SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
---------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- -----------------------
33-93970
(Commission File Number)
International Wire Group, Inc.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
43-1705942
(I.R.S. Employer Identification No.)
101 South Hanley Road
St. Louis, MO 63105
(314) 719-1000
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Outstanding at
Class October 31, 1998
----- ----------------
Common Stock 1,000
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
- ------------------------------ ----
<S> <C>
International Wire Group, Inc.
Condensed Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997.................. 3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30,
1998 and the three and nine months ended September 30, 1997...................................... 4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and
the nine months ended September 30, 1997......................................................... 5
Notes to Condensed Consolidated Financial Statements.................................................. 6
Management's Discussion and Analysis of Financial Condition and Results of Operations................. 15
PART II - OTHER INFORMATION................................................................................. 19
SIGNATURES.................................................................................................. 20
</TABLE>
2
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
------------------------ --------------------
1998 1997
------------------------ --------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................... $ 21,334 $ --
Accounts receivable, less allowance of $2,106
and $2,078, respectively.......................................... 91,652 87,201
Inventories......................................................... 63,874 74,406
Other current assets................................................ 19,512 27,273
----------- -----------
Total current assets.............................................. 196,372 188,880
Property, plant and equipment, net.................................... 172,161 165,239
Intangibles and other assets.......................................... 271,144 273,929
----------- -----------
Total assets...................................................... $ 639,677 $ 628,048
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term obligations......................... $ 4,472 $ 4,493
Accounts payable.................................................... 43,272 48,761
Accrued and other liabilities....................................... 62,220 59,121
Accrued interest.................................................... 13,975 4,834
----------- -----------
Total current liabilities......................................... 123,939 117,209
Long-term obligations, less current maturities........................ 514,664 519,302
Other long-term liabilities........................................... 34,654 37,365
----------- -----------
Total liabilities................................................. 673,257 673,876
Stockholder's equity (deficit):
Common stock, $.01 par value, 1,000 shares
authorized, issued and outstanding................................ 0 0
Contributed capital................................................. 114,058 113,717
Carryover of predecessor basis...................................... (67,762) (67,762)
Accumulated deficit................................................. (79,876) (91,783)
----------- -----------
Total stockholder's equity (deficit).............................. (33,580) (45,828)
----------- -----------
Total liabilities and stockholder's equity (deficit).............. $ 639,677 $ 628,048
=========== ===========
</TABLE>
See accompanying notes to the condensed consolidated financial statements
3
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
------------------ ----------------- -------------------- ----------------
1998 1997 1998 1997
------------------ ----------------- -------------------- ----------------
<S> <C> <C> <C> <C>
Net sales................................ $ 156,177 $ 170,768 $ 493,917 $ 536,319
Operating expenses:
Cost of goods sold..................... 111,817 129,028 356,986 413,406
Selling, general and
administrative expenses................ 14,987 14,863 45,915 42,582
Depreciation and
amortization.......................... 10,583 9,287 29,764 25,454
Plant closing charges.................. -- -- -- 500
---------- --------- ---------- ---------
Operating income......................... 18,790 17,590 61,252 54,377
Other income (expense):
Interest expense....................... (12,553) (12,901) (38,137) (38,281)
Amortization of deferred financing
costs.................................... (951) (935) (2,855) (2,992)
Other, net............................. 35 (122) 52 (111)
---------- --------- ---------- ---------
Income before income tax
provision............................. 5,321 3,632 20,312 12,993
Income tax provision..................... 2,274 1,450 8,405 5,393
---------- --------- ---------- ---------
Income before extraordinary item......... 3,047 2,182 11,907 7,600
Extraordinary item - loss related to
early extinguishment of debt,
net of taxes of $1,995................. -- -- -- (2,991)
---------- --------- ---------- ---------
Net income............................... $ 3,047 $ 2,182 $ 11,907 $ 4,609
========== ========= ========== =========
</TABLE>
See accompanying notes to the condensed consolidated financial statements
4
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
------------------------ -------------------------
1998 1997
------------------------ -------------------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income........................................................ $ 11,907 $ 4,609
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization................................... 32,619 28,446
Extraordinary loss on early
extinguishment of debt......................................... -- 4,986
Change in assets and liabilities, net of
acquisitions:
Accounts receivable........................................... (299) (6,115)
Inventories................................................... 10,970 18,599
Other assets.................................................. 4,156 (4,569)
