to 10.5% from 7.7% in the first nine months of 1996. The
improved operating margin resulted primarily from better conditions in the
Company's building wire markets, economies of scale derived from higher
sales volume and lower per unit manufacturing costs attributable to
continued productivity improvements.
Building wire sales for the first nine months of 1997 increased 76.4% as
compared to the same period in 1996 due primarily to improved sales volume
and product pricing (without regard to copper costs). A substantial
portion of the increased sales volume was attributable to Triangle while
the remaining improvement was the result of increased demand within the
served markets. Building wire demand has exhibited continued strength
during the first nine months of 1997 resulting from new non-residential
construction and, the Company believes, a sustained expansion of the
replacement and upgrade segment of the market. Building wire operating
margins during the first nine months of 1997 improved significantly over
the comparable period in 1996 due to the above-mentioned strength of
product demand and improved productivity as a result of Triangle.
Sales of magnet wire during the first nine months of 1997 improved from
the comparable 1996 period due primarily to higher sales volume. Sales
volume improvements were attributable to increased demand for magnet wire
in most served markets, particularly the transformer and generator
markets. The Company attributes most of this strong demand to growth in
the domestic economy and greater use of magnet wire for increased energy
efficiency in electric motors. Higher energy efficiency within electric
motors requires materially more magnet wire. Magnet wire operating
margins improved during the first nine months of 1997 as compared to the
first nine months of 1996 primarily due to lower production costs
associated with higher sales volume.
Communication wire sales for the first nine months of 1997 were above the
comparable period in 1996 due to higher OSP and datacom wire sales volume.
OSP sales volume for the first nine months of 1997 was 13.8% higher than
the comparable period in 1996 which the Company believes is attributable
to improved business conditions within the repair and replacement segment
of the copper communication cable market. First nine months 1997 datacom
wire sales volume increased 12.4% compared to the same period in 1996,
reflecting increased product demand for expanding markets such as LANs,
Internet connectivity and other premise applications. Communication wire
operating margins in the first nine months of 1997 declined from the
comparable period in 1996 due to the completion in 1996 of certain OSP
supply contracts which were not repeated in 1997 coupled with competitive
pricing pressure in high end datacom wire.
Industrial wire sales in the first nine months of 1997 were nearly double
those in the comparable period in 1996 due to an increase in sales volume
of which a substantial portion was attributable to Triangle. Industrial
wire operating margins for the first nine months of 1997 remained
essentially unchanged from the comparable period in 1996.
Automotive wire sales in the first nine months of 1997 approximated those
in the comparable period in 1996. United States and Canadian light
vehicle production for the first nine months of 1997 declined about two
percent from the same period last year, but is expected to approximate
1996 levels by year end. This business unit has had considerable success
17<PAGE>
expanding its customer sales base of automotive wire harness
manufacturers. Operating margins improved due to reduced overhead
expenses.
Other sales in the first nine months of 1997 decreased from the
comparable period in 1996. Distribution business unit sales of third-
party manufactured products, primarily within the motor repair segment,
declined due, in part, to unusually mild seasonal weather conditions which
necessitated fewer repair parts for motors, transformers and pumps.
Cost of goods sold for the first nine months of 1997 was 30.3% higher
than the same period in 1996 due primarily to higher sales volume. The
Company's cost of goods sold as a percentage of net sales was 83.4% and
80.9% in the first nine months of 1996 and 1997, respectively. The cost
of goods sold percentage decrease resulted primarily from the impact of
improved building wire product pricing as well as lower per unit
manufacturing costs attributable to continued productivity programs,
including capital investments. Also, the operations of Triangle have been
integrated rapidly and effectively, thereby driving substantial
improvements in productivity.
Selling and administrative expenses for the first nine months of 1997
were 30.8% above the comparable 1996 period due primarily to incremental
commission, selling and warehouse expenses associated with Triangle.
However, selling and administrative expenses, as a percentage of sales,
were 8.6% in the first nine months of 1997, compared to 8.9% for the same
period in 1996, reflecting general and administrative economies of scale
derived from higher sales volume and improved building wire market
conditions.
