<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, 1996
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 non-affiliates 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).
OUTSTANDING AT
CLASS MARCH 12, 1997
----- --------------
COMMON STOCK 1,000
DOCUMENTS INCORPORATED BY REFERENCE NONE
<PAGE> 2
ITEM 6. SELECTED FINANCIAL DATA
THE COMPANY
The selected financial information below presents the financial information for
the year ended December 31, 1996 and for the seven months ended December 31,
1995, as derived from the audited consolidated financial statements of the
Company. The selected financial data should be read in conjunction with the
consolidated financial statements of the Company and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere herein.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS: YEAR ENDED SEVEN MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Net sales ............................................... $ 546,981 $ 245,583
Cost of goods sold ...................................... 420,823 195,221
Selling, general and administrative ..................... 43,885 17,129
Depreciation and amortization ........................... 31,341 11,020
Impairment, unusual and plant closing charges ........... 84,250 1,750
Inventory valuation adjustment .......................... 8,500 --
--------- ---------
Operating income (loss) ................................. (41,818) 20,463
Interest expense ........................................ (43,013) (19,931)
Amortization ............................................ (3,701) (1,468)
Other (expense) income .................................. 312 (158)
--------- ---------
Loss before income tax provision ........................ (88,220) (1,094)
Income tax provision .................................... 1,262 2,197
--------- ---------
Net loss ................................................ $ (89,482) $ (3,291)
========= =========
OTHER DATA:
EBITDA, as adjusted(1) .................................. $ 82,273 $ 33,233
Capital expenditures .................................... $ 15,849 $ 5,751
Total assets ............................................ $ 531,020 $ 427,920
Long-term obligations (including current maturities) .... $ 447,667 $ 338,677
</TABLE>
- -----------------
(1) As used herein, "EBITDA, as adjusted" is defined as operating income
(loss) adjusted to exclude impairment, unusual and plant closing charges.
EBITDA is presented because (i) it is a widely accepted indicator of a
company's ability to incur and service debt and (ii) it is the basis on
which the Company's compliance with certain financial covenants contained
in the indenture, dated as of June 12, 1995 pursuant to which the Company
issued the Senior Notes and the Amended and Restated Credit Agreement is
principally determined. However, EBITDA, as adjusted, does not purport to
represent cash provided by operating activities as reflected in the
Company's consolidated statements of cash flow, is not a measure of
financial performance under generally accepted accounting principles
("GAAP") and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with GAAP. Also, the
measure of EBITDA, as adjusted, may not be comparable to similar measures
reported by other companies.
WIREKRAFT (A PREDECESSOR COMPANY)
The selected financial information presented below represents the financial
information of Wirekraft and its predecessor for the periods indicated. The
data for the year ended November 30, 1992 and for the period December 1, 1992
through December 21, 1992 are derived from the audited financial statements of
the Predecessor. The data for the period December 22, 1992 through November 30,
1993, the year ended November 30, 1994 and the six months ended May 31, 1995
are derived from the audited consolidated financial statements of Wirekraft. In
connection with the December 2, 1994 acquisition of ECM and certain assets of
GE (the "ECM Acquisition"), WB Holdings Inc. became a wholly-owned subsidiary
of Wirekraft, and, accordingly, references to Wirekraft shall include WB
Holdings Inc. The following information should be read in conjunction with the
audited consolidated financial statements of Wirekraft and the Predecessor and
the notes thereto, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," included elsewhere herein.
1
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<TABLE>
<CAPTION>
PREDECESSOR WIREKRAFT
---------------------------- --------------------------------------------
DECEMBER 1, DECEMBER 22,
1992 THROUGH 1992 THROUGH YEAR ENDED SIX MONTHS
NOVEMBER 30, DECEMBER 21, NOVEMBER 30, NOVEMBER 30, ENDED MAY 31,
1992 1992 1993(1) 1994 1995
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales ............................ $ 174,684 $ 9,714 $ 181,188 $ 240,972 $ 168,053
Cost of goods sold ................... 146,597 8,339 150,092 201,602 138,851
Selling, general and
administrative expenses ............ 10,869 505 10,582 14,319 13,301
Depreciation and amortization ........ 5,141 218 4,496 6,435 6,474
Compensation expense ................. -- -- -- -- 895(2)
Expenses related to sale ............. -- 6,929(3) -- -- 501(4)
Expenses related to plant closings ... -- -- -- -- 2,000(5)
------------ ------------ ------------ ------------ ------------
Operating income (loss) .............. 12,077 (6,277) 16,018 18,616 6,031
Interest expense ..................... (4,761) (1,418)(6) (8,645) (10,565) (8,020)
Amortization of deferred financing
costs ............................ -- -- (1,677) (1,995) (1,657)
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes
and extraordinary item ............ 7,316 (7,695) 5,696 6,056 (3,646)
Income tax provision (benefit) (7) ... -- -- 3,155 3,023 (2,114)
------------ ------------ ------------ ------------ ------------
Income (loss) before extraordinary
item .............................. -- -- 2,541 3,033 (1,532)
Extraordinary item ................... -- -- -- -- (7,835)(8)
Net income (loss) .................... $ 7,316 $ (7,695) $ 2,541 $ 3,033 $ (9,367)
============ ============ ============ ============ ============
OTHER DATA:
EBITDA, as adjusted (9)............... $ 17,218 $ 870 $ 20,514 $ 25,051 $ 15,901
Capital expenditures ................. 2,122 136 3,705 6,248 2,914
Total assets ......................... 81,074 80,421 146,671 178,488 241,277
Long-term obligations
(including current maturities) ... 45,294 42,143 93,123 111,639 148,386
</TABLE>
- ---------------
(1) On December 21, 1992, WB Holdings Inc., through a series of acquisitions
and mergers (the "Original Wirekraft Acquisition"), acquired all of the
issued and outstanding common stock of Bristol and Burcliff, the parent
companies of the general partners of the Predecessor.
(2) Represents payments to senior management of Wirekraft for the redemption
of employee stock options in connection with the Acquisitions.
(3) Represents non-recurring expenses associated with the Original Wirekraft
Acquisition, which included exit bonuses, severance arrangements and
brokerage and legal fees.
(4) Represents expenses of Wirekraft associated with the Acquisitions.
(5) Represents expenses related to the closing of certain domestic wire harness
facilities.
(6) Includes write-off of deferred financing fees of $1,211 associated with
the Original Wirekraft Acquisition.
(7) The results of operations for the years ended November 30, 1991 and 1992
and the period from December 1, 1992 through December 21, 1992 did not
include a provision for income taxes since the net income for the
Predecessor is included in the income tax returns of its partners.
(8) Extraordinary item in 1995 represents a $7,835 loss on early
extinguishment of debt (net of income tax of $4,930).
(9) As used herein, "EBITDA, as adjusted" is defined as operating income
(loss) adjusted to exclude impairment, unusual and plant closing charges.
EBITDA is presented because (i) it is a widely accepted indicator of a
company's ability to incur and service debt and (ii) it is the basis on
which the Company's compliance with certain financial covenants contained
in the indenture, dated as of June 12, 1995 pursuant to which the Company
issued the Senior Notes and the Amended and Restated Credit Agreement is
principally determined. However, EBITDA, as adjusted, does not purport to
represent cash provided by operating activities as reflected in the
Company's consolidated statements of cash flow, is not a measure of
financial performance under GAAP and should not be considered in isolation
or as a substitute for measures of performance prepared in accordance with
GAAP. Also, the measure of EBITDA, as adjusted, may not be comparable to
similar measures reported by other companies.
2
<PAGE> 4
OMEGA (A PREDECESSOR COMPANY)
The selected financial information below presents the financial information of
Omega and its predecessor for the periods indicated. The data for the years
ended December 31, 1992, 1993 and 1994 and the three months ended March 31,
1995 are derived from the audited consolidated financial statements of
THL-Omega. The data for the two months ended May 31, 1995, are derived from the
audited consolidated financial statements of Omega. The following information
should be read in conjunction with the audited consolidated financial
statements of THL-Omega and Omega and the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
included elsewhere herein.