Accounts payable.............................................. (8,894) (29,656)
Accrued and other liabilities................................. (799) 10,322
Accrued interest.............................................. 9,141 8,599
Other long-term liabilities................................... (3,001) 1,358
----------- -----------
Net cash provided by operating
activities........................................................ 55,800 36,579
----------- -----------
Cash flows used in investing activities:
Acquisitions, net of cash......................................... (7,738) (58,996)
Capital expenditures.............................................. (20,913) (15,320)
----------- -----------
Net cash used in investing activities............................... (28,651) (74,316)
----------- -----------
Cash flows provided by (used in) financing
activities:
Proceeds from issuance of long-term
obligations..................................................... -- 228,125
Borrowing (repayment) of long-term obligations.................... (5,233) (175,738)
Cash dividends paid on preferred stock............................ -- (2,078)
Financing fees and other.......................................... (582) (5,411)
----------- - -----------
Net cash provided by (used in) financing activities................. (5,815) 44,898
----------- - -----------
Net change in cash and cash equivalents............................. 21,334 7,161
Cash at beginning of the period..................................... -- --
------------ -----------
Cash at end of the period........................................... $ 21,334 $ 7,161
============ ===========
</TABLE>
See accompanying notes to the condensed consolidated financial statements
5
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(Unaudited)
1. Basis of Presentation
Unaudited Interim Condensed Consolidated Financial Statements
The unaudited interim condensed consolidated financial statements
reflect all adjustments consisting only of normal recurring adjustments
which are, in the opinion of management, necessary for a fair
presentation of the financial position and results of operations of the
Company. The results for the three months and nine months ended
September 30, 1998 are not necessarily indicative of the results that
may be expected for a full fiscal year. These financial statements
should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission for the
year ended December 31, 1997.
Statement of Cash Flows
Interest paid for the nine months ended September 30, 1998 and 1997,
was approximately $29,000 and $29,700, respectively. Income taxes paid
for the nine months ended September 30, 1998 and 1997, were
approximately $2,900 and $2,600, respectively.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) adopted
Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
which requires that a public business enterprise report financial and
descriptive information about its reportable business segments. SFAS
131 is effective for fiscal years beginning after December 15, 1997,
and does not apply to interim financial statements in the year of
adoption. The Company will adopt SFAS No. 131 for the fiscal year ended
December 31, 1998.
In February 1998, the FASB adopted SFAS No. 132, "Employer's
Disclosures about Pensions and Other Postretirement Benefits," which
establishes reporting requirements related to a business' pensions and
other postretirement benefits. SFAS No. 132 is effective for fiscal
years beginning after December 15, 1997, and does not apply to interim
financial statements in the year of adoption. The Company will adopt
SFAS No. 132 for the fiscal year ended December 31, 1998.
In April 1998, the FASB adopted Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities," which requires costs
of start-up activities and organization costs to be expensed as
incurred. SOP 98-5 is effective for financial statements for fiscal
years beginning after December 15, 1998. The Company expects to adopt
SOP 98-5 in fiscal 1999.
6
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In June 1998, the FASB adopted SFAS No.133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No.133 establishes accounting
and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts)
be recorded in the balance sheet as either an asset or liability
measured at its fair value and that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must
formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. SFAS No.133 is effective
for fiscal years beginning after June 15, 1999.
The Company believes that the future adoption of these statements will
not have a significant impact on the results of operations or financial
position of the Company. Certain of these statements will require the
Company to make additional disclosures.
2. Inventories
The composition of inventories at September 30, 1998 is as follows:
Raw materials........................................... $ 26,734
Work-in-process ........................................ 11,899
Finished goods ......................................... 25,241
----------
Total.................................................. $ 63,874
==========
The carrying value of inventories on a last-in, first-out basis, at
September 30, 1998, approximates its current cost.
3. Long-Term Obligations
The composition of long-term obligations at September 30, 1998 is as
follows:
Amended and Restated Credit Agreement:
Revolving credit facility.......................... $ -
Term facility ..................................... 181,125
Senior Subordinated Notes............................ 150,000
Series B Senior Subordinated Notes................... 150,000
Series B Senior Subordinated Notes Premium........... 11,606
Industrial revenue bonds............................. 15,500
Other................................................ 10,905
----------
519,136
Less, current maturities............................. 4,472
----------
$ 514,664
==========
7
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The Amended and Restated Credit Agreement contains several financial
covenants which, among other things, require the Company to maintain
certain financial ratios and restrict the Company's ability to incur
indebtedness, make capital expenditures and pay dividends.