Interest expense in the first nine months of 1997 approximated the same
period in 1996. Incremental borrowings to finance the acquisition of
Triangle were offset by lower rates of interest on the Company's
outstanding debt and reduced debt levels due to the application of the
proceeds received from the Offering and a portion of the strong cash flows
provided by operating activities. The Company's average rate of interest
for the first nine months of 1997 declined 50 basis points from the
comparable period in 1996 due to an improved leverage ratio resulting in a
reduced interest "spread" over LIBOR, as defined, on the Company's senior
credit facilities.
Income tax expense was 39.8% of pretax income in the first nine months of
1997 compared with 43.2% for the same period in 1996 due to the increase
in pretax income reducing the impact of the amortization of excess cost
over net assets acquired, which is not deductible for income tax purposes.
Liquidity, Capital Resources and Financial Condition
General
The Company's aggregate notes payable to banks and long-term debt at
September 30, 1997 was $376.5 million, and its stockholder's equity was
$215.9 million. The resulting ratio of debt to total capitalization
improved to 64% from 75% at December 31, 1996. As of September 30, 1997,
the Company was in compliance with all covenants under the agreements
governing its outstanding indebtedness.
Credit Facilities and Lines of Credit
18<PAGE>
The Company maintains the following credit facilities: (i) a $370.0
million revolving credit agreement dated as of October 31, 1996, by and
among the Company, Essex International, the Lenders named therein, and The
Chase Manhattan Bank, as administrative agent (the "Revolving Credit
Agreement") which was amended and restated effective April 23, 1997 (the
"Restated Credit Agreement"); (ii) 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");
(iii) a $15.0 million (U.S. dollar) credit agreement by and between a
subsidiary of the Company and the Bank of Montreal (the "Canadian Credit
Agreement"); and (iv) bank lines of credit with various lending banks
which provide for unsecured borrowings for working capital of up to $50.0
million.
The Restated Credit Agreement, which terminates October 31, 2001,
provides for up to $370.0 million in revolving loans, subject to specified
percentages of eligible assets and reduced by borrowings under the
Canadian Credit Agreement and unsecured bank lines of credit ($8.0 million
and $35.0 million outstanding, at September 30, 1997, respectively). The
Restated Credit Agreement also provides a $25.0 million letter of credit
subfacility. Outstanding borrowings bear floating rates of interest, at
the Company's option, at bank prime plus 0.50% or a reserve adjusted
Eurodollar rate ("LIBOR") plus 1.50%. The spreads over the prime and
LIBOR rates can be reduced to 0% and .375%, respectively, if a certain
specified leverage ratio is achieved. Based upon the specified leverage
ratio at September 30, 1997, the Company's floating rate of interest for
borrowings under the Restated Credit Agreement is LIBOR plus 0.375%. The
average commitment fees during the revolving loan period are between
0.125% to 0.375% of the average daily unused portion of the available
credit based upon certain financial ratios. Indebtedness under the
Restated Credit Agreement is guaranteed by Essex International 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 of the Company and its subsidiaries. The
Company's ability to borrow under the Restated Credit Agreement is
restricted by the financial covenants contained therein as well as by
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"). As of September 30, 1997, the Company had
$147.2 million of undrawn capacity based upon a borrowing base of $304.4
million, reduced by outstanding borrowings under: (i) the Restated Credit
Agreement ($114.2 million), (ii) unsecured bank lines of credit ($35.0
million) and (iii) the Canadian Credit Agreement ($8.0 million).
The Sale and Leaseback Agreement provided $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.
As of September 30, 1997, $8.0 million was outstanding under the Canadian
Credit Agreement and denoted as notes payable to banks in the Company's
Consolidated Balance Sheets. Borrowings are secured by the subsidiary's
accounts receivable. Interest rates for borrowings under the Canadian
19<PAGE>
Credit Agreement are based upon Canadian market rates for banker's
acceptances with spreads similar to the Restated Credit Agreement. The
Canadian Credit Agreement terminates on May 30, 1998, although it may be
extended for successive one-year periods upon the mutual consent of the
subsidiary and the Bank of Montreal.
