<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO ________________
COMMISSION FILE NUMBER 33-93970
------------------------------------
INTERNATIONAL WIRE GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 43-1705942
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
101 SOUTH HANLEY ROAD, ST. LOUIS, MISSOURI 63105
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (314) 719-1000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant.
NO ESTABLISHED PUBLISHED PUBLIC TRADING MARKET EXISTS FOR THE COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF INTERNATIONAL WIRE GROUP, INC. ALL OF THE
OUTSTANDING SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF INTERNATIONAL
WIRE GROUP, INC. ARE HELD BY INTERNATIONAL WIRE HOLDING COMPANY.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS FEBRUARY 26, 1999
----- -----------------
<S> <C>
Common Stock 1,000
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS
Information set forth in this Annual Report on Form 10-K regarding expected
or possible future events, including statements of the plans and objectives of
management for future growth, operations, products and services and statements
related to future economic performance, is forward-looking and subject to risks
and uncertainties. For those statements, International Wire Group, Inc. (the
"Company") claims the protection of the safe harbor for forward-looking
statements provided for by Section 21E of the Securities Exchange Act of 1934,
as amended. Factors that could affect the future results of the Company and
could cause those results to differ materially from those expressed in the
forward-looking statements are discussed at greater length herein.
Forward-looking statements can be identified by, among other things, the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks," "pro forma," "anticipates" or "intends" or the negative of
any thereof or other variations thereof or comparable terminology, or by
discussions of strategy or intentions. See Item 7, "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
PART I
ITEM 1. BUSINESS
GENERAL
The Company, through its subsidiaries, is a leading designer, manufacturer
and marketer of (i) wire products, including bare and tin-plated copper wire and
insulated copper wire, and (ii) wire harnesses. The Company's products include a
broad spectrum of copper wire configurations and gauges with a variety of
electrical and conductive characteristics and are utilized by a wide variety of
customers primarily in the appliance, automotive, computer and data
communications, and industrial equipment industries. The Company manufactures
and distributes its products at 32 facilities located in the United States,
Mexico, Italy and the Philippines.
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.
Wire Products (75% of 1998 net sales)
- Bare Wire Products. Bare copper wire products (or conductors) are used to
transmit digital, video and audio signals or conduct electricity and are
sold to a diverse customer base of approximately 2,000 insulated wire
manufacturers and various industrial original equipment manufacturers
("OEMs") for use in computer and data communications products, industrial
equipment, appliances, automotive and other applications.
- Insulated Wire Products. Insulated wire products (copper conductors
insulated with plastic, rubber or other polymeric compounds) are
incorporated in wire harnesses that control and distribute electrical
current in automobiles, trucks and appliances. The Company's external
sales of insulated wire are primarily to independent wire harness
fabricators. These independent wire harness fabricators then sell wire
harnesses to automotive and appliance OEMs. The Company divides its
customers who manufacture wire harnesses into three broad groups: (a)
Tier 1 suppliers to Ford Motor Company and Chrysler Corporation (General
Motors Corporation has in-house wire and wire harness manufacturing
capability); (b) suppliers to the North American facilities of Japanese
automakers, that utilize "thin-wall" insulated wire which complies with
Japanese Industrial Standards ("JIS"); and (c) suppliers to appliance
OEMs (including the Company's appliance wire harness business).
Wire Harness Products (25% of 1998 net sales)
- Wire harnesses are assemblies of wires that are terminated with
connectors, switches or other electrical devices. The Company primarily
sells wire harnesses to the major U.S. manufacturers of household
appliances such as Amana, Frigidaire, General Electric Company ("GE"),
Maytag and Whirlpool. These manufacturers utilize the Company's wire
harnesses in the manufacture of refrigerators, washers, dryers, ranges
and dishwashers.
1
<PAGE> 3
The principal executive offices of the Company are located at 101 South
Hanley Road, Suite 400, St. Louis, Missouri 63105, and the Company's telephone
number at such address is (314) 719-1000.
