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 March 31, 1999
---------------------------------------------
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 April 30, 1999
----- --------------
Common Stock 1,000
1
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
<TABLE>
<CAPTION>
INDEX
PART I - FINANCIAL INFORMATION Page
<S> <C>
International Wire Group, Inc.
Condensed Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998...................... 3
Condensed Consolidated Statements of Operations for the three month periods ended March 31, 1999
and 1998......................................................................................... 4
Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 1999
and 1998......................................................................................... 5
Notes to Condensed Consolidated Financial Statements.................................................. 6
Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 14
Quantitative and Qualitative Disclosure About Market Risk................................................. 18
PART II - OTHER INFORMATION................................................................................. 20
SIGNATURES.................................................................................................. 21
</TABLE>
2
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
-----------------------------
1999 1998
-----------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................... $ 2,412 $ --
Accounts receivable, less allowance of $2,382
and $2,633, respectively .............................................. 87,714 81,369
Inventories ............................................................. 73,719 82,968
Other current assets .................................................... 21,089 28,617
--------- ---------
Total current assets .................................................. 184,934 192,954
Property, plant and equipment, net ........................................ 180,032 178,647
Intangibles and other assets .............................................. 264,266 267,513
--------- ---------
Total assets .......................................................... $ 629,232 $ 639,114
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term obligations ............................. $ 6,538 $ 6,222
Accounts payable ........................................................ 37,212 34,461
Accrued and other liabilities ........................................... 52,488 60,922
Accrued interest ........................................................ 13,070 3,674
--------- ---------
Total current liabilities ............................................. 109,308 105,279
Long-term obligations, less current maturities ............................ 509,856 520,983
Other long-term liabilities ............................................... 39,739 44,412
--------- ---------
Total liabilities ..................................................... 658,903 670,674
Stockholder's equity (deficit):
Common stock, $.01 par value, 1,000 shares
Authorized, issued and outstanding .................................... 0 0
Contributed capital ..................................................... 114,330 114,172
Carryover of predecessor basis .......................................... (67,762) (67,762)
Accumulated deficit ..................................................... (76,239) (77,970)
- --------------------------------------------------------------------------- --------- ---------
Total stockholder's equity (deficit) .................................. (29,671) (31,560)
- --------------------------------------------------------------------------- --------- ---------
Total liabilities and stockholder's equity (deficit)................... $ 629,232 $ 639,114
========= =========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months
Ended March 31,
--------------------------
1999 1998
--------------------------
Net sales ........................................ $ 160,951 $ 174,006
Operating expenses:
Cost of goods sold ............................. 113,917 128,796
Selling, general and
administrative expenses ....................... 16,418 15,469
Depreciation and
amortization .................................. 10,183 9,067
--------- ---------
Operating income ................................. 20,433 20,674
Other income (expense):
Interest expense ............................... (12,478) (13,043)
Amortization of deferred financing costs ....... (972) (953)
Other, net ..................................... -- 4
--------- ---------
Income before income tax
provision and cumulative effect of
change in accounting principle ................. 6,983 6,682
Income tax provision ............................. 2,933 2,766
--------- ---------
Income before cumulative effect
of change in accounting
principle ...................................... 4,050 3,916
Cumulative effect of change in
accounting for start-up costs,
net of tax benefit of $1,679 ................... (2,319) --
--------- ---------
Net income ....................................... $ 1,731 $ 3,916
========= =========
See accompanying notes to the condensed consolidated financial statements.
4
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months
Ended March 31,
--------------------
1999 1998
--------------------
Cash flows provided by (used in) operating activities:
Net income ........................................... $ 1,731 $ 3,916
Adjustments to reconcile net income to ...............
net cash provided by (used in) operating
activities:
Depreciation and amortization ...................... 11,155 10,020
Cumulative effect of change in accounting
for start-up costs ................................ 3,998 --
Change in assets and liabilities, net of
acquisitions:
Accounts receivable .............................. (6,345) (7,299)
Inventories ...................................... 9,249 11,432
Other assets ..................................... 2,846 1,553
Accounts payable ................................. 2,751 (9,642)
Accrued and other liabilities .................... (8,434) 624
Accrued interest ................................. 9,396 9,167
Other long-term liabilities ...................... (4,673) (90)
-------- --------
Net cash provided by operating
activities ........................................... 21,674 19,681
-------- --------
Cash flows used in investing activities:
Capital expenditures ................................. (8,493) (8,304)
-------- --------
Net cash used in investing activities .................. (8,493) (8,304)
-------- --------
Cash flows provided by (used in) financing activities:
Equity proceeds ...................................... 42 --
Repayment of long-term obligations ................... (1,811) (1,486)
Repayment on revolver (net) .......................... (9,000) (825)
-------- --------
Net cash used in financing activities .................. (10,769) (2,311)
-------- --------
Net change in cash and cash equivalents ................ 2,412 9,066
Cash at beginning of the period ........................ -- --
-------- --------
Cash at end of the period .............................. $ 2,412 $ 9,066
======== ========
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 ended March 31, 1999 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, 1998.
