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 March 31, 1996
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 1-10211
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BCP/ESSEX HOLDINGS INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3496934
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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 March 31, 1996
-------------- ----------------------------
Class A, par value $.01 35,333,413<PAGE>
BCP/ESSEX HOLDINGS INC.
FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED MARCH 31, 1996
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations . . . . . . . . . . . 5
Consolidated Statements of Cash Flows . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . 8
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition . . . . . . . 13
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 20
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BCP/ESSEX HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
In Thousands of Dollars, Except Per Share Data (Unaudited)
--------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . $ - $ 3,195
Accounts receivable (net of allowance of
$4,064 and $3,930) . . . . . . . . . . . . . . . . . 165,909 154,584
Inventories . . . . . . . . . . . . . . . . . . . . . 187,311 166,076
Other current assets . . . . . . . . . . . . . . . . . 13,820 10,545
-------- --------
Total current assets . . . . . . . . . . . . . 367,040 334,400
Property, plant and equipment (net of accumulated 267,483 270,546
depreciation of $91,542 and $84,341) . . . . . . . .
Excess of cost over net assets acquired (net of
accumulated amortization of $14,252 and $13,221) . . 128,812 129,943
Other intangible assets and deferred costs (net of
accumulated amortization of $3,906 and $3,102) . . . 9,393 9,187
Other assets . . . . . . . . . . . . . . . . . . . . . 2,454 1,987
-------- --------
$775,182 $746,063
======== ========
See Notes to Consolidated Financial Statements
3<PAGE>
BCP/ESSEX HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS - Continued
March 31, December 31,
1996 1995
In Thousands of Dollars, Except Per Share Data (Unaudited)
--------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks . . . . . . . . . . . . . . . . $ 14,900 $ 11,760
Current portion of long-term debt . . . . . . . . . . 11,576 24,734
Accounts payable . . . . . . . . . . . . . . . . . . . 59,461 66,797
Accrued liabilities . . . . . . . . . . . . . . . . . 50,782 44,598
Deferred income taxes . . . . . . . . . . . . . . . . 15,504 15,345
-------- --------
Total current liabilities . . . . . . . . . . . 152,223 163,234
Long-term debt . . . . . . . . . . . . . . . . . . . . 422,122 388,016
Deferred income taxes . . . . . . . . . . . . . . . . 65,618 66,809
Other long-term liabilities . . . . . . . . . . . . . 10,888 10,081
Redeemable preferred stock . . . . . . . . . . . . . . 50,906 48,820
Common stock subject to put:
1,680,787 shares issues and outstanding
at March 31, 1996 and December 31, 1995 . . . . . . 4,803 4,803
Other stockholders' equity:
Common stock, par value $.01 per share; authorized
150,000,000 shares; 33,652,626 and 33,637,415 shares
issued and outstanding at March 31, 1996 and
December 31, 1995, respectively . . . . . . . . . . . 336 336
Additional paid in capital . . . . . . . . . . . . . . 85,543 85,611
Carryover of Predecessor basis . . . . . . . . . . . . (15,259) (15,259)
Retained earnings (deficit) . . . . . . . . . . . . . 2 (6,388)
-------- --------
Total other stockholders' equity . . . . . . . 68,622 64,300
-------- --------
$775,182 $746,063
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
4<PAGE>
BCP/ESSEX HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period
Ended March 31,
---------------------------
In Thousands of Dollars, Except Per Share Data 1996 1995
-------------------------------------------------------------------------
REVENUES:
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . $ 308,410 $289,649
Interest income . . . . . . . . . . . . . 39 206
Other income . . . . . . . . . . . . . . . 239 859
-------- --------
308,688 290,714
-------- --------
COSTS AND EXPENSES:
Cost of goods sold . . . . . . . . . . . . 258,651 247,223
Selling and administrative . . . . . . . . 28,148 21,761
Interest expense . . . . . . . . . . . . . 10,167 15,332
Other expense . . . . . . . . . . . . . . . 332 127
-------- --------
297,298 284,443
-------- --------