The Company had $35.0 million outstanding of unsecured bank lines of
credit as of September 30, 1997. Such amount is denoted as notes payable
to banks in the Company's Consolidated Balance Sheets. These lines of
credit bear interest at rates subject to agreement between the Company and
the lending banks.
Cash Flow and Working Capital
In general, the Company requires liquidity for working capital, capital
expenditures, debt repayments, interest and taxes. Of particular
significance to the Company are its working capital requirements which
increase whenever it experiences strong incremental demand in its business
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
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 the remainder of 1997 and for 1998.
Operating Activities. Net cash provided by operating activities in the
first nine months of 1997 was $64.5 million, compared to $25.0 million
during the same period in 1996. The increase in cash provided by
operating activities was primarily the result of higher net income and
accrued liabilities, partially offset by higher accounts receivable and
inventories associated with the Company's sales growth.
Investing Activities. Capital expenditures of $23.0 million in the first
nine months of 1997 were $7.3 million more than the comparable period in
1996. Capital expenditures in 1997 are expected to be approximately 50%
above 1996 levels and will be used to improve manufacturing efficiency,
support the newly acquired Triangle facilities and equipment and expand
capacity. At September 30, 1997, approximately $12.9 million was
committed to outside vendors for capital expenditures. The Company sold
an idle plant during 1997 realizing $2.7 million in net proceeds. The
Restated Credit Agreement imposes limitations on capital expenditures,
business acquisitions and investments.
Financing Activities. The net proceeds of the Offering, after
underwriting commissions and other associated expenses, were approximately
$46.0 million, of which $29.5 million was used to repay the senior
unsecured note agreement dated as of April 17, 1995, by and among the
Company, Essex International, as guarantor, the lenders named therein and
The Chase Manhattan Bank, as administrative agent (the "Term Loan"). The
remaining proceeds were applied to the Company's revolving credit
facility. The net proceeds were received from Essex International in the
form of an intercompany transfer.
Considerations Relating to Essex International's Cash Obligations
Essex International is a holding company with no operations and virtually
20<PAGE>
no assets other than its ownership of all the outstanding common stock of
the Company. All such stock is pledged, however, to the lenders under the
Restated Credit Agreement. Accordingly, Essex International's ability to
meet its cash obligations is dependent on the Company's ability to pay
dividends, to loan, or otherwise advance or transfer funds to Essex
International in amounts sufficient to service Essex International's cash
obligations.
Essex International expects that it may receive certain cash payments
from the Company from time to time to the extent cash is available and to
the extent it is permitted under the terms of the Restated Credit
Agreement and the Senior Note Indenture. Such payments may include (i) an
amount necessary under the tax sharing agreement between Essex
International and the Company to enable Essex International 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; and
(iii) certain other amounts to meet ongoing expenses of Essex
International (such amounts are considered to be immaterial both
individually and in the aggregate, however, because Essex International
has no operations, other than those conducted through the Company, or
employees thereof). To the extent Essex International makes any such
payments, it will do so out of operating cash flow, borrowings under the
Restated Credit Agreement or other sources of funds it may obtain in the
future subject to the terms of the Restated Credit Agreement and the
Senior Note Indenture.
Long-Term Liquidity Considerations
The Senior Notes mature in 2003 and at the option of the Company may be
redeemed commencing in May 1998, in whole or in part, at redemption prices
ranging from 103.75% of principal in 1998 to 100% in 2001. 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 the Sale and Leaseback Agreement.
The Company's operations involve the use, disposal and cleanup of certain
substances regulated under environmental protection laws. The Company has
accrued $0.9 million for environmental remediation and restoration costs.
The accrual is based upon management's 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, if any, will not have a
material adverse effect on its financial position, results of operations
or cash flows.
