<PAGE> 1
FORM 10-K/A
Amendment No. 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the fiscal year ended December 31 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from ___________ to ______________
Commission File Number 33-93970
INTERNATIONAL WIRE GROUP, INC .
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 43-1705942
- --------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
101 SOUTH HANLEY ROAD, ST. LOUIS, MISSOURI 63105
- ------------------------------------------ -------------------
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 719-1000
-----------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 the
filing requirements for at least the past 90 days.
X YES No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [x]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. (The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.)
NO ESTABLISHED PUBLISHED PUBLIC TRADING MARKET EXISTS FOR THE COMMON STOCK, PAR
VALUE $.01 PER SHARE, OF INTERNATIONAL WIRE GROUP, INC. ALL OF THE OUTSTANDING
SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF INTERNATIONAL WIRE GROUP,
INC. ARE HELD BY INTERNATIONAL WIRE HOLDING COMPANY.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date (applicable only to
corporate registrants).
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS FEBRUARY 29, 1996
----- -----------------
<S> <C>
COMMON STOCK 1,000
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE NONE
<PAGE> 2
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
To facilitate a meaningful comparison, the following discussion and analysis
includes combined results of operations of the Company, Wirekraft, Omega and
ECM for periods prior to the Acquisitions. These combined results of operations
have not been prepared in accordance with GAAP, which does not allow for the
aggregation of financial data for entities that are not under common ownership.
Nevertheless, management believes that the aggregate financial information
shown below for the periods prior to the Acquisitions is helpful in
understanding the past operations of the companies combined in the
Acquisitions. The Company in June 1995, through a series of mergers and
acquisitions, consummated the Acquisitions. As a result of certain
transactions, including the Acquisitions, the acquisition of THL-Omega and the
ECM Acquisition, the Company incurred substantial indebtedness and recorded
significant amounts of goodwill, which resulted in interest and amortization
expenses for the Company substantially greater than the interest and
amortization expenses incurred by the Company's predecessors. Additionally, the
accounting bases for the Company's predecessors differ from the accounting
bases of the Company. Therefore, the results of operations data for the
Company's predecessors are not directly comparable to the results of operations
data for the Company, and the Company cautions investors against placing undue
reliance on the comparative information contained herein.
The Company conducts its operations through two segments: (i) wire products,
which includes both non-insulated and insulated wire, and (ii) wire harness
products. The table below sets forth the major components of the results of
operations on a historical combined basis for the fiscal year 1993, the fiscal
year 1994 and the five months ended May 31, 1995 and on a historical basis for
the seven months ended December 31, 1995, and should be used in reviewing the
discussion and analysis of results of operations and liquidity and capital
resources.
Included in fiscal year, and referred to as "Historical Combined Fiscal Year
Ended December 31, 1993," is the twelve month period of Wirekraft comprised of
the period December 1, 1992 through December 21, 1992 and the period December
22, 1992 through November 30, 1993 and the year ended December 31, 1993 of
THL-Omega and ECM.
Included in fiscal year 1994, and referred to as "Historical Combined Fiscal
Year Ended December 31, 1994," is the year ended November 30, 1994 of
Wirekraft, the year ended December 31, 1994 of THL-Omega, which was acquired by
Omega in March 1995, and the eleven month period ended November 30, 1994 of
ECM.
Included in fiscal year 1995, and referred to as "Historical Combined Fiscal
Year Ended December 31, 1995," is the five month period ended May 31, 1995 of
Wirekraft, the three month period ended March 31, 1995 of THL-Omega, the two
month period ended May 31, 1995 of Omega (collectively referred to as
"Historical Combined Five Months Ended May 31, 1995") and the seven month
period ended December 31, 1995 of the Company.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
----------------------------------------- --------------
FISCAL YEAR FISCAL YEAR FIVE MONTHS SEVEN MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, MAY 31, DECEMBER 31,
1993 1994 1995(1) 1995
------------ ------------ ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Wire sales............................ $206,641 $272,414 $131,831 $161,741
Wire harness sales.................... 154,073 174,716 77,279 83,842
-------- -------- -------- --------
Net sales....................... 360,714 447,130 209,110 245,583
Cost of goods sold.................... 281,751 348,633 167,456 195,221
Selling, general and administrative
expenses............................ 37,798 39,746 15,714 17,129
Depreciation and amortization......... 11,260 13,310 8,313 11,020
Expenses related to plant closing..... -- -- 2,000 1,750
Inventory valuation adjustment........ -- -- -- --
Compensation expense.................. -- -- 10,610 --
Expenses related to sale.............. 6,929 -- 2,190 --
-------- -------- -------- --------
Operating income (loss)............. $ 22,976 $ 45,441 $ 2,827 $ 20,463
======== ======== ======== ========
</TABLE>
- ---------------
(1) The results of operations data related to Wirekraft for the five months
ended May 31, 1995 excludes the one month period ended December 31, 1994.
Loss from operations of Wirekraft for the one month period ended December
31, 1994 was $64.
1
<PAGE> 3
HISTORICAL COMBINED FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO HISTORICAL
COMBINED FISCAL YEAR ENDED DECEMBER 31, 1994
Net sales for the Historical Combined Fiscal Year Ended December 31, 1995 were
$454.7 million, representing a $7.6 million, or 1.7%, increase over the
Historical Combined Fiscal Year Ended December 31, 1994. This increase in net
sales was primarily attributable to an increase in sales of wire products which
grew to $293.6 million in 1995 from $272.4 million in 1994, an increase of
$21.2 million, or 7.8%. The increase was largely due to rising copper prices.
In general, the Company prices its products based upon a spread over the cost
of copper, which results in an increased dollar volume of sales when copper
prices increase. The average price of copper based on the COMEX rose to $1.35
per pound during the Historical Combined Fiscal Year Ended December 31, 1995
from $1.07 per pound during the Historical Combined Fiscal Year Ended December
31, 1994. The increase in wire sales was also bolstered by growth in specialty
accounts which primarily occurred in the security, alarm, data communications
and fine wire businesses. The increase in sales of wire products was offset
somewhat by a slowdown in the automotive industry as well as by several model
related changeovers at key automotive customers. Within the wire harness
segment, sales decreased $13.6 million, or 7.8%, for the Historical Combined
Fiscal Year Ended December 31, 1995 as compared to the Historical Combined
Fiscal Year Ended December 31, 1994. This decrease reflects a decline in sales
to Whirlpool. This decline was pursuant to an agreement effective October 1,
1994, whereby Whirlpool began transitioning certain wire harness purchases to
its own captive operation in Mexico and other third party suppliers. The wire
harness segment, however, retained Whirlpool's dishwasher harness business.
Cost of goods sold as a percent of sales increased to 79.8% from 78.0% for the
Historical Combined Fiscal Year Ended December 31, 1995 compared to the
Historical Combined Fiscal Year Ended December 31, 1994. The change was
primarily due to the increase in the average price of copper. Because the
Company's products are typically priced at a spread over the cost of copper, a
higher copper price leads to a lower gross margin percentage but generally has
no impact on gross margin dollars. The increasing cost of materials used to
insulate wire, which include resins and plasticizers, and the impact of
producing to shorter average runs during the mid-year automotive slowdown and
customer inventory adjustment period also had dampening effects on margins.
HISTORICAL COMBINED FIVE MONTHS ENDED MAY 31, 1995 COMPARED TO HISTORICAL
COMBINED FISCAL YEAR ENDED DECEMBER 31, 1994
Net sales for the Historical Combined Five Months Ended May 31, 1995 were
$209.1 million, representing a $238.0 million decrease from the Historical
Combined Fiscal Year Ended December 31, 1994. This decrease included wire
segment sales of $140.6 million and wire harness segment sales of $97.4
million. The decrease was primarily the result of a full twelve months of
operations for the 1994 period compared to only five months of operations
included the 1995 period. This decrease was partially offset by rising copper
prices. In general, the Company prices its products based upon a spread over
the cost of copper, which results in an increased dollar volume of sales when
copper prices increase. The average price of copper based on the COMEX rose to
$1.35 per pound during the Historical Combined Five Months Ended May 31, 1995
from $1.07 per pound during the Historical Combined Fiscal Year Ended December
31, 1994.
Cost of sales as a percentage of sales increased to 80.1% for the Historical
Combined Five Months Ended May 31, 1995 from 78.0% for the Historical Combined
Fiscal Year Ended December 31, 1994. The change was primarily due to the
increase in the average price of copper. Because the Company's products are
typically priced at a spread over the cost of copper, a higher copper price
leads to a lower gross margin percentage but generally has no impact on gross
margin dollars.
Selling, general and administrative expenses were $15.7 million for the
Historical Combined Five Months Ended May 31, 1995 compared to $39.8 million
for the Historical Combined Fiscal Year Ended December 31, 1994, a decrease of
$24.1 million. Expressed as a percentage of sales, selling, general and
administrative expenses decreased to 7.5% for the Historical Combined Five
Months Ended May 31, 1995, from 8.9% for the Historical Combined Fiscal Year
Ended December 31, 1994. The decrease in the percentage of sales was primarily
attributable to cost containment efforts, movement away from commissioned sales
representatives to a captive sales force and consolidation in administrative
positions.
Depreciation and amortization was $8.3 million for the Historical Combined Five
Months Ended May 31, 1995, compared to $13.3 million for the Historical
Combined Fiscal Year Ended December 31, 1994. This decrease of $5.0 million was
primarily the result of a full twelve months of operations for the 1994 period
compared to only five months of operations included the 1995 period. This
decrease was partially offset by depreciation of property, plant and equipment
additions and the amortization of goodwill from the ECM Acquisition and the
acquisition of THL-Omega.
During the Historical Combined Five Months Ended May 31, 1995, the Company
recorded a $2.0 million charge to operations to provide for plant closing costs
including shut-down costs, commitment costs for leased equipment and key
personnel and severance related costs. There was no similar charge for the
Historical Combined Fiscal Year Ended December 31, 1994.
During the Historical Combined Five Months Ended May 31, 1995, the Company
recorded $10.6 million in compensation expense and $2.2 million for expenses
related to the Original Wirekraft Acquisition and the acquisition of THL-Omega.
There was no similar charge for the Historical Combined Fiscal Year Ended
December 31, 1994.
2
<PAGE> 4
HISTORICAL COMBINED FISCAL YEAR ENDED DECEMBER 31, 1994 COMPARED TO HISTORICAL
COMBINED FISCAL YEAR ENDED DECEMBER 31, 1993
Net sales for the Historical Combined Fiscal Year Ended December 31, 1994 were
$447.1 million, representing an increase of $86.4 million or 24.0%. Wire
segment sales increased $65.8 million or 31.8% for the Historical Combined
Fiscal Year Ended December 31, 1994 compared to the Historical Combined Fiscal
Year Ended December 31, 1993. The increase in sales of wire products was
primarily attributable to (i) strong demand due to generally robust economic
conditions in the Company's core automotive, computer and data communications,
appliance and industrial markets; (ii) increases in market share as a result of
significant capacity expansions; and (iii) the acquisition of Ristance in
December 1993, which contributed approximately $15.0 million in insulated wire
sales in 1994. A portion of the increase in sales of wire products was due to
an increase in copper prices, which, based on the COMEX, rose to $1.07 per
pound in 1994 from $0.85 per pound in 1993. In general, the Company prices its
products based upon a spread over the cost of copper, which results in an
increased dollar volume of sales when copper prices increase. The growth in net
sales was also driven by an increase in sales of harnesses due to strong demand
for appliances. Sales of wire harnesses grew to $174.7 million in 1994 from
$154.1 million in 1993 -- an increase of $20.6 million or 13.4%.
Cost of goods sold was $348.6 million for the Historical Combined Fiscal Year
Ended December 31, 1994 as compared to $281.8 for the Historical Combined
Fiscal Year Ended December 31, 1993 -- an increase of $66.9 million or 23.7%.
Expressed as a percentage of sales, cost of goods sold remained relatively flat
in 1994 as compared to 1993, at approximately 78%. Reductions in unit
production costs achieved through higher capacity utilization and manufacturing
efficiencies generated by significant capital expenditures were offset
primarily by increases in the cost of copper and materials used to insulate
wire. Because the Company's products are typically priced at a spread over the
cost of copper, a higher copper price leads to a lower gross margin as a
percent of sales but generally has no impact on gross margin dollars.
Selling, general and administrative expenses were $39.7 million for the
Historical Combined Fiscal Year Ended December 31, 1994 as compared to $37.8
million for the Historical Combined Fiscal Year Ended December 31, 1993 -- an
increase of $1.9 million or 5.2%. Selling, general and administrative expenses
in 1993 include $3.1 million in charges related to certain one-time bad debt
write-offs. The one-time bad debt write-offs were due to financial difficulties
of four customers at Omega. Excluding this charge, selling,
3
<PAGE> 5
general and administrative expenses increased $5.0 million, or 14.5%, in 1994
as compared to 1993. The majority of this increase was attributable to
increased expenses for freight, incentive compensation and sales commissions.
Expressed as a percentage of sales, selling, general and administrative
expenses decreased to 8.9% in 1994 from 10.5% (9.6% excluding $3.1 million in
charges related to certain one-time bad debt write-offs) in 1993.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital and Cash Flows
For the Historical Combined Fiscal Year Ended December 31, 1995, the
Company generated $25.2 million in cash from operations and $23.0 million of
net proceeds from the issuance of equity securities and long-term obligations
related to acquisitions. During 1995, the Company made net repayments of $17.6
million under debt obligations, spent approximately $10.5 million on capital
projects and used $21.0 million to pay financing fees.
For the Historical Combined Fiscal Year Ended December 31, 1994, the
Company generated $13.4 million in cash from operations and $3.8 million from
the issuance of certain notes. Cash was used in 1994 primarily to fund capital
expenditures of $14.9 million.
For the Historical Combined Fiscal Year Ended December 31, 1993, the
Company generated $19.3 million in cash from operations and $10.2 million of
net proceeds from the issuance of equity securities and long-term debt
obligations related to acquisitions. Cash was used in 1993 primarily to fund
capital expenditures of $7.5 million, make net repayments of $15.5 million
under debt obligations and pay financing fees of $8.9 million.
Financing Arrangements
In connection with the DWT Acquisition, Holding and the Company entered into an
Amended Credit Agreement dated as of March 5, 1996 with certain financial
institutions. The Amended Credit Agreement provides senior secured financing of
up to $363.5 million, consisting of a $111.0 million, five year Term A loan, an
$82.5 million, seven year Term B loan, a $95.0 million, eight year Term C loan
(collectively the "Term Facility") and a $75.0 million five year revolving loan
and letter of credit facility (the "Revolver"). The Company is obligated to
make principal payments in respect of the Term Facility of $14.7 million in
1996, $20.0 million in 1997, $22.7 million in 1998, $27.9 million in 1999,
$38.3 million in 2000, $40.5 million in 2001, $53.3 million in 2002 and $68.7
million in 2003. The Revolver is available for working capital purposes
including letters of credit. The commitments terminate and all amounts under
the Revolver then outstanding mature in 2000. As of March 12, 1996 there was
$286.1 million outstanding under the Term Facility and $45.0 million of unused
borrowing capacity under the Revolver.