Income before income taxes . . . . . . . . . 11,390 6,271
Provision for income taxes . . . . . . . . . 5,000 3,200
-------- --------
Net income . . . . . . . . . . . . . . . . . $ 6,390 $ 3,071
======== ========
Net income . . . . . . . . . . . . . . . . . $ 6,390 $ 3,071
Preferred stock dividend requirement . . . . (1,907) (1,646)
Preferred stock accretion . . . . . . . . . . (179) (174)
-------- --------
Net income applicable to common stock . . . . $ 4,304 $ 1,251
======== ========
Net income per common and common $ .11 $ .03
equivalent share . . . . . . . . . . . . . . ===== =====
</TABLE>
See Notes to Consolidated Financial Statements
5<PAGE>
BCP/ESSEX HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period
Ended March 31,
------------------------
In Thousands of Dollars 1996 1995
-------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . $ 6,390 $ 3,071
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . 8,431 8,168
Non cash interest expense . . . . . . . . . . . . . 751 10,234
Non cash pension expense . . . . . . . . . . . . . 613 642
Provision for losses on accounts receivable . . . . 330 138
Provision (benefit) for deferred income taxes . . . (1,032) 335
(Gain) loss on disposal of property, plant
and equipment . . . . . . . . . . . . . . . . . 145 (53)
Changes in operating assets and liabilities:
Increase in accounts receivable . . . . . . . . . (11,599) (8,298)
Increase in inventories . . . . . . . . . . . . . (15,961) (20,233)
Decrease in accounts payable and
accrued liabilities . . . . . . . . . . . . . . (1,364) (9,970)
Net (increase) decrease in other assets
and liabilities . . . . . . . . . . . . . . . . (2,873) 9,125
-------- --------
NET CASH USED FOR
OPERATING ACTIVITIES . . . . . . . . . . . . . . (16,169) (6,841)
-------- --------
INVESTING ACTIVITIES
Additions to property, plant and equipment . . . . . (4,448) (4,205)
Proceeds from disposal of property, plant
and equipment . . . . . . . . . . . . . . . . . . . 16 881
Acquisitions and other investments . . . . . . . . . (6,682) (159)
Issuance of equity interest in a subsidiary . . . . - 1,063
-------- ---------
NET CASH USED FOR INVESTING ACTIVITIES . . . . . . . (11,114) (2,420)
-------- --------
See Notes to Consolidated Financial Statements
6<PAGE>
BCP/ESSEX HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
Three Month Period
Ended March 31,
------------------------
In Thousands of Dollars 1996 1995
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FINANCING ACTIVITIES
Proceeds from long-term debt . . . . . . . . . . . . 70,200 -
Repayment of long-term debt . . . . . . . . . . . . (49,252) -
Proceeds from notes payable to banks . . . . . . . . 117,115 -
Repayment of notes payable to banks . . . . . . . . (113,975) -
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . 24,088 -
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . (3,195) (9,261)
Cash and cash equivalents at beginning of period . . 3,195 16,938
-------- --------
Cash and cash equivalents at end of period . . . . . $ - $ 7,677
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
7<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In Thousands of Dollars
-----------------------
NOTE 1 BASIS OF PRESENTATION
The unaudited interim consolidated financial statements contain all
adjustments, consisting of normal recurring adjustments, which are, in the
opinion of the management of BCP/Essex Holdings Inc. ("Holdings"),
necessary to present fairly the consolidated financial position of
Holdings as of March 31, 1996, and the consolidated results of operations
and cash flows of Holdings for the three month periods ended March 31,
1996 and 1995, 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 Holdings' Annual Report on Form 10-K filed with the Securities
and Exchange Commission for the year ended December 31, 1995.
NOTE 2 INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------- -------------
<S> <C> <C>
Finished goods . . . . . . . . . . . . . $167,432 $146,821
Raw materials and work in process . . . . 42,678 52,366
-------- --------
210,110 199,187
LIFO reserve . . . . . . . . . . . . . . (22,799) (33,111)
-------- --------
$187,311 $166,076
======== ========
</TABLE>
Holdings 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 Holdings' inventories are copper, purchased
materials, direct labor and manufacturing overhead. Inventories valued
using the LIFO method amounted to $176,234 and $161,449 at March 31, 1996
and December 31, 1995, respectively.