Statement of Cash Flows
Interest paid for the three months ended March 31, 1999 and 1998, was
approximately $3,100 and $3,900, respectively. Total income taxes paid
(refunded) for the three months ended March 31, 1999 and 1998, was
approximately ($500) and $200, respectively.
Change in Accounting Principle
In April 1998, the Financial Accounting Standards Board ("FASB") issued
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
adopted SOP 98-5 effective January 1, 1999. The Company had $3,998 in net
capitalized start-up costs remaining at December 31, 1998, which the
Company expensed in accordance with SOP 98-5 during the quarter ended
March 31, 1999.
Recently Issued Accounting Standards
In June 1998, the FASB adopted Statement of Financial Accounting Standards
("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 this statement will not have a significant impact on
the results of operations or financial position of the Company.
6
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
2. Inventories
The composition of inventories at March 31, 1999 is as follows:
Raw materials................................................ $ 30,065
Work-in-process ............................................. 13,016
Finished goods .............................................. 30,638
----------
Total...................................................... $ 73,719
==========
The carrying value of inventories on a last-in, first-out basis, at
March 31, 1999, approximates its current cost.
3. Long-Term Obligations
The composition of long-term obligations at March 31, 1999 is as follows:
Amended and Restated Credit Agreement:
Revolving credit facility.....................................$ -
Term facility ................................................ 179,062
Senior Subordinated Notes....................................... 150,000
Series B Senior Subordinated Notes.............................. 150,000
Series B Senior Subordinated Notes Premium...................... 10,979
Industrial revenue bonds........................................ 15,500
Other........................................................... 10,853
----------
516,394
Less, current maturities........................................ 6,538
----------
$ 509,856
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:
7
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
---------------------------
1999 1998
---------------------------
<S> <C> <C>
Balance, beginning of period.................................... $ 1,079 $ 1,445
Charges to operations:
Facility shut-down costs...................................... -- --
Lease commitments............................................. -- --
Key personnel and severance costs............................. -- --
-------- --------
-- --
-------- --------
Costs incurred:
Facility shut-down costs...................................... (483) (43)
Lease commitments............................................. (173) (236)
Key personnel and severance costs............................. -- (36)
-------- --------
(656) (315)
-------- --------
Balance, end of period.......................................... $ 423 $ 1,130
======== ========
</TABLE>
5. Business Segment Information
The Company conducts its operations through two business segments, a Wire
Segment and a Wire Harness Segment. Segment data includes intersegment
revenues, as well as charges allocating corporate administrative costs to
each of its operating segments. The Company evaluates the performance of
its segments and allocates resources to them based on operating income.
The table below presents information about reported segments for the
quarters ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Quarter Ended March 31, 1999 Wire
Wire Harness Consolidated
<S> <C> <C> <C>
Sales.................................................... $119,418 $ 49,700 $ 169,118
Intersegment sales....................................... (8,167) -- (8,167)
------- ---------- -----------
Sales to customers....................................... 111,251 49,700 160,951
Operating income......................................... $ 14,340 $ 6,093 $ 20,433
Quarter Ended March 31, 1998 Wire
Wire Harness Consolidated
Sales.................................................... $135,338 $ 44,731 $ 180,069
Intersegment sales....................................... (6,063) -- (6,063)
------- ---------- -----------
Sales to customers....................................... 129,275 44,731 174,006
Operating income......................................... $ 14,970 $ 5,704 $ 20,674
</TABLE>
A reconciliation of total operating income for reportable segments to
consolidated income before income tax provision and cumulative effect
of change in accounting principle for the quarters ended March 31, 1999
and 1998 is as follows:
8
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Quarter Ended
March 31,
-------------------- ------
1999 1998
---------------------------
Total operating income for
reportable segments...........................$ 20,433 $ 20,674
Other income (expense):
Interest expense.............................. (12,478) (13,043)
Amortization of deferred
financing costs............................. (972) (953)
Other, net.................................... -- 4
-------- --------
Consolidated income before
income tax provision and
cumulative effect of change
in accounting principle.......................$ 6,983 $ 6,682
======== ========
6. Guarantor Subsidiaries
The Senior Notes are fully and unconditionally (as well as jointly and
severally) guaranteed on an unsecured, senior subordinated basis by each
subsidiary of the Company (the "Guarantor Subsidiaries") other than Electro
Componentes de Mexico, S.A. de C.V., Wirekraft Industries de Mexico, S.A.
de C.V., IWG-Philippines, Inc., IWG International, Inc. and
Italtrecce-Societa Italiana Trecce & Affini S.r.l. (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.