The Company's obligations under the Amended Credit Agreement bear interest at
floating rates and require interest payments on varying dates depending on the
interest rate option selected by the Company. At March 12, 1996 the weighted
average interest rate on outstanding borrowings is 8.23%.
Within 90 days of the date of the Amended Credit Agreement, the Company is
required to enter into interest rate agreements to assure the net interest cost
to the Company on at least 50% of the sum of the aggregate principal amount of
the Term Facility, the aggregate principal amount of the Senior Notes, and the
aggregate liquidation preference of the Senior Preferred Stock (or the
aggregate principal amount of the Senior Notes issued in exchange for the
Senior Preferred Stock pursuant to the terms thereof) for a period of at least
two years. As of March 5, 1996, the Company had entered into an interest rate
agreement which provides a ceiling of 7% on $7.5 million of indebtedness
through February 1997, and 8% on $7.5 million of indebtedness thereafter,
through June 1997.
4
<PAGE> 6
In connection with the Acquisitions, Holding and the Company issued $150.0
million principal amount of Senior Notes due 2005 under an indenture (the
"Indenture"), dated June 12, 1995. The Senior Notes bear interest at the rate
of 11.75% per annum, requiring semiannual interest payments of $8.8 million on
each June 1 and December 1. The Senior Notes are not subject to any sinking
fund requirements.
Liquidity
The principal raw material used in the Company's products is copper. The market
price of copper is subject to significant fluctuations. Increased working
capital needs occur whenever the Company experiences a significant rise in
copper prices. A $0.10 per pound change in the price of copper changes the
Company's working capital by approximately $2.5 million. The Company enters
into contractual relationships with most of its customers to adjust its prices
based upon the prevailing market prices on the COMEX. This approach is
patterned after the Company's arrangement with its copper suppliers and is
designed to remove the risk associated with fluctuating copper prices.
The Company's primary source of liquidity are cash flows from operations and
borrowings under the Revolver, which are subject to a borrowing base
calculation. The major uses of cash in 1996 are expected to be for debt service
requirements and capital expenditures. In 1996, debt service requirements are
estimated at $57.7 million while capital expenditures are estimated at $12.0
million. Management believes that cash from operating activities, together with
available borrowings under the Revolver, if necessary, should be sufficient to
permit the Company to meet these financial obligations.
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
International Wire Group, Inc.
<S> <C>
Report of Coopers & Lybrand L.L.P., Independent Public Accountants........................................... 16
Consolidated Balance Sheet as of December 31, 1995........................................................... 17
Consolidated Statement of Operations for the seven months ended December 31, 1995............................ 18
Consolidated Statement of Stockholder's Equity for the seven months ended December 31, 1995.................. 19
Consolidated Statement of Cash Flows for the seven months ended December 31, 1995............................ 20
Notes to Consolidated Financial Statements................................................................... 21
Consolidated Financial Statement Schedule for the seven months ended December 31, 1995:
Schedule II - Valuation and Qualifying Accounts............................................................ 30
Wirekraft Holdings Corp. (formerly WB Holdings Inc.)
Report of Coopers & Lybrand L.L.P., Independent Public Accountants........................................... 31
Consolidated Balance Sheet as of November 30, 1994........................................................... 32
Consolidated Statements of Operations for the six months ended May 31, 1995, the year ended
November 30, 1994 and the period from December 22, 1992 through November 30, 1993.......................... 33
Consolidated Statements of Stockholders' Equity for the six months ended May 31, 1995, the year
ended November 30, 1994 and the period from December 22, 1992 through November 30, 1993.................... 34
Consolidated Statements of Cash Flows for the six months ended May 31, 1995, the year ended
November 30, 1994 and the period from December 22, 1992 through November 30, 1993.......................... 35
Notes to Consolidated Financial Statements................................................................... 36
</TABLE>
5
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<TABLE>
<S> <C>
Consolidated Financial Statement Schedule for the year ended November 30, 1994:
Schedule II - Valuation and Qualifying Accounts............................................................... 48
Omega Wire Corp.
Report of Coopers & Lybrand L.L.P., Independent Public Accountants.............................................. 49
Consolidated Statement of Operations for the two months ended May 31, 1995...................................... 50
Consolidated Statement of Stockholders' Equity for the two months ended May 31, 1995............................ 51
Consolidated Statement of Cash Flows for the two months ended May 31, 1995...................................... 52
Notes to Consolidated Financial Statements...................................................................... 53
THL-Omega Holding Corporation
Report of Coopers & Lybrand L.L.P., Independent Public Accountants.............................................. 58
Consolidated Statement of Operations and Retained Earnings for the three months
ended March 31, 1995.......................................................................................... 59
Consolidated Statement of Cash Flows for the three months ended March 31, 1995.................................. 60
Notes to Consolidated Financial Statements...................................................................... 61
Report of Price Waterhouse LLP, Independent Public Accountants.................................................. 64
Consolidated Balance Sheet as of December 31, 1994.............................................................. 65
Consolidated Statements of Operations and Retained Earnings for the years ended
December 31, 1994 and 1993.................................................................................... 66
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1993............................ 67
Notes to Consolidated Financial Statements...................................................................... 68
Consolidated Financial Statement Schedule for the year ended December 31,
1994:
Schedule II - Valuation and Qualifying Accounts............................................................... 74
</TABLE>
6
<PAGE> 8
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
International Wire Group, Inc.:
We have audited the accompanying consolidated balance sheet of International
Wire Group, Inc. and subsidiaries as of December 31, 1995, and the related
consolidated statements of operations, stockholder's equity, and cash flows for
the seven months then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of International
Wire Group, Inc. and subsidiaries as of December 31, 1995, and the consolidated
results of their operations and their cash flows for the seven months ended
December 31, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
January 27, 1996
7
<PAGE> 9
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED BALANCE SHEET
AT DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
Current assets:
<S> <C>
Accounts receivable, less allowance of $860 ................................. $ 47,180
Inventories ................................................................. 57,777
Prepaid expenses and other .................................................. 2,858
---------
Total current assets ...................................................... 107,815
Property, plant and equipment, net ............................................. 82,259
Deferred financing costs, net .................................................. 16,688
Intangible assets, net ......................................................... 215,400
Other assets ................................................................... 5,758
---------
Total assets .............................................................. $ 427,920
=========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
<S> <C>
Current maturities of long-term obligations ................................. $ 12,662
Accounts payable ............................................................ 37,627
Accrued and other liabilities ............................................... 26,011
Accrued interest ............................................................ 2,516
---------
Total current liabilities ............................................... 78,816
Long-term obligations, less current maturities ................................. 326,015
Deferred income taxes .......................................................... 8,194
Other long-term liabilities .................................................... 4,897
---------
Total liabilities ........................................................ 417,922
Stockholder's equity:
Common stock, $.01 par value, 1,000 shares authorized, issued and
outstanding ............................................................... 0
Contributed capital ......................................................... 81,051
Carryover of predecessor basis .............................................. (67,762)
Accumulated deficit ......................................................... (3,291)
---------
Total stockholder's equity ............................................... 9,998
---------
Total liabilities and stockholder's equity ............................... $ 427,920
=========
</TABLE>
See accompanying notes to the consolidated financial statements
8
<PAGE> 10
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
SEVEN MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Net sales............................................................................................ $245,583
Operating expenses:
Cost of goods sold................................................................................ 195,221
Selling, general and administrative............................................................... 17,129
Depreciation and amortization .................................................................... 11,020
Expenses related to plant closings................................................................ 1,750
---------
Operating income..................................................................................... 20,463
Other income (expense):
Interest expense.................................................................................. (19,931)
Amortization of deferred financing costs.......................................................... (1,468)
Other, net........................................................................................ (158)
---------
Loss before income tax provision..................................................................... (1,094)
Income tax provision................................................................................. 2,197
---------
Net loss............................................................................................. $ (3,291)
=========
</TABLE>
See accompanying notes to the consolidated financial statements
9
<PAGE> 11
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
SEVEN MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
CARRYOVER OF
COMMON CONTRIBUTED PREDECESSOR ACCUMULATED
STOCK CAPITAL BASIS DEFICIT TOTAL
------ ----------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
Capital contributed .......... $ 0 $ 81,951 $ - $ - $81,951
Issuance costs ............... - (900) - - (900)
Carryover of predecessor basis - - (67,762) - (67,762)
Net loss ..................... - - - (3,291) (3,291)
----- -------- -------- -------- -------
December 31, 1995 ............ $ 0 $ 81,051 $(67,762) $ (3,291) $ 9,998
===== ======== ======== ======== =======
</TABLE>
See accompanying notes to the consolidated financial statements
10
<PAGE> 12
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
SEVEN MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows provided by (used in) operating activities:
Net loss ............................................................................................... $ (3,291)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization .......................................................................... 11,020
Amortization of deferred financing costs ............................................................... 1,468
Deferred income taxes .................................................................................. 274
Change in assets and liabilities, net of acquisitions:
Accounts receivable .................................................................................. 12,094
Inventories .......................................................................................... (9,590)
Prepaid expenses and other ........................................................................... (846)
Accounts payable ..................................................................................... 1,232
Accrued and other liabilities ........................................................................ (2,084)
Accrued interest ..................................................................................... 2,516
Income taxes payable/refundable ...................................................................... 778
Other long-term liabilities .......................................................................... (237)
---------
Net cash from operating activities ........................................................................ 13,334
---------
Cash flows provided by (used in) investing activities:
Acquisitions, net of cash .............................................................................. (341,046)
Capital expenditures ................................................................................... (5,751)
---------
Net cash from investing activities ........................................................................ (346,797)
---------
Cash flows provided by (used in) financing activities:
Equity proceeds ........................................................................................ 15,048
Proceeds from issuance of long-term obligations ........................................................ 337,500
Repayment of long-term obligations ..................................................................... (5,085)
Financing fees and other ............................................................................... (14,000)
---------
Net cash from financing activities ........................................................................ 333,463
---------
Net change in cash ........................................................................................ -
Cash at beginning of period ............................................................................... -
---------
Cash at end of the period ................................................................................. $ -
=========
</TABLE>
See accompanying notes to the consolidated financial statements
11
<PAGE> 13
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEVEN MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. THE COMPANY
International Wire Group, Inc. ("Group" or the "Company"), a Delaware
corporation, was formed to participate in the transactions contemplated by
the Acquisitions (as described below). On June 12, 1995, Wirekraft
Holdings Corp. ("Wirekraft"), Omega Wire Corp. ("Omega"), International
Wire Holding Company ("Holding"), the sole stockholder of Group, Group,
Wirekraft Acquisition Company and certain shareholders of Wirekraft and
Omega entered into a series of acquisitions and mergers (the
"Acquisitions") pursuant to which Group acquired all of the common equity
securities (and all securities convertible into such securities) of
Wirekraft and all of the common equity securities of Omega. The Company
has designated June 1, 1995, as the effective date of the Acquisitions for
financial reporting purposes. The Company through its two segments, the
Wire segment and the Harness segment, is engaged in the design,
manufacture and marketing of non-insulated and insulated copper wire and
wire harnesses. The Company's products are used by a wide variety of
customers primarily in the appliance, computer and data communications,
automotive and industrial equipment industries. The Company has a fiscal
year-end of December 31.
The total purchase price of the Acquisitions was approximately $420,591,
which included the redemption of certain equity securities, the retirement
of existing indebtedness of Wirekraft and Omega and the payment of related
fees and costs, is summarized as follows:
<TABLE>
<S> <C>
Redemption of common stock, equity rights, warrants
and options.................................................................................... $104,810
Repayment of existing indebtedness................................................................ 275,460
Redemption of preferred stock..................................................................... 26,321
Fees and costs.................................................................................... 14,000
--------
$420,591
========
</TABLE>
In accordance with EITF 88-16, "Basis in Leveraged Buy Out Transactions",
the Acquisitions have been accounted for at "predecessor basis". The total
acquisition costs have been allocated to the acquired net assets as
follows:
<TABLE>
<S> <C>
Current assets................................................................................... $117,504
Property, plant and equipment.................................................................... 83,253
Goodwill......................................................................................... 209,818
Fees and costs................................................................................... 19,000
Other assets..................................................................................... 3,749
Current liabilities.............................................................................. (58,707)
Other liabilities................................................................................ (21,788)
Carryover predecessor basis...................................................................... 67,762
--------
$420,591
========
</TABLE>
Unaudited pro forma data, which show condensed results of operations for
the twelve months ended December 31, 1995 as though the Acquisitions and
related financing had occurred at the beginning of the period, is as
follows:
<TABLE>
<S> <C>
Net sales........................................................................................ $454,693
Net income (loss)................................................................................ $ 3,406
</TABLE>
12
<PAGE> 14
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Group and
its wholly-owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
Revenue Recognition
Sales and related cost of goods sold are included in income when goods are
shipped to customers.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the last-in, first-out ("LIFO") method.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is
calculated using the straight-line method. The average estimated lives
utilized in calculating depreciation are as follows: buildings - 25-40
years; building improvements - 15 years; machinery and equipment - 3-11
years; and furniture and fixtures - 5 years. Leasehold improvements are
amortized over the shorter of the term of the respective lease or the life
of the respective improvement.
Intangible Assets
Intangible assets consist principally of goodwill arising from the excess
of cost over the value of net assets acquired which is amortized using the
straight-line method over forty years. Accumulated amortization
aggregated $8,783 at December 31, 1995.
The Company periodically evaluates goodwill to assess recoverability. The
Company considers various factors in determining if goodwill may be
impaired. These factors include reductions in estimated future cash flows,
significant events impacting the Company's business and changes in the
business environment. The Company further assesses the recoverability of
goodwill by comparing the value of goodwill as indicated by a discounted
cash flow analysis to the carrying value of goodwill. The discounted
cash flow analysis consists of discounted free cash flows for a projection
period plus a terminal value, which is calculated by dividing estimated
annual unlevered net income by the weighted average cost of capital less an
assumed growth rate. Upon consideration of these factors, if the Company
determines that an impairment has occurred, the Company determines the
impairment charge by comparing the carrying value of goodwill to the
adjusted fair value of the Company, as calculated through a discounted
cash flow analysis.
Deferred Financing Costs
Deferred financing costs, consisting of fees and other expenses associated
with the debt financing are amortized over the term of the related debt
using the effective interest method and the straight-line method which
approximates the effective interest method.
Foreign Currency
For operations in Mexico, the Company's functional currency is the U.S.
dollar. Gains and losses from translation and transactions are determined
using a combination of current and historical rates and are included in
net income.
Fair Value of Financial Instruments
The fair market values of the financial instruments included in the
consolidated financial statements approximate the carrying values of the
financial instruments.
13
<PAGE> 15
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Statement of Cash Flows
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments purchased with maturities of three
months or less to be cash equivalents. Interest and taxes paid for the
seven months ended December 31, 1995 were $17,415 and $1,145,
respectively.
During the seven months ended December 31, 1995, the Company entered into
certain non-cash investing and financing activities. In connection with
the Acquisitions, certain shares of Omega and Wirekraft common stock and
Class A common stock were exchanged for shares of Holding common stock.