BACKGROUND
In December 1992, an investor group led by Hicks, Muse, Tate and Furst
Incorporated ("Hicks Muse") and Mills & Partners, Inc. ("Mills & Partners")
acquired (the "Original Wirekraft Acquisition") Kirtland Indiana, Limited
Partnership ("KILP") which was subsequently renamed Wirekraft Industries, Inc.
("Wirekraft"). KILP was engaged in the manufacturing of insulated wire and
fabrication of wire harnesses. In 1993, Wirekraft purchased the wire
manufacturing business of Ristance Corporation, a manufacturer of high
temperature insulated copper wire. This acquisition increased Wirekraft's
capacity as well as its product offering in the automotive, appliance and motor
leadwire markets. In 1994, Wirekraft completed a major expansion of its wire
mill in El Paso, Texas. The El Paso expansion significantly increased the copper
wire fabricating capacity of Wirekraft with a valuable presence in the
Southwestern U.S.
In December 1994, Wirekraft acquired (the "ECM Acquisition") Electro
Componentes de Mexico, S.A. de C.V. ("ECM") and certain related assets from GE.
ECM functioned as the captive appliance wire harness operation for GE's domestic
appliance business. ECM's Mexican presence provided Wirekraft with significant
competitive advantages, as well as providing the Company with a low cost
manufacturing capability in Mexico. As part of the acquisition, Wirekraft
entered into a supply agreement, which expires in 2006, to supply substantially
all of GE's domestic wire harness requirements for major kitchen and laundry
appliances.
In March 1995, an investor group led by Hicks Muse and Mills & Partners
acquired Omega Wire, Inc. ("Omega"). The acquisition of Omega (the "Original
Omega Acquisition") broadened the Company's product offering through the
addition of a broad and diverse bare wire product offering and vertically
integrated the Company by substantially reducing the Company's need to purchase
outside bare wire.
In June 1995, through a series of acquisitions and mergers, the Company was
organized to combine the operations of Wirekraft and Omega (the "Wirekraft/Omega
Combination").
In March 1996, the Company acquired (the "DWT Acquisition") the business of
Hoosier Wire, Inc., Dekko Automotive Wire, Inc., Albion Wire, Inc. and
Silicones, Inc., a group of affiliated companies together under the trade name
Dekko Wire Technology Group ("Dekko"). Dekko was engaged in the design,
manufacture and marketing of insulated and bare copper wire. The DWT Acquisition
increased the Company's insulated and bare wire manufacturing capabilities, as
well as increased the Company's capacity to better serve its client base and
expand into new markets by adding specialty products to the Company's product
offering.
In February 1997, the Company acquired (the "Camden Acquisition") all of
the issued and outstanding common stock of Camden Wire Co., Inc. ("Camden"), a
designer, manufacturer and marketer of bare and tin-plated copper wire. The
Camden Acquisition allowed the Company to expand its geographic manufacturing
base and to realize efficiencies through consolidation of operations and process
improvements.
In 1998, the Company made two strategic acquisitions, the acquisition of
the assets of Spargo Wire Company, Inc. ("Spargo Wire"), which expanded the
Company's offering of bare wire, and the acquisition of Italtrecce S.r.l.
("Italtrecce"), which expanded the Company's offering of specialty braid
products and allowed the Company to expand its geographic manufacturing base to
Italy. In addition, in July 1998, the Company completed its construction of a
facility in Cebu, Philippines and began operations. The Cebu facility allows the
Company to supply global customers of the Company and to build relationships
with new customers in the Asia Pacific markets.
PRODUCTS AND MARKETS
The Company's products are used by a variety of end users, primarily in the
appliance, automotive, computer and data communications and industrial equipment
industries. See Note 12 to the Company's Consolidated Financial Statements for
business segment information.