9
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
---------------------------------------------------------
BALANCE SHEET
AS OF MARCH 31, 1999
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents .... $ -- $ 2,280 $ 132 $ -- $ 2,412
Accounts receivable .......... -- 82,845 5,827 (958) 87,714
Inventories .................. -- 72,953 766 -- 73,719
Other assets ................. -- 20,489 600 -- 21,089
--------- --------- --------- --------- ---------
Total current assets ...... -- 178,567 7,325 (958) 184,934
Property, plant and equipment,
net ........................ -- 153,908 26,124 -- 180,032
Investment in subsidiaries ... 616,366 -- -- (653,922) --
Intangibles and other assets . 19,293 235,792 9,181 -- 264,266
--------- --------- --------- --------- ---------
Total assets .............. $ 635,659 $ 568,267 $ 42,630 $(654,880) $ 629,232
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIT)
<S> <C> <C> <C> <C> <C>
Current liabilities .................$ 18,132 $ 85,019 $ 7,115 $ (958) $ 109,308
Long-term obligations, less
current maturities ................. 489,979 19,529 348 -- 509,856
Other long-term liabilities .......... -- 39,739 -- -- 39,739
Intercompany (receivable)
payable.............................. 89,457 (118,766) 29,309 -- --
------- --------- --------- --------- ---------
Total liabilities ................. 597,568 25,521 36,772 (958) 658,903
Stockholder's equity
(deficit):
Common stock ........................ 0 0 0 0 0
Contributed capital ................. 114,330 572,012 6,118 (578,130) 114,330
Carryover of predecessor
basis.............................. -- (67,762) -- -- (67,762)
Retained earnings
(accumulated deficit) ............. (76,239) 38,496 (260) (75,792) (76,239)
------- --------- --------- --------- ---------
Total stockholder's equity
(deficit) ....................... 38,091 542,746 5,858 (653,922) (29,671)
------- --------- --------- --------- ---------
Total liabilities and
stockholder's equity
(deficit).....................$ 635,659 $ 568,267 $ 42,630 $(654,880) $ 629,232
======= ========= ========= ========= =========
</TABLE>
10
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
---------------------------------------------------------
BALANCE SHEET
AS OF DECEMBER 31, 1998
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents .... $ -- $ -- $ -- $ -- $ --
Accounts receivable .......... -- 79,444 2,969 (1,044) 81,369
Inventories .................. -- 80,803 2,165 -- 82,968
Other assets ................. -- 23,414 5,203 -- 28,617
--------- --------- --------- --------- ---------
Total current assets ...... -- 183,661 10,337 (1,044) 192,954
Property, plant and equipment,
net ........................ -- 153,587 25,060 -- 178,647
Investment in subsidiaries ... 666,004 -- -- (666,004) --
Intangibles and other assets . 20,265 242,338 4,910 -- 267,513
--------- --------- --------- --------- ---------
Total assets .............. $ 686,269 $ 579,586 $ 40,307 $(667,048) $ 639,114
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S
EQUITY (DEFICIT)
<S> <C> <C> <C> <C> <C>
Current liabilities .......... $ 8,424 $ 90,215 $ 7,684 $ (1,044) $ 105,279
Long-term obligations, less
current maturities ........ 500,795 19,840 348 -- 520,983
Other long-term liabilities .. -- 44,412 -- -- 44,412
Intercompany (receivable)
payable .................... 140,848 (167,245) 26,397 -- --
--------- --------- --------- --------- ---------
Total liabilities ......... 650,067 (12,778) 34,429 (1,044) 670,674
Stockholder's equity (deficit):
Common stock ................ 0 0 0 -- 0
Contributed capital ......... 114,172 572,012 6,118 (578,130) 114,172
Carryover of predecessor
basis...................... -- (67,762) -- -- (67,762)
Retained earnings
(accumulated deficit) ..... (77,970) 88,114 (240) (87,874) (77,970)
--------- --------- --------- --------- ---------
Total stockholder's equity
(deficit) ............... 36,202 592,364 5,878 (666,004) (31,560)
--------- --------- --------- --------- ---------
Total liabilities and
stockholder's equity
(deficit) ............... $ 686,269 $ 579,586 $ 40,307 $(667,048) $ 639,114
========= ========= ========= ========= =========
</TABLE>
11
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
-------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 1999
<S> <C> <C> <C> <C> <C>
Net sales ................................................. $ -- $ 156,111 $ 19,095 $ (14,255) $ 160,951
Operating expenses:
Cost of goods sold .................................... -- 117,670 10,502 (14,255) 113,917
Selling, general and
administrative expenses ............................ -- 11,426 4,992 -- 16,418