The total amount of shares exchanged were $66,903. In October, 1995, the
Company entered into a capital lease obligation of $680 for computer
equipment.
Significant Customer
A significant portion of the Company's sales are to a major customer
within the Harness segment. Sales to this customer represented 19% of net
sales for the seven months ended December 31, 1995.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, is effective for years beginning after December 15, 1995. This
statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, is effective for transactions entered into for
years beginning after December 15, 1995. This Statement established
financial accounting and reporting standards for stock-based employee
compensation plans. During 1995, Holding issued performance options to
certain officers of the Company to purchase shares of common stock of
Holding. The performance options are exercisable only upon certain
specified events and at specified exercise price per share.
The Company believes that the future adoption of these statements will not
have a significant impact on results of operations or financial position.
14
<PAGE> 16
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES
The composition of inventories at December 31, 1995 is as follows:
<TABLE>
<S> <C>
Raw materials........................................................................................ $19,451
Work-in-process...................................................................................... 15,916
Finished goods....................................................................................... 22,410
-------
Total inventories................................................................................ $57,777
=======
</TABLE>
The current cost of inventories is approximately $56,035 at December 31,
1995.
4. PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment at December 31, 1995 is
as follows:
<TABLE>
<S> <C>
Land................................................................................................. $ 2,061
Buildings and improvements........................................................................... 20,848
Machinery and equipment.............................................................................. 76,668
-------
99,577
Less: accumulated depreciation....................................................................... (17,318)
-------
$82,259
=======
</TABLE>
5. FINANCING COSTS AND RELATED PARTY TRANSACTIONS
In connection with the Acquisitions, the Company incurred aggregate fees
and costs of $14,000. Costs of $13,100 related to the Senior Notes and
Credit Agreement (see Note 6) are included in deferred financing costs and
are being amortized over the terms of the related borrowings. Costs of
$900 related to the issuance of Holding's common stock have been deducted
from the proceeds to reduce the carrying value of the common stock.
In connection with the Acquisitions and obtaining the related financing,
the Company entered into a Monitoring and Oversight Agreement
("Agreement") with Hicks, Muse & Co. Partners, L.P. ("Hicks, Muse") (an
affiliate of the Company) pursuant to which the Company paid Hicks, Muse a
cash fee of $3,725 as compensation for financial advisory services. The
fees have been allocated to the debt and equity securities issued in
connection with the Acquisitions as deferred financing costs or as a
deduction from the cash proceeds received from the sale of the common
stock of Holding. The Agreement further provides that the Company shall
pay Hicks, Muse an annual fee of $500, for ten years for monitoring and
oversight services adjusted annually at the end of each fiscal year to an
amount equal to .1% of the consolidated net sales of the Company, but in
no event less than $500 annually. The obligation under the Agreement and
the related deferred financing costs have been recorded in the
consolidated balance sheet.
15
<PAGE> 17
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM OBLIGATIONS
The composition of long-term obligations at December 31, 1995 is as
follows:
<TABLE>
<S> <C>
Credit Agreement:
Revolving credit facility.......................................................................... $ 19,000
Term Facility...................................................................................... 163,813
Senior Subordinated Notes............................................................................ 150,000
Capital leases....................................................................................... 4,856
Other................................................................................................ 1,008
--------
338,677
Less, current maturities............................................................................. (12,662)
--------
$326,015
========
</TABLE>
The schedule of principal payments for long-term obligations at December
31, 1995 is as follows:
<TABLE>
<S> <C>
1996................................................................................................. $ 12,662
1997................................................................................................. 15,460
1998................................................................................................. 17,490
1999................................................................................................. 21,444
2000................................................................................................. 50,765
Thereafter........................................................................................... 220,856
--------
Total.............................................................................................. $338,677
========
</TABLE>
Credit Agreement
In connection with the Acquisitions, Group and Holding entered into a
Credit Agreement (the "Credit Agreement") dated as of June 12, 1995 with
certain financial institutions. Borrowings under the Credit Agreement are
collateralized by first priority mortgages and liens on all of the assets
of Group. In addition, borrowings under the Credit Agreement are
guaranteed by Holding.
The Credit Agreement consists of a $82,500 term loan (the "Term A Loan"),
$82,500 term loan (the "Term B Loan" together with the Term A Loan, the
"Term Facility") and $75,000 revolving credit facility (the "Revolver").
The Revolver provides that up to $10,000 of such facilities may be used
for the issuance of letters of credit. At December 31, 1995, Group had
$1,964 in outstanding letters of credit. At December 31, 1995 there was
$54,036 of unused borrowing capacity under the Credit Agreement. The
Credit Agreement contains several financial covenants which, among other
things, require Group to maintain certain financial ratios and restrict
Group's ability to incur indebtedness, make capital expenditures and pay
dividends. A commitment fee on the unused portion of the Revolver of .5%
is payable quarterly.
Mandatory principal payments of the Term Facility are due in quarterly
installments. The final installment on the Term A Loan is due on September
30, 2000 at which time the Revolver is also due. The final installment on
the Term
16
<PAGE> 18
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
B Loan is due on September 30, 2002. The Credit Agreement requires annual
prepayments of the Term Facility based on "Excess Cash Flow" (as defined
in the Credit Agreement).
Borrowings under the Term A Loan and Revolver bear interest, at the option
of Group, at a rate per annum equal to (a) the Alternate Base Rate (as
defined in the Credit Agreement) plus 1.5% or (b) the Eurodollar Rate (as
defined in the Credit Agreement) plus 2.5%. Borrowings under the Term B
Loan bear interest, at the option of Group, at a rate per annum equal to
(a) the Alternate Base Rate (as defined in the Credit Agreement) plus 2.0%
or (b) the Eurodollar Rate (as defined in the Credit Agreement) plus 3.0%.
The Alternate Base Rate and Eurodollar Rate margins are established
quarterly based on a formula as defined in the Credit Agreement. Interest
payment dates vary depending on the interest rate option to which the Term
Facility and the Revolver are tied, but generally interest is payable
quarterly. At December 31, 1995 the weighted average interest rate on
outstanding borrowings is 8.59%.
The Company has entered into an interest rate hedging arrangement
("Arrangement") to hedge against interest rate fluctuations. This
Arrangement provides a ceiling of 7% on $7,500 of indebtedness through
February 1997 and 8% on $7,500 of indebtedness thereafter, through June
1997.
Senior Subordinated Notes
The Senior Subordinated Notes due 2005 ("the Senior Notes") were issued
under an indenture, dated June 12, 1995 (the "Indenture") in connection
with the Acquisitions. The Senior Notes represent unsecured general
obligations of Group and are subordinated to all Senior Debt (as defined
in the Indenture) of Group. The Senior Notes, which were originally sold
pursuant to an exemption from the registration requirements of the
Securities Act of 1933, as amended, were exchanged for identical notes
registered under such Act in November, 1995.
The Senior Notes are fully and unconditionally (as well as jointly and
severally) guaranteed on an unsecured, senior subordinated basis by each
subsidiary of the Company (the "Guarantor Subsidiaries") other than
Electro Componentes de Mexico, S.A. de C.V. and Wirekraft Industries de
Mexico, S.A. de C.V. (The "Non-Guarantor Subsidiaries"). Each of the
Guarantor Subsidiaries and Non-Guarantor Subsidiaries is wholly owned by
the Company. (See Note 12).
The Senior Notes mature on June 1, 2005. Interest on the Senior Notes is
payable semi-annually on each June 1 and December 1. The Senior Notes bear
interest at the rate of 11.75% per annum. The Senior Notes may not be
redeemed prior to June 1, 2000, except in the event of a Change of Control
(as defined) or Initial Public Offering (as defined) and at such
applicable premium (as defined). The Senior Notes are redeemable, at the
Company's option, at the redemption prices of 105.875% at June 1, 2000,
and at decreasing prices to 100% at June 1, 2003, and thereafter, with
accrued interest. In addition, prior to June 1, 1998, the Company may
redeem, within guidelines specified in the Indenture, up to $50,000 of the
Senior Notes with the proceeds of one or more Equity Offerings by the
Company or Holding at a redemption price of 110%, with accrued interest.
The Senior Notes restrict, among other things, the incurrence of
additional indebtedness by the Company, the payment of dividends and other
distributions in respect of the Company's capital stock, the payment of
dividends and other distributions by the Company's subsidiaries, the
creating of liens on the properties and the assets of the Company to
secure certain subordinated debt and certain mergers, sales of assets and
transactions with affiliates.
17
<PAGE> 19
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109. The provision (benefit) for income taxes for the seven
months ended December 31, 1995 is as follows:
<TABLE>
<S> <C>
Current:
State.............................................................................................. $ 1,262
Foreign............................................................................................ 661
-------
1,923
Deferred:
Federal............................................................................................ (530)
State.............................................................................................. 804
-------
Total.......................................................................................... 274
-------
$ 2,197
=======
</TABLE>
Reconciliation between the statutory income tax rate and effective tax
rate is summarized below:
<TABLE>
<S> <C>
U.S. Federal statutory rate.......................................................................... $ (372)
State taxes, net of federal effect................................................................... 1,364
Foreign taxes........................................................................................ 789
Nondeductible assets................................................................................. 397
Other................................................................................................ 19
-------
$ 2,197
=======
</TABLE>
The tax effects of significant temporary differences representing deferred
tax assets and liabilities are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Accounts receivable reserves....................................................................... $ 298
Accrued liabilities not yet deductible............................................................. 2,540
Net operating loss carry forward................................................................... 3,544
Other.............................................................................................. 87
--------
6,469
--------
Deferred tax liabilities:
Depreciation and amortization..................................................................... 11,809
Inventories....................................................................................... 2,523
Other............................................................................................. 206
--------
14,538
--------
Net deferred tax liability $ 8,069
========
</TABLE>
The Company's net operating loss carry forward expires in 15 years.
18
<PAGE> 20
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. PLANT CLOSING EXPENSE
The Company recorded a pre-tax charge to operations of $1,750 in 1995 to
provide for plant closing costs. The plant closing costs include
provisions for shut-down costs from the period of the plant closure to
the date of disposal, commitment costs for leased property and key
personnel and severance related costs. During 1995, plant closing
actions resulted in the reduction of approximately 55 employees. Plant
closing costs accrued at December 31, 1995 were $700. There have been
no adjustments to amounts charged to expense. Following is a summary of
activity in the accounts related to the plant closing costs accrued:
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED
DECEMBER 31,
1995
------------
<S> <C>
Balance, beginning of period..................... $ --
Charges to operations:
Facility shut-down costs........................ 731
Lease commitments............................... 67
Key personnel and severance costs............... 952
------
1,750
Costs incurred
Facility shut-down costs........................ (339)
Lease commitments............................... (67)
Key personnel and severance costs............... (644)
------
(1,050)
------
Balance, end of period........................... $ 700
======
</TABLE>
9. RETIREMENT BENEFITS
The Company sponsors a number of defined contribution retirement plans
which provide retirement benefits for eligible employees. Company
contribution expense related to these retirement plans for the seven
months ended December 31, 1995 amounted to approximately $902.
10. COMMITMENTS AND CONTINGENCIES
The Company leases certain property, transportation vehicles and other
equipment. Total rental expense under operating leases was $1,420 for the
seven months ended December 31, 1995. Future minimum lease payments under
capital and operating leases for years ending December 31 are:
<TABLE>
<CAPTION>
Capital Operating
------- ---------
<S> <C> <C>
1996 ...................................................................... $ 1,146 $ 1,953
1997 ...................................................................... 1,146 1,774
1998 ...................................................................... 1,099 1,433
1999 ...................................................................... 1,086 1,320
2000 ...................................................................... 1,057 1,076
Thereafter ...................................................................... 719 8,122
------- -------
Total minimum lease payments.................................................... 6,253 $15,678
=======
Less amount representing interest............................................... (1,397)
-------
Present value of net minimum lease payments..................................... $ 4,856
=======
</TABLE>
The Company is subject to legal proceedings and claims which arise in the
normal course of business. In the opinion of management, the ultimate
liabilities with respect to these actions will not have a material
adverse effect on the Company's financial condition or results of
operations.
19
<PAGE> 21
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. BUSINESS SEGMENT INFORMATION
Certain information concerning the Company's operating segments for the
seven months ended December 31, 1995 is presented below. Total revenue by
segment includes both sales to customers and intersegment sales, which
are accounted for at prices charged to customers and eliminated in
consolidation.
<TABLE>
<CAPTION>
Wire Harness Consolidated
-------- -------- ------------
<S> <C> <C> <C>
Total revenue .................. $167,082 $ 84,288
Intersegment sales ............. 5,341 446
-------- --------
Sales to customers ............. $161,741 $ 83,842 $245,583
======== ========
Operating income ............... $ 10,937 $ 9,526 $ 20,463
Identifiable assets ............ $295,671 $132,249 $427,920
Depreciation and amortization... $ 7,442 $ 3,578 $ 11,020
Capital expenditures ........... $ 4,991 $ 760 $ 5,751
</TABLE>
12. GUARANTOR SUBSIDIARIES
The Senior Notes are fully and unconditionally (as well as jointly and
severally) guaranteed on an unsecured, senior subordinated basis by each
subsidiary of the Company (the "Guarantor Subsidiaries") other than Electro
Componentes de Mexico, S.A. de C.V. and Wirekraft Industries de Mexico,
S.A. de C.V. (the "Non-Guarantor Subsidiaries"). Each of the Guarantor
Subsidiaries and Non-Guarantor Subsidiaries is wholly owned by the Company.
The following condensed, consolidating financial statements of the Company
include the accounts of the Company, the combined accounts of the Guarantor
Subsidiaries and the combined accounts of the Non-Guarantor Subsidiaries.
Given the size of the Non-Guarantor Subsidiaries relative to the Company
on a consolidated basis, separate financial statements of the respective
Guarantor Subsidiaries are not presented because management has determined
that such information is not material in assessing the Guarantor
Subsidiaries.