General Economic Conditions and Inflation
Although net sales are heavily influenced by the price of copper, the
Company's major raw material, the Company's profitability is generally not
significantly affected by changes in copper prices because the Company
generally has been able to pass on its cost of copper to its customers and
21<PAGE>
the Company attempts to match its copper purchases with its production
requirements, thereby minimizing copper cathode and rod inventories. In
the short term, however, pronounced changes in the price of copper may
tend to affect gross profits within the building wire product line because
such changes affect cost of goods sold more quickly than those changes can
be reflected in the pricing of building wire products.
The Company believes that it is only affected by inflation to the extent
that the economy in general is affected. Should inflationary pressures
drive costs higher, the Company believes that general industry price
increases would sustain operating results, although there can be no
assurance that this will be the case. 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,
broad product line and its strategy of attempting to match its copper
purchases with its needs.
Information Regarding Forward Looking Statements
This report contains various forward-looking statements and information
that are based on management's belief as well as assumptions made by and
information currently available to management. Although the Company
believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations
will prove to have been correct. Such statements are subject to certain
risks, uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those expected. Among
the key factors that may have a direct bearing on the Company's operating
results are fluctuations in the economy, demand for the Company's
products, the impact of price competition and fluctuations in the price of
copper.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Item Exhibit Index
---- -------------
4.9 Amendment No. 1 dated as of June 1, 1997 to the
Agreement
and Lease between Mellon Leasing Corporation and
Essex
Group, Inc.
4.10 Amendment No. 2 dated as of September 2, 1997 to the
Agreement and Lease between Mellon Leasing
Corporation
and Essex Group, Inc.
27.1 Financial Data Schedule.
22<PAGE>
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed by the Company during the
quarter
ended September 30, 1997.
23<PAGE>
SIGNATURE
Pursuant to the requirements 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.
(Registrant)
November 7, 1997 /s/ David A. Owen
---------------------------------
David A. Owen
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
24<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q as
of September 30, 1997 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,587
<SECURITIES> 0
<RECEIVABLES> 234,895
<ALLOWANCES> 5,890
<INVENTORY> 225,293
<CURRENT-ASSETS> 472,233
<PP&E> 406,765
<DEPRECIATION> 129,428
<TOTAL-ASSETS> 883,449
<CURRENT-LIABILITIES> 268,926
<BONDS> 331,075
0
0
<COMMON> 0
<OTHER-SE> 215,881
<TOTAL-LIABILITY-AND-EQUITY> 883,449
<SALES> 1,309,275
<TOTAL-REVENUES> 1,309,275
<CGS> 1,059,504
<TOTAL-COSTS> 1,059,504
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,836
<INCOME-PRETAX> 107,615
<INCOME-TAX> 42,800
<INCOME-CONTINUING> 64,815
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,815
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
AMENDMENT NO. 1
Amendment No. 1 dated as of June 1, 1997 (this "Amendment") between
MELLON LEASING CORPORATION, a Pennsylvania corporation and formerly Mellon
Financial Services Corporation #3, as Lessor ("Lessor"), and ESSEX GROUP,
INC., a Michigan corporation, as Lessee ("Lessee"), to the AGREEMENT AND
LEASE dated as of April 12, 1995 (the "Agreement"), between Lessor and
Lessee;
WITNESSETH THAT:
WHEREAS, Lessee has requested that Lessor agree to amend the
Agreement is hereinafter provided;
WHEREAS, Lessor is willing so to amend the Agreement upon and
subject to the terms and conditions hereinafter provided;
WHEREAS, unless otherwise defined herein or unless the context
otherwise requires, terms defined in the Agreement shall have the meanings
therein set forth;
NOW, THEREFORE, the parties hereto, in consideration of the premises
and their mutual covenants hereinafter set forth and intending to be
legally bound, hereby agree as follows:
1. Amendments. Section (b)(iv) of Annex 1 to the Lease Schedule
is hereby amended in its entirety to read in its entirety as set forth
below:
Applicable Margins.