<TABLE>
<CAPTION>
THL-OMEGA OMEGA
---------------------------------------------------- ----------
THREE THREE
MONTHS MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
-------------------------------------- MARCH 31, MAY 31,
1992 1993 1994 1995 1995(1)
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales .......................... $ 108,312 $ 107,004 $ 134,457 $ 38,736 $ 23,295
Cost of goods sold ................. 82,008 80,276 98,012 29,401 17,512
Selling, general and
administrative expenses ......... 8,925 12,061 10,839 2,651 1,639
Depreciation and
amortization .................... 5,488 5,191 5,761 1,459 1,233
Compensation expense ............... -- -- -- 9,715(2) --
Expenses related to sale ........... -- -- -- 1,689(3) --
---------- ---------- ---------- ---------- ----------
Operating income (loss) ........... 11,891 9,476(4) 19,845 (6,179) 2,911
Interest expense ................... (6,526) (6,026) (5,932) (1,478) (1,797)
Amortization of deferred
financing costs ................. (285) (289) (262) (50) (238)
Other income ....................... 1,015 772 296 32 --
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes and
extraordinary item ............. 6,095 3,933 13,947 (7,675) 876
Income tax provision
(benefit) ...................... 2,550 1,892 5,787 484 171
---------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary item .............. 3,545 2,041 8,160 (8,159) 705
Extraordinary item ................. -- -- -- (1,148)(5) (4,044)(6)
---------- ---------- ---------- ---------- ----------
Net income (loss) .................. $ 3,545 $ 2,041 $ 8,160 $ (9,307) $ (3,339)
========== ========== ========== ========== ==========
OTHER DATA:
EBITDA, as adjusted(7).............. $ 17,379 $ 14,667(4) $ 25,606 $ 6,684 $ 4,144
Capital expenditures ............... 1,947 3,683 8,667 1,597 581
Total assets ....................... 87,342 85,868 101,675 97,657 176,659
Long-term obligations
(including current maturities) .... 64,554 58,174 56,093 54,615 128,116
</TABLE>
- ---------------
(1) On March 31, 1995, Omega acquired all of the issued and outstanding common
stock of THL-Omega.
(2) Represents payments to senior management for the redemption of stock
options and stock that was issued immediately prior to the acquisition of
THL-Omega for consideration less than the fair value.
(3) Represents expenses of the sellers associated with the acquisition of
THL-Omega.
(4) During 1993 a charge of approximately $3,100 was recorded related to
certain one time bad debt write-offs. Excluding the effects of this charge,
operating income and EBITDA, as adjusted, would have been $12,576 and
$17,767, respectively.
(5) Extraordinary item in March 1995, represents a $1,148 loss on early
extinguishment of debt (net of income taxes of $765).
(6) Extraordinary item in May 1995, represents a $4,044 loss on early
extinguishment of debt (net of income taxes of $2,082).
(7) As used herein, "EBITDA, as adjusted" is defined as operating income
(loss) adjusted to exclude impairment, unusual and plant closing charges.
EBITDA is presented because (i) it is a widely accepted indicator of a
company's ability to incur and service debt and (ii) it is the basis on
which the Company's compliance with certain financial covenants contained
in the indenture, dated as of June 12, 1995 pursuant to which the Company
issued the Senior Notes and the Amended and Restated Credit Agreement is
principally determined. However, EBITDA, as adjusted, does not purport to
represent cash provided by operating activities as reflected in the
Company's consolidated statements of cash flow, is not a measure of
financial performance under GAAP and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with GAAP. Also, the measure of EBITDA, as adjusted, may not be
comparable to similar measures reported by other companies.
3
<PAGE> 5
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 1994 and the five
months ended May 31, 1995 and on a historical basis for the seven months ended
December 31, 1995 and the year ended December 31, 1996 and should be used in
reviewing the discussion and analysis of results of operations and liquidity and
capital resources.
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.
Included in the year ended December 31, 1996 is the year ended December 31, 1996
of the Company, which includes the results of operations of Wire Technologies
from March 5, 1996, the date of the DWT Acquisition.
4
<PAGE> 6
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
-------------------------- ---------------------------
FISCAL YEAR FIVE MONTHS SEVEN MONTHS
ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, MAY 31, DECEMBER 31, DECEMBER 31,
1994 1995(1) 1995 1996
------------ ----------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Wire sales............................ $272,414 $131,831 $161,741 $385,627
Wire harness sales.................... 174,716 77,279 83,842 161,354
-------- -------- -------- --------
Net sales....................... 447,130 209,110 245,583 546,981
Cost of goods sold.................... 348,633 167,456 195,221 420,823
Selling, general and administrative
expenses............................ 39,746 15,714 17,129 43,885
Depreciation and amortization......... 13,310 8,313 11,020 31,341
Impairment, unusual and plant closing
charges............................. -- 2,000 1,750 84,250
Inventory valuation adjustment........ -- -- -- 8,500
Compensation expense.................. -- 10,610 -- --
Expenses related to sale.............. -- 2,190 -- --
-------- -------- -------- --------
Operating income (loss)............. $ 45,441 $ 2,827 $ 20,463 $(41,818)
======== ======== ======== ========
</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.
5
<PAGE> 7
YEAR ENDED DECEMBER 31, 1996 COMPARED TO HISTORICAL COMBINED FISCAL YEAR ENDED
DECEMBER 31, 1995
Net sales for the year ended December 31, 1996 were $547.0 million,
representing a $92.3 million, or 20.3%, increase over the Historical Combined
Fiscal Year Ended December 31, 1995. This increase occurred substantially within
the wire segment, where sales increased $92.1 million, or 31.3%, over the
Historical Combined Fiscal Year Ended December 31, 1995. This increase reflected
$139.7 million of net sales from Wire Technologies, as well as continued growth
in the Company's automotive, cable and control signal market accounts. These
increases were partially offset by a decline in copper prices. In general, the
Company prices its products based upon a spread over the cost of copper, which
results in a decreased dollar value of sales when copper prices decrease. The
average price of copper based upon the COMEX declined to $1.06 per pound over
the year ended December 31, 1996 from $1.35 per pound during the Historical
Combined Fiscal Year Ended December 31, 1995. Within the wire harness segment,
sales remained constant at $161.4 million during the year ended December 31,
1996. This constant level of sales represented strong sales from most major wire
harness customers other than Whirlpool. Sales to Whirlpool declined during the
year due to the expiration of a transition supply agreement in October 1995.
Cost of goods sold as a percent of sales decreased from 79.8% to 76.9% for
the year ended December 31, 1996. This decrease was due to the result of
negotiated price reductions for certain purchased materials and the elimination
of the majority of outside purchases of non-insulated wire subsequent to the
acquisition of THL-Omega in 1995. Wirekraft's purchases of non-insulated wire
from outside suppliers declined as Omega's non-insulated wire production for
Wirekraft increased. In addition, the change in cost of goods sold as a percent
of sales reflected cost reductions achieved within both the wire and wire
harness segments resulting from plant consolidation actions taken in 1995 and
1996, as well as the impact of declining copper prices. Because the Company's
products are typically priced at a spread over the cost of copper, a lower
copper price leads to a higher gross margin percentage but generally has no
impact on gross margin dollars.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO SEVEN MONTHS ENDED DECEMBER 31, 1995
Net sales for the year ended December 31, 1996 were $547.0 million,
representing an increase of $301.4 million over the seven months ended December
31, 1995. This increase included wire segment sales of $223.9 million and wire
harness segment sales of $77.5 million. The increase was primarily the result of
the additional five months of operations of the Company in 1996, as compared to
1995 and the inclusion of $139.7 million of wire segment sales as the result of
the DWT Acquisition in March 1996. These increases were partially offset by a
decline in copper prices. Generally, the Company prices its products based upon
a spread over copper, which results in a decreased dollar value of sales when
copper prices decrease. The average price of copper based upon the COMEX
declined to $1.06 per pound over the year ended December 31, 1996 from $1.35 per
pound during the seven months ended December 31, 1995.
Cost of goods sold as a percentage of sales decreased from 79.5% for the
seven months ended December 31, 1995 to 76.9% for the year ended December 31,
1996. This decrease was due to the result of negotiated price reductions for
certain purchased materials and the elimination of the majority of outside
6
<PAGE> 8
purchases of non-insulated wire. Wirekraft's purchases of non-insulated wire
from outside sources declined as Omega's non-insulated wire production for
Wirekraft increased. In addition, the change in cost of goods sold as a percent
of sales reflected cost reductions achieved within both the wire and wire
harness segments resulting from plant consolidation actions taken in 1995 and
1996, as well as the impact of declining copper prices. Because the Company's
products are typically priced at a spread over the cost of copper, a lower
copper price leads to a higher gross margin percentage but generally has no
impact on gross margin dollars.
Selling, general and administrative expenses were $43.9 million for the
year ended December 31, 1996 compared to $17.1 million during the seven months
ended December 31, 1995, an increase of $26.8 million. The increase was
primarily the result of the additional five months of operations of the Company
in 1996, as compared to 1995 and the inclusion of $5.7 million of expenses from
the DWT Acquisition. Expressed as a percentage of sales, selling, general and
administrative expenses increased from 7.0% during the seven months ended
December 31, 1995 to 8.0% during the year ended December 31, 1996. This
increase, as a percentage of sales, was partially attributable to the effect on
net sales of higher copper costs during the seven months ended December 31,
1995, as compared to the year ended December 31, 1996. Other cost increases
included volume related items and cost inflation.
Depreciation and amortization was $31.3 million for the year ended December 31,
1996 compared to $11.0 million for the seven months ended December 31, 1995.
This increase of $20.3 million was the result of the additional five months of
operations of the Company in 1996, as compared to 1995, as well as additional
depreciation of property, plant and equipment from 1996 additions and the
amortization of goodwill from the DWT Acquisition.