2
<PAGE> 4
The following is a description of the Company's primary products and
markets served:
WIRE SEGMENT
Bare Wire Products
The Company's bare copper conductors are primarily used to (i) transmit
digital, video and audio signals that generally control motor functions in
appliances, automotives, industrial equipment, heating, ventilating and air
conditioning ("HVAC") systems, safety control systems and switching equipment
and (ii) conduct electricity. The Company's external sales of bare wire products
are primarily to wire insulators, who apply various insulating materials to the
conductors through an extrusion process. These wire insulators, in turn, sell
the insulated wire to a variety of customers, many of which are in the computer
and data communications industries. Within these industries, the Company's bare
wire is generally used in wire and cable products that (i) connect circuit
boards inside personal computers ("PCs"), (ii) join PCs to peripheral equipment
and (iii) link PCs in local area and wide area networks.
The Company manufactures a broad array of bare copper conductors including
the following:
- Single End Wire. Single end wire is an individual wire drawn to the
customer's size requirements ranging from .08 to .002 inches in diameter.
Single end wire is used to transmit digital, video and audio signals or
low voltage current in a variety of wire products used in motor controls,
local area networks, security systems, television or telephone
connections inside homes and buildings and water sprinkler systems.
Single end wire is capable of transmitting signals or electrical current
only between two distinct end points (terminals) such as between an
on-off switch and the starter to a motor. Single end wire is generally
the least expensive form of wire to produce due to its simple
configuration.
- Stranded Wire. Stranded wire is comprised of a number of single end
wires, twisted together in a specific geometric pattern, where each
individual wire's relative position is preserved throughout the length of
the strand. Like single end wire, stranded wire transmits digital, video
and audio signals or low voltage current but is capable of connecting
multiple terminals. This type of wire is the primary wire used in
appliance and automotive wire harnesses. In addition, stranded wire is
typically used in wire and cable products that (i) connect peripherals
such as printers to a computer, (ii) connect the internal components of a
PC, and (iii) control HVAC, security and other functions inside
buildings.
- Bunched Wire. Bunched wire is comprised of a number of single end wires
that are twisted in a random pattern rather than a specific geometric
pattern. Bunched wire is commonly used for transmission of electrical
current in lighting fixture cords, extension cords and power cords for
portable power hand tools. This type of wire provides improved
flexibility (versus single end wire) while maintaining its ability to
carry electrical currents.
- Shielding Wire. Shielding wire is comprised of varying numbers of single
end wire which are wound together in parallel construction around a
bobbin. Shielding wire does not transmit signals or voltage but rather
shields the signal traveling through the core conductor from outside
interference. This type of wire is primarily used in data communication
applications.
- Cabled Wire and Braided Wire. Cabled wire and braided wire are
combinations of single, bunched or stranded wire twisted together in
various patterns and thickness. These wires transmit electrical current
and are typically used in mining, mass transportation, automotive and
other industrial applications.
INSULATED WIRE PRODUCTS
The Company's external sales of insulated wire products are primarily to
companies that assemble wire harnesses for installation in automobiles or
appliances. The Company manufactures a diverse array of insulated wire products
including the following:
- PVC Lead Wire and Cable. PVC lead wire and cable is copper wire that has
been insulated with polyvinyl chloride ("PVC"). This product is used
primarily in automotive wire harnesses located
3
<PAGE> 5
behind the instrument panel or in the vehicle body that control certain
functions including turn signals and air bags.
- JIS Wire. JIS wire is copper wire insulated with PVC that is produced
according to Japanese Industrial Standards. The primary difference
between domestic PVC wire and JIS wire is that JIS wire is manufactured
to metric dimensions and generally has thinner insulation than products
manufactured according to U.S. Society of Automotive Engineers Standards.
JIS wire is used primarily in automotive wire harnesses located behind
the instrument panel or in the vehicle body.
- XLPE Insulated Wire. Cross-linked polyethylene ("XLPE") wire is copper
wire insulated with polyethylene that is subjected to heat and steam
pressure ("cross-linking") to make the wire resistant to high
temperatures. This product's primary application includes use in high
temperature environments such as the engine compartment of vehicles and
in electric ranges.
- PVC Insulated Cord. PVC insulated cord is insulated wire that is
surrounded with fillers and then jacketed with PVC insulation. This
product is used primarily for wall-plug applications (cord sets) in the
appliance and power tool industries.