The Applicable Margin for each interest rate Option for any day
shall mean the percentage set forth below opposite the relevant Level:
Level Euro-Rate Option Base Rate Option
I 3/4% 3/8%
II 7/8% 3/8%
III 1% 3/8%
IV 1 1/8% 3/8%
V 1 1/2% 1/2%
VI 1 7/8% 7/8%
As used herein, "Level" shall mean, as of any date of determination,
the level set forth below then in effect, as determined in accordance with
the following provisions:
Level Leverage Ratio
I Less than or equal to 2.0 to 1.0
II Less than or equal to 2.5 to 1.0
but greater than 2.0 to 1.0
III Less than or equal to 3.0 to 1.0
but greater than 2.5 to 1.0
IV Less than or equal to 3.5 to 1.0
but greater than 3.0 to 1.0<PAGE>
V Less than or equal to 4.0 to 1.0
but greater than 3.5 to 1.0
VI Greater than 4.0 to 1.0
For the purposes of this definition, the Level shall be determined as at
the end of each of the first three quarterly periods of each fiscal year
of Holdings and as at the end of each fiscal year of Holdings, for the
period (a "Level Test Period") of four consecutive fiscal quarters ending
on the last day of such quarterly period of fiscal year, as the case may
be, based on the relevant financial statements delivered pursuant to
Section 7.1; changes in the Level shall become effective on the date on
which such financial statements are delivered to Lessor (but in any event
not later than the 50th day after the end of each of the first three
quarterly periods of each fiscal year or the 105th day after the end of
each fiscal year, as the case may be) and shall remain in effect until the
next change to be effected pursuant to this definition, provided, that, if
any financial statements referred to above are not delivered within the
time periods specified above, then, until such financial statements are
delivered, the Level as at the end of the fiscal period that would have
been covered thereby shall be deemed to be Level VI.
2. Representations and Warranties. Lessee hereby represents and
warrants to Lessor that the representations and warranties of Lessee set
forth in Section 5.2 of the Agreement and true and correct on and as of
the date hereof except that for purposes of this Section 2, each reference
in Section 5.2 to "this Agreement" shall mean the Agreement as amended by
this Amendment, each such reference to "December 31, 1993" shall mean
"December 31, 1995", each such reference to "December 31, 1994" shall mean
"December 31, 1996" and each such reference to "Closing Date" shall mean
"Amendment Closing Date" as hereinafter defined.
3. Conditions Precedent. This Amendment shall be effective as of
June 1, 1997 upon satisfaction of the following conditions (the dates upon
which such conditions are satisfied being herein called the "Amendment
Closing Date"):
a. Delivery by Lessee to Lessor of a certificate of a
Responsible Officer to the effect that (i) the representations and
warranties of Lessee set forth in Section 2 hereof are true and correct on
and as of the Amendment Closing Date as though made on such Date and (ii)
on such Date no Event of Default or Unmatured Default has occurred and is
continuing; and
b. Delivery by Lessee to Lessor of an opinion of counsel to
Lessee as to the matters set forth in Sections 5.2(a) (as to Lessee and
Michigan and Indiana only), 5.2(b) (second sentence only) and 5.2(c) of
the Agreement as restated in Section 2 hereof.
4. Miscellaneous. The parties hereto hereby confirm that the
Agreement, as amended hereby, does and shall remain in full force and
effect.
WITNESS the date execution hereof as of the day and year first above
written.