In the first quarter of 1996, the Company adopted a new business strategy
that had a major impact on its business units. The Company's strategy considered
reducing production costs, moving production to the South and Southwest,
improving customer service and lowering selling, general and administrative
expenses. The Company developed the new strategy and business plan in the first
quarter of 1996, which it finalized in connection with the DWT Acquisition.
The DWT Acquisition was instrumental in the evaluation and implementation
of the new business strategy, due to DWT's strategically sized and located
facilities. With the DWT Acquisition, additional goodwill of $105.0 million was
recorded. With the addition of significant goodwill, the Company believed it was
appropriate to perform a comprehensive review of the carrying value of goodwill.
In addition to the DWT Acquisition, factors that were examined during the
Company's review of the carrying value of goodwill included the changes in the
appliance and automotive industries. These changes include the movement of
appliance harness requirements to Mexican manufacturing facilities and the shift
in automotive harness requirements from large, long lead-time orders to more
frequent, small, short lead-time orders. As a result of these changes, the
Company closed certain of its facilities and undertook its new business
strategy.
Upon completion of its analysis, the Company determined that the carrying
value of goodwill exceeded fair value by approximately $78.2 million. A non-cash
impairment charge of $78.2 million was recorded upon completion of the analysis
in the fourth quarter of 1996.
A $6.0 million pre-tax charge to operations was recorded during the year
ended December 31, 1996, representing plant closing costs. The plant closing
costs relate to shutting down and consolidating six facilities. There was a
similar charge of $1.8 million for the seven months ended December 31, 1995. An
$8.5 million pre-tax inventory valuation charge was recorded during the year
ended December 31, 1996. This charge was the result of an adjustment to the LIFO
valuation of copper in inventory reflecting the decrease in the copper cost per
pound during fiscal 1996. There was no similar charge for the seven months ended
December 31, 1995.
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
7
<PAGE> 9
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
8
<PAGE> 10
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.
9
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
Working Capital and Cash Flows
For the year ended December 31, 1996, the Company generated $32.0 million in
cash from operations and $13.0 million of net proceeds from the issuance of
equity securities and long-term debt obligations related to the DWT Acquisition.
During 1996, the Company made net repayments of $21.3 million under debt
obligations, spent $15.8 million on capital projects and used $7.8 million
related to financing fees.
For the Historical Combined 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 debt obligations related to
acquisitions. During 1995, the Company made net repayments of $17.6 million
under debt obligations ($12.5 million repaid by the predecessor companies in
connection with the Acquisitions), spent approximately $10.5 million on capital
projects and used $21.0 million to pay financing fees ($7.0 million of which
were incurred in connection with the acquisition of THL-Omega).
For the Historical Combined 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.
Financing Arrangements
In connection with the Camden Acquisition, Holding and the Company entered into
an Amended and Restated Credit Agreement dated as of February 12, 1997 with
certain financial institutions. The Amended and Restated Credit Agreement
provides senior secured financing of up to $428.5 million, consisting of an
$111.0 million, five year Term A loan, an $115.0 million, seven year Term B
loan, an $127.5 million, eight year Term C loan (collectively the "Term
Facility") and a $75.0 million revolving loan and letter of credit facility (the
"Revolver"). The Company is obligated to make principal payments in respect of
the Term Facility of $20.3 million in 1997, $23.1 million in 1998, $28.3 million
in 1999, $42.6 million in 2000, $56.6 million in 2001, $73.2 million in 2002 and
$92.4 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, 1997, there was $336.2
million outstanding under the Term Facility and $67.4 million of unused
borrowing capacity under the Revolver.
The Company's obligations under the Amended and Restated 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,
1997, weighted average interest rate on outstanding borrowings under the Amended
and Restated Credit Agreement was 8.69%.
10
<PAGE> 12
Within 90 days of the date of the Amended and Restated 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 sums 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 12, 1997, the Company had entered into two such
agreements. These agreements provide ceilings of 7.0% on $55.5 million of
indebtedness through May 1997, 8.0% on $63.5 million of indebtedness through
May 1998, 7.0% on $32.5 million of indebtedness through March 1998 and 8.0% on
$32.5 million of indebtedness through March 1999.
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 semi-annual 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 $2.8 million. The Company enters
into contractual relationships with most of its customers to adjust it 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.
As part of the impairment charge in 1996 as more fully described in Note 10 to
the Company's financial statements for the year ended December 31, 1996, the
Company has accrued $4.2 million for anticipated losses related to product
liability claims associated with the Original Wirekraft Acquisition. These
claims are for a non-wire product in the appliance industry that the Company has
not manufactured since 1992. The Company's policy is to record the probable and
reasonably estimable loss related to product liability claims. In 1996, the
claims significantly increased as a result of the receipt of claims accumulated
by insurance companies related to prior periods. Accordingly, the Company
revised its estimated liability outstanding on actual claims reported and its
estimate of claims incurred but not reported. In developing its estimated
liability outstanding on actual claims reported, the Company considered historic
settlement rates. The Company has estimated its liability outstanding on actual
claims reported to be $1.5 million. In determining its estimate of claims
incurred but not reported, the Company considered historical claim levels and
amounts relative to total product shipped. Additionally, the Company considered
historical settlement rates to develop its estimate of incurred but not reported
claims of $2.7 million. Due to the uncertainties associated with these product
claims, the future cost of final settlement of these claims may differ from the
liability currently accrued. However, in the Company's opinion, the impact of
final settlement of these claims on future operations, financial position and
liquidity will not be material.
The Company's primary source of liquidity are cash flows from operations and
borrowings under the Revolver, which are
11
<PAGE> 13
subject to a borrowing base calculation. The major uses of cash in 1997 are
expected to be for debt service requirements and capital expenditures. In 1997,
debt service requirements are estimated at $68 million while capital
expenditures are estimated at $23 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>
INTERNATIONAL WIRE GROUP, INC. PAGE
----
<S> <C>
Report of Coopers & Lybrand L.L.P., Independent Public Accountants ............................ 13
Consolidated Balance Sheets as of December 31, 1996 and December 31, 1995 ..................... 14
Consolidated Statements of Operations for the year ended December 31, 1996 and
seven months ended December 31, 1995 ....................................................... 15
Consolidated Statement of Stockholders' Equity for the year ended December 31, 1996 and
seven months ended December 31, 1995 ....................................................... 16
Consolidated Statements of Cash Flows for the year ended December 31, 1996 and
seven months ended December 31, 1995 ....................................................... 17
Notes to Consolidated Financial Statements .................................................... 18
Report of Coopers & Lybrand L.L.P., Independent Public Accountants ............................ 37
Consolidated Financial Statement Schedule for the year ended December 31, 1996 and
the seven months ended December 31, 1995: Schedule II - Valuation and Qualifying Accounts .. 38
WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.)
Report of Coopers & Lybrand L.L.P., Independent Public Accountants ............................ 39
Consolidated Statements of Operations for the six months ended May 31, 1995 and the year
ended November 30, 1994 .................................................................... 40
Consolidated Statements of Stockholders' Equity for the six months ended May 31, 1995 and
the year ended November 30, 1994 ........................................................... 41
Consolidated Statements of Cash Flows for the six months ended May 31, 1995 and the year
ended November 30, 1994 .................................................................... 42
Notes to Consolidated Financial Statements .................................................... 43
OMEGA WIRE CORP.