20
<PAGE> 22
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
TOTAL TOTAL
COMPANY GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
--------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
As of December 31, 1995:
ASSETS
Cash............................ $ -- $ (29) $ 29 $ -- $ --
Accounts receivable............. -- 46,945 1,012 (777) 47,180
Inventory....................... -- 57,777 -- -- 57,777
Other assets.................... -- 2,858 -- -- 2,858
--------- -------- ------- --------- ---------
Total current assets.... -- 107,551 1,041 (777) 107,815
Property plant and equipment,
net.......................... -- 74,630 7,629 -- 82,259
Intangible assets, net.......... 16,688 215,400 -- -- 232,088
Investment in subsidiaries...... 416,212 -- -- (416,212) --
Other assets.................... -- 5,565 193 -- 5,758
--------- -------- ------- --------- ---------
Total assets............ $ 432,900 $403,146 $ 8,863 $(416,989) $ 427,920
========= ======== ======= ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities............. $ 15,815 $ 62,537 $ 1,241 $ (777) $ 78,816
Long term obligations, less
current maturities........... 321,001 5,014 -- -- 326,015
Other long-term liabilities..... (3,615) 16,706 -- -- 13,091
Intercompany (receivable)
payable...................... 21,939 (30,585) 8,646 -- --
--------- -------- ------- --------- ---------
Total liabilities....... 355,140 53,672 9,887 (777) 417,922
Stockholder's equity
Common stock................. -- -- -- -- --
Contributed capital.......... 81,051 406,573 18 (406,591) 81,051
Predecessor carryover........ -- (67,762) -- -- (67,762)
Retained earnings............ (3,291) 10,663 (1,042) (9,621) (3,291)
--------- -------- ------- --------- ---------
Total stockholder's
equity................ 77,760 349,474 (1,024) (416,212) 9,998
--------- -------- ------- --------- ---------
Total liabilities and
stockholder's
equity................ $ 432,900 $403,146 $ 8,863 $(416,989) $ 427,920
========= ======== ======= ========= =========
</TABLE>
21
<PAGE> 23
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
TOTAL TOTAL
COMPANY GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
--------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
For the seven months ended
December 31, 1995:
Net sales......................... $ -- $245,583 $ 8,240 $ (8,240) $ 245,583
Operating expenses
Cost of goods sold.............. -- 198,958 4,503 (8,240) 195,221
Selling, general and
administration............... -- 13,259 3,870 -- 17,129
Depreciation and amortization... -- 10,927 93 -- 11,020
Impairment, unusual and plant
closing charges.............. -- 1,750 -- -- 1,750
Inventory valuation
adjustment................... -- -- -- -- --
--------- -------- ------- --------- ---------
Operating income (loss)........... -- 20,689 (226) -- 20,463
Other income (expense)
Interest expense................ (18,960) (815) (156) -- (19,931)
Amortization of deferred
financing fees............... (1,468) -- -- -- (1,468)
Equity in net loss of
subsidiaries................. 9,621 -- -- (9,621) --
Other........................... -- (158) -- -- (158)
--------- -------- ------- --------- ---------
Income (loss) before income tax
provision....................... (10,807) 19,716 (382) (9,621) (1,094)
Income tax provision.............. (7,516) 9,053 660 -- 2,197
--------- -------- ------- --------- ---------
Net income (loss)................. $ (3,291) $ 10,663 $(1,042) $ (9,621) $ (3,291)
========= ======== ======= ========= =========
STATEMENT OF CASH FLOWS
For the seven months ended
December 31, 1995:
Net cash from operating
activities...................... $ 108 $ 7,945 $ 5,281 $ -- $ 13,334
--------- -------- ------- --------- ---------
Cash flows provided by (used in)
investing activities:
Acquisition, net of cash........ (341,046) -- -- -- (341,046)
Capital expenditures, net....... -- (5,482) (269) -- (5,751)
--------- -------- ------- --------- ---------
Net cash used in investing
activities...................... (341,046) (5,482) (269) -- (346,797)
--------- -------- ------- --------- ---------
Cash flows provided (used in)
financing activities:
Equity proceeds 15,048 -- -- -- 15,048
Proceeds from issuance of
long-term obligations........ 337,500 -- -- -- 337,500
Repayment of long-term
obligations.................. -- (450) (4,635) -- (5,085)
Financing fees and other........ (14,000) -- -- -- (14,000)
--------- -------- ------- --------- ---------
Net cash from financing
activities...................... 338,548 (450) (4,635) -- 333,463
--------- -------- ------- --------- ---------
Net change in cash................ $ (2,390) $ 2,013 $ 377 $ -- $ --
========= ======== ======= ========= =========
</TABLE>
22
<PAGE> 24
13. SUBSEQUENT EVENT FOOTNOTE
On December 12, 1995, the Company entered into a letter of intent to
acquire the assets and business activities of Dekko Wire Technology Group
for $166,000, subject to certain purchase price adjustments.
23
<PAGE> 25
INTERNATIONAL WIRE GROUP, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLLECTION OF
BALANCE AT PREVIOUSLY BALANCE AT
BEGINNING WRITTEN OFF END OF
OF PERIOD PROVISION WRITEOFFS ACCOUNTS ACQUISITIONS PERIOD
--------- --------- --------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Seven months ended
December 31, 1995...................... $845 $ 33 $(53) $ 35 $ - $860
</TABLE>
24
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Wirekraft Holdings Corp.:
We have audited the accompanying consolidated balance sheet of Wirekraft
Holdings Corp. and subsidiaries (formerly WB Holdings Inc.) as of November 30,
1994, and the consolidated statements of operations, stockholders' equity, and
cash flows for the six months ended May 31, 1995, the year ended November 30,
1994 and for the period December 22, 1992 (date of acquisition) through
November 30, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Wirekraft
Holdings Corp. and subsidiaries as of November 30, 1994 and the consolidated
results of their operations and their cash flows for the six months ended May
31, 1995, the year ended November 30, 1994 and the period December 22, 1992
(date of acquisition) through November 30, 1993, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
January 27, 1996
25
<PAGE> 27
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
CONSOLIDATED BALANCE SHEETS
AT NOVEMBER 30, 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 2,053
Accounts receivable, less allowance of $405 ................................ 28,000
Inventories ................................................................ 25,392
Deferred income taxes ...................................................... 306
Prepaid expenses and other ................................................. 1,984
--------
Total current assets ..................................................... 57,735
Property, plant and equipment, net ............................................ 33,226
Deferred financing costs, net ................................................. 6,941
Intangible assets, net ........................................................ 77,805
Other assets .................................................................. 2,781
--------
Total assets ............................................................. $178,488
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................... $ 22,364
Accrued and other liabilities .............................................. 5,801
Accrued interest ........................................................... 1,369
Income taxes payable ....................................................... 2,288
Current maturities of long-term obligations ................................ 7,590
--------
Total current liabilities ................................................ 39,412
Long-term obligations, less current maturities ................................ 104,049
Deferred income taxes ......................................................... 5,797
Other long-term liabilities ................................................... 856
--------
Total liabilities ........................................................ 150,114
Stockholders' equity:
Common stock, $.01 par value, 50,000,000 shares authorized,
20,000,000 shares issued and outstanding ................................. 200
Class A common stock, $.01 par value, 3,000,000 shares
authorized, 2,402,402 shares issued and outstanding ...................... 24
Additional paid-in capital ................................................. 22,576
Retained earnings .......................................................... 5,574
--------
Total stockholders' equity ............................................... 28,374
--------
Total liabilities and stockholders' equity ............................... $178,488
========
</TABLE>
See accompanying notes to the consolidated financial statements
26
<PAGE> 28
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 22, 1992
(DATE OF ACQUISITION)
SIX MONTHS ENDED YEAR ENDED THROUGH
MAY 31, 1995 NOVEMBER 30, 1994 NOVEMBER 30, 1993
--------------- ----------------- -------------------
<S> <C> <C> <C>
Net sales ...................................... $ 168,053 $ 240,972 $ 181,188
Operating expenses:
Cost of goods sold .......................... 138,851 201,602 150,092
Selling, general and administrative ......... 13,301 14,319 10,582
Depreciation and amortization ............... 6,474 6,435 4,496
Compensation expense ........................ 895 -- --
Expenses related to sale .................... 501 -- --
Expenses related to plant closings .......... 2,000 -- --
--------------- --------------- ---------------
Operating income ............................... 6,031 18,616 16,018
Other income (expense):
Interest expense ............................ (8,020) (10,565) (8,645)
Amortization of deferred financing costs .... (1,657) (1,995) (1,677)
--------------- --------------- ---------------
Income (loss) before income tax provision
and extraordinary item ...................... (3,646) 6,056 5,696
Income tax provision (benefit) ................. (2,114) 3,023 3,155
--------------- --------------- ---------------
Income (loss) before extraordinary item ........ (1,532) 3,033 2,541
Extraordinary item - loss due to early
extinguishment of debt, net of income
tax of $4,930 ............................... (7,835) -- --
--------------- --------------- ---------------
Net income (loss) .............................. $ (9,367) $ 3,033 $ 2,541
=============== =============== ===============
</TABLE>
See accompanying notes to the consolidated financial statements
27
<PAGE> 29
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED MAY 31, 1995,
THE YEAR ENDED NOVEMBER 30, 1994 AND
THE PERIOD FROM DECEMBER 22, 1992(DATE OF ACQUISITION)
THROUGH NOVEMBER 30, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A ADDITIONAL RETAINED
PREFERRED COMMON COMMON PAID-IN EARNINGS
STOCK STOCK STOCK CAPITAL (DEFICIT) TOTAL
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock ..... $ -- $ 200 $ -- $ 19,800 $ -- $ 20,000
Issuance of Class A common
stock ..................... -- -- 24 -- -- 24
Issuance costs ............... -- -- -- (500) -- (500)
Issuance of equity rights .... -- -- -- 3,276 -- 3,276
Net income ................... -- -- -- -- 2,541 2,541
-------- -------- -------- -------- -------- --------
Balance November 30, 1993 .... -- 200 24 22,576 2,541 25,341
Net income ................... -- -- -- -- 3,033 3,033
-------- -------- -------- -------- -------- --------
Balance November 30, 1994 .... -- 200 24 22,576 5,574 28,374
Issuance of preferred stock .. 10 -- -- 24,990 -- 25,000
Issuance of common stock ..... -- 3 -- 747 -- 750
Issuance costs ............... -- -- -- (300) -- (300)
Net loss ..................... -- -- -- -- (9,367) (9,367)
-------- -------- -------- -------- -------- --------
Balance May 31, 1995 ......... $ 10 $ 203 $ 24 $ 48,013 $ (3,793) $ 44,457
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements
28
<PAGE> 30
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 22, 1992
(DATE OF ACQUISITION)
SIX MONTHS ENDED YEAR ENDED THROUGH
MAY 31, 1995 NOVEMBER 30, 1994 NOVEMBER 30, 1993
-------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss) ......................................... $ (9,367) $ 3,033 $ 2,541
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Extraordinary item ........................................ 12, 765 -- --
Depreciation and amortization ............................. 6,474 6,435 4,496
Amortization of deferred financing costs .................. 1,493 1,667 1,349
Accretion of debt discount ................................ 164 328 328
Deferred income taxes ..................................... (4,282) (325) 1,542
Change in assets and liabilities, net of acquisitions:
Accounts receivable ..................................... (9,863) (7,928) (2,574)
Inventories ............................................. (824) (6,622) (1,768)
Prepaid expenses and other .............................. (166) (2,951) (1,921)
Accounts payable ........................................ (617) 8,231 2,136
Accrued and other liabilities ........................... 2,628 (281) 84
Accrued interest ........................................ 1,276 (1,217) 2,586
Income taxes payable/refundable ......................... (3,366) 2,443 207
Other long-term liabilities ............................. (236) (495) (386)
-------------- -------------- --------------
Net cash from operating activities ........................... (3,921) 2,318 8,620
-------------- -------------- --------------
Cash flows provided by (used in) investing activities:
Acquisitions, net of cash ................................. (44,973) (11,754) (111,321)
Capital expenditures, net ................................. (2,914) (6,248) (3,705)
-------------- -------------- --------------
Net cash from investing activities ........................... (47,887) (18,002) (115,026)
-------------- -------------- --------------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of long-term obligations ........... 24,000 12,674 98,224
Equity proceeds ........................................... 25,750 -- 23,300
Borrowings of long-term obligations ....................... 19,639 22,995 13,306
Repayment of long-term obligations ........................ (14,226) (17,481) (19,307)
Financing fees and other .................................. (3,500) (691) (8,877)
-------------- -------------- --------------
Net cash from financing activities ........................... 51,663 17,497 106,646
-------------- -------------- --------------
Net change in cash and cash equivalents ...................... (145) 1,813 240
Cash and cash equivalents at beginning of the period ......... 2,053 240 0
-------------- -------------- --------------
Cash and cash equivalents at end of the period ............... $ 1,908 $ 2,053 $ 240
============== ============== ==============
</TABLE>
See accompanying notes to the consolidated financial statements
29
<PAGE> 31
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MAY 31, 1995,
THE YEAR ENDED NOVEMBER 30, 1994 AND
THE PERIOD FROM DECEMBER 22, 1992 (DATE OF ACQUISITION)
THROUGH NOVEMBER 30, 1993
(IN THOUSANDS, EXCEPT SHARE DATA)
1. THE COMPANY
WB Holdings Inc. ("Holdings"), a Delaware corporation, was formed to
participate in the December 21, 1992 Acquisition (defined below). Holdings
had no operations prior to December 21, 1992.
On December 2, 1994, Holdings, through a series of mergers, became a
wholly-owned subsidiary of Wirekraft Holdings Corp. ("New Holdings"
together with Holdings, the "Company"). Pursuant to the mergers, the
existing stockholders of Holdings exchanged their Holdings securities for
New Holdings securities that have terms identical to the exchanged
Holdings securities. New Holdings, a Delaware corporation, was formed to
participate in the acquisition of Electro Componentes de Mexico S.A. de
C.V. ("ECM") as discussed in Note 2. New Holdings had no operations prior
to December 2, 1994. Holdings and New Holdings have a fiscal year-end of
November 30.
On December 21, 1992, Holdings, through a series of acquisitions and
mergers, acquired all of the issued and outstanding common stock of
Bristol Holding Corporation and Burcliff Holdings Corporation, the parent
companies of the general partners of Kirtland Indiana, Limited Partnership
for a total consideration of $116,997 (the "Acquisition"). Through a
related series of mergers after the Acquisition, Bristol Holding
Corporation became the surviving entity. Bristol Holding Corporation was
later renamed Wirekraft Industries, Inc. ("Wirekraft") (together with
Holdings, the "Company"). Wirekraft through its two segments, the Wire
Segment and the Harness Segment, is engaged in the manufacture, design and
distribution of insulated wire and wire harnesses used primarily in the
appliance and automobile markets. The Company markets and distributes its
products through a combination of internal sales representatives and
independent sales representatives, selling primarily to original equipment
manufacturers.
The total cost of the Acquisition consisted of $57,967 for issued and
outstanding common stock, $42,877 for the retirement of existing
indebtedness, $1,175 for outstanding warrants and $14,978 for fees and
expenses. The Acquisition was accounted for using the purchase method of
accounting whereby the total acquisition cost was allocated to the
acquired net assets based on their respective fair values. The 1993
results of operations of Wirekraft, included in the consolidated financial
statements, are for the period from the date of the Acquisition through
November 30, 1993.
The total acquisition cost was allocated to the acquired net assets as
follows:
<TABLE>
<S> <C>
Current assets.................................................... $29,461
Property, plant and equipment..................................... 19,980
Goodwill.......................................................... 80,319
Fees and costs.................................................... 9,580
Other noncurrent assets........................................... 386
Current liabilities............................................... (16,365)
Other liabilities................................................. (6,364)
--------
$116,997
========
</TABLE>
30
<PAGE> 32
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. ECM ACQUISITION
On December 2, 1994, through a series of acquisitions and transfers from
New Holdings, Wirekraft acquired the stock of ECM and certain assets from
General Electric Company. The purchase price, including fees and expenses,
was approximately $49,550. The purchase price consisted of $20,000 in
cash, 1,000,000 shares of Series A Senior Preferred Stock, par value $.01
per share, $25 liquidation preference and 275,758 shares of common stock
of New Holdings.