The Company's 11 3/4% Senior Subordinated Notes, 11 3/4% Series B
Senior Subordinated Notes, and 14% Senior Subordinated Notes
(collectively, 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 imposition of restrictions on the payment of dividends and
other distributions by the Company's subsidiaries, the creation 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.
4. Plant Closing Expense
A summary of activity related to plant closings is as follows:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
------------------- ------------------
1998 1997
------------------- ------------------
<S> <C> <C>
Balance, beginning of period.................................... $ 1,445 $ 2,462
Charges to operations:
Facility shut-down costs...................................... -- 375
Lease commitments............................................. -- --
Key personnel and severance costs............................. -- 125
-------- --------
-- 500
-------- --------
Costs incurred:
Facility shut-down costs...................................... (57) (2,054)
Lease commitments............................................. (236) (172)
Key personnel and severance costs............................. (61) (486)
-------- --------
(354) (2,712)
-------- --------
Balance, end of period.......................................... $ 1,091 $ 250
======== ========
</TABLE>
5. Guarantor Subsidiaries
The Company's Senior Notes are fully and unconditionally (as well as
jointly and severally) guaranteed on an unsecured, senior subordinated
basis by each domestic subsidiary of the Company (the "Guarantor
Subsidiaries"). Each of the foreign subsidiaries of the Company,
Electro Componentes de Mexico, S.A. de C.V., Wirekraft Industries de
Mexico, S.A. de C.V., IWG-Philippines, Incorporated and Italtrecce
S.r.l., ("the "Non-Guarantor Subsidiaries") have not guaranteed the
Company's Senior Notes. Each of the Guarantor Subsidiaries and
Non-Guarantor Subsidiaries is wholly owned by the Company.
8
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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.
9
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
<TABLE>
<CAPTION>
TOTAL TOTAL
COMPANY GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
--------------- --------------- ---------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
AS OF SEPTEMBER 30, 1998
ASSETS
Cash and cash equivalents.............. $ -- $ 21,114 $ 220 $ -- $ 21,334
Accounts receivable.................... -- 86,268 5,384 -- 91,652
Inventories............................ -- 63,216 658 -- 63,874
Other assets........................... -- 19,136 376 -- 19,512
------------ ------------ ------------ ------------ ------------
Total current assets................ -- 189,734 6,638 -- 196,372
Property, plant and equipment,
net.................................. -- 148,133 24,028 -- 172,161
Investment in subsidiaries............. 648,705 -- -- (648,705) --
Intangibles and other assets .......... 25,456 237,954 7,734 -- 271,144
------------ ------------ ------------ ------------ ------------
Total assets........................ $ 674,161 $ 575,821 $ 38,400 $(648,705) $ 639,677
============ ============ ============ ============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIT)
Current liabilities.................... $ 16,747 $ 83,031 $ 24,161 $ -- $ 123,939
Long-term obligations, less
current maturities......................... 494,231 20,433 -- -- 514,664
Other long-term liabilities............ -- 34,271 383 -- 34,654
Intercompany (receivable) payable...... 129,001 (136,254) 7,253 -- --
------------ ------------ ------------ ------------ ------------
Total liabilities................... 639,979 1,481 31,797 -- 673,257
Stockholder's equity
(deficit):
Common stock.......................... 0 0 0 0 0
Contributed capital................... 114,058 572,112 3,908 (576,020) 114,058
Carryover of predecessor basis........ -- (67,762) -- -- (67,762)
Retained earnings
(accumulated deficit)...................... (79,876) 69,990 2,695 (72,685) (79,876)
------------ ------------ ------------ ------------ ------------
Total stockholder's equity
(deficit)......................... 34,182 574,340 6,603 (648,705) (33,580)
------------ ------------ ------------ ------------ ------------
Total liabilities and
stockholder's equity
(deficit)....................... $ 674,161 $ 575,821 $ 38,400 $(648,705) $ 639,677
============ ============ ============ ============ ============
</TABLE>
10
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED 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, 1997
ASSETS
Cash and cash equivalents.............. $ -- $ (226) $ 226 $ -- $ --
Accounts receivable.................... -- 86,521 680 -- 87,201
Inventories............................ -- 74,406 -- -- 74,406