Report of Coopers & Lybrand L.L.P., Independent Public Accountants ............................ 51
Consolidated Statement of Operations for the two months ended May 31, 1995 .................... 52
Consolidated Statement of Stockholders' Equity for the two months
ended May 31, 1995 ......................................................................... 53
Consolidated Statement of Cash Flows for the two months ended May 31, 1995 .................... 54
Notes to Consolidated Financial Statements .................................................... 55
THL-OMEGA HOLDING CORPORATION
Report of Coopers & Lybrand L.L.P., Independent Public Accountants ............................ 60
Consolidated Statement of Operations and Retained Earnings for the three months
ended March 31, 1995 ....................................................................... 61
Consolidated Statement of Cash Flows for the three months ended March 31, 1995 ................ 62
Notes to Consolidated Financial Statements .................................................... 63
Report of Price Waterhouse L.L.P., Independent Public Accountants ............................. 66
Consolidated Statements of Operations and Retained Earnings for the year ended
December 31, 1994 .......................................................................... 67
Consolidated Statements of Cash Flows for the year ended December 31, 1994 .................... 68
Notes to Consolidated Financial Statements .................................................... 69
</TABLE>
12
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
International Wire Group, Inc.:
We have audited the accompanying consolidated balance sheets of International
Wire Group, Inc. and subsidiaries as of December 31, 1996 and December 31,
1995, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the year ended December 31, 1996 and seven
months ended December 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of International
Wire Group, Inc. and subsidiaries as of December 31, 1996 and December 31,
1995, and the consolidated results of their operations and their cash flows for
the year ended December 31, 1996 and the seven months ended December 31, 1995,
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
February 28, 1997
13
<PAGE> 15
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Accounts receivable, less allowance of $1,363 and $860 ........ $ 71,181 $ 47,180
Inventories ................................................... 60,362 57,777
Prepaid expenses and other .................................... 5,060 2,733
Deferred income taxes ......................................... 4,741 125
------------ ------------
Total current assets ....................................... 141,344 107,815
Property, plant and equipment, net ................................. 118,551 82,259
Deferred financing costs, net ...................................... 21,222 16,688
Intangible assets, net ............................................. 244,655 215,400
Other assets ....................................................... 5,248 5,758
------------ ------------
Total assets ............................................... $ 531,020 $ 427,920
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term obligations ................... $ 20,948 $ 12,662
Accounts payable .............................................. 45,832 37,627
Accrued and other liabilities ................................. 33,150 20,323
Customers' deposits ........................................... 8,033 5,688
Accrued interest .............................................. 4,648 2,516
------------ ------------
Total current liabilities .................................. 112,611 78,816
Long-term obligations, less current maturities ..................... 426,719 326,015
Deferred income taxes .............................................. 14,719 8,194
Other long-term liabilities ........................................ 12,162 4,897
------------ ------------
Total liabilities .......................................... 566,211 417,922
Stockholders' equity (deficit):
Common stock, $.01 par value, 1,000 shares authorized,
issued and outstanding ..................................... 0 0
Series A senior cumulative exchangeable redeemable
preferred stock, $.01 par value, $25 liquidation
value, 400,000 shares authorized, issued and outstanding ... 4 --
Contributed capital ........................................... 125,340 81,051
Carryover of predecessor basis ................................ (67,762) (67,762)
Accumulated deficit ........................................... (92,773) (3,291)
------------ ------------
Total stockholders' equity (deficit) ....................... (35,191) 9,998
------------ ------------
Total liabilities and stockholders' equity (deficit) ....... $ 531,020 $ 427,920
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements
14
<PAGE> 16
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Net sales .......................................... $ 546,981 $ 245,583
Operating expenses:
Cost of goods sold .............................. 420,823 195,221
Selling, general and administrative ............. 43,885 17,129
Depreciation and amortization ................... 31,341 11,020
Impairment, unusual and plant closing charges ... 84,250 1,750
Inventory valuation adjustment .................. 8,500 --
---------- ----------
Operating income (loss) ............................ (41,818) 20,463
Other income (expense):
Interest expense ................................ (43,013) (19,931)
Amortization of deferred financing costs ........ (3,701) (1,468)
Other, net ...................................... 312 (158)
---------- ----------
Loss before income tax provision ................... (88,220) (1,094)
Income tax provision ............................... 1,262 2,197
---------- ----------
Net loss ........................................... $ (89,482) $ (3,291)
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements
15
<PAGE> 17
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE
SEVEN MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
CARRYOVER OF
COMMON PREFERRED CONTRIBUTED PREDECESSOR ACCUMULATED
STOCK STOCK CAPITAL BASIS DEFICIT TOTAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <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)
------------ ------------ ------------ ------------ ------------ ------------
Balance December 31, 1995 ..... 0 -- 81,051 (67,762) (3,291) 9,998
Capital contributed ........... -- -- 35,493 -- -- 35,493
Issuance of preferred stock ... -- 4 9,996 -- -- 10,000
Issuance costs ................ -- -- (1,200) -- -- (1,200)
Net loss ...................... -- -- -- -- (89,482) (89,482)
------------ ------------ ------------ ------------ ------------ ------------
Balance December 31, 1996 ..... $ 0 $ 4 $ 125,340 $ (67,762) $ (92,773) $ (35,191)
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements
16
<PAGE> 18
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ------------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss ................................................. $ (89,482) $ (3,291)
Adjustment to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization ............................ 31,341 11,020
Impairment and unusual charge ............................ 78,250 --
Amortization of deferred financing costs ................. 3,701 1,468
Inventory valuation adjustment ........................... 8,500 --
Deferred income taxes .................................... 3,184 274
Change in assets and liabilities, net of acquisitions:
Accounts receivable .................................... (1,878) 12,094
Inventories ............................................ (3,645) (9,590)
Prepaid expenses and other ............................. (4,829) (846)
Accounts payable ....................................... 1,216 1,232
Accrued and other liabilities .......................... 2,299 (2,084)
Accrued interest ....................................... 2,132 2,516
Income taxes payable/refundable ........................ 1,914 778
Other long-term liabilities ............................ (723) (237)
---------- ----------
Net cash from operating activities .......................... 31,980 13,334
---------- ----------
Cash flows provided by (used in) investing activities:
Acquisitions, net of cash ................................ (160,259) (341,046)
Capital expenditures, net ................................ (15,849) (5,751)
---------- ----------
Net cash used in investing activities ....................... (176,108) (346,797)
---------- ----------
Cash flows provided by (used in) financing activities:
Equity proceeds .......................................... 45,039 15,048
Proceeds from issuance of long-term obligations .......... 128,200 337,500
Repayment of long-term obligations ....................... (21,311) (5,085)
Financing fees and other ................................. (7,800) (14,000)
---------- ----------
Net cash from financing activities .......................... 144,128 333,463
---------- ----------
Net change in cash and cash equivalents ..................... -- --
Cash and cash equivalents at beginning of the period ........ -- --
---------- ----------
Cash and cash equivalents at end of the period .............. $ -- $ --
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements
17
<PAGE> 19
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996 AND
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 common stockholder of 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 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>
18
<PAGE> 20
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited pro forma data, which present 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>
2. DWT ACQUISITION
On March 5, 1996, Wire Technologies, Inc. ("Wire Technologies"), a
wholly-owned subsidiary of the Company, acquired the businesses of Hoosier
Wire, Inc., Dekko Automotive Wire, Inc., Albion Wire, Inc. and Silicones,
Inc., a group of affiliated companies operating together under the trade
name Dekko Wire Technology Group (the "DWT Acquisition"). The total
consideration of $173,239 paid in connection with the DWT Acquisition
including fees, expenses and certain adjustments consisted of (i) cash and
(ii) warrants for the purchase of 2,000,000 shares of Common Stock, par
value $.01 per share, of Holding. The DWT Acquisition and the related
transaction fees and expenses were funded with (i) $128,200 of senior debt
under the Amended Credit Agreement, (ii) $35,000 from the issuance of
35,000,000 shares of Common Stock, par value $.01 per share, of Holding,
(iii) $39 from the issuance of 3,888,889 shares of Class A Common Stock,
par value $.01 per share, of Holding, and (iv) $10,000 from the issuance
of 400,000 shares of Series A Senior Cumulative Exchangeable Redeemable
Preferred Stock, par value $.01 per share, of the Company (sold in units
together with warrants for the purchase of shares of Common Stock, par
value $.01 per share, of Holding).
The DWT Acquisition was accounted for using the purchase method of
accounting whereby the total acquisition cost has been allocated to the
consolidated assets and liabilities based upon their estimated respective
fair values. The total acquisition cost is allocated to the acquired net
assets as follows:
<TABLE>
<S> <C>
Current assets .................................................... $ 37,669
Property, plant and equipment ..................................... 36,020
Goodwill .......................................................... 105,041
Other, non-current ................................................ 3,515
Fees and costs .................................................... 7,800
Current liabilities ............................................... (15,306)
Other liabilities ................................................. (1,500)
---------
$ 173,239
=========
</TABLE>
Unaudited pro forma results of operations of the Company for the years
ended December 31, 1996 and December 31, 1995, are included below. Such
pro forma presentation has been prepared assuming that the DWT Acquisition
and related financing had occurred as of January 1, 1996 and January 1,
1995, respectively, and that the Acquisitions (as described in Note 1) had
occurred as of January 1, 1995.
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net sales ............................................. $574,827 $601,709
Net income (loss) ..................................... $(88,994) $ (2,613)
</TABLE>
19
<PAGE> 21
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. 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: building - 25 to 40
years; building improvements - 15 years; machinery and equipment - 3 to 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. In fiscal 1996, the Company adopted the
provisions of Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of". SFAS No. 121 requires impairment
losses to be recorded on long-lived assets used in operations when
indications of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets'
carrying amount.
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. In fiscal 1996, the Company
completed a review of the carrying value of goodwill, which resulted in an
impairment (see Note 10). Accumulated amortization aggregated $18,182 and
$8,783 at December 31, 1996 and December 31, 1995, respectively.
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. In fiscal 1996, the Company completed a review of the
carrying value of goodwill, which resulted in an impairment charge (see
Note 10).
20
<PAGE> 22
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. Accumulated amortization
aggregated $5,169 and $1,468 at December 31, 1996 and December 31, 1995,
respectively.
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.
Interest Rate Hedging Arrangement
In 1996, the Company entered into an interest rate hedging arrangement for
the purpose of hedging against rising interest rates. The company paid a
fee of approximately $200 for the arrangement. This fee is included in
deferred financing fees and amortized on a straight-line basis over the
life of the arrangement, through May 1998. The interest rate hedging
arrangement provides a ceiling interest rate of 7.0% on $55,000 of
indebtedness through May 1997 and a ceiling interest rate of 8.0% on
$63,500 of indebtedness thereafter through May 1998. The Company estimates
that fair value approximates carrying value of the interest rate hedging
arrangement, due to the short life of the arrangement and the relative
stability of interest rates in 1996.