The acquisition of ECM was accounted for using the purchase method of
accounting whereby the total acquisition cost was allocated to the
acquired net assets based on their respective fair values. The total
acquisition cost was allocated to the acquired net assets as follows:
<TABLE>
<S> <C>
Current assets.................................................... $ 8,211
Property, plant and equipment..................................... 8,288
Intangibles....................................................... 37,958
Fees and costs.................................................... 3,500
Current liabilities and other reserves............................ (8,407)
--------
$ 49,550
========
</TABLE>
Unaudited pro forma data, which show condensed results of operations for
the year ended November 30, 1994 as though the acquisition and related
financing of ECM had occurred at the beginning of the period is as
follows:
<TABLE>
<S> <C>
Net sales.......................................................... $ 319,486
Net income......................................................... $ 5,758
</TABLE>
3. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements for the year ended November 30, 1994
and the period from December 22, 1992 (date of Acquisition) through
November 30, 1993 include the accounts of Holdings and its wholly-owned
subsidiary, Wirekraft. The consolidated financial statements for the six
months ended May 31, 1995 include the accounts of New Holdings and its
wholly-owned subsidiary, Holdings. All material intercompany balances and
transactions have been eliminated in consolidation.
Revenue Recognition
Sales and related costs of goods sold are included in income when goods
are shipped to customers.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the last-in, first-out ("LIFO") method.
31
<PAGE> 33
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is
calculated using the straight-line method. The average estimated lives
utilized in calculating depreciation are as follows: buildings and
improvements - 25 years; machinery and equipment - 7 years; and furniture
and fixtures - 5 years. Leasehold improvements are amortized over the
shorter of the term of the respective lease or the life of the respective
improvement.
Intangible Assets
Intangible assets, which consist principally of goodwill arising from the
excess of cost over the value of net assets acquired, are amortized using
the straight-line method over forty years. Accumulated amortization
aggregated $4,040 at November 30, 1994.
Deferred Financing costs
Deferred financing costs, which consists of fees and other expenses
associated with the debt financing, are amortized over the term of the
related debt using the effective interest method and the straight-line
method which approximates the effective interest method.
Income Taxes
Deferred income taxes are determined using the liability method.
Statement of Cash Flows
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with maturities of three
months or less to be cash equivalents. Interest paid for the six months
ended May 31, 1995, the year ended November 30, 1994 and the period from
December 22, 1992 through November 30, 1993 was approximately $6,744,
$11,803 and $5,908, respectively. Taxes paid for the six months ended May
31, 1995, the year ended November 30, 1994 and the period from December
22, 1992 through November 30, 1993 were approximately $604, $905 and
$2,755, respectively. In connection with the Acquisition, the Company
assumed liabilities aggregating $22,729, which is a noncash investing
activity.
During the six months ended May 31, 1995, the Company entered into a
capital lease obligation of $4,714 for new equipment.
Fair Value of Financial Instruments
The fair market values of the financial instruments included in the
consolidated financial statements approximates the carrying values of the
financial instruments.
32
<PAGE> 34
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Concentration of Credit Risk
Accounts receivable from companies located throughout the United States in
the appliance and automotive industries amounted to approximately $12,397
and $15,684, respectively at November 30, 1994. Sales to the Company's
five largest customers represented 61% of net sales for the six months
ended May 31, 1995 and 51% and 56% of net sales in 1994 and 1993,
respectively. A significant portion of the Company's sales are to three
major customers within the Harness Segment. Sales to one of these
customers represented 25% of net sales for the six months ended May 31,
1995. The Company has entered into a supply contract with this customer
expiring in 2002. Sales to the Company's two other major customers
represented 12% and 7% of net sales for the six months ended May 31, 1995,
17% and 11% of net sales in 1994 and 19% and 14% of net sales in 1993. In
1995, a supply contract with one of the above mentioned customers expired.
A supply contract was subsequently renegotiated through December, 1998.
4. INVENTORIES
The composition of inventories at November 30, 1994 is as follows:
<TABLE>
<S> <C>
Raw Materials.................................................... $12,368
Work-in-process.................................................. 3,581
Finished goods................................................... 9,443
-------
Total inventories............................................ $25,392
=======
</TABLE>
The current cost of inventories is approximately $24,893 at November 30,
1994.
5. PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment at November 30, 1994 is
as follows:
<TABLE>
<S> <C>
Land........................................................... $ 1,030
Buildings and improvements..................................... 12,387
Machinery and equipment........................................ 25,333
Less, accumulated depreciation................................. (5,524)
--------
Total...................................................... $ 33,226
========
</TABLE>
6. FINANCING COSTS AND RELATED PARTY TRANSACTIONS
In connection with the Acquisition and ECM acquisition, the Company
incurred aggregate fees and costs of $11,900. Costs of $11,100 related to
the Notes and Credit Agreement (see Note 7) are included in deferred
financing costs and are amortized over the term of the related borrowings.
Costs of $800 related to the issuance of Holding's common stock have been
deducted from the proceeds to reduce the carrying value of the common
stock.
In connection with the Acquisition and the related financing, Holdings and
Wirekraft entered into a Monitoring and Oversight Agreement ("Agreement")
with Hicks, Muse & Co., Incorporated ("Hicks, Muse") (an affiliate of
33
<PAGE> 35
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
the Company) pursuant to which the Company paid Hicks, Muse a financial
advisory fee of $1,725. The fees, which also include $200 paid in
connection with the acquisition of Ristance and $750 paid in connection
with the acquisition of ECM, have been allocated to the Company's debt and
equity securities as deferred financing costs or as a deduction from the
cash proceeds received from the sale of stock. The Agreement further
provides that the Company shall pay Hicks, Muse an annual fee of $115
(subject to adjustment), for ten years, for monitoring and oversight
services. Such Agreement was amended and restated in connection with the
acquisition of ECM to increase the annual fee for financial advisory
services to $200 (subject to adjustment). The obligation under the
Agreement, as amended, and the related deferred financing costs have been
recorded in the consolidated balance sheet.
7. LONG-TERM OBLIGATIONS
The composition of long-term obligations at November 30, 1994 is as
follows:
<TABLE>
<S> <C>
Credit Agreement:
Revolving credit facility................................................$ 23,190
Term Facility............................................................ 50,557
Senior Subordinated Notes (net of $2,620 of unamortized discount)......... 37,380
Capital leases............................................................. 512
--------
111,639
Less, current maturities................................................. (7,590)
--------
$104,049
========
</TABLE>
The schedule of principal payments, for long-term obligations at November
30, 1994, is as follows:
<TABLE>
<S> <C> <C>
1995....................................................................... $ 7,590
1996....................................................................... 8,726
1997....................................................................... 9,723
1998....................................................................... 10,674
1999....................................................................... 11,651
Thereafter................................................................. 63,275
--------
$111,639
========
</TABLE>
Credit Agreement
In connection with the acquisition of ECM, the Company entered into an
Amended and Restated Credit Agreement (the "Amended Credit Agreement")
dated as of December 2, 1994, among Wirekraft and certain financial
institutions. Borrowings under the Amended Credit Agreement are
collateralized by first priority mortgages and liens on substantially all
of the assets of Wirekraft. In addition, borrowings under the Amended
Credit Agreement are guaranteed by Holdings.
The Amended Credit Agreement consists of a $50,932 term loan (the "Term
Loan A"), a $32,625 term loan (the "Term Loan B" together with the Term
Loan A, the "Term Facility") and a $38,000 revolving credit facility (the
"Revolver"). The Revolver provides that up to $5,000 of such facilities
may be used for the issuance of letters of credit and credit guarantees.
At May 31, 1995, Wirekraft had approximately $930 of credit guarantees
outstanding. At May 31, 1995, there was $15,495 of unused borrowing
capacity under the Amended Credit Agreement. The
34
<PAGE> 36
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Amended Credit Agreement contains several financial covenants, which among
other things, require Wirekraft to maintain certain financial ratios and
restrict Wirekraft's ability to incur indebtedness, make capital
expenditures and pay dividends. The commitment fee on the unused portion
of the Revolver is .5% per annum on the daily available balance.
Mandatory principal payments on the Term Facility are due in quarterly
installments. The final installment on the Term Facility is due on March
1, 2000 at which time the Revolver is also due. Additionally, the Amended
Credit Agreement requires annual prepayments of the Term Facility based on
"Excess Cash Flow," (as defined in the Amended Credit Agreement).
Borrowings under the Term Loan A and Revolver bear interest, at the option
of Wirekraft, at a rate per annum equal to (a) the Base Rate (as defined
in the Amended Credit Agreement) plus 1.5% or (b) the Libor Rate (as
defined in the Amended Credit Agreement) plus 2.75%. Borrowings under the
Term Loan B bear interest, at the option of Wirekraft, at a rate per annum
equal to (a) the Base Rate (as defined in the Amended Credit Agreement)
plus 2.0% or (b) the Libor Rate (as defined in the Amended Credit
Agreement) plus 3.25%. The Base Rate and Libor rate margins are
established quarterly based on a formula as defined in the Amended Credit
Agreement. Interest payment dates vary depending on the interest rate
option to which the Term Facility and the Revolver are tied, but generally
interest is payable quarterly. At May 31, 1995, the average weighted
interest rate on outstanding borrowings is 9.52%.
The Amended Credit Agreement requires Wirekraft to enter into interest
rate hedging arrangements to hedge against interest rate fluctuations.
Wirekraft has entered into an agreement which provides a ceiling of 7.75%
on $20,000 of indebtedness expiring February 1995 and a ceiling of 7.75%
on $14,000 of indebtedness until February 1996. The cost of the hedge
agreement is being amortized on a straight-line basis over the term of the
hedge agreement.
Senior Subordinated Notes
The 12% Senior Subordinated Notes due 2003 (the "Notes") were issued
pursuant to the Senior Subordinated Notes Purchase Agreement dated as of
December 21, 1992 (the "Note Agreement") among Wirekraft, Holdings, and
the purchasers named therein in connection with the Acquisition. The Notes
represent unsecured general obligations of Wirekraft and are subordinated
to all Senior Debt (as defined in the Note Agreement) of Wirekraft. The
Notes are guaranteed by the Company.
The Notes mature on January 31, 2003, and bear interest at the rate of 12%
per annum, payable quarterly on each January 31, April 30, July 31 and
October 31. The Notes may not be redeemed prior to January 31, 1997,
except in the event of a Change of Control (as defined in the Note
Agreement) or Initial Public Offering (as defined in the Note Agreement).
The Notes may be redeemed on or after January 31, 1997, in whole or from
time to time in part, at the option of the Company, at a redemption price
of 106.67% in 1997 with annual reductions to 100% in 2002 and, thereafter,
the Company is required to redeem $6,750 of the aggregate principal amount
of the Notes at 100% of the principal amount thereof, plus accrued but
unpaid interest to the redemption date, commencing July 31, 2000, and each
six months thereafter until January 31, 2003.
The Notes were issued as original issue discount ("OID") notes with the
OID credited to additional paid-in-capital.
35
<PAGE> 37
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Unamortized OID on the Notes is being amortized using an effective
interest rate of 13.6%. Concurrent with the issuance of the Notes, equity
rights certificates to acquire 3,276,003 shares of common stock were
issued to the holders of the Notes. The rightholders may exercise the
equity rights certificates, on any business day, for all or any part of
the number of shares of underlying common stock issuable under such
certificates. Upon the effective date of an Initial Public Offering (as
defined in the Note Agreement) the Company shall have the right to cause
the equity rights certificate to be immediately exercised, and on January
31, 2003, the equity rights certificates shall be deemed to be exercised.
The Notes restrict among other things, the incurrence of additional
indebtedness by Wirekraft, the payment of dividends and other
distributions in respect of Wirekraft's capital stock, the creation of
liens on the properties and the assets of Wirekraft to collateralize
certain subordinated debt and certain mergers, sales of assets and
transactions with affiliates.
8. STOCKHOLDERS' EQUITY
The authorized capital stock of the Company at May 31, 1995 consists of
50,000,000 shares of common stock, 3,000,000 shares of Class A common
stock, and 10,000,000 shares of preferred stock. In connection with the
financing of the Acquisition, the Company issued 20,000,000 shares of
common stock, 2,402,402 shares of Class A common stock and 1,621,622
warrants to purchase common stock. Each warrant represents the right to
purchase one (1) share of the Company's common stock for $1.00 per
warrant. The warrants expire on December 31, 2002. As of May 31, 1995, no
warrants had been exercised. On December 2, 1994, in connection with the
acquisition of ECM, the Company issued 1,000,000 shares of Series A Senior
Preferred Stock and 275,758 shares of common stock.
The Class A common stock may be converted into shares of common stock at
the option of the holder at any time. In addition, shares of the Class A
common stock (i) may be converted into common stock at the option of the
Company effective immediately prior to the occurrence of a Triggering
Event (as defined in the Company's Certificate of Incorporation) or (ii)
shall automatically be converted on December 31, 2002. Such conversions
are based on a formula set forth in the Company's Certificate of
Incorporation.
Dividends are payable to holders of the common stock and Class A common
stock in amounts as and when declared by the Company's board of directors,
subject to legally available funds and certain agreements governing the
Company's indebtedness. In the event of any liquidation, dissolution or
winding up of the Company, before any payment or distribution of the
assets of the Company shall be made to the holders of the Class A common
stock, each share of common stock shall be entitled to a liquidation
preference based on a formula set forth in the Company's Certificate of
Incorporation. The common stock and the Class A common stock are entitled
to one vote per share on all matters submitted to a vote of stockholders.
The Company has adopted a qualified and non-qualified incentive stock
option plan (the "Option Plan") for officers and key employees of
Holdings. A total of 1,471,000 shares of the Company's common stock has
been reserved for issuance under the Option Plan. Under the Option Plan,
eligible participants may receive qualified and non-qualified options to
purchase shares of the Company's common stock.
36
<PAGE> 38
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Options are exercisable at such time and on such terms as the committee
appointed to administer the Option Plan (the "Committee") determines. The
exercise price for the options granted under the Option Plan may not be
less than the fair market value of the underlying share, as determined by
the Committee on the date of grant. Generally, an option may be exercised
only if the holder is an officer or employee of the Company at the time of
exercise. Options granted under the Option Plan are not transferable,
except by will and the laws of descent and distribution. During the period
ended November 30, 1993, the Company granted options to purchase 1,033,000
shares of common stock at $1.00 per share, and no options were exercised
during the period. During the year ended November 30, 1994, the Company
granted options to purchase 75,000 shares of common stock at $2.74 per
share and canceled 235,200 options. No options were exercised during the
year. During the six months ended May 31, 1995, the Company granted
options to purchase 100,000 shares of common stock at $2.74 per share,
cancelled 188,800 shares and 20,000 options were exercised. At May 31,
1995, there were 764,000 options available for issuance under the Option
Plan.
9. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Period from
December 22, 1992
Six Months (Date of Acquisition)
Ended Year Ended through
May 31, November 30, November 30,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal ...................... $ 1,022 $ 2,741 $ 1,250
State ........................ 892 607 363
Foreign ...................... 254 -- --
---------- ---------- ----------
2,168 3,348 1,613
---------- ---------- ----------
Deferred:
Federal ...................... (3,159) (124) 1,214
State ........................ (1,123) (201) 328
---------- ---------- ----------
(4,282) (325) 1,542
---------- ---------- ----------
Total ................... $ (2,114) $ 3,023 $ 3,155
========== ========== ==========
</TABLE>
Reconciliation between the Federal statutory income tax rate and the
effective tax rate is summarized below:
<TABLE>
<CAPTION>
Period from
December 22, 1992
Six Months (Date of Acquisition
Ended Year Ended through
May 31, November 30, November 30,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Federal taxes at statutory rate (34%) .... $ (1,240) $ 2,059 $ 1,937
State taxes, net of federal effect ....... 210 268 456
Foreign .................................. (1,468) -- --
Nondeductible assets ..................... 340 680 680
Other .................................... 44 16 82
---------- ---------- ----------
Provision (benefit) for income taxes ..... $ (2,114) $ 3,023 $ 3,155
========== ========== ==========
</TABLE>
37
<PAGE> 39
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The tax effects of significant temporary differences representing
deferred tax assets and liabilities at November 30, 1994 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Accounts receivable reserves ................................ $ 103
Accrued liabilities not yet deductible ...................... 749
----------
852
Deferred tax liabilities:
Depreciation and amortization ............................... 4,554
Inventories ................................................. 546
Other ....................................................... 1,243
----------
6,343
Net deferred tax liability .................................... 5,491
Deferred taxes - current asset (liability) .................... 306
----------
Deferred taxes-noncurrent ..................................... $ 5,797
==========
</TABLE>
10. PLANT CLOSING EXPENSE
In May, 1995, the Company recorded a pretax charge to operations of
$2,000 to provide for plant closing costs. The Company's decision to
shut-down certain harness segment plants was the result of a customer
transitioning certain wire harness purchases to its own captive
operations in Mexico and other third party suppliers. The plant closing
costs include provisions for shut-down costs from the period of the
plant closure to the date of disposal, commitment costs for leased
equipment and severance related costs.
11. RETIREMENT BENEFITS
Employees of Wire Division, who are eligible under Section 414(q) of the
Internal Revenue Code, may participate in the profit sharing plan
sponsored by the Company. The plan qualifies under the Internal Revenue
Code Section 401(k), and the Company may at its discretion make
contributions on a matching or non-matching basis. Employees of the Wire
Division with approximately one year of service may also participate in
a money purchase pension plan sponsored by the Company. The Company is
required to make contributions to the money purchase pension plan equal
to 3% of an employee's eligible compensation as defined in the plan
document. Expense under these two plans amounted to approximately $363,
$451 and $341 for the six months ended May 31, 1995, for the year ended
November 30, 1994 and for the period December 22, 1992 through November
30, 1993, respectively.
38
<PAGE> 40
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. LEASES
The Company leases certain of its manufacturing facilities and equipment
under long-term lease agreements with lease terms expiring through
February 2004. Rent expense applicable to the noncancelable operating
leases aggregated $505, $436 and $431 for the six months ended May 31,
1995, for the year ended November 30, 1994, and for the period December
22, 1992, through November 30, 1993, respectively.
The schedule of future minimum lease payments by calendar year under
operating leases at November 30, 1994 is as follows:
<TABLE>
<S> <C> <C>
1995.................................................................. $1,645
1996.................................................................. 1,607
1997.................................................................. 1,567
1998.................................................................. 1,324
1999.................................................................. 1,234
Thereafter............................................................ 1,723
</TABLE>
13. CONTINGENCIES
The company is subject to various lawsuits and claims with respect to
such matters as patents, product liabilities, government regulations,
and other actions arising in the normal course of business. In the
opinion of management, the ultimate liabilities resulting from such
lawsuits and claims will not have a material adverse effect on the
Company's consolidated financial conditions and results of operations.
14. OTHER ACQUISITIONS
On December 10, 1993, Wirekraft acquired certain assets and related
liabilities of the wire business of the Ristance division of Echlin
Corporation ("Ristance"). The purchase price, including fees and
expenses, paid in cash, was approximately $11,800 which was funded
through additional borrowings under the Credit Agreement. The
acquisition of Ristance was accounted for using the purchase method of
accounting and, accordingly, the purchase price was allocated to assets
and liabilities acquired based upon their fair value at the date of the
acquisition. The sales and earnings of Ristance for the period from
December 22, 1992 through November 30, 1993 are not significant to the
Company's operations.
39
<PAGE> 41
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. BUSINESS SEGMENT INFORMATION
Certain information concerning the Company's operating segments for the
six months ended May 31, 1995, the year ended November 30, 1994, and the
period from December 22, 1992, through November 30, 1993, is presented
below. Total revenue by segment includes both sales to customers and
intersegment sales, which are accounted for at prices charged to
customers and eliminated in consolidation.
<TABLE>
<CAPTION>
Wire Harness Consolidated
---------- ---------- ------------
<S> <C> <C> <C>
Six Months ended May 31, 1995
Total revenue ........................ $ 88,488 $ 88,620
Intersegment sales ................... 7,807 1,248
---------- ----------
Sales to customers ................... $ 80,681 $ 87,372 $ 168,053
========== ==========
Operating income ..................... 1,320 4,711 6,031
Depreciation and amortization ........ 2,534 3,940 6,474
Capital expenditures, net ............ 1,636 1,278 2,914
Year Ended November 30, 1994
Total revenue ........................ $ 153,014 $ 101,167
Intersegment sales ................... 13,209 --
---------- ----------
Sales to customers ................... $ 139,805 $ 101,167 $ 240,972
========== ==========
Operating income ..................... 9,433 9,183 18,616
Identifiable assets .................. 120,129 58,359 178,488
Depreciation and amortization ........ 4,451 1,984 6,435
Capital expenditures, net ............ 5,819 429 6,248
Period Ended November 1993
Total revenue ........................ $ 107,625 $ 86,374
Intersegment sales ................... 12,811 --
---------- ----------
Sales to customers ................... $ 94,814 $ 86,374 $ 181,188
========== ==========
Operating income ..................... 9,482 6,536 16,018
Depreciation and amortization ........ 3,005 1,491 4,496
Capital expenditures, net ............ 2,103 1,602 3,705
</TABLE>
40
<PAGE> 42
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
16. SUBSEQUENT EVENT
On June 12, 1995, International Wire Holding Company, through a series of
mergers and acquisitions acquired all of the outstanding common stock of
New Holdings (the "Transaction"). The Company has designated June 1, 1995,
as the effective date of the Transaction for financial reporting purposes.
In connection with the Transaction, the majority of the Company's
long-term debt was repaid, the common stock of New Holdings was redeemed
at $51,751, the Series A Senior Preferred Stock issued as part of the ECM
acquisition (see Note 2) was redeemed at a liquidation value of $26,250
plus accrued dividends of $71 and the warrants and equity rights discussed
in Notes 7 and 8 were retired at $10,133. As a result of the early
repayment of certain long-term debt, $7,909 of deferred financing costs
and $2,456 of OID were charged off and included as an extraordinary item
in the accompanying Statements of Operations for the six months ended May
31, 1995. In addition, the Company paid a prepayment penalty of $2,400 to
holders of subordinated notes. This amount has also been included in the
accompanying Statements of Operations as an extraordinary item. The stock
options granted pursuant to the Company's stock option plan were cancelled
for payment to the option holders who received cash (see Note 8). This
amount totalled approximately $895 and has been included in the Statements
of Operations as compensation expense for the six months ended May 31,
1995. In connection with the sale, the Company incurred expenses of $501
which has been recorded in the Statements of Operations as expenses
related to sale.
17. RESTATEMENT OF FINANCIAL INFORMATION
The Company has restated its previously issued financial statements for the
six months ended May 31, 1995 to reflect certain adjustments. These
adjustments relate primarily to corrections of certain depreciation and
interest expenses and recognition of certain costs associated with plant
closings. Additionally, adjustments were made to correct for the effective
tax rate and tax benefit obtained as a result of the extraordinary item.
The impact of these adjustments on the Company's financial results as
originally reported is summarized below:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDING
MAY 31, 1995
----------------------------
AS REPORTED AS RESTATED
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Income (loss) before income taxes and
extraordinary item....................... $ (1,099) $(3,646)
Net income (loss).......................... $(14,491) $(9,367)
Retained earnings (deficit)................ $ (8,917) $(3,793)
</TABLE>
These adjustments are reflected in the Company's accompanying consolidated
statements of operations.
41
<PAGE> 43
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLLECTION OF
BALANCE AT PREVIOUSLY BALANCE AT
BEGINNING WRITTEN OFF END OF
OF PERIOD PROVISION WRITEOFFS ACCOUNTS ACQUISITIONS PERIOD
--------- --------- --------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended November 30, 1994.............. $358 $ 19 $ 1 $ 9 $ 20 $405
</TABLE>
42
<PAGE> 44
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Omega Wire Corp.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Omega Wire Corp. and subsidiaries for
the two months ended May 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
Omega Wire Corp. and subsidiaries for the two months ended May 31, 1995, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
January 27, 1996
43
<PAGE> 45
OMEGA WIRE CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
TWO MONTHS ENDED MAY 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Net sales .......................................................... $ 23,295
Operating expenses:
Cost of goods sold .............................................. 17,512
Selling, general and administrative ............................. 1,639
Depreciation and amortization ................................... 1,233
--------
Operating income ................................................... 2,911
Other income (expense):
Interest expense ................................................ (1,797)
Amortization of deferred financing costs ........................ (238)
--------
Income before income tax provision and extraordinary item .......... 876
Income tax provision ............................................... 171
--------
Income before extraordinary item ................................... 705
Extraordinary item - loss due to early extinguishment of debt,
net of income tax of $2,082 ..................................... (4,044)
--------
Net loss ........................................................... $ (3,339)
========
</TABLE>
See accompanying notes to the consolidated financial statements
44
<PAGE> 46
OMEGA WIRE CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
TWO MONTHS ENDED MAY 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Class A Carryover of
Common Common Paid-In Predecessor Accumulated
Stock Stock Capital Basis Deficit Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock ............... $ 420 $ -- $ 41,580 $ -- $ -- $ 42,000
Issuance of Class A common stock ....... -- 63 -- -- -- 63
Issuance costs ......................... -- -- (675) -- -- (675)
Carryover of predecessor basis ......... -- -- -- (20,000) -- (20,000)
Net loss ............................... -- -- -- -- (3,339) (3,339)
-------- -------- -------- -------- -------- --------
Balance May 31, 1995 ................... $ 420 $ 63 $ 40,905 $(20,000) $ (3,339) $ 18,049
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements
45
<PAGE> 47
OMEGA WIRE CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
TWO MONTHS ENDED MAY 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows provided by (used in) operating activities:
Net loss ....................................................... $ (3,339)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Extraordinary item ............................................. 6,126
Depreciation and amortization .................................. 1,233
Amortization of deferred financing costs ....................... 238
Deferred income taxes .......................................... 120
Change in assets and liabilities, net of acquisitions:
Accounts receivable .......................................... 1,528
Inventories .................................................. (510)
Prepaid expenses and other ................................... (231)
Accounts payable ............................................. 919
Accrued and other liabilities ................................ 10
Accrued interest ............................................. 952
Income taxes payable/refundable .............................. (2,033)
Other long-term liabilities .................................. (26)
---------
Net cash from operating activities ................................ 4,987
---------
Cash flows provided by (used in) investing activities:
Acquisition, net of cash ....................................... (159,080)
Capital expenditures, net ...................................... (581)
---------
Net cash from investing activities ................................ (159,661)
---------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of long-term obligations ................ 135,000
Contributed capital ............................................ 34,653
Repayment of long-term obligations ............................. (7,979)
Financing fees and other ....................................... (7,000)
---------
Net cash from financing activities ................................ 154,674
---------
Net change in cash ................................................ --
Cash at beginning of the period ................................... --
---------
Cash at end of the period ......................................... $ --
=========
</TABLE>
See accompanying notes to the consolidated financial statements
46
<PAGE> 48
OMEGA WIRE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWO MONTHS ENDED MAY 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
1. THE COMPANY
Omega Wire Corp. ("Omega" or the "Company"), a Delaware corporation, was
formed to participate in the Acquisition (defined below). Omega had no
operations prior to the Acquisition.
On March 31, 1995, Omega acquired all of the issued and outstanding common
stock of THL-Omega Holding Corporation ("THL-Omega") for a total
consideration $167,300 (the "Acquisition"). See Notes 5 and 6 regarding
the financing of the Acquisition. Omega, through its subsidiaries, is
engaged in the manufacturing and marketing of non-insulated copper wire
and cable products. The Company's products are used by a wide variety of
customers primarily in the automotive and computer and data communications
industries. Omega has a fiscal year-end of December 31.
The total purchase price of the Acquisition of approximately $174,300,
which included the retirement of existing indebtedness and related fees
and costs, is summarized as follows:
<TABLE>
<S> <C>
Cash paid for all issued and outstanding common stock.................. $102,762
Cash paid to retire existing indebtedness.............................. 55,439
Common stock of Omega issued........................................... 7,410
Fees and costs......................................................... 8,689
--------
$174,300
========
</TABLE>
The Acquisition was accounted for using the purchase method of accounting
whereby the total acquisition cost has been preliminarily allocated to the
consolidated assets and liabilities based on their estimated respective
fair values. In accordance with EITF 88-16, "Basis in Leveraged Buyout
Transactions", a portion of the Acquisition has been accounted for at
"predecessor basis". The application of predecessor basis reduced
stockholders' equity and goodwill by $20,000. The purchase price
allocations are still in process. It is not expected that the final
allocation of the purchase cost will result in a materially different
allocation than is presented herein.
The total acquisition costs have been preliminarily allocated to the
acquired net assets as follows:
<TABLE>
<S> <C>
Current assets............................................ $ 40,802
Property, plant and equipment............................. 38,974
Goodwill.................................................. 96,701
Fees and costs............................................ 9,000
Other assets.............................................. 54
Current liabilities....................................... (21,906)
Other liabilities......................................... (9,325)
Carryover of predecessor basis............................ 20,000
--------
$174,300
========
</TABLE>
47
<PAGE> 49
OMEGA WIRE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Omega and
its wholly-owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
Revenue Recognition
Sales and related cost of goods sold are included in income when goods are
shipped to customers.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the last-in, first-out ("LIFO") method.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is
calculated using the straight-line method. The average estimated lives
utilized in calculating depreciation are as follows: buildings - 25-40
years; building improvements - 15 years; machinery and equipment - 3-11
years; and furniture and fixtures - 5 years. Leasehold improvements are
amortized over the shorter of the term of the respective lease or the life
of the respective improvement.
Intangible Assets
Intangible assets consist principally of goodwill arising from the excess
of cost over the value of net assets acquired, which is being amortized
using the straight-line method over forty years. Amortization of
intangible assets amounted to $384 for the two months ended May 31, 1995.
Deferred Financing Costs
Deferred financing costs, consisting of fees and other expenses associated
with the debt financing are amortized over the term of the related debt
using the effective interest method and the straight-line method which
approximates the effective interest method.