Other assets........................... -- 27,273 -- -- 27,273
------------ ------------ ------------ ------------- -------------
Total current assets................ -- 187,974 906 -- 188,880
Property, plant and equipment,
net.................................. -- 150,443 14,796 -- 165,239
Investment in subsidiaries............. 592,643 -- -- (592,643) --
Intangibles and other assets .......... 23,592 248,299 2,038 -- 273,929
------------ ------------ ------------ ------------- -------------
Total assets........................ $ 616,235 $ 586,716 $ 17,740 $(592,643) $ 628,048
============ ============ ============ ============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIT)
Current liabilities.................... $ 8,334 $ 106,623 $ 2,252 $ -- $ 117,209
Long-term obligations, less
current maturities......................... 498,014 21,288 -- -- 519,302
Other long-term liabilities............ -- 37,365 -- -- 37,365
Intercompany (receivable) payable...... 87,953 (97,774) 9,821 -- --
------------ ------------ ------------ ------------- -------------
Total liabilities................... 594,301 67,502 12,073 -- 673,876
Stockholder's equity (deficit)
Common stock.......................... 0 0 0 0 0
Contributed capital................... 113,717 572,012 138 (572,150) 113,717
Carryover of predecessor basis........ -- (67,762) -- -- (67,762)
Retained earnings
(accumulated deficit)...................... (91,783) 14,964 5,529 (20,493) (91,783)
------------ ------------ ------------ ------------- -------------
Total stockholder's equity
(deficit)......................... 21,934 519,214 5,667 (592,643) (45,828)
------------ ------------ ------------ ------------- -------------
Total liabilities and
stockholder's equity
(deficit)....................... $ 616,235 $ 586,716 $ 17,740 $(592,643) $ 628,048
============ ============ ============ ============= =============
</TABLE>
11
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED 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 THREE MONTHS ENDED SEPTEMBER 30, 1998
Net sales................................... $ -- $ 156,177 $ 10,754 $(10,754) $156,177
Operating expenses
Cost of goods sold...................... -- 116,822 5,749 (10,754) 111,817
Selling, general and
administrative expenses..................... -- 11,569 3,418 -- 14,987
Depreciation and amortization........... -- 9,028 1,555 -- 10,583
------ --------- -------- -------- --------
Operating income (loss) -- 18,758 32 -- 18,790
Other income (expense):
Interest expense........................ (11,916) (623) (14) -- (12,553)
Amortization of deferred
financing costs............................. (951) -- -- -- (951)
Equity in net income (loss) of
subsidiaries............................ 15,914 -- -- (15,914) --
Other, net.............................. -- 35 -- -- 35
-------- ---------- -------- -------- --------
Income (loss) before income tax
provision................................. 3,047 18,170 18 (15,914) 5,321
Income tax provision........................ -- 1,947 327 -- 2,274
------- ---------- -------- -------- --------
Net income (loss) $ 3,047 $ 16,223 $ (309) $(15,914) $ 3,047
======= ========== ======== ======== ========
<CAPTION>
TOTAL TOTAL
COMPANY GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
------------- --------------- --------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
Net sales................................... $ -- $ 170,768 $ 10,101 $ (10,101) $ 170,768
Operating expenses
Cost of goods sold........................ -- 135,278 3,851 (10,101) 129,028
Selling, general and
administrative expenses..................... -- 11,752 3,111 -- 14,863
Depreciation and amortization............. -- 8,262 1,025 -- 9,287
------- --------- --------- --------- ----------
Operating income (loss) -- 15,476 2,114 -- 17,590
Other income (expense):
Interest expense.......................... (12,901) -- -- -- (12,901)
Amortization of deferred financing
costs....................................... (935) -- -- -- (935)
Equity in net income (loss) of
subsidiaries............................ 16,018 -- -- (16,018) --
Other..................................... -- (123) 1 -- (122)
------- ---------- --------- --------- -----------
Income (loss) before income tax
provision................................. 2,182 15,353 2,115 (16,018) 3,632
Income tax provision........................ -- 1,202 248 -- 1,450
------- --------- --------- --------- ----------
Income (loss) before extraordinary
item...................................... 2,182 14,151 1,867 (16,018) 2,182
Extraordinary item, net of income taxes..... -- -- -- -- --
------- --------- --------- --------- ----------
Net income (loss)........................... $ 2,182 $ 14,151 $ 1,867 $ (16,018) $ 2,182