Depreciation and amortization ......................... -- 6,981 3,202 -- 10,183
--------- --------- --------- --------- ---------
Operating income .......................................... -- 20,034 399 -- 20,433
Other income (expense):
Interest expense ...................................... (12,206) (272) -- -- (12,478)
Amortization of deferred
financing costs .................................... (3,806) 2,834 -- -- (972)
Equity in net income (loss) of subsidiaries............ 17,743 -- -- (17,743) --
--------- --------- --------- --------- ---------
Income before income tax
provision and cumulative
effect of change in
accounting principle .................................... 1,731 22,596 399 (17,743) 6,983
Income tax provision ...................................... -- 2,514 419 -- 2,933
--------- --------- --------- --------- ---------
Income before cumulative effect
of change in accounting
principle ............................................... 1,731 20,082 (20) (17,743) 4,050
Cumulative effect of change in
accounting for start-up costs,
net of tax benefit of $1,679 ............................ -- (2,319) -- -- (2,319)
--------- --------- --------- --------- ---------
Net income (loss).......................................... $ 1,731 $ 17,763 $ (20) $ (17,743) $ 1,731
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
---------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31,1998
<S> <C> <C> <C> <C> <C>
Net sales................................... $ -- $ 174,006 $ 5,882 $ (5,882) $ 174,006
Operating expenses
Cost of goods sold........................ -- 130,249 4,429 (5,882) 128,796
Selling, general and
administrative expenses................. -- 12,190 3,279 -- 15,469
Depreciation and amortization............. -- 8,251 816 -- 9,067
------- --------- ------- --------- ----------
Operating income (loss) -- 23,316 (2,642) -- 20,674
Other income (expense):
Interest expense.......................... (13,008) (35) -- -- (13,043)
Amortization of deferred
financing costs......................... (953) -- -- -- (953)
Equity in net income (loss) of
subsidiaries............................ 17,877 -- -- (17,877) --
Other..................................... -- 4 -- -- 4
------- ------ --------- --------- -------
Income (loss) before income tax
provision................................. 3,916 23,285 (2,642) (17,877) 6,682
Income tax provision........................ -- 2,554 212 -- 2,766
------- --------- --------- --------- ----------
Net income (loss)........................... $ 3,916 $ 20,731 $ (2,854) $ (17,877) $ 3,916
======= ========= =========== ========= ==========
</TABLE>
12
<PAGE>
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
--------------------------------------------------------------
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 1999
<S> <C> <C> <C> <C> <C>
Net cash from operating
activities ................... $ 10,462 $ 8,917 $ 2,295 $ -- $ 21,674
Cash flows used in investing
activities for capital
expenditures ................. -- (6,330) (2,163) -- (8,493)
Cash flows provided by (used in)
financing activities:
Equity proceeds ............ 42 -- -- -- 42
Repayment of long-term
obligations .............. (10,504) (307) -- -- (10,811)
-------- -------- -------- --------- --------
Net cash provided by (used in)
financing activities ....... (10,462) (307) -- -- (10,769)
- -------------------------------- -------- -------- -------- --------- --------
Net change in cash and cash
equivalents .................. $ -- $ 2,280 $ 132 $ -- $ 2,412
======== ======== ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
--------------------------------------------------------------
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 1998
<S> <C> <C> <C> <C> <C>
Net cash from operating
activities .............. $ (2,693) $ 17,983 $ 4,391 $ -- $ 19,681
Net cash used in investing
activities for capital
expenditures ............ -- (4,548) (3,756) -- (8,304)
Net cash provided by
(used in) financing
activities related net
repayment of long-term
obligations ............. 2,693 (5,004) -- -- (2,311)
-------- -------- -------- --------- --------
Net change in cash and cash
equivalents ............. $ -- $ 8,431 $ 635 $ -- $ 9,066
======== ======== ======== ========= ========
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
- -------
The Company conducts its operations through two segments: (i) wire products,
which includes both bare wire and insulated wire products, and (ii) wire harness
products. The following discussion and analysis includes the results of
operations for the three months ended March 31, 1999, compared to the three
months ended March 31, 1998.