Statement of Cash Flows
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments purchased with maturities of three
months or less to be cash equivalents. Interest and taxes paid for the two
months ended May 31, 1995 were $845 and $2, respectively.
In connection with the Acquisition, certain shares of common stock of
THL-Omega were exchanged for common stock of Omega. The total amount of
shares exchanged were $7,410, which was a non-cash investing and financing
activity.
48
<PAGE> 50
OMEGA WIRE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. FINANCING COSTS AND RELATED PARTY TRANSACTIONS
In connection with the Acquisition, the Company incurred aggregate fees
and costs of $7,000. Costs of $6,325 related to the debt financing are
being amortized over the terms of the related borrowings. Costs of $675
related to the issuance of Omega's common stock have been deducted from
the proceeds to reduce the carrying value of the common stock.
In connection with the Acquisition and obtaining the related financing,
Omega entered into a Monitoring and Oversight Agreement ("Agreement") with
Hicks, Muse & Co. Partners, L.P. ("Hicks, Muse") (an affiliate of the
Company) pursuant to which the Company paid Hicks, Muse a cash fee of
$2,525 as compensation for financial advisory services. The fees have been
allocated to the debt and equity securities issued in connection with the
Acquisition as deferred financing costs or as a deduction from the cash
proceeds received from the sale of the common stock of Omega. The
Agreement further provides that the Company shall pay Hicks, Muse an
annual fee of $200, for ten years for monitoring and oversight services
adjusted annually at the end of each fiscal year to an amount equal to .1%
of the consolidated net sales of the Company, but in no event less than
$200 annually.
4. STOCKHOLDERS' EQUITY
The authorized capital stock of the Company consists of 100,000,000 shares
of common stock, 6,333,333 shares of Class A common stock, and 10,000,000
shares of preferred stock. In connection with the financing of the
Acquisition, the Company issued 42,000,000 shares of common stock and
6,333,333 shares of Class A common stock.
The Class A common stock may be converted into shares of common stock at
the option of the holder at any time. In addition, shares of the Class A
common stock (i) may be converted into common stock at the option of the
Company effective immediately prior to the occurrence of a Triggering
Event (as defined in the Company's Certificate of Incorporation) or (ii)
shall automatically be converted on March 31, 2005. Such conversions are
based on a formula set forth in the Company's Certificate of
Incorporation.
Dividends are payable to holders of the common stock and Class A common
stock in amounts as and when declared by the Company's board of directors,
subject to legally available funds and certain agreements governing the
Company's indebtedness. In the event of any liquidation, dissolution or
winding up of the Company, before any payment or distribution of the
assets of the Company shall be made to the holders of the Class A common
stock, each share of common stock shall be entitled to a liquidation
preference based on a formula set forth in the Company's Certificate of
Incorporation. The common stock and the Class A common stock are entitled
to one vote per share on all matters submitted to a vote of stockholders.
49
<PAGE> 51
OMEGA WIRE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. INCOME TAXES
The Company accounts for income taxes in accordance with provisions of
SFAS No. 109. The provision for income taxes for the two months ended May
31, 1995 is as follows:
<TABLE>
<S> <C>
Current:
Federal.................................................................. $ 51
-----
Deferred:
Federal.................................................................. 55
State.................................................................... 65
-----
120
$ 171
=====
</TABLE>
Reconciliation between the Federal statutory income tax rate and the
effective tax rate is summarized below:
<TABLE>
<S> <C> <C>
Federal taxes at statutory rate (34%)..................................... $297
State taxes, net of federal effect........................................ 43
Other .................................................................. (169)
----
Provision for income taxes................................................ $171
====
</TABLE>
6. RETIREMENT PLANS
The Company has a profit sharing plan covering substantially all
employees of Omega Wire Corp. Contributions are made to a trusteed fund
to accumulate as a retirement benefit for employees. The profit sharing
expense amounted to $113 for the two months ended May 31, 1995.
Effective January 1, 1995, the Company implemented a savings plan
permitting substantially all employees to contribute up to 15% of their
salary on a pretax basis to any of the six investment options available.
There are no required Company contributions to the plan.
7. COMMITMENTS
The Company leases certain property, transportation vehicles and other
equipment under operating leases. Total lease expense for the two months
ended May 31, 1995 was approximately $290.
Under the terms of the agreements in effect at May 31, 1995, the Company
has future minimum lease commitments as follows:
<TABLE>
<S> <C> <C>
1995 ............................................................................................ $ 979
1996 ............................................................................................ 1,262
1997 ............................................................................................ 1,202
1998 ............................................................................................ 1,159
1999 ............................................................................................ 1,108
Later years......................................................................................... 9,198
-------
Total minimum lease commitments..................................................................... $14,908
=======
</TABLE>
50
<PAGE> 52
OMEGA WIRE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. CONTINGENCIES
The Company is subject to various lawsuits and claims with respect to
such matters as patents, product liabilities, government regulations, and
other actions arising in the normal course of business. In the opinion of
management, the ultimate liabilities resulting from such lawsuits and
claims will not have a material adverse effect on the Company's
consolidated financial conditions and results of operations.
9. SUBSEQUENT EVENT
On June 12, 1995, International Wire Holding Company ("Holdings"),
through a series of mergers and acquisitions acquired all of the
outstanding common stock of the Company in exchange for certain of its
common equity securities (the "Transaction"). In connection with the
Transaction the Company has been renamed "International Wire Group, Inc."
The Company has designated June 1, 1995, as the effective date of the
Transaction for financial reporting purposes. In connection with the
Transaction the Company's long-term debt was repaid. As a result of the
early repayment of long-term debt, approximately $6,126 of deferred
financing costs were charged off and included as an extraordinary item in
the accompanying Statement of Operations.
10. RESTATEMENT OF FINANCIAL INFORMATION
The Company has restated its previously issued financial statements for
the two months ended May 31, 1995 to reflect adjustments principally
related to correct for the effective tax rate and tax benefit obtained as
a result of the extraordinary items. The impact of these adjustments on
the Company's financial results as originally reported is summarized
below:
<TABLE>
<CAPTION>
FOR THE TWO MONTHS ENDING
MAY 31, 1995
----------------------------
AS REPORTED AS RESTATED
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Income (loss) before income taxes and
extraordinary item......................... $ 876 $ 876
Net income (loss)............................ $(5,750) $(3,339)
Retained earnings (deficit).................. $(5,750) $(3,339)
</TABLE>
These adjustments are reflected in the Company's accompanying consolidated
statements of operations.
51
<PAGE> 53
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
THL-Omega Holding Corporation:
We have audited the accompanying consolidated statements of operations and
retained earnings and cash flows of THL- Omega Holding Corporation and
subsidiaries for the three months ended March 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and retained
earnings and cash flows of THL-Omega Holding Corporation and subsidiaries for
the three months ended March 31, 1995, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
January 27, 1996
52
<PAGE> 54
THL-OMEGA HOLDING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Net sales ...................................................... $ 38,736
Costs and expenses:
Cost of products sold ....................................... 30,638
Selling expenses ............................................ 1,430
General and administrative expenses ......................... 1,493
Compensation expense ........................................ 9,715
Expenses related to sale of Company ......................... 1,689
--------
Loss from operations ........................................... (6,229)
Interest expense ............................................... (1,478)
Other income ................................................... 32
--------
Loss before income taxes and extraordinary item ................ (7,675)
Provision for income taxes ..................................... 484
--------
Loss before extraordinary item ................................. (8,159)
Extraordinary item - loss due to early
extinguishment of debt net of income tax of $765 ............ (1,148)
--------
Net loss ....................................................... (9,307)
Retained earnings - beginning of the year ...................... 13,284
--------
Retained earnings - March 31, 1995 ............................. $ 3,977
========
</TABLE>
See accompanying notes to the consolidated financial statements
53
<PAGE> 55
THL-OMEGA HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows provided by (used in) operating activities:
Net loss ....................................................... $(9,307)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Extraordinary item ............................................. 1,913
Compensation expense ........................................... 9,715
Depreciation and amortization .................................. 1,509
Change in assets and liabilities:
Accounts receivable .......................................... 1,222
Inventories .................................................. 2,826
Prepaid and other current assets ............................. (485)
Accounts payable ............................................. (3,714)
Accrued expenses ............................................. (90)
Income taxes payable ......................................... (5)
Deferred compensation ........................................ 20
-------
Net cash from operating activities ................................ 3,604
-------
Cash flows provided by (used in) investing activities:
Capital expenditures, net ...................................... (1,597)
-------
Net cash from investing activities ................................ (1,597)
-------
Cash flows provided by (used in) financing activities:
Repayment of long-term debt .................................... (1,500)
Net borrowing (repayment) under revolving credit facility ...... (656)
Issuance of notes payable, net ................................. 678
Redemption of common stock ..................................... (58)
-------
Net cash from financing activities ................................ (1,536)
-------
Net increase in cash .............................................. 471
Cash at beginning of period ....................................... 339
-------
Cash at end of period ............................................. $ 810
=======
</TABLE>
See accompanying notes to the consolidated financial statements
54
<PAGE> 56
THL-OMEGA HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1995,
(IN THOUSANDS)
1. THE COMPANY
THL-Omega Holding Corporation and its subsidiaries ("THL-Omega" or the
"Company") are engaged in the manufacturing and marketing of non-insulated
copper wire and cable products. The Company's products are used by a wide
variety of customers primarily in the automotive and computer and data
communications industries.
THL-Omega has a fiscal year-end of December 31.
2. SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of THL-Omega
and its wholly-owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
Revenue Recognition
Sales and related cost of goods sold are included in income when goods are
shipped to customers.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
primarily using the last-in, first-out ("LIFO") method.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is
calculated using the straight-line method. The average estimated lives
utilized in calculating depreciation are as follows: buildings -- 25-40
years; building improvements -- 15 years; machinery and equipment -- 3-11
years; and furniture and fixtures -- 5 years. Leasehold improvements are
amortized over the shorter of the term of the respective lease or the life
of the respective improvement.
Intangible Assets
Intangible assets consist principally of goodwill arising from the excess
of cost over the value of net assets acquired, which is being amortized
using the straight-line method over forty years.
Deferred Financing Costs
Deferred financing costs, consisting of fees and other expenses associated
with the debt financing are amortized over the term of the related debt
using the effective interest method and the straight-line method which
approximates the effective interest method.
55
<PAGE> 57
THL-OMEGA HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Statement of Cash Flows
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments purchased with maturities of three
months or less to be cash equivalents. Interest and taxes paid for the
three months ended March 31, 1995 were $1,548 and $33, respectively.
3. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109. The provision for income taxes for the three months ended
March 31, 1995 is as follows:
<TABLE>
<S> <C>
Current:
Federal................................................................ $384
State.................................................................. 100
----
$484
====
</TABLE>
Reconciliation between the statutory income tax rate and effective tax
rate for the three months ended March 31, 1995 is summarized below:
<TABLE>
<S> <C>
Statutory U. S. federal tax rate.......................................... $(2,610)
State taxes, net of federal benefit....................................... 66
Amortization of non-deductible goodwill and non-deductible expenses....... 3,028
-------
$ 484
=======
</TABLE>
4. RETIREMENT PLANS
The Company has a profit sharing plan covering substantially all employees
of THL-Omega. Contributions are made to a trusteed fund to accumulate as a
retirement benefit for employees. The profit sharing expense amounted to
$249 for the three months ended March 31, 1995.
5. COMMITMENTS AND CONTINGENCIES
The Company leases certain property, transportation vehicles and other
equipment under operating leases. Rent expense for these operating leases
for the three months ended March 31, 1995 was approximately $433.
Under the terms of the agreements in effect at March 31, 1995, the Company
has future minimum lease commitments as follows:
<TABLE>
<S> <C> <C>
1995.....................................................................$ 979
1996..................................................................... 1,262
1997..................................................................... 1,202
1998..................................................................... 1,159
1999..................................................................... 1,108
Later years.............................................................. 9,198
-------
Total minimum lease commitments........................................$14,908
=======
</TABLE>
56
<PAGE> 58
THL-OMEGA HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company is subject to legal proceedings and claims which arise in the
normal course of business. In the opinion of management, the ultimate
liabilities with respect to these actions will not have a material adverse
effect on the Company's financial condition or results of operations.
6. ACQUISITION
On March 31, 1995, ownership of the Company transferred pursuant to the
terms of a Stock Purchase Agreement. Substantially all of the Company's
long-term debt has been repaid. As a result of the early repayment of
certain long-term debt, $1,013 of deferred financing costs was charged off
and included as an extraordinary item in the accompanying Statement of
Operations and Retained Earnings for the three months ended March 31,
1995. In addition, the Company paid a prepayment penalty of $900 to
holders of the subordinated notes. This amount also has been included in
the accompanying Statement of Operations and Retained Earnings as an
extraordinary item. Immediately prior to the sale of the Company, the
Company sold common stock and granted stock options to certain officers
and shareholders for consideration less than the fair value of the common
stock. The difference between the fair value and the amount paid by the
officers and shareholders has been included in the Statement of Operations
and Retained Earnings as compensation expense for the three months ended
March 31, 1995. In connection with the sale, the Company incurred expenses
of $1,689 which has been included in the Statement of Operations and
Retained Earnings as expenses related to sale of Company.
7. RESTATEMENT OF FINANCIAL INFORMATION
The Company has restated its previously issued financial statements for the
three months ended March 31, 1995 to reflect adjustments principally
related to correct for the effective tax rate and tax benefit obtained as
a result of the extraordinary item. The impact of these adjustments on the
Company's financial results as originally reported is summarized below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDING
MARCH 31, 1995
-----------------------------
AS REPORTED AS RESTATED
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Income (loss) before income taxes and
extraordinary item........................ $(7,675) $(7,675)
Net income (loss)........................... $(7,307) $(9,307)
Retained earnings........................... $ 5,977 $ 3,977
</TABLE>
These adjustments are reflected in the Company's accompanying consolidated
statements of operations.