======= ========= ========== ========= ==========
</TABLE>
12
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED 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 NINE MONTHS ENDED
SEPTEMBER 30, 1998
Net sales................................... $ -- $ 493,917 $ 25,879 $(25,879) $493,917
Operating expenses
Cost of goods sold...................... -- 368,521 14,344 (25,879) 356,986
Selling, general and
administrative expenses..................... -- 35,860 10,055 -- 45,915
Depreciation and amortization........... -- 26,123 3,641 -- 29,764
------- ---------- -------- -------- --------
Operating income (loss) -- 63,413 (2,161) -- 61,252
Other income (expense):
Interest expense........................ (37,430) (693) (14) -- (38,137)
Amortization of deferred
financing costs............................. (2,855) -- -- -- (2,855)
Equity in net income (loss) of
subsidiaries............................ 52,192 -- -- (52,192) --
Other, net.............................. -- 51 1 -- 52
-------- ---------- ------- -------- --------
Income (loss) before income tax
provision................................. 11,907 62,771 (2,174) (52,192) 20,312
Income tax provision........................ -- 7,745 660 -- 8,405
------- --------- -------- -------- -------
Net income (loss) $11,907 $ 55,026 $ (2,834) $ (52,192) $ 11,907
======= ========= ======== ========= ========
<CAPTION>
TOTAL TOTAL
COMPANY GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
------------- --------------- --------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
Net sales................................... $ -- $ 536,319 $ 28,124 $ (28,124) $ 536,319
Operating expenses
Cost of goods sold........................ $ -- 430,072 11,458 (28,124) 413,406
Selling, general and
administrative expenses..................... -- 33,121 9,461 -- 42,582
Depreciation and amortization............. -- 23,380 2,074 -- 25,454
Plant closing charges..................... -- 500 -- -- 500
------- ------- -------- -------- ---------
Operating income (loss) -- 49,246 5,131 -- 54,377
Other income (expense):
Interest expense.......................... (38,281) -- -- -- (38,281)
Amortization of deferred financing
costs....................................... (2,992) -- -- -- (2,992)
Equity in net income (loss) of
subsidiaries............................ 48,873 -- -- (48,873) --
Other..................................... -- (113) 2 -- (111)
------- --------- ------- --------- ---------
Income (loss) before income tax
provision................................. 7,600 49,133 5,133 (48,873) 12,993
Income tax provision........................ -- 4,880 513 -- 5,393
------- --------- -------- --------- ---------
Income (loss) before extraordinary
item...................................... 7,600 44,253 4,620 (48,873) 7,600
Extraordinary item.......................... (2,991) -- -- -- (2,991)
-------- --------- -------- --------- -----------
Net income (loss)........................... $ 4,609 $ 44,253 $ 4,620 $ (48,873) $ 4,609
======== ========= ======== ========= ===========
</TABLE>
13
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
<TABLE>
<CAPTION>
TOTAL TOTAL
COMPANY GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
--------------- --------------- --------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
Net cash from operating activities $ 3,783 $ 39,472 $ 8,675 $ 3,870 $ 55,800
---------- ----------- --------- ---------- --------
Cash flows used in
Investing activities:
Acquisition, net of cash............... -- (7,738) -- -- (7,738)
Capital expenditures................... -- (9,036) (11,877) -- (20,913)
---------- ----------- --------- ---------- --------
Net cash used in investing activities -- (16,774) (11,877) -- (28,651)
---------- ----------- --------- ---------- --------
Cash flows provided by (used in) financing
activities:
Equity proceeds........................ -- 100 3,770 (3,870) --
Repayment of long-term
obligations.......................... (3,783) (876) (574) -- (5,233)
Financing fees and other............... -- (582) -- -- (582)
---------- ----------- --------- ---------- --------
Net cash provided by (used in) financing
activities................................. (3,783) (1,358) 3,196 (3,870) (5,815)
---------- ----------- --------- ---------- --------
Net change in cash and cash equivalents $ -- $ 21,340 $ (6) $ -- $ 21,334
========== =========== ========= ========== ========
<CAPTION>
TOTAL TOTAL
COMPANY GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
--------------- --------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
Net cash from (used in)
operating activities..................... $(30,209) $ 63,787 $ 3,001 $ -- $36,579
-------- --------- -------- -------- -------
Cash flows by used in
Investing activities:
Acquisition, net of cash............... -- (58,996) -- -- (58,996)