8<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
(Unaudited)
In Thousands of Dollars
-----------------------
NOTE 3 DEBT ARRANGEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------- -------------
<S> <C> <C>
10% Senior notes . . . . . . . . . . . $200,000 $200,000
Revolving loan . . . . . . . . . . . . 172,000 135,000
Term loan . . . . . . . . . . . . . . . 38,573 54,000
Lease obligation . . . . . . . . . . . 23,125 23,750
-------- --------
433,698 412,750
Less current portion . . . . . . . . 11,576 24,734
-------- --------
$422,122 $388,016
======= ========
</TABLE>
Essex Bank Financing
In April 1995, in connection with the redemption (the "Redemption") of
all of Holdings' outstanding 16% Senior Discount Debentures due 2004 (the
"Debentures"), Essex Group, Inc. ("Essex") terminated its previous credit
agreement (the "Former Credit Agreement") and entered into three new
facilities: (i) a $260,000 revolving credit agreement, dated as of April
12, 1995, by and among Essex, Holdings, the Lenders named therein, and
Chemical Bank, as agent (the "Essex Revolving Credit Agreement"); (ii) a
$60,000 senior unsecured note agreement, dated as of April 12, 1995, by
and among Essex, Holdings, as guarantor, the Lenders named therein, and
Chemical Bank, as administrative agent (the "Essex Term Loan", together
with the Essex Revolving Credit Agreement, the "Essex Credit Facilities");
and (iii) a $25,000 agreement and lease, dated as of April 12, 1995, by
and between Essex and Mellon Financial Services Corporation #3 (the "Essex
Sale and Leaseback Agreement"). Essex 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, Essex borrowed the full amount available under the Essex
Term Loan and the Essex Sale and Leaseback Agreement. These funds,
together with available cash and borrowings under the Essex 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
9<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
(Unaudited)
In Thousands of Dollars
-----------------------
its outstanding Debentures at 100% of their principal amount of $272,850
on May 15, 1995.
The Essex 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. Essex' ability to
borrow under the Essex Revolving Credit Agreement is restricted by the
financial covenants contained therein as well as those contained in the
Essex Term Loan and to certain debt limitation covenants contained in the
indenture under which the 10% Senior Notes due 2003 (the "Essex Senior
Notes") were issued (the "Essex Senior Note Indenture"). The Essex
Revolving Credit Agreement terminates five years from its effective date
of April 12, 1995. Essex Revolving Credit Agreement loans bear floating
rates of interest, at Essex' 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 certain specified financial conditions. Indebtedness under the Essex
Revolving Credit Agreement is guaranteed by Holdings and all of Essex'
subsidiaries, and is secured by a pledge of the capital stock of Essex and
its subsidiaries and by a first lien on substantially all assets.
The Essex Term Loan provides for an aggregate of $60,000 in term loans,
the last payment of which is due in May 2000. Borrowings under the Essex
Term Loan bear floating rates of interest at bank prime plus 2.75% or
LIBOR plus 3.75%. Principal payments on the term loans will be made in 20
equal quarterly installments, subject to the loan's excess cash provision,
commencing August 15, 1995. The Essex 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 required
Essex to repay $12,427 of the term loan. This payment was made in March
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 Essex Sale and Leaseback Agreement provides $25,000 for the sale and
leaseback of certain of Essex' fixed assets. The Essex Sale and Leaseback
Agreement has a seven-year term expiring in May 2002. The principal
component of the rental is to be paid quarterly, with the amount of each
of the first 27 payments to be equal to 2.5% of lessor's cost of the
equipment, and the balance due at the final payment. The interest
component is to be paid on the unpaid principal balance and is to be
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.
Essex 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).
10<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
(Unaudited)
In Thousands of Dollars, Except Per Share Data
----------------------------------------------
In addition, Essex also has uncommitted bank lines of credit which
provide for unsecured borrowings for working capital of up to $25,000, of
which $14,900 and $11,760 were outstanding at March 31, 1996 and December
31, 1995, respectively. Amounts outstanding under these lines of credit
are denoted as notes payable to banks in the Consolidated Balance Sheets
and bear interest at rates subject to agreement between Essex and the
lending banks. At March 31, 1996 and December 31, 1995, such rates of
interest averaged 6.3% and 6.7%, respectively.
Essex Senior Notes
In May 1993, Essex issued $200,000 aggregate principal amount of its
Essex Senior Notes which bear interest at 10% per annum, payable
semiannually and are due in May 2003. The Essex Senior Notes rank pari
passu in right of payment with all other senior indebtedness of Essex. To
the extent that any other senior indebtedness of Essex is secured by liens
on the assets of Essex, the holders of such secured senior indebtedness
will have a claim prior to any claim of the holders of the Essex Senior
Notes as to those assets.