Included in the three months ended March 31, 1999, are the results of operations
of Spargo Wire Company, Inc. (acquired on April 1, 1998) and the results of
operations of Italtrecce S.r.l. (acquired on July 1, 1998).
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 March 31, 1999 Compared to Three Months Ended March 31, 1998
- -------------------------------------------------------------------------------
Net sales for the three months ended March 31, 1999 were $161.0 million,
representing a $13.1 million, or 7.5%, decrease compared to the first quarter of
1998. Increases in Wire Harness Segment sales were more than offset by the
impact of a decrease in the average cost and selling price of copper and a
decrease in Wire Segment unit volume. 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
$0.64 per pound during the three months ended March 31, 1999 from $0.77 per
pound during the three months ended March 31, 1998.
Wire Segment sales were $111.3 million and decreased $18.0 million, or 13.9%, in
the three months ended March 31, 1999 as compared to the three months ended
March 31, 1998. This was a result of the lower costs and selling prices of
copper and lower sales to automotive customers who have shifted their supply to
in-house production. These effects were partially offset by unit growth in sales
of appliance lead wire. Within the Wire Harness Segment, net sales for the three
months ended March 31, 1999 were $49.7 million, representing a $5.0 million, or
11.1%, increase compared to the first quarter of 1998. The increase
14
<PAGE>
was due to higher sales to existing appliance customers and additional volume
from new business.
Cost of goods sold as a percentage of sales improved to 70.8% for the three
months ended March 31, 1999 from 74.0% for the three months ended March 31,
1998. This improvement reflected cost reductions achieved from material savings,
improved operating efficiencies and equipment upgrades and the impact of lower
copper prices.
Selling, general and administrative expenses increased $0.9 million to $16.4
million for the three months ended March 31, 1999 compared to $15.5 million for
the same period in 1998 due to the effect of the 1998 acquisitions of Spargo
Wire Company, Inc. and Italtrecce S.r.l. and the higher unit volume in the Wire
Harness Segment.
Depreciation and amortization was $10.2 million for the three months ended March
31, 1999 compared to $9.1 million for the same period in 1998. The increase of
$1.1 million was primarily the result of depreciation of property, plant and
equipment additions.
Effective January 1, 1999, the Company 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. In the
quarter ended March 31, 1999, the Company had a charge of $4.0 million related
to the cumulative effect of this change in accounting principle. There was no
such charge in the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by operating activities improved to $21.7 million for the
three months ended March 31, 1999, compared to $19.7 million for the three
months ended March 31, 1998. This increase was primarily due to the increase in
income before non-cash charges such as depreciation and amortization and the
cumulative effect of a change in accounting principle.
Net cash used in investing activities, representing capital expenditures, was
$8.5 million for the three months ended March 31, 1999, compared to $8.3 million
for the three months ended March 31, 1998.
Net cash used in financing activities was $10.8 million for the three months
ended March 31, 1999, compared to $2.3 million for the same period in 1998. This
increase is due to higher debt repayments, including repayments of borrowings
under the Company's revolving credit facility.
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
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
15
<PAGE>
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 would be
required to replace approximately 60 percent of its existing financial and
operational software with Year 2000 compliant software so that its computer
systems will properly utilize dates beyond December 31, 1999. In 1998, the
Company selected and purchased a software package that is Year 2000 compliant to
replace the existing systems deemed to be non-compliant and the appropriate
computer hardware and network equipment necessary to run the new software
package. As of March 31, 1999, the Company had completed testing of the new
software and installed the necessary computer hardware and network equipment.
The Company has also successfully implemented the new software at the majority
of its operating facilities. The Company expects the installation of the new
software at the remainder of the non-compliant locations to be substantially
complete by mid-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 $7.5 million. As of March 31, 1999, approximately
$6.4 million of the costs have been incurred. The majority of the expenditures
relate to the purchase of new software, hardware and consulting costs that 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
availability 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 has also reviewed the Year 2000 status of its machinery and
equipment utilized in the manufacturing process. The Company has identified
certain non-critical equipment that is not Year 2000 compliant and has begun
corrective procedures. The Company does not expect the costs associated with
updating or replacing non Year 2000 compliant equipment to be material.