Capital expenditures................... -- (12,737) (2,583) -- (15,320)
-------- --------- -------- -------- --------
Net cash used in investing activities -- (71,733) (2,583) -- (74,316)
-------- --------- -------- -------- -------
Cash flows provided by (used in) financing
activities:
Proceeds from issuance of
long-term obligations...................... 211,614 16,511 -- -- 228,125
Repayment of long-term
obligations................................ (173,916) (1,822) -- -- (175,738)
Cash dividends paid on
preferred stock............................ (2,078) -- -- -- (2,078)
Financing fees and other............... (5,411) -- -- -- (5,411)
-------- --------- -------- -------- --------
Net cash provided by financing activities 30,209 14,689 -- -- 44,898
-------- --------- -------- -------- -------
Net change in cash and cash equivalents $ -- $ 6,743 $ 418 $ -- $ 7,161
======== ========= ======== ======== =======
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion and analysis includes the results of operations for the
three and nine months ended September 30, 1998 compared to the three and nine
months ended September 30, 1997, respectively.
The Company conducts its operations through two segments: (i) wire products,
which includes both bare wire and insulated wire, and (ii) wire harness
products.
A portion of the Company's revenues is derived from processing customer-owned
(tolled) copper. The value of tolled copper is excluded from both sales and
costs of sales of the Company, as title to these materials and the related risks
of ownership do not pass to the Company.
The cost of copper has historically been subject to fluctuations. While
fluctuations in the price of copper may directly affect the per unit prices of
the Company's products, these fluctuations have not had, nor are expected to
have, a material impact on the Company's profitability due to copper price
pass-through arrangements that the Company has with its customers. These sales
arrangements are based on similar variations of monthly copper price formulas.
Use of these copper price formulas minimizes the differences between raw
material copper costs charged to the cost of sales and the pass-through pricing
charged to customers.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
Net sales for the three months ended September 30, 1998 were $156.2 million,
representing a $14.6 million, or 8.5%, decrease compared to the third quarter of
1997. Increases in unit volumes in both segments were offset by the impact of a
decrease in the average cost and selling price of copper and a higher mix of
tolled copper. In general, the Company prices its wire products based upon a
spread over the cost of copper, which results in a decreased dollar value of
sales when copper costs decrease. The average price of copper based upon the New
York Mercantile Exchange, Inc. ("COMEX") decreased to $.75 per pound during the
three months ended September 30, 1998 from $1.02 per pound during the three
months ended September 30, 1997.
Wire segment sales were $114.2 million and decreased $16.5 million, or 12.6%, in
the three months ended September 30, 1998 as compared to the three months ended
September 30, 1997. This was a result of the lower costs and selling prices of
copper and a higher mix of tolled copper. These effects were partially offset by
unit growth in sales of bare wire and cable for industrial and specialty
customers. Within the wire harness segment, net sales for the three months ended
September 30, 1998 were $42.0 million, representing a $1.9 million, or 4.8%,
increase compared to the third quarter of 1997. The increase was due to higher
unit volume within the appliance market segment, partially offset by the
discontinuation of a non-core product line in September 1997.
Cost of goods sold as a percentage of sales improved to 71.6% for the three
months ended September 30, 1998 from 75.6% for the three months ended September
15
<PAGE>
30, 1997. This improvement reflected continued synergies related to the
acquisition of Camden Wire Co. Inc. ("Camden Wire"), savings realized from
previous plant consolidations, cost reductions achieved through the transition
of certain wire harness segment business to lower-cost Mexican facilities, and
the impact of lower copper prices.
Selling, general and administrative expenses increased $0.1 million to $15.0
million for the three months ended September 30, 1998 compared to $14.9 million
for the same period in 1997 due to higher unit volume.
Depreciation and amortization was $10.6 million for the three months ended
September 30, 1998 compared to $9.3 million for the same period in 1997. The
increase of $1.3 million was primarily the result of depreciation of property,
plant and equipment additions.