Holdings Senior Discount Debentures
In May 1989, Holdings (then known as MS/Essex Holdings Inc.) issued
$342,000 aggregate principal amount ($135,117 aggregate proceeds amount)
of its Debentures. The Debentures accreted to their full face value (an
aggregate principal amount of $272,850) on May 15, 1995. On May 15, 1995,
Holdings redeemed all of its outstanding Debentures at 100% of their
principal amount with cash received from Essex in the form of a cash
dividend and repayment of a portion of an intercompany liability totalling
$272,850.
NOTE 4 HOLDINGS PREFERRED STOCK AND WARRANTS
At March 31, 1996, Holdings had outstanding 2,110,049 shares of 15%
Series B Cumulative Redeemable Exchangeable Preferred Stock, Liquidation
Preference $25 Per Share, (the "Series B Preferred Stock") and 5,666,738
warrants to purchase an equivalent number of shares of common stock of
Holdings at a per share exercise price of approximately $2.86. The
accreted balance of the Series B Preferred Stock was $50,906 at March 31,
1996. 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 Essex 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 Essex Senior Note
11<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
(Unaudited)
In Thousands of Dollars
-----------------------
Indenture, Holdings would be required, among other things, to seek the
consent of the holders of the Essex Senior Notes, refinance the Essex
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 Essex Credit Facilities and the Essex
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 Essex Senior Note Indenture, Holdings would be required,
among other things, to seek the consent of the holders of the Essex Senior
Notes, refinance the Essex Senior Notes after they become redeemable in
May 1998, or obtain funds through the sale of equity securities.
NOTE 5 CONTINGENT LIABILITIES
There are various environmental claims and legal proceedings pending
against Essex which have arisen out of the ordinary course of its
business. Pursuant to the February 29, 1988 acquisition of Essex by
Holdings from United Technologies Corporation ("UTC"), UTC agreed to
indemnify Essex 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 Essex prior to February 29, 1988 or
from conditions or circumstances existing at February 29, 1988. Except
for certain matters relating to permit compliance, Essex 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 Holdings' 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, Essex 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. Essex 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
during the current quarter, in the opinion of management, the ultimate
cost to Essex, exceeding amounts provided, will not materially affect the
consolidated financial position or results of operations.
12<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Introduction
In October 1992, MS/Essex Holdings Inc. ("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. ("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 Essex. As a result of the Merger, the
stockholders of BE became stockholders of Holdings. Holdings is the
holding company of Essex. The principal asset of Holdings is all of the
outstanding common stock of Essex. Holdings acquired Essex from United
Technologies Corporation ("UTC") in February 1988.
Essex, founded in Detroit, Michigan in 1930, is engaged in one principal
line of business, the development, production and marketing of electrical
wire and cable and electrical insulation products. Among Essex' 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 wire for
applications in appliances, construction and recreational vehicles and
insulation products including mica paper and mica-based composites.
Results of Operations
Three Month Period Ended March 31, 1996
Net sales for the first quarter 1996 were $308.4 million or 6.5% higher
than the comparable period in 1995, resulting primarily from improved
sales volume, partially offset by lower copper prices, Essex' principal
raw material. During the first quarter 1996, the average price of copper
on the New York Commodity Exchange, Inc. ("COMEX") was 14.5% lower than
the comparable period in 1995. Copper costs are generally passed onto
customers through product pricing. First quarter 1996 sales volumes were
at record levels with respect to historical first quarter operating
performance and exceeded the first quarter 1995 by 4.5%. Sales volume
improvements resulted primarily from increased distribution sales
attributable to the distribution operations acquired in September 1995 and
increased demand for Essex' building and communication wire products.
Building wire sales for the first quarter 1996, despite an increase in
sales volume, declined as compared to the first quarter 1995 due primarily
to a decrease in copper prices and other pricing conditions. Building
wire market prices have experienced very competitive market conditions
caused primarily by excess industry capacity. Sales of magnet wire during
the first quarter 1996 declined from the comparable 1995 period due to
declining copper prices and a change in product mix, partially offset by
improved sales volumes. Sales volume improvements were attributable to
increased demand for magnet wire in the electric motor market as well as
increased sales to distributors. Voice and data communication wire sales
for the first quarter 1996 increased over the comparable period in 1995
13<PAGE>
due to increased domestic sales volume and improved product pricing.