Fair Value of Financial Instruments
The Company's financial instruments, excluding the Senior Notes (as
hereinafter defined) are carried at fair value or amounts that approximate
fair value. The Company has estimated the fair value of the Senior Notes
using current market data. At December 31, 1996, the estimated fair market
value of the Senior Notes was $162,000.
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 paid for the year ended
December 31, 1996 and seven months ended December 31, 1995 was $40,881 and
$17,415, respectively. Taxes refunded, net of payments for the year ended
December 31, 1996 and taxes paid for the seven months ended December 31,
1995 were $4,073 and $1,145, respectively.
During the year ended December 31, 1996 and 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 was $66,903. In fiscal 1996 and 1995, the Company recorded
capital lease obligations of $2,348 and $680 respectively, for property,
plant and equipment.
Significant Customer
A significant portion of the Company's sales were to a major customer
within the Harness segment. Sales to this customer represented 18% and 19%
of net sales for the year ended December 31, 1996 and the seven months
ended December 31, 1995, respectively.
21
<PAGE> 23
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES
The composition of inventories is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Raw materials .................................... $ 26,191 $ 19,451
Work-in-process .................................. 14,908 15,916
Finished goods ................................... 19,263 22,410
------------ ------------
Total inventories ........................... $ 60,362 $ 57,777
============ ============
</TABLE>
The current cost of inventories is approximately $57,267 and $56,035 at
December 31, 1996 and December 31, 1995.
In connection with the decline in the average price of copper during
fiscal 1996 the Company recorded an $8,500 pre-tax inventory valuation
charge to reduce the LIFO valuation of copper in inventory.
5. PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Land ........................................... $ 2,797 $ 2,061
Buildings and improvements ..................... 31,546 20,848
Machinery and equipment ........................ 121,013 76,668
------------ ------------
155,356 99,577
Less: accumulated depreciation ................. (36,805) (17,318)
------------ ------------
$ 118,551 $ 82,259
============ ============
</TABLE>
6. 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 7) 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 DWT Acquisition, the Company incurred aggregate fees
and costs of $7,800. Costs of $6,600 related to the Amended Credit
Agreement (as hereinafter defined) are included in deferred financing
costs and are being amortized over the terms of the related borrowings.
Costs of $1,200 related to the issuance of Holding's common stock and the
Preferred Stock (as defined in Note 8) have been deducted from the
proceeds to reduce the carrying value of the common and preferred stock.
In connection with the Acquisitions and 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. Pursuant to the
Agreement, the Company paid Hicks, Muse a cash fee of $2,500 as
compensation for financial advisory services received in connection with
the DWT Acquisition. The fees have been allocated based upon the issuance
proceeds to the debt and equity securities issued in connection with the
Acquisitions and the DWT
22
<PAGE> 24
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Acquisition 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 sheets.
7. LONG-TERM OBLIGATIONS
The composition of long-term obligations is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Credit Agreement:
Revolver .................................... $ 18,990 $ 19,000
Term Facility ............................... 271,404 163,813
Senior Subordinated Notes ...................... 150,000 150,000
Capital lease and other obligations ............ 7,273 5,864
------------ ------------
447,667 338,677
Less, current maturities ....................... (20,948) (12,662)
------------ ------------
$ 426,719 $ 326,015
============ ============
</TABLE>
The schedule of principal payments for long-term obligations at December
31, 1996 is as follows:
<TABLE>
<S> <C>
1997 ................................................................ $ 20,948
1998 ................................................................ 23,782
1999 ................................................................ 29,123
2000 ................................................................ 58,568
2001 ................................................................ 41,457
Thereafter .......................................................... 273,789
--------
Total ............................................................ $447,667
========
</TABLE>
Credit Agreement
In connection with the DWT Acquisition, Group and Holding entered into an
Amended Credit Agreement (the "Amended Credit Agreement") dated as of
March 5,1996 with certain financial institutions. Borrowings under the
Amended Credit Agreement are collateralized by first priority mortgages
and liens on all of the assets of Group. In addition, borrowings under the
Amended Credit Agreement are guaranteed by Holding.
The Amended Credit Agreement consists of an $111,000 term loan (the "Term
A Loan"), an $82,500 term loan (the "Term B Loan"), a $95,000 term loan
(the "Term C Loan", collectively, the "Term Facility") and a $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, 1996, Group had $930 in outstanding letters of
credit and $55,966 of unused borrowing capacity under the Amended Credit
Agreement. A commitment fee on the unused portion of the Revolver of .5%
is payable quarterly. The Amended Credit Agreement contains several
financial covenants which, among other things, require Group to maintain
certain financial ratios and restrict Group's ability to incur
23
<PAGE> 25
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
indebtedness, make capital expenditures and pay dividends.
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 B Loan is due on September 30, 2002, and the final installment on
the Term C Loan is due on September 30, 2003. 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 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 Amended Credit Agreement) plus 1.5% or (b) the Eurodollar
Rate (as defined in the Amended 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 Amended
Credit Agreement) plus 2.0% or (b) the Eurodollar Rate (as defined in the
Amended Credit Agreement) plus 3.0%. Borrowings under the Term C Loan bear
interest, at the option of Group, at a rate per annum equal to (a) the
Alternate Base Rate (as defined in the Amended Credit Agreement plus 2.5%
or (b) the Eurodollar Rate (as defined in the Amended Credit Agreement)
plus 3.5%. The Alternate Base Rate and Eurodollar 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. The weighted average interest rate on
outstanding borrowings was 8.75% and 8.59% at December 31, 1996 and
December 31, 1995, respectively.
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 14).
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)
24
<PAGE> 26
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 (as defined) 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.
8. PREFERRED STOCK
In connection with the DWT Acquisition, the Company issued 400,000 shares
of Series A Senior Cumulative Exchangeable Redeemable Preferred Stock (the
"Preferred Stock"). In accordance with the Certificate of Designation of
the Preferred Stock (the "Certificate of Designation"), cumulative
dividends are payable quarterly at the rate of 14% per annum. Dividend
rates could increase upon the occurrence of any Event of Non-Compliance
(as defined in the Certificate of Designation). At December 31, 1996,
dividends in arrears were $1,200 or $2.99 per share. The Preferred Stock
has a liquidation preference of $25.00 per share and a par value of $.01
per share. The Preferred Stock is exchangeable, at the option of the
Company, for 14.0% Senior Subordinated Exchange Notes due June 1, 2005
(the "Exchange Notes") (see Note 15). The Preferred Stock ranks with
respect to the payment of dividends and the distribution of assets upon
dissolution, liquidation, or winding up of the Company, prior to all other
capital stock of the Company.
The Company may redeem the Preferred Stock, in whole or in part, at any
time. If such redemption occurs prior to December 31, 1997, the redemption
price shall equal the Makewhole Price (as defined in the Certificate of
Designation). If such redemption occurs on or after December 31, 1997, the
redemption price shall equal the product of the liquidation preference
plus all accrued and unpaid dividends, multiplied by the applicable
Redemption Percentage (as defined in the Certificate of Designation).
25
<PAGE> 27
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109. The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
Year Seven Months
Ended Ended
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Current:
State ........................................ $ 935 $ 1,262
Foreign ...................................... 264 661
------------ ------------
1,199 1,923
Deferred:
Federal ...................................... (64) (530)
State ........................................ 127 804
------------ ------------
63 274
------------ ------------
Total ...................................... $ 1,262 $ 2,197
============ ============
</TABLE>
Reconciliation between the statutory income tax rate and effective tax
rate is summarized below:
<TABLE>
<S> <C> <C>
U.S. Federal statutory rate .................... $ (30,877) $ (372)
State taxes, net of federal effect ............. 690 1,364
Foreign taxes .................................. (430) 789
Nondeductible expenses ......................... 31,814 397
Other .......................................... 65 19
------------ ------------
$ 1,262 $ 2,197
============ ============
</TABLE>
The tax effects of significant temporary differences representing deferred
tax assets and liabilities are as follows:
<TABLE>
<S> <C> <C>
Deferred tax assets:
Accounts receivable reserves ................... $ 477 $ 298
Accrued liabilities not yet deductible ......... 3,497 2,540
Inventories .................................... 3,381 --
Net operating loss carry forward ............... -- 3,544
Other .......................................... 227 87
------------ ------------
7,582 6,469
------------ ------------
Deferred tax liabilities:
Depreciation and amortization .................. 14,684 11,809
Inventories .................................... 2,176 2,523
Other .......................................... 700 206
------------ ------------
17,560 14,538
------------ ------------
Net deferred tax liability ..................... $ 9,978 $ 8,069
============ ============
</TABLE>
26
<PAGE> 28
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. IMPAIRMENT, UNUSUAL AND PLANT CLOSING CHARGES
Commencing in the first quarter of 1996, the Company began a comprehensive
review of the strategic position of its individual business units. The
original goodwill related to the original Wirekraft acquisition recognized
long-term customer relationships and plant locations that were
strategically sized, located and customer focused. Due to intense
competition in the appliance and automotive markets and the loss of the
portion of the business from a major appliance customer in 1995, the
Company developed and executed new business strategies in 1996, including
the DWT Acquisition, to maintain customer volume levels, meet competitive
pressures and address key changes within the marketplace. As a result, the
Company embarked on a major plant consolidation program including the
utilization of facilities purchased in the DWT Acquisition and
transitioning of business from the Midwest to the Southwest and Mexico. To
this end, six plants were closed in 1995 and another six plants were
closed in 1996.