Other expenses decreased $0.5 million from $14.0 million in the third quarter of
1997 to $13.5 million in the third quarter of 1998, due primarily to reduced
interest expense as a result of improved cash flows from increased profitability
and lower working capital requirements.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997
Net sales for the nine months ended September 30, 1998 were $493.9 million,
representing a $42.4 million, or 7.9%, decrease compared to the nine months
ended September 30, 1997. Increases in unit volume in both segments were more
than offset by the impact of a decrease in the average cost and selling price of
copper, a higher mix of tolled copper and the discontinuation of a non-core
product line in September 1997. In addition, 1998 sales includes the impact of
the acquisition of Camden Wire which was acquired in the first quarter of 1997.
The average price of copper based upon the New York Mercantile Exchange, Inc.
("COMEX") decreased to $.77 per pound during the nine months ended September 30,
1998 from $1.09 per pound during the nine months ended September 30, 1997.
Wire segment sales were $364.2 million and decreased $41.6 million, or 10.3%, in
the nine months ended September 30, 1998 as compared to the nine months ended
September 30, 1997, primarily as a result of lower copper costs and selling
prices. The copper effect was partially offset by increased unit volumes. The
increased unit volumes were due to higher demand in most major market segments,
including industrial cable, electronics/data communications, automotive and
appliance lead wire. Within the wire harness segment, net sales for the nine
months ended September 30, 1998 were $129.7 million, representing a $.8 million,
or 0.6%, decrease compared to the third quarter of 1997. Increases in appliance
and industrial harness sales were offset by the effect of a non-core product
line discontinued in September 1997.
Cost of goods sold as a percentage of sales improved to 72.3% for the nine
months ended September 30, 1998 from 77.1% for the nine months ended September
30, 1997. This improvement reflected synergies related to the acquisition of
Camden Wire, savings realized from previous plant consolidations, lower current
period costs achieved through the transition of certain wire harness segment
business to lower-cost Mexican facilities, and the impact of lower copper
prices.
16
<PAGE>
Selling, general and administrative expenses were $45.9 million for the nine
months ended September 30, 1998 compared to $42.6 million for the same period in
1997. This $3.3 million increase primarily reflected the addition of Camden Wire
for a full first quarter, the effect of the 1998 acquisitions of Spargo Wire
Company, Inc. ("Spargo Wire") and Italtrecce S.r.l.
("Italtrecce") and increased unit volume.
Depreciation and amortization was $29.8 million for the nine months ended
September 30, 1998 compared to $25.5 million for the same period in 1997. The
increase of $4.3 million was primarily the result of depreciation of property,
plant and equipment additions.
In the first quarter of 1997, a $.5 million pre-tax plant closing charge to
operations was recorded. The plant closing costs related to consolidation
efforts within the wire segment.
During the first nine months of 1998, there was no similar charge.
Other expenses decreased $0.4 million to $40.9 million for the nine months ended
September 30, 1998 compared to $41.3 million for the nine months ended September
30, 1997. Increased borrowings as a result of 1997 and 1998 acquisitions were
more than offset by improved cash flows from increased profitability and lower
working capital requirements.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $55.8 million for the nine months
ended September 30, 1998, compared to $36.6 million for the nine months ended
September 30, 1997. This increase was primarily due to the increase in net
income and an improved working capital position.
Net cash used in investing activities was $28.7 million for the nine months
ended September 30, 1998 which represented (i) acquisition costs of $7.7 million
related to the acquisitions of Spargo Wire and Italtrecce and (ii) capital
expenditures of $21.0 million, of which approximately $8.4 million related to
the Company's new facility in Cebu, Philippines, which opened for operations in
July, 1998. Net cash used in investing activities was $74.3 million for the nine
months ended September 30, 1997, and represented (i) acquisition costs of $59.0
million related to the acquisition of Camden Wire and (ii) capital expenditures
of $15.3 million of which approximately $6.0 million related to the Cebu,
Philippines expansion project.