Automotive wire sales in the first quarter 1996 were below the comparable
1995 period due to a decrease in copper prices and reduced sales volumes.
Cost of goods sold for the first quarter 1996 was 4.6% higher than the
same period in 1995 due primarily to higher sales volumes partially offset
by lower copper prices. Essex' cost of goods sold as a percentage of net
sales was 83.9% and 85.4% in the first quarter 1996 and 1995,
respectively. The cost of goods sold percentage decrease resulted
primarily from the impact of lower copper and other material costs as well
as lower manufacturing costs attributable to continued capital investments
and higher manufacturing volumes. These lower costs were partially offset
by competitive pricing conditions within the building wire market.
Selling and administrative expenses for the first quarter 1996 were 29.4%
above the comparable 1995 period, due primarily to increased overhead
expenses attributable to the distribution operations acquired in September
1995.
Interest expense in the first quarter 1996 was 33.7% lower than the same
period in 1995 due primarily to the redemption (the "Redemption") on May
15, 1995 of all of Holdings' outstanding Senior Discount Debentures due
2004 (the "Debentures"). The Debentures, which bore interest at 16% per
annum, were refinanced with bank debt under Essex' new credit facilities
carrying significantly lower rates of interest. See "Liquidity, Capital
Resources and Financial Condition" under this caption.
Income tax expense was 43.9% of pretax income in the first quarter 1996
compared with 51.0% for the same period in 1995. The effective income tax
rate of Holdings 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.
Liquidity, Capital Resources and Financial Condition
The Essex debt agreements place certain restrictions on Holdings' ability
to obtain funds from Essex. Consequently, the following discussion
presents liquidity, capital resources and financial condition of Holdings
followed by a presentation of the matters pertaining to Essex. As of
March 31, 1996, Essex was in compliance with all covenants under the
agreements governing their outstanding indebtedness. Liquidity and
capital resources continue to be adequate.
Holdings
Holdings is a holding company with no operations and has virtually no
assets other than its ownership of the outstanding common stock of Essex.
All of such stock is pledged, however, to the lenders under the Essex
Revolving Credit Agreement. Accordingly, Holdings' ability to meet its
cash obligations is dependent on Essex' ability to pay dividends, to loan,
or otherwise advance or transfer funds to Holdings in amounts sufficient
to service Holdings' obligations.
Holdings' financial position at March 31, 1996 was highly leveraged.
Holdings' aggregate notes payable to banks plus long-term debt was $448.6
million and the total of other stockholders' equity ($68.6 million), stock
subject to put ($4.8 million) and Series B Cumulative Redeemable
Exchangeable Preferred Stock ($50.9 million) was $124.3 million at March
14<PAGE>
31, 1996. The resulting ratio of debt to stockholders' equity of
approximately 3.6 to 1 was comparable to the ratio at December 31, 1995.
In connection with the Acquisition and Merger in 1992, BE received $31.6
million proceeds from the issuance of preferred stock and warrants to
purchase BE common stock. Following the Merger, the preferred stock
became Series A Cumulative Redeemable Exchangeable Preferred Stock,
liquidation preference $25 per share (the "Series A Preferred Stock"), of
Holdings and the warrants became warrants to purchase an equivalent number
of shares of common stock of Holdings at an exercise price of
approximately $2.86.
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,
liquidation preference $25 per share (the "Series B Preferred Stock"), for
all of its outstanding shares of 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.
At March 31, 1996, Holdings had outstanding 2,110,049 shares of Series B
Preferred Stock. The aggregate liquidation preference of the Series B
Preferred Stock was $52.8 million at March 31, 1996. 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 Essex 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 Essex Senior Note Indenture,
Holdings would be required, among other things, to seek the consent of the
holders of the Essex Senior Notes, refinance the Essex 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 Essex 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 Essex Senior Note Indenture, Holdings would be required,
among other things, to seek the consent of the holders of the Essex Senior
Notes, refinance the Essex Senior Notes after they become redeemable in
May, 1998, or obtain funds through the sale of equity securities.
15<PAGE>
Other Considerations Relating To Holdings' Cash Obligations
Holdings expects that it may receive certain cash payments from Essex
from time to time to the extent cash is available and to the extent it is
permitted under the terms of the Essex Credit Facilities and the Essex
Senior Note Indenture. Such payments may include (i) an amount necessary
under the tax sharing agreement between Essex and Holdings to enable
Holdings to pay Essex' 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 Essex, or employees). To the extent Essex makes any such
payments, it will do so out of operating cash flow, borrowings under the
Essex 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 Essex Credit Facilities and the Essex Senior Note Indenture.