The Company recorded a pre-tax charge to operations of $6,000 in 1996 and
$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 1996 and 1995, plant
closing actions resulted in the reduction of approximately 45 and 55
employees, respectively. Plant closing costs accrued at December 31, 1996
and December 31, 1995 were $2,462 and $700, respectively. 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
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Balance, beginning of period............................... $ 700 $ --
Charges to operations:
Facility shut-down costs................................. 3,872 731
Lease commitments........................................ 773 67
Key personnel and severance costs........................ 1,355 952
------- ------
6,000 1,750
Costs incurred:
Facility shut-down costs................................. (3,017) (339)
Lease commitments........................................ (134) (67)
Key personnel and severance costs........................ (1,087) (644)
------- ------
(4,238) (1,050)
------- ------
Balance, end of period..................................... $ 2,462 $ 700
======= ======
</TABLE>
27
<PAGE> 29
In December 1996, the Company completed its review of the carrying value
of goodwill, resulting in an impairment charge of $78,250. In determining
the goodwill impairment charge, the Company completed financial
projections through the year 2000. These projections reflect the Company's
business strategies and were based on current industry trends, forecasts
and expected developments. A discounted cash flow analysis of the
consolidated entity was used to calculate the fair market value of the
Company and was based upon the Company's acquisition strategy which
focuses on the identification and realization of certain synergies
existing between the acquired businesses. The calculated fair value of the
Company is determined as the sum of discounted free cash flows through the
year 2000 plus a terminal value, which is calculated using a discounted
cash flow terminal value approach, determined by capitalizing unlevered
net income in the last year of the projection by dividing unlevered net
income by the weighted average cost of capital, less an assumed future
growth rate. The calculated fair market value was compared to net tangible
assets (net working capital and net property, plant and equipment). The
difference between net tangible assets and the fair market value was
compared to net goodwill to determine the goodwill impairment charge.
In connection with this review and impairment charge, the Company has
provided for anticipated losses of $4,201 related to product liability
claims associated with the period preceding the original acquisition of
Wirekraft in 1992. These claims are for a non-wire product in the
appliance industry that the Company has not manufactured since 1992. The
Company's policy is to record the probable and reasonably estimable loss
related to product liability claims. In 1996, the claims significantly
increased as a result of the receipt of claims accumulated by insurance
companies related to prior periods. Accordingly, the Company revised its
estimated liability outstanding on actual claims reported and its estimate
of claims incurred but not reported. In developing its estimated liability
outstanding on actual claims reported, the Company considered historical
settlement rates. The Company has estimated its liability outstanding on
actual claims reported to be $1,500. In determining its estimate of claims
incurred but not reported, the Company considered historical claim levels
and amounts relative to total product shipped. Additionally, the Company
considered historical settlement rates to develop its estimate for
incurred but not reported claims of $2,701. Due to the uncertainties
associated with these product claims, the future cost of final settlement
of these claims may differ from the liability currently accrued. However,
in the Company's opinion, the impact of final settlement of these claims
on future operations, financial position and cash flows will not be
material.
11. RETIREMENT BENEFITS AND STOCK OPTION PLANS
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 year ended
December 31, 1996 and seven months ended December 31, 1995 amounted to
approximately $1,208 and $902, respectively.
Holding's Qualified and Non-qualified Stock Option Plan (the "Option
Plan") provides for the granting of up to 4,795,322 shares of common stock
to officers and key employees of Holding and the Company. Under the plan,
options granted approximate market value of the common stock at the date
of grant. Such options vest ratably over
28
<PAGE> 30
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a five year period commencing on the first anniversary date after the date
of grant, and vested options are exercisable at the discretion of the
committee appointed to administer the Option Plan. Generally, an option
may be exercised only if the holder is an officer or employee of Holding
or 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.
Holding and the Company have also granted Performance Options ("the
Performance Options") to certain key executives. The Performance Options
are excercisable only on the occurrence of certain events. The exercise
price for the Performance Options is initially equal to $1.00 per share
and, effective each anniversary of the grant date, the per share exercise
price for the Performance Options is equal to the per share exercise price
for the prior year multiplied by 1.09. The Performance Options terminate
on the tenth anniversary date of the date of grant.
In accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company applies APB Opinion No. 25, "Accounting for
Stock Issued to Employees", and related Interpretations in accounting for
the Option Plan. Accordingly, no compensation cost has been recognized for
the Option Plan and the Performance Options. There may be compensation
expense in future periods when the Performance Options became exercisable
to the extent that the fair value of the stock exceeds the exercise price
of the Performance Options. Had compensation cost for the Option Plan and
the Performance Options been determined based upon the fair value at the
grant date for awards under these plans consistent with the methodology
prescribed under SFAS No. 123, the Company's net loss would approximate
the following:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
As reported........................................ $(89,482) $(3,291)
Pro forma.......................................... $(89,759) $(3,329)
</TABLE>
The minimum value of each option grant is estimated on the date of grant
with the following assumptions in 1996 and 1995, respectively: (i)
risk-free interest rates of 5.9% in 1995 and ranging from 5.9% to 6.5% in
1996 and (ii) expected life of 10 years.
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. Additional awards in future years are
anticipated.
Changes in the status of the Option Plan are summarized below:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Price Options Options
Per Share Granted Vested
-------------- ---------- ----------
<S> <C> <C> <C>
June 1, 1995 ........................ -- -- --
Granted ........................... $1.00 3,400,000 --
Vested ............................ -- -- --
----- ---------- ----------
December 31, 1995 .................... $1.00 3,400,000 --
Granted ........................... $1.02 1,865,249
Vested ............................ $1.00 -- 495,249
Forfeiture ........................ $1.00 (1,250,000) --
----- ---------- ----------
December 31, 1996 .................... $1.01 4,015,249 495,249
===== ========== ==========
</TABLE>
Changes in the status of the Performance Options are summarized below:
<TABLE>
<S> <C> <C> <C>
June 1, 1995 ......................... -- -- --
Granted ........................... $1.00 2,966,178 --
----- ---------- ----------
December 31, 1995 .................... $1.00 2,966,178 --
Granted ........................... $1.00 1,236,566 --
----- ---------- ----------
December 31, 1996 .................... $1.06 4,202,744 --
===== ========== ==========
</TABLE>
The weighted average grant-date fair value of options granted during 1996
and 1995 was $0.48 and $0.44 per share, respectively. Of the options
outstanding under the Option Plan at December 31, 1996, 4,350,000 and
65,249 have exercise prices of $1.00 and $1.625 respectively, and have
weighted average remaining contractual lives of between 9 and 10 years.
The weighted average exercise price of options vested at December 31, 1996
is $1.00 per share.
29
<PAGE> 31
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Of the Performance Options outstanding at December 31, 1996, 2,966,178 and
1,235,566 have exercise prices of $1.09 and $1.00 respectively, and have
weighted average remaining contractual lives of between 9 and 10 years.
12. COMMITMENTS AND CONTINGENCIES
The Company leases certain property, transportation vehicles and other
equipment. Total rental expense under operating leases was $2,237 and
$1,420 for the year ended December 31, 1996 and seven months ended
December 31, 1995. Future minimum lease payments under capital and
operating leases for years ending are:
<TABLE>
<CAPTION>
Capital Operating
------- ---------
<S> <C> <C>
1997 ...................................................... $ 1,416 $ 2,706
1998 ...................................................... 1,416 2,401
1999 ...................................................... 1,416 1,453
2000 ...................................................... 1,376 1,128
2001 ...................................................... 970 927
Thereafter ................................................ 3,010 437
------- -------
Total minimum lease payments ............................ 9,604 $ 9,052
=======
Less amount representing interest ....................... (2,705)
-------
Present value of net minimum lease payments ............. $ 6,899
=======
</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, results of operations or
cash flows.
The Company has agreed in principal to participate in an international
expansion project with one of the Wire segment's largest customers. The
Company estimates its financial commitment for property, plant and
equipment to be approximately $13,000.
13. BUSINESS SEGMENT INFORMATION
Certain information concerning the Company's operating segments for the
year ended December 31, 1996 and 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>
Year Ended December 31, 1996 Wire Harness Consolidated
- ---------------------------- --------- --------- ------------
<S> <C> <C> <C>
Total revenue ........................... $ 406,026 $ 161,354
Intersegment sales ...................... 20,399 --
--------- ---------
Sales to customers ...................... $ 385,627 $ 161,354 $ 546,981
Operating loss .......................... $ (29,443) $ (12,375) $ (41,818)
Identifiable assets ..................... $ 437,524 $ 93,496 $ 531,020
Depreciation and amortization ........... $ 24,880 $ 6,461 $ 31,341
Capital expenditures, net ............... $ 13,060 $ 2,789 $ 15,849
</TABLE>
30
<PAGE> 32
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
Seven Months Ended December 31, 1995 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, net .................. $ 4,991 $ 760 $ 5,751
</TABLE>
14. 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 that 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.