MELLON LEASING CORPORATION,
Lessor
2<PAGE>
By /s/ Michael R. Langrecker
Title: Vice President
ESSEX GROUP, INC., Lessee
By /s/ David A. Owen
Title: Executive Vice President, CFO
3<PAGE>
AMENDMENT NO. 2
Amendment No. 2 dated as of September 2, 1997 (this "Amendment")
between MELLON LEASING CORPORATION, a Pennsylvania corporation and
formerly Mellon Financial Services Corporation #3, as Lessor ("Lessor"),
and ESSEX GROUP, INC., a Michigan corporation, as Lessee ("Lessee"), to
the AGREEMENT AND LEASE dated as of April 12, 1995, as amended to date
(the "Agreement"), between Lessor and Lessee;
WITNESSETH THAT:
WHEREAS, Lessee has requested that Lessor agree to amend the
Agreement is hereinafter provided;
WHEREAS, Lessor is willing so to amend the Agreement upon and
subject to the terms and conditions hereinafter provided;
WHEREAS, unless otherwise defined herein or unless the context
otherwise requires, terms defined in the Agreement shall have the meanings
therein set forth;
NOW, THEREFORE, the parties hereto, in consideration of the premises
and their mutual covenants hereinafter set forth and intending to be
legally bound, hereby agree as follows:
1. Amendments. Section 14.1(j) of the Agreement is hereby
amended in its entirety to read in its entirety as set forth below:
(j) (i) The Bessemer Group in the aggregate shall cease to
beneficially own (within the meaning of Rule 13d-3 of the Securities
and Exchange commission), directly or indirectly, securities
representing at least 20% on a fully diluted basis of the ordinary
voting power for the election of directors of Holdings; (ii) any
Person or group (within the meaning of Rule 13d-5 of the Securities
and Exchange Commission), other than any Person or group consisting
solely of one or more members of the Bessemer Group, Investors and
directors, officers or employees (or former directors, officers or
employees) of Holdings or any of its Subsidiaries, shall, directly
or indirectly, have the power to vote or direct the voting of
securities representing a greater percentage of the ordinary voting
power for the election of directors of Holdings than securities then
beneficially owned by the Bessemer Group; (iii) any Person or group,
other than any Person or group consisting solely of members of the
Bessemer Group, Investors and directors, officers or employees (or
former directors, officers or employees) of Holdings or any of its
subsidiaries, shall have acquired, by contract or otherwise, the
power to exercise directly or indirectly a controlling influence
over the management or policies of Holdings; (iv) Holdings shall
cease to own and control, of record and beneficially, directly, 100%
of each class of outstanding Capital Stock of Lessee free and clear
of all Liens (except Liens created by the Holdings Pledge
Agreement); (v) Lessee shall issue any Capital Stock (or any
security convertible into any of its Capital Stock) that is not
pledged to Administrative Agent for the benefit of the lenders, or
(vi) at any time that any Senior Notes are outstanding, a "change of
Control" (as defined in the Senior Note Indenture) shall occur (for
purposes of this Section 14.1(j), the terms "Bessemer Group",
"Liens", "Capital Stock", "Investors", "Holdings Pledge Agreement",
"Senior Notes", "Senior Note Indenture", "Administrative Agent" and<PAGE>
"Lenders" shall have the respective meanings assigned to such terms
in the Credit Agreement);
2. Representations and Warranties. Lessee hereby represents and
warrants to Lessor that the representations and warranties of Lessee set
forth in Section 5.2 of the Agreement and true and correct on and as of
the date hereof except that for purposes of this Section 2, each reference
in Section 5.2 to "this Agreement" shall mean the Agreement as amended by
this Amendment, each such reference to "December 31, 1993" shall mean
"December 31, 1995", each such reference to "December 31, 1994" shall mean
"December 31, 1996" and each such reference to "Closing Date" shall mean
"Amendment Closing Date" as hereinafter defined.
3. Conditions Precedent. This Amendment shall be effective as of
September 2, 1997 upon satisfaction of the following conditions (the date
upon which such condition is satisfied being herein called the "Amendment
Closing Date"):
a. Delivery by Lessee to Lessor of a certificate of a
Responsible Officer to the effect that (i) the representations and
warranties of Lessee set forth in Section 2 hereof are true and correct on
and as of the Amendment Closing Date as though made on such Date and (ii)
on such Date no Event of Default or Unmatured Default has occurred and is
continuing.
4. Miscellaneous. The parties hereto hereby confirm that the
Agreement, as amended hereby, does and shall remain in full force and
effect.
WITNESS the date execution hereof as of the day and year first above
written.
MELLON LEASING CORPORATION,
Lessor
By /s/ Michael R. Langrecker
Title: Vice President
ESSEX GROUP, INC., Lessee
By /s/ David A. Owen
Title: Executive Vice President, CFO
2<PAGE>