57
<PAGE> 59
REPORT ON INDEPENDENT ACCOUNTANTS
To the Stockholders of
THL-Omega Holding Corporation:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and retained earnings and of cash flows
present fairly, in all material respects, the financial position of THL-Omega
Holding Corporation and its subsidiaries at December 31, 1994 and the results
of their operations and their cash flows for each of the two years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Syracuse, New York
February 10, 1995
58
<PAGE> 60
THL-OMEGA HOLDING CORPORATION
CONSOLIDATED BALANCE SHEET
AT DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash .................................................................................. $ 339
Accounts receivable, less allowance for doubtful accounts of $406 ..................... 23,075
Inventories (Note 2) ................................................................. 17,564
Prepaid and other current assets ..................................................... 1,586
---------
Total current assets ................................................................ 42,564
Property, plant and equipment, at cost, less accumulated depreciation (Notes 3 and 8) .... 38,448
Goodwill ................................................................................. 19,548
Other assets ............................................................................. 1,115
---------
Total assets ........................................................................ $ 101,675
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable ...................................................... $ 1,365
Current portion of long-term debt (Note 4) ............................................ 8,800
Accounts payable ...................................................................... 14,063
Accrued expenses ...................................................................... 4,399
Income taxes payable (Note 5) ......................................................... 5
Deferred income taxes payable (Note 5) ................................................ 1,076
Customers' deposits on spools and reels ............................................... 5,510
---------
Total current liabilities ........................................................... 35,218
Notes payable ............................................................................ 2,390
Long-term debt (Note 4) .................................................................. 43,538
Deferred compensation payable ............................................................ 561
Deferred income taxes (Note 5) ........................................................... 4,560
---------
Total liabilities ................................................................... 86,267
---------
Stockholders' equity (Note 7)
Common stock (voting) -- $.01 par value; 480,000 shares authorized,
326,361 issued and outstanding ...................................................... 3
Common stock (non-voting) -- $.01 par value; 20,000 shares authorized,
18,345 issued and outstanding ....................................................... --
Capital in excess of par value ........................................................ 7,971
Distribution in excess of predecessor net book value .................................. (5,850)
Retained earnings ..................................................................... 13,284
---------
Total stockholders' equity .......................................................... 15,408
---------
Total liabilities and stockholders' equity .......................................... $ 101,675
=========
</TABLE>
See accompanying notes to the consolidated financial statements
59
<PAGE> 61
THL-OMEGA HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1993
----------- -----------
<S> <C> <C>
Net sales ................................. $ 134,457 $ 107,004
Costs and expenses:
Cost of products sold .................. 103,100 84,823
Selling expenses ....................... 5,938 5,217
General and administrative expenses .... 5,836 7,777
----------- -----------
Income from operations .................... 19,583 9,187
Interest expense .......................... (5,932) (6,026)
Other income (expense) .................... 296 772
----------- -----------
Income before income taxes ................ 13,947 3,933
Provision for income taxes ................ (5,787) (1,892)
----------- -----------
Net income ................................ 8,160 2,041
Retained earnings -- beginning of year .... 5,124 3,083
----------- -----------
Retained earnings -- end of year .......... $ 13,284 $ 5,124
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements
60
<PAGE> 62
THL-OMEGA HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................................... $ 8,160 $ 2,041
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Gain on redemption of common stock ............................ -- (89)
Depreciation and amortization ................................. 6,023 5,480
Deferred income taxes ......................................... 2,258 (5)
Deferred compensation ......................................... 81 73
Effect of changes in current assets and liabilities (Note 1) .. (5,458) 2,570
-------- --------
Net cash provided by (used in) operating activities ................ 11,064 10,070
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment, net ................. (8,667) (3,683)
-------- --------
Net cash provided by (used in) investing activities ................ (8,667) (3,683)
-------- --------
Cash flows from financing activities:
Repayment of long-term debt ..................................... (6,042) (5,584)
Net borrowing (repayment) under revolving credit facility ....... 206 (796)
Issuance of notes payable, net .................................. 3,755 --
-------- --------
Net cash provided by (used in) financing activities ................ (2,081) (6,380)
-------- --------
Net increase in cash ............................................... 316 7
Cash at beginning of period ........................................ 23 16
-------- --------
Cash at end of period .............................................. $ 339 $ 23
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements
61
<PAGE> 63
THL-OMEGA HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, AND 1993
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THL-Omega Holding Corporation and its subsidiaries (the Company) are
engaged in the manufacturing and marketing of non-insulated copper wire
and cable products.
Consolidation
The consolidated financial statements of THL-Omega Holding Corporation
include the accounts of Omega Wire, Inc. and its wholly-owned
subsidiaries, Auburn Wire Division, Inc., Auburn Wire, Inc., Continental
Cordage Corporation and OWI Corporation. All significant intercompany
transactions have been eliminated.
Inventories
Inventories are carried at the lower of cost or market, cost being
determined using the last-in, first-out method, except for Continental
Cordage Corporation which uses the first-in, first-out method. Continental
Cordage Corporation's cost of products sold represents less than 10% of
the Company's aggregate cost of products sold. If the first-in, first-out
method of inventory valuation had been used for all inventories,
inventories would have been approximately $1,995 higher than reported at
December 31, 1994.
In 1994, OWI Corporation changed its method of accounting for inventory
from the first-in, first-out method of inventory valuation to the last-in,
first-out method of inventory valuation. The Company believes the last-in,
first-out method will produce a better matching of current costs and
current revenues due to the volatility of copper prices. The effect of
this change in 1994 was to decrease inventories and to increase cost of
products sold by $349. The retroactive adjustment of prior year statements
is insignificant for restatement.
During 1994, the Company entered into a futures contract providing for the
sale of 10,000 pounds of copper in March 1995 at a fixed price. This
futures contract is accounted for as a hedge of the Company's current
inventories. At December 31, 1994, the Company had incurred an approximate
$1,052 unrealized loss on this contract, which served to increase
inventory. The Company did not have significant futures contract activity
during 1993.
Property, plant and equipment
Property, plant and equipment are carried at cost, net of accumulated
depreciation. Maintenance and repair costs are charged to expense as
incurred. Depreciation expense is computed using the straight-line method
for financial reporting and accelerated methods for tax purposes.
Property, plant and equipment is depreciated over the following estimated
useful lives for financial reporting purposes:
<TABLE>
<S> <C>
Buildings.......................................... 25 to 40 years
Building improvements.............................. 15 years
Machinery and equipment............................ 3 to 11 years
</TABLE>
62
<PAGE> 64
THL-OMEGA HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Goodwill and debt issue costs
Goodwill is being amortized on a straight-line basis over 40 years.
Amortization expense was $673 and $513 for the years ended December 31,
1994 and 1993, respectively. Cost related to the issuance of debt
amounting to $2,257 at December 31, 1994 and 1993 have been deferred and
amortized on a straight-line basis over the term of the debt. Amortization
expense was $262 and $289 for the years ended December 31, 1994 and 1993,
respectively.
Income tax accounting
The Company accounts for income taxes in accordance with provision of
Statement of Financial Accounting Standards No. 109 (FAS 109), Accounting
for Income Taxes.
Cash flow information
For purposes of reporting cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or
less to be cash equivalents. The effect on cash flow of changes in current
assets and liabilities are as follows for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Accounts receivable ............................. $ (7,183) $ 2,127
Inventories ..................................... (6,450) (2,012)
Prepaid and other current assets ................ 454 (99)
Accounts payable ................................ 5,577 1,519
Accrued expenses ................................ 1,639 380
Income taxes payable ............................ (281) (3)
Customers' deposits on spools and reels ......... 786 658
--------- ---------
$ (5,458) $ 2,570
========= =========
</TABLE>
Cash payments for income taxes were $3,808 and $2,009 for the years ended
December 31, 1994 and 1993, respectively. Interest paid was $5,873 and
$5,241 for the years ended December 31, 1994 and 1993, respectively.
2. INVENTORIES
The Company's inventories at December 31, 1994 consists of the following:
<TABLE>
<S> <C>
Raw materials........................................................... $ 2,311
Work-in-process......................................................... 10,625
Finished goods.......................................................... 4,628
-------
Total inventories..................................................... $17,564
=======
</TABLE>
63
<PAGE> 65
THL-OMEGA HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
The Company's property, plant and equipment at December 31, 1994 consists
of the following:
<TABLE>
<S> <C>
Land .................................................. $ 221
Buildings and improvements ............................ 5,832
Machinery and equipment ............................... 50,567
Construction in progress .............................. 4,109
--------
60,729
Less, accumulated depreciation ........................ (22,281)
--------
Total ............................................... $ 38,448
========
</TABLE>
Depreciation expense was $5,089 and $4,543 for the years ended December
31, 1994 and 1993, respectively.
4. LONG-TERM DEBT
<TABLE>
<S> <C>
Long-term debt consists of the following at December 31, 1994:
1 3/4% above prime, revolving loans payable to Heller
Financial, Inc., payable prior to November 30, 1997 ................ $ 7,538
1 3/4% above prime, term loan payable to Heller Financial, Inc.,
payable in quarterly installments through November 30, 1997 ........ 16,800
15% subordinated notes payable to ML-Lee Acquisition
Fund, L.P., payable on December 31, 1998 ........................... 15,000
8.125% term loan payable to Northwestern Group, payable in
semi-annual installments commencing September 30, 1995
through September 30, 1998 ......................................... 13,000
--------
52,338
Less, current portion ................................................ (8,800)
--------
Total long-term debt ............................................... $ 43,538
========
</TABLE>
The Company has a credit agreement with Heller Financial, Inc. which
provides for term loan borrowings of $35,000 and a revolving credit
facility (including the issuance of letters of credit) of $13,000.
Borrowings under the $48,000 credit facility bear interest at the rate of
prime plus one and three quarters percent (10.25% at December 31, 1994)
and are secured by all real and personal property, all other assets, and
rights thereto. At December 31, 1994 there were $24,300 in borrowings
outstanding under this agreement. There were no letters of credit
outstanding at December 31, 1994. There is a fee of 1/2% on the unused
credit facility and 2% on outstanding letters of credit.
In connection with the acquisition of certain assets, the Company issued
to Northwestern Group $14,800 of 8.125% notes which are secured by a
mortgage on the leasehold interest of OWI Corporation in certain land and
buildings and by a security interest in the OWI Corporation machinery and
equipment.
In connection with the acquisition of certain equipment during 1994, the
Company issued several notes in the aggregate of $3,775 with interest
ranging from 5% to prime minus one (7.5% at December 31, 1994). Such notes
are secured by the underlying equipment and are repayable in regular
installments through 1999.
64
<PAGE> 66
THL-OMEGA HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Annual scheduled maturities of long-term debt and notes payable are as
follows:
<TABLE>
<S> <C> <C>
1995................................................................. $10,165
1996................................................................. 10,486
1997................................................................. 16,590
1998................................................................. 18,379
1999................................................................. 473
-------
Total.............................................................. $56,093
=======
</TABLE>
The Heller Financial, Inc. term loan agreement requires repayment in
advance of that scheduled to the extent of excess cash flow, as defined.
During 1994, no advance repayments were made under these provisions. The
loan agreement contains various covenants, including restrictions on
capital expenditures and maintenance of certain financial ratios. With the
exception of a covenant related to restriction of capital expenditures,
the Company was in compliance with the covenants of its loan agreements at
December 31, 1994. The covenant default at December 31, 1994 was waived by
the lender.
Heller Financial, Inc. owns all of the Company's non-voting common stock.
ML-Lee Acquisition Fund L.P. and certain of its affiliates own 160,000
shares of the Company's voting common stock. Northwestern Group owns
22,015 shares of the Company's voting common stock.
5. INCOME TAXES
The components of the provision for income taxes are as follows for the
years ended December 31:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Current:
Federal ....................................... $ 2,979 $ 1,470
State ......................................... 550 427
--------- ---------
3,529 1,897
Deferred ........................................ 2,258 (5)
--------- ---------
Total ........................................ $ 5,787 $ 1,892
========= =========
</TABLE>
The total income tax provision differed from total tax expense as computed by
applying the statutory federal income tax rate to income before taxes. The
reasons were:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Statutory U.S. federal tax rate ................... 34.0% 34.0%
State taxes, net of federal benefit ............... 2.7 7.2
Amortization of non-deductible goodwill ........... 1.5 4.2
Other ............................................. 3.3 2.7
--------- ---------
41.5% 48.1%
========= =========
</TABLE>
65
<PAGE> 67
THL-OMEGA HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Deferred tax liabilities (assets) are comprised of the following at
December 31, 1994:
<TABLE>
<CAPTION>
1994
-------
<S> <C>
Fixed assets ...................................................... $ 5,024
Inventory ......................................................... 1,062
Other ............................................................. 151
-------
Gross deferred liabilities ...................................... 6,237
-------
Book reserves ..................................................... (138)
Deferred compensation ............................................. (191)
Investment in joint venture ....................................... (272)
-------
Gross deferred assets ........................................... (601)
-------
$ 5,636
=======
</TABLE>
6. RETIREMENT PLANS
The Company has a profit sharing plan covering substantially all employees
of THL-Omega Holding Corporation. Contributions are made to a trusteed
fund to accumulate as a retirement benefit for employees. The profit
sharing expense amounted to $996 and $414 for the years ended December 31,
1994 and 1993, respectively.
Effective January 1, 1995, the Company implemented a savings plan
permitting substantially all employees to contribute up to 15% of their
salary on a pretax basis to any of the six investment options available.
There are no required Company contributions to the plan.
7. STOCKHOLDERS' EQUITY
A leveraged buy out transaction occurred effective January 1, 1989 that
resulted in the application of "predecessor basis" accounting as
prescribed by the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board. The application of predecessor basis reduced
stockholders' equity and goodwill by $5,850.
8. COMMITMENTS AND CONTINGENCIES
Operating lease agreements
The Company leases certain property, transportation vehicles and other
equipment under operating leases. Total lease expense for the years ended
December 31, 1994 and 1993 was approximately $1,481 and $1,347,
respectively.
Under the terms of the agreements in effect at December 31, 1994, the
Company has future minimum lease commitments as follows:
<TABLE>
<S> <C> <C>
1995............................................................... $1,305
1996............................................................... 1,262
1997............................................................... 1,202
1998............................................................... 1,159
1999............................................................... 1,108
Later years........................................................ 9,198
-------
Total minimum lease commitments.................................... $15,234
=======
</TABLE>
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THL-OMEGA HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Employment agreements
The Company has consulting and non-competition agreements with two of its
former employees which expire in 1995 and 1997, respectively. Compensation
under the agreements is payable at annual rates of $65 and $95,
respectively.
Management fee
Management fees not exceeding $200 are payable to Thomas H. Lee Company
annually. Payments were $120 for the years ended December 31, 1994 and
1993.
Joint venture
During 1992, the Company acquired a 20% interest in Changzhou Omega Copper
Wire Co., Ltd. (the joint venture), a newly-formed joint venture based in
the People's Republic of China, in exchange for certain equipment and
technology. Given the uncertainties surrounding the recoverability of this
investment, the Company's investment in the joint venture was recorded at
no value.
During the initial fifteen-year term of the joint venture, the Company has
the exclusive authority to sell the products manufactured by the joint
venture within its sales territory and has agreed to purchase a specified
quantity of product from the joint venture each year. The Company has the
option of renewing these purchase provisions for an additional
fifteen-year term upon the expiration of the initial term. The Company's
purchases from the joint venture amounted to $3,300 in 1994. There were no
such purchases in 1993.
9. SUBSEQUENT EVENT
In March 1995, ownership of the Company transferred pursuant to the terms
of a Stock Purchase Agreement. The majority of the Company's long-term
debt, consisting of the Credit Agreement, Subordinated Notes and Term
Loans have subsequently been repaid.
67
<PAGE> 69
THL-OMEGA HOLDING CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Collection Of
Balance At Previously Balance At
Beginning Written Off End of
Of Period Provision Writeoffs Accounts Period
--------- --------- --------- -------- ------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994.............................. $737 $ 19 $583 $129 $406
</TABLE>
68
<PAGE> 70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INTERNATIONAL WIRE GROUP, INC.
Date: November 7, 1997 By /s/ DAVID M. SINDELAR
-----------------------------------------
David M. Sindelar, Senior Vice President