Essex
The following sets forth a discussion and analysis of the liquidity,
capital resources and financial condition principally of Essex.
Essex' financial position at March 31, 1996 was highly leveraged. Essex'
aggregate notes payable to banks plus long-term debt was $448.6 million
and its stockholder's equity was $121.1 million. The resulting ratio of
debt to stockholder's equity of approximately 3.7 to 1 was comparable to
the ratio at December 31, 1995.
In general, Essex requires liquidity for working capital, capital
expenditures, debt repayments, interest and taxes. Of particular
significance to Essex 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, Essex 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, Essex 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 1996.
In April 1995, in connection with the Redemption of all of Holdings'
outstanding Debentures at their principal amount of $272.9 million, Essex
terminated its previous credit agreement (the "Former Essex 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 Essex,
Holdings, the lenders named therein and Chemical Bank, as agent (the
"Essex Revolving Credit Agreement"); (ii) a $60.0 million senior unsecured
note agreement, dated as of April 12, 1995 by and among Essex, Holdings,
as guarantor, the lenders named therein and Chemical Bank, as
administrative agent (the "Essex Term Loan", together with the Essex
Revolving Credit Agreement, the "Essex Credit Facilities"); and (iii) a
$25.0 million agreement and lease dated as of April 12, 1995 by and
between Essex and Mellon Financial Services Corporation #3 (the "Essex
Sale and Leaseback Agreement" and together with the Essex Credit
16<PAGE>
Facilities the "New Essex Facilities"). Essex 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 Essex Credit
Agreement. Holdings is a party to each of the Essex Credit Facilities and
has guaranteed Essex' obligations under the Essex Revolving Credit
Agreement. Holdings has secured its obligations pursuant to the guarantee
of the Essex Revolving Credit Agreement by a pledge of all of the
outstanding stock of Essex to the lending banks.
On May 12, 1995 Essex borrowed the full amounts available under the Essex
Term Loan and Sale and Leaseback Agreement. These funds, together with
available cash and borrowings under the Essex 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 Essex 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. Essex'
ability to borrow under the Essex Revolving Credit Agreement is restricted
by the financial covenants contained therein as well as those contained in
the Essex Term Loan and certain debt limitation covenants contained in the
indenture under which the 10% Senior Notes due 2003 (the "Essex Senior
Notes") were issued (the "Essex Senior Note Indenture"). The Essex
Revolving Credit Agreement terminates five years from its effective date
of April 12, 1995. The Essex Revolving Credit Agreement loans bear
floating rates of interest, at Essex' 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.
The Essex 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 Essex Term Loan bears floating rates of interest at bank prime
plus 2.75% or LIBOR plus 3.75%. The Essex 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
required Essex 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 Essex Sale and Leaseback Agreement provides $25.0 million for the
sale and leaseback of certain of Essex' 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.
17<PAGE>
The Essex Revolving Credit Agreement restricts incurrence of
indebtedness, liens, guarantees, mergers, sales of assets, lease
obligations, payment of dividends, capital expenditure and investments
and, with certain exceptions, limits prepayment of indebtedness, including
the Essex Senior Notes. The Essex Revolving Credit Agreement only permits
the optional redemption of the Series B Preferred Stock 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. Transactions with affiliates are
also restricted subject to certain exceptions. The Essex Term Loan and
the Essex Senior Note Indenture prohibit, with certain exceptions, the
incurrence by Essex of any secured indebtedness unless such indebtedness
is equally and ratably secured. The failure by Holdings or Essex 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 Holdings.
Essex also has uncommitted bank lines of credit which provide unsecured
borrowings for working capital of up to $25.0 million of which $14.9
million was outstanding at March 31, 1996 and denoted as notes payable to
banks in the Consolidated Balance Sheets. These lines of credit bear
interest at rates subject to agreement between Essex and the lending
banks. At March 31, 1996, such rates of interest averaged 6.3%.
Essex 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 used for operating activities through the first three months of
1996 was $16.1 million, compared to $6.9 million during the same period in
1995. The increase in cash requirements was needed primarily to fund
higher accounts receivable balances. Further, in 1995, other assets
declined due to the collection of a 1994 miscellaneous receivable.