31
<PAGE> 33
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, 1996:
ASSETS
Cash........................... $ -- $ (138) $ 138 $ -- $ --
Accounts receivable............ -- 70,010 1,902 (731) 71,181
Inventory...................... -- 59,648 714 -- 60,362
Other assets................... 5,375 4,314 112 -- 9,801
--------- --------- ------- --------- ---------
Total current assets... 5,375 133,834 2,866 (731) 141,344
Property plant and equipment,
net......................... -- 109,774 8,777 -- 118,551
Intangible assets, net......... 19,722 246,155 -- -- 265,877
Investment in subsidiaries..... 534,857 -- -- (534,857) --
Other assets................... -- 4,368 880 -- 5,248
--------- --------- ------- --------- ---------
Total assets........... $ 559,954 $ 494,131 $12,523 $(535,588) $ 531,020
========= ========= ======= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities............ $ 24,620 $ 85,866 $ 2,856 $ (731) $ 112,611
Long term obligations, less
current maturities.......... 420,422 6,297 -- -- 426,719
Other long-term liabilities.... 6,081 20,790 10 -- 26,881
Intercompany (receivable)
payable..................... 76,260 (85,366) 9,106 -- --
--------- --------- ------- --------- ---------
Total liabilities...... 527,383 27,587 11,972 (731) 566,211
Stockholders' equity
Common stock................ -- -- -- -- --
Preferred stock............. 4 -- -- -- 4
Contributed capital......... 125,340 572,012 18 (572,030) 125,340
Predecessor carryover....... -- (67,762) -- -- (67,762)
Retained earnings........... (92,773) (37,706) 533 37,173 (92,773)
--------- --------- ------- --------- ---------
Total stockholders'
equity (deficit)..... 32,571 466,544 551 (534,857) (35,191)
--------- --------- ------- --------- ---------
Total liabilities and
stockholders' equity
(deficit)............ $ 559,954 $ 494,131 $12,523 $(535,588) $ 531,020
========= ========= ======= ========= =========
</TABLE>
32
<PAGE> 34
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 year ended December 31,
1996:
Net sales........................ $ -- $ 546,981 $34,757 $ (34,757) $ 546,981
Operating expenses
Cost of goods sold............. -- 435,164 20,416 (34,757) 420,823
Selling, general and
administration.............. -- 33,384 10,501 -- 43,885
Depreciation and
amortization................ -- 29,688 1,653 -- 31,341
Impairment, unusual and plant
closing charges............. -- 84,250 -- -- 84,250
Inventory valuation
adjustment.................. -- 8,500 -- -- 8,500
--------- --------- ------- --------- ---------
Operating income (loss).......... -- (44,005) 2,187 -- (41,818)
Other income (expense)
Interest expense............... (41,187) (1,410) (416) -- (43,013)
Amortization of deferred
financing fees.............. (3,701) -- -- -- (3,701)
Equity in net loss of
subsidiaries................ (46,794) -- -- 46,794 --
Other.......................... -- 243 69 -- 312
--------- --------- ------- --------- ---------
Income (loss) before income tax
provision...................... (91,682) (45,172) 1,840 46,794 (88,220)
Income tax provision............. (2,200) 3,197 265 -- 1,262
--------- --------- ------- --------- ---------
Net income (loss)................ $ (89,482) $ (48,369) $ 1,575 $ 46,794 $ (89,482)
========= ========= ======= ========= =========
STATEMENT OF CASH FLOWS
For the year ended December 31,
1996:
Net cash from operating
activities..................... $ 16,189 $ 12,881 $ 2,910 $ -- $ 31,980
--------- --------- ------- --------- ---------
Cash flows provided by (used in)
investing activities:
Acquisition, net of cash....... (160,259) -- -- -- (160,259)
Capital expenditures, net...... -- (13,048) (2,801) -- (15,849)
--------- --------- ------- --------- ---------
Net cash used in investing
activities..................... (160,259) (13,048) (2,801) -- (176,108)
--------- --------- ------- --------- ---------
Cash flows provided by (used in)
financing activities:
Equity proceeds................ 44,289 750 -- -- 45,039
Proceeds from issuance of
long-term obligations....... 128,200 -- -- -- 128,200
Repayment of long-term
obligations................. (20,619) (692) -- -- (21,311)
Financing fees and other....... (7,800) -- -- -- (7,800)
--------- --------- ------- --------- ---------
Net cash from financing
activities..................... 144,070 58 -- -- 144,128
--------- --------- ------- --------- ---------
Net change in cash............... $ -- $ (109) $ 109 $ -- $ --
========= ========= ======= ========= =========
</TABLE>
33
<PAGE> 35
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>
34
<PAGE> 36
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>
35
<PAGE> 37
15. SUBSEQUENT EVENTS FOOTNOTE
On February 4, 1997, the Board of Directors approved the exchange of the
Preferred Stock for Exchange Notes, and voted to pay all dividends in
arrears related to the Preferred Stock.
On February 12, 1997, the Company completed the purchase of the stock and
business activities of Camden Wire Co. for approximately $65,000,
including fees and expenses, subject to certain purchase price adjustments
(the "Camden Acquisition"). The Camden Acquisition and related transaction
fees and expenses were funded with $65,000 of senior debt under the
Amended Credit Agreement pursuant to an amendment dated February 12, 1997
(the "Amended and Restated Credit Agreement").
36
<PAGE> 38
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
International Wire Group, Inc.:
Our report on the consolidated financial statements of International Wire
Group, Inc. and subsidiaries is included on page 19 of this Form 10-K. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in the index on page 17 of this
Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
February 28, 1997
37
<PAGE> 39
INTERNATIONAL WIRE GROUP, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ALLOWANCE FOR DOUBTFUL COLLECTION OF
ACCOUNTS - DEDUCTED FROM BALANCE AT PREVIOUSLY BALANCE AT
FROM RECEIVABLES IN THE BEGINNING WRITTEN OFF END OF
BALANCE SHEET 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
Year ended
December 31, 1996 ....... $860 $337 $(71) $12 $225 $1,363
</TABLE>
38
<PAGE> 40
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Wirekraft Holdings Corp.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Wirekraft Holdings Corp. and
subsidiaries (formerly WB Holdings, Inc.) for the six months ended May 31, 1995
and the year ended November 30, 1994. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Wirekraft Holdings Corp. and subsidiaries for the six months ended May 31,
1995 and the year ended November 30, 1994, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
January 27, 1996
39
<PAGE> 41
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30, 1994
---------------- -----------------
<S> <C> <C>
Net sales................................................... $168,053 $240,972
Operating expenses:
Cost of goods sold........................................ 138,851 201,602
Selling, general and administrative....................... 13,301 14,319
Depreciation and amortization............................. 6,474 6,435
Compensation expense...................................... 895 --
Expenses related to sale.................................. 501 --
Expenses related to plant closings........................ 2,000 --
-------- --------
Operating income............................................ 6,031 18,616
Other income (expense):
Interest expense.......................................... (8,020) (10,565)
Amortization of deferred financing costs.................. (1,657) (1,995)
-------- --------
Income (loss) before income tax provision and extraordinary
item...................................................... (3,646) 6,056
Income tax provision (benefit).............................. (2,114) 3,023
-------- --------
Income (loss) before extraordinary item..................... (1,532) 3,033
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
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements
40
<PAGE> 42
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED MAY 31, 1995 AND
THE YEAR ENDED NOVEMBER 30, 1994
(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>
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
41
<PAGE> 43
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30, 1994
---------------- -----------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss)......................................... $ (9,367) $ 3,033
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
Amortization of deferred financing costs.................... 1,493 1,667
Accretion of debt discount.................................. 164 328
Deferred income taxes....................................... (4,282) (325)
Change in assets and liabilities, net of acquisitions:
Accounts receivable....................................... (9,863) (7,928)
Inventories............................................... (824) (6,622)
Prepaid expenses and other................................ (166) (2,951)
Accounts payable.......................................... (617) 8,231
Accrued and other liabilities............................. 2,628 (281)
Accrued interest.......................................... 1,276 (1,217)
Income taxes payable/refundable........................... (3,366) 2,443
Other long-term liabilities............................... (236) (495)
-------- --------
Net cash from operating activities................ (3,921) 2,318
-------- --------
Cash flows provided by (used in) financing activities:
Acquisitions, net of cash................................. (44,973) (11,754)
Capital expenditures, net................................. (2,914) (6,248)
-------- --------
Net cash from investing activities................ (47,887) (18,002)
-------- --------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of long-term obligations........... 24,000 12,674
Equity proceeds........................................... 25,750 --
Borrowings of long-term obligations....................... 19,639 22,995
Repayment of long-term obligations........................ (14,226) (17,481)
Financing fees and other.................................. (3,500) (691)
-------- --------
Net cash from financing activities................ 51,663 17,497
-------- --------
Net change in cash and cash equivalents..................... (145) 1,813
Cash and cash equivalents at beginning of the period........ 2,053 240
-------- --------
Cash and cash equivalents at end of the period.............. $ 1,908 $ 2,053
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements
42
<PAGE> 44
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MAY 31, 1995, AND
THE YEAR ENDED NOVEMBER 30, 1994
(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 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 non-current assets.................................. 386
Current liabilities....................................... (16,365)
Other liabilities......................................... (6,364)
--------
$116,997
========
</TABLE>
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 on New Holdings.