Net cash used in financing activities was $5.8 million for the nine months ended
September 30, 1998 and represented net repayments under debt obligations of $5.2
million and financing fees related to the acquisitions of Spargo and Italtrecce
of $0.6 million. Net cash provided by financing activities was $44.9 million for
the nine months ended September 30, 1997 and included (i) proceeds of $228.1
million from the issuance of long-term obligations, (ii) net repayments of
$175.7 million under the existing debt obligations, (iii) payments of $5.4
million related to financing fees and (iv) cash dividends of $2.1 million
related to the Series A Cumulative Exchangeable Redeemable Preferred Stock which
the Company exchanged for debt in 1997.
The Company's ability to fund its liquidity and capital requirements and to pay
its indebtedness is limited to its ability to receive dividends and other
distributions from its subsidiaries. The Company's Amended and Restated Credit
Agreement and its Senior Notes prohibit the Company from imposing certain
17
<PAGE>
restrictions on the ability of its subsidiaries to pay dividends or make other
distributions to the Company.
IMPACT OF YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs written using two digits
rather than four to define the applicable year. Any of the Company's computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
During 1997, the company established an internal team comprised of several key
members of the executive management group to address the Year 2000 issue as it
relates to operating and administration of the Company. The objective of the
review team was to make an assessment of internal risks associated with the Year
2000 issue including the status of the company's internally used software,
computer hardware and use of computer applications in each of the Company's
business cycles and to develop a remediation plan, where necessary.
Based on the review team's assessment, the Company determined that it will be
required to replace portions of its software so that its computer systems will
properly utilize dates beyond December 31, 1999. At December 31, 1997, the
Company estimated that approximately 40 percent of the Company's systems were
Year 2000 compliant, with all systems expected to be compliant by early 1999.
The Company will utilize both internal and external resources to replace and
test the software for Year 2000 modifications. The total cost of the project is
estimated to be approximately $6.5 million. As of September 30, 1998,
approximately $5.4 million of the costs have been incurred. The majority of the
expenditures relate to the purchase of new software and hardware which will be
capitalized and is being funded through operating cash flows.
The costs of the project and the date on which the Company plans to complete the
Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availablility of certain resources. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those plans. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, and
similar uncertainties.
The Company is currently in the process of evaluating the external risks
associated with the Year 2000 Issue. All critical or significant suppliers have
been identified and have been surveyed regarding their Year 2000 readiness.
Additionally, the Company is in constant contact with significant customers
regarding the status of both the Company's and its customers' Year 2000
compliance.
Due to the general uncertainty inherent in the Year 2000 Issue, resulting in
part from the uncertainty of the Year 2000 readiness of third-party suppliers
and customers, the Company is unable to determine at this time what the impact
of the Year 2000 issues will have on the Company's results of operations,
liquidity or financial condition. The Company presently believes, however, that
18
<PAGE>
with the expected conversions to new software, the internal risks associated
with the Year 2000 Issue can be mitigated. However, if such conversions are not
made, or are not completed timely, the Year 2000 Issue could have a materially
adverse impact on the results of operations, liquidity or financial condition.
19
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a)
Exhibits
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the three months ended
September 30, 1998.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTERNATIONAL WIRE GROUP, INC.
Dated: November 13, 1998 By : /s/ DAVID M. SINDELAR
----------------------------------
Name : David M. Sindelar
Title: Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
By : /s/ GLENN J. HOLLER
----------------------------------
Name : Glenn J. Holler
Title: Vice President - Finance
(Chief Accounting Officer)
21
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
financial statements contained in the body of the accompanying Form 10-Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> Sep-30-1998
<CASH> 21,334
<SECURITIES> 0
<RECEIVABLES> 93,758
<ALLOWANCES> 2,106
<INVENTORY> 63,874
<CURRENT-ASSETS> 196,372
<PP&E> 282,191
<DEPRECIATION> 110,030
<TOTAL-ASSETS> 639,677
<CURRENT-LIABILITIES> 123,939
<BONDS> 514,664
0
0
<COMMON> 0
<OTHER-SE> (33,580)
<TOTAL-LIABILITY-AND-EQUITY> 639,677
<SALES> 493,917
<TOTAL-REVENUES> 493,917
<CGS> 356,986
<TOTAL-COSTS> 356,986
<OTHER-EXPENSES> 29,764
<LOSS-PROVISION> 195
<INTEREST-EXPENSE> 40,992
<INCOME-PRETAX> 20,312
<INCOME-TAX> 8,405
<INCOME-CONTINUING> 11,907
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,907
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