Capital expenditures of $4.4 million in the first quarter of 1996 were
$0.2 million more than in the comparable period in 1995. The major
projects in 1996 entail improving product quality, increasing
manufacturing productivity and expanding capacity. Capital expenditures
in 1996 are expected to be approximately 20% to 25% below 1995 and will be
used to complete modernization projects, expand capacity, enhance
efficiency and ensure continued compliance with regulatory requirements.
At March 31, 1996, approximately $4.7 million was committed to outside
vendors for capital expenditures. Essex' Credit Facilities impose
limitations on capital expenditures, business acquisitions and
investments. On March 25, 1996, Essex acquired the Canadian building wire
operations of BICC Phillips, Inc. The acquisition consisted primarily of
inventory and equipment and was financed from proceeds received under the
Essex Revolving Credit Agreement. Future cash requirements of this
operation are expected to be satisfied through Essex' traditional sources
of liquidity as previously discussed.
Regarding long-term liquidity issues, future capital expenditures are
anticipated to be at or below historical levels while the Essex Senior
Notes mature in 2003 and are expected to be replaced by similar financing
at that time. The terms of the Essex Sale and Leaseback Agreement include
a balloon payment of $8.1 million in 2002. Essex expects that its
18<PAGE>
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 Essex Term
Loan and the Essex Sale and Leaseback Agreement.
Essex' operations involve the use, disposal and clean-up of certain
substances regulated under environmental protection laws. Essex has
accrued $0.7 million for environmental remediation and restoration costs.
The accruals were based upon management's best estimate of Essex' 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, Essex 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.
General Economic Conditions and Inflation
Holdings, through Essex, faces various economic risks ranging from an
economic downturn adversely impacting Essex' 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, Essex
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. Essex cannot predict either the continuation of current economic
conditions or future results of its operations in light thereof.
Holdings 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, Holdings believes that
general industry competitive price increases would sustain operating
results, although there can be no assurance that this will be the case.
19<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Item Exhibit Index
---- -------------
11.1 Calculation of net income per common share.
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed by Holdings during the
quarter ended March 31, 1996.
20<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.
BCP/ESSEX HOLDINGS INC.
(Registrant)
May 14, 1996 /s/ David A. Owen
---------------------------------
David A. Owen
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
21<PAGE>
EXHIBIT 11.1
BCP/ESSEX HOLDINGS INC.
CALCULATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
Three Month Period
Ended March 31,
--------------------------
In Thousands of Dollars, 1996 1995
Except Per Share Data
----------------------------------------------------------------------
<S> <C> <C>
Net income applicable to common and
common equivalent shares:
Net income . . . . . . . . . . . . . $ 6,390 $ 3,071
Less:
Preferred stock dividend requirement (1,907) (1,646)
Preferred stock accretion . . . . . . (179) (174)
-------- --------
Net income applicable to common stock . $ 4,304 $ 1,251
======== ========
Weighted average common
shares outstanding . . . . . . . . . . 35,320,542 35,172,466
Common shares issuable with respect to
common stock equivalents, with a
dilutive effect based on the
Modified Treasury Stock method . . . . 2,918,351 2,546,830
--------- ---------
Weighted average number of common
and common equivalent shares . . . . . 38,238,893 37,719,296
========== ==========
Net income per common and $.11 $.03
common equivalent share (a) . . . . . ===== =====
</TABLE>
(a) The computation of fully diluted income per share has not been
presented herein since the per share amounts do not differ from the
primary computation outlined above.<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AS
OF MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000846919
<NAME> BCP/ESSEX HOLDINGS INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 165,909
<ALLOWANCES> 4,064
<INVENTORY> 187,311
<CURRENT-ASSETS> 367,040
<PP&E> 359,025
<DEPRECIATION> 91,542
<TOTAL-ASSETS> 775,182
<CURRENT-LIABILITIES> 152,223
<BONDS> 422,122
336
50,906
<COMMON> 0
<OTHER-SE> 68,286
<TOTAL-LIABILITY-AND-EQUITY> 775,182
<SALES> 308,410
<TOTAL-REVENUES> 308,688
<CGS> 258,651
<TOTAL-COSTS> 258,651
<OTHER-EXPENSES> 28,480
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,167
<INCOME-PRETAX> 11,390
<INCOME-TAX> 5,000
<INCOME-CONTINUING> 6,390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,390
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