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. The Company is working with its significant suppliers and customers
16
<PAGE>
to develop contingency plans in the case of system failures. Management believes
that the Company's risk with respect to its suppliers not being Year 2000
compliant is somewhat mitigated by the fact that the majority of the Company's
raw materials are world traded commodities with numerous domestic and
international sources and the Company has multiple and flexible manufacturing
facilities.
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
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.
17
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not ordinarily hold market risk sensitive instruments for
trading purposes. The Company does, however, recognize market risk from interest
rate, foreign currency exchange and commodity price exposure.
INTEREST RATE RISK
- ------------------
At March 31, 1999, approximately $195 million of the Company's long-term debt,
specifically, borrowings outstanding under the Senior Bank Facility and IRBs,
bears interest at variable rates. Accordingly, the Company's net income and
after tax cash flow are affected by changes in interest rates. Assuming the
current level of borrowings at variable rates and assuming a two percentage
point change in the average interest rate under these borrowings, it is
estimated that the Company's interest expense for the three months ended March
31, 1999 would have increased by approximately $1.0 million, resulting in a
decrease to the Company's net income and after tax cash flow of approximately
$0.6 million. In the event of an adverse change in interest rates, management
would likely take actions that would mitigate the Company's exposure; however,
due to the uncertainty of the actions that would be taken and their possible
effects, this analysis assumes no such actions. Further, this analysis does not
consider the effects of the change in the level of overall economic activity
that could exist in such an environment. Additionally, there can be no
assurances that increases in interest rates will not exceed the above projected
interest rates.
FOREIGN CURRENCY RISK
- ---------------------
The Company has operations in Mexico, the Philippines and Italy. While the
majority of the Company's foreign transactions are denominated in the U.S.
dollar, some transactions are denominated in foreign currencies and are subject
to market risk with respect to fluctuations in the relative value of currencies.
The Company is most vulnerable to changes in the U.S. dollar/Mexican peso
exchange rate. The following example illustrates the potential impact of U.S.
dollar/Mexican peso exchange rate fluctuations on the operating results and cash
flows of the Company. Assuming the current level of Mexican peso requirements
and assuming the Mexican peso traded at a rate that was 10% stronger against the
U.S. dollar than the actual exchange rate at March 31, 1999, throughout the
quarter, it is estimated that the Company's operating expenses for the three
months ended March 31, 1999 would have increased by approximately $1.3 million,
resulting in a decrease to the Company's net income and after tax cash flow of
approximately $0.8 million. In the event of an adverse change in the U.S.
dollar/Mexican peso exchange rate, management would likely take actions that
would mitigate the Company's exposure; however, due to the uncertainty of the
actions that would be taken and their possible effects, this hypothetical
analysis assumes no such actions. Further, this hypothetical analysis does not
consider the effects of the change in the level of overall economic activity
that could exist in such an environment. Additionally, there can be no
assurances that the U.S. dollar/Mexican peso exchange rate will correspond to
the above example.
COMMODITY PRICE RISK
- --------------------
The principal raw material used by the Company is copper, which is purchased in
the form of 5/16 inch rod from the major copper producers in North America.
18
<PAGE>
Copper rod prices are based on market prices, which are generally established by
reference to the New York Mercantile Exchange, Inc. ("COMEX") prices, plus a
premium charged to convert copper cathode to copper rod and deliver it to the
required location. As a world traded commodity, copper prices have 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.
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 March 31, 1999.
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: May 14, 1999 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 27.1 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,412
<SECURITIES> 0
<RECEIVABLES> 90,096
<ALLOWANCES> 2,382
<INVENTORY> 73,719
<CURRENT-ASSETS> 184,934
<PP&E> 305,209
<DEPRECIATION> 125,177
<TOTAL-ASSETS> 629,232
<CURRENT-LIABILITIES> 109,308
<BONDS> 509,856
0
0
<COMMON> 0
<OTHER-SE> (29,671)
<TOTAL-LIABILITY-AND-EQUITY> 629,232
<SALES> 160,951
<TOTAL-REVENUES> 160,951
<CGS> 113,917
<TOTAL-COSTS> 113,917
<OTHER-EXPENSES> 10,183
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,450
<INCOME-PRETAX> 6,983
<INCOME-TAX> 2,933
<INCOME-CONTINUING> 4,050
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 2,319
<NET-INCOME> 1,731
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