43
<PAGE> 45
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
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.
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: building 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 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.
44
<PAGE> 46
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 and the year ended November 30, 1994 was approximately $6,744 and
$11,803, respectively. Taxes paid for the six months ended May 31, 1995 and the
year ended November 30, 1994 were approximately $604 and $905, respectively. In
connection with the Acquisition, the Company assumed liabilities aggregating
$22,729, which is a non-cash 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 approximate the carrying values of the
financial instruments.
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. In 1995, a supply contract with one of the above
mentioned customers expired. A supply contract was subsequently renegotiated
through December, 1998.
4. 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
12% Senior Subordinated Notes due 2003 and Credit Agreement 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 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
45
<PAGE> 47
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
5. 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 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.
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 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, canceled 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.
46
<PAGE> 48
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30, 1994
---------------- -----------------
<S> <C> <C>
Current:
Federal........................................... $ 1,022 $2,741
State............................................. 892 607
Foreign........................................... 254 --
------- -------
2,168 3,348
------- -------
Deferred:
Federal........................................... (3,159) (124)
State............................................. (1,123) (201)
------- -------
(4,282) (325)
------- -------
Total..................................... $(2,114) $3,023
======= =======
</TABLE>
Reconciliation between the Federal statutory income tax rate and the
effective tax rate is summarized below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30, 1994
---------------- -----------------
<S> <C> <C>
Federal taxes at statutory rate (34%)............... $(1,240) $2,059
State taxes, net of federal effect.................. 210 268
Foreign............................................. (1,468) --
Nondeductible assets................................ 340 680
Other............................................... 44 16
------- -------
Provision (benefit) for income taxes................ $(2,114) $3,023
======= =======
</TABLE>
7. PLANT CLOSING EXPENSE
In May 1995, the Company recorded a pre-tax 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.
8. 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
and $451 for the six months ended May 31, 1995 and the year ended November 30,
1994, respectively.
47
<PAGE> 49
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. 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 and for the year ended
November 30, 1994.
The schedule of future minimum lease payments by calendar year under
operating leases at November 30, 1994 is as follows:
<TABLE>
<S> <C>
1995........................................................ $1,645
1996........................................................ 1,607
1997........................................................ 1,567
1998........................................................ 1,324
1999........................................................ 1,234
Thereafter.................................................. 1,723
</TABLE>
10. 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.
11. 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.
48
<PAGE> 50
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. BUSINESS SEGMENT INFORMATION
Certain information concerning the Company's operating segments for the six
months ended May 31, 1995 and the year ended November 30, 1994 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
Depreciation and amortization........................... 4,451 1,984 6,435
Capital expenditures, net............................... 5,819 429 6,248
</TABLE>
13. 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 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 canceled for payment to the
option holders who received cash. This amount totaled 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.
14. 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.
49
<PAGE> 51
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
50
<PAGE> 52
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
51
<PAGE> 53
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
52
<PAGE> 54
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
53
<PAGE> 55
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)
Adjustment 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
54
<PAGE> 56
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"). 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>
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.
55
<PAGE> 57
OMEGA WIRE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 to 40 years; building
improvements 15 years; machinery and equipment -- 3 to 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.
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.
56
<PAGE> 58
OMEGA WIRE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
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 pre-tax basis to any of the six investment options available. There are no
required Company contributions to the plan.
57
<PAGE> 59
OMEGA WIRE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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>
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.
58
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders 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 its
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 of these statements 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,
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 the opinion expressed
above.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations 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
59
<PAGE> 61
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
60
<PAGE> 62
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)
Adjustment 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) 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
61
<PAGE> 63
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 to 40 years; building
improvements -- 15 years; machinery and equipment -- 3 to 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.
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.
62
<PAGE> 64
THL-OMEGA HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 on 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>
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>
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
63
<PAGE> 65
THL-OMEGA HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 the sale of the 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.
64
<PAGE> 66
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
THL-Omega Holding Corporation:
In our opinion, the accompanying consolidated statements of operations and
retained earnings and of cash flows for the year ended December 31, 1994 present
fairly, in all material respects, the results of operations and cash flows of
THL-Omega Holding Corporation and its subsidiaries for the year 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 audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above. We have not audited the financial statements of THL-Omega Holding
Corporation for any period subsequent to December 31, 1994.
PRICE WATERHOUSE LLP
Syracuse, New York
February 10, 1995
65
<PAGE> 67
THL-OMEGA HOLDING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<S> <C>
Net sales................................................... $134,457
Costs and expenses:
Cost of products sold..................................... 103,100
Selling expenses.......................................... 5,938
General and administrative expenses....................... 5,836
--------
Income from operations...................................... 19,583
Interest expense............................................ (5,932)
Other income (expense)...................................... 296
--------
Income before income taxes.................................. 13,947
Provision for income taxes.................................. (5,787)
--------
Net income.................................................. 8,160
Retained earnings -- beginning of year...................... 5,124
--------
Retained earnings -- end of year............................ $ 13,284
========
</TABLE>
See accompanying notes to the consolidated financial statements
66
<PAGE> 68
THL-OMEGA HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 8,160
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization............................. 6,023
Deferred income taxes..................................... 2,258
Deferred compensation..................................... 81
Effect of changes in current assets and liabilities (Note
1)..................................................... (5,458)
-------
Net cash provided by (used in) operating activities......... 11,064
-------
Cash flows from investing activities:
Additions to property, plant and equipment, net........... (8,667)
-------
Net cash provided by (used in) investing activities......... (8,667)
-------
Cash flows from financing activities:
Repayment of long-term debt............................... (6,042)
Net borrowing (repayment) under revolving credit
facility............................................... 206
Issuance of notes payable, net............................ 3,755
-------
Net cash provided by (used in) financing activities......... (2,081)
-------
Net increase in cash........................................ 316
Cash at beginning of period................................. 23
-------
Cash at end of period....................................... $ 339
=======
</TABLE>
See accompanying notes to the consolidated financial statements
67
<PAGE> 69
THL-OMEGA HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THL-Omega Holding Corporation and its subsidiaries (the "Company") are
engaged in the manufacturing and marketing on 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.
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 future
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.
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>
Goodwill and Debt Issue Costs
Goodwill is being amortized on a straight-line basis over 40 years.
Amortization expense was $673 for the year ended December 31, 1994. Cost related
to the issuance of debt amounting to $2,257 at December 31, 1994 has been
deferred and amortized on a straight-line basis over the term of the debt.
Amortization expense was $262 for the year ended December 31, 1994.
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.
68
<PAGE> 70
THL-OMEGA HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 is as follows for the year ended December 31, 1994:
<TABLE>
<CAPTION>
1994
-------
<S> <C>
Accounts receivable......................................... $(7,183)
Inventories................................................. (6,450)
Prepaid and other current assets............................ 454
Accounts payable............................................ 5,577
Accrued expenses............................................ 1,639
Income taxes payable........................................ (281)
Customers' deposits on spools and reels..................... 786
-------
$(5,458)
=======
</TABLE>
Cash payments for income taxes were $3,808 for the year ended December 31,
1994. Interest paid was $5,873 for the year ended December 31, 1994.
2. INCOME TAXES
The components of the provision for income taxes are as follows for the
year ended December 31, 1994.
<TABLE>
<S> <C>
Current:
Federal..................................................... $2,979
State....................................................... 550
------
3,529
Deferred.................................................... 2,258
------
Total............................................. $5,787
======
</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>
<S> <C>
Statutory U.S. federal tax rate............................. 34.0%
State taxes, net of federal benefit......................... 2.7
Amortization of non-deductible goodwill..................... 1.5
Other....................................................... 3.3
----
41.5%
====
</TABLE>
3. 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 for the year ended December 31, 1994.
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.
69
<PAGE> 71
THL-OMEGA HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. 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.
5. COMMITMENTS AND CONTINGENCIES
Operating Lease Agreements
The Company leases certain property, transportation vehicles and other
equipment under operating leases. Total lease expense for the year ended
December 31, 1994 was approximately $1,481.
Under the terms of the agreements in effect at December 31, 1994, the
Company has future minimum lease commitments as follows:
<TABLE>
<S> <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>
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 year ended December 31, 1994.
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.
6. 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.
70
<PAGE> 72
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
71