- Appliance Wire. Appliance wire is copper wire primarily insulated with
PVC and used in producing harnesses for a variety of appliances. The
Company also manufactures high temperature wire, insulated with silicone,
used primarily in electric ranges and niche applications such as
resistance heaters, motor leads and lighting products.
WIRE HARNESS SEGMENT
A wire harness is comprised of an assembly of wires with connectors and
terminals attached to their ends that transmit electricity between two or more
end points. For example, a wire harness used in a washing machine will link the
washing machine's control panel with its other electrical components, such as
the motor. The Company supplies wire harnesses to most of the leading domestic
appliance manufacturers, including GE, Frigidaire, Whirlpool, Amana and Maytag.
The Company also participates in several niche businesses oriented around its
expertise and marketing presence in the appliance industry, including resistance
and appliance heaters. In addition, the Company produces truck trailer cable
assemblies that transmit electrical current from the tractor to the trailer.
MARKETING AND DISTRIBUTION
The Company sells its products through a combination of direct
(Company-employed) sales people, manufacturer's representatives and
distributors. The Company's sales organization is supported by an internal
marketing staff and customer service groups. Collectively, these departments act
as a bridge between the Company's customers and its production and engineering
staff. The Company's engineers work directly with customers in designing the
wire or wire harness products to the customer's exact specifications. In
addition, engineers work closely with the Company's production managers, quality
supervisors and customer service representatives to ensure the timely delivery
of quality products.
KEY CUSTOMERS
The Company sells its products primarily to major appliance manufacturers,
automotive wire harness manufacturers and copper wire insulators who then sell
to a diverse array of end users. A large percentage of the Company's total sales
are to GE. Sales to GE accounted for approximately 15%, 14% and 18% of the
Company's total sales in 1998, 1997 and 1996, respectively. In connection with
the ECM Acquisition, the Company entered into a supply agreement with GE, which
expires December 31, 2006, pursuant to which the Company supplies substantially
all of GE's domestic wire harness requirements for major kitchen and laundry
appliances.
4
<PAGE> 6
INTERNATIONAL OPERATIONS
Approximately 25% of the Company's 1998 and 1997 sales originated outside
the United States, the majority of which was sold to Tier 1 suppliers in Mexico
that, in turn, resold their products back into the United States. In Asia, the
Company has a manufacturing facility in Cebu, Philippines, and a joint venture
in The People's Republic of China. In Europe, the Company has a manufacturing
facility in Turin, Italy. See Note 12 to the Company's Consolidated Financial
Statements for information regarding the Company's international operations.
The Company is subject to risks generally associated with international
operations, including price and exchange controls and other restrictive actions.
In addition, fluctuations in currency exchange rates may affect the Company's
results of operations.
RAW MATERIALS
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. 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.
Other major raw materials consumed by the Company include PVC resin,
plasticizer, XLPE compound, and a wide variety of electro-mechanical components.
The Company enters into long term supply agreements on a wide variety of
materials consumed. Supplies on all critical materials are currently adequate to
meet the Company's needs.
MANUFACTURING AND DISTRIBUTION
The Company is committed to the highest quality standards for its products,
a standard maintained in part by continuous improvements to its production
processes and upgrades and investments to its manufacturing equipment. The
Company's equipment can be adapted to satisfy the changing needs of its
customers. The Company maintains advanced quality assurance and testing
equipment to ensure the products it manufactures will consistently meet customer
quality requirements. The following is a description of the Company's
manufacturing and distribution facilities and processes for its major product
lines.
BARE WIRE PRODUCTS
As of December 31, 1998, the Company had twelve facilities dedicated to the
production and distribution of bare wire. Six of these facilities are located in
New York, two are located in Arkansas, one facility is located in Indiana, one
facility is located in Texas, one facility is located in Italy and one
distribution facility is located in California. The manufacturing of bare wire
consists of one or more of the following four processes: wire drawing; plating;
bunching and stranding; and cabling.
- Wire Drawing Process. Wire drawing involves a multi-step process in which
5/16 inch copper rod is drawn through a series of dies of decreasing
diameters.
- Plating Process. After being drawn, the Company's wire products may be
plated through an electro-plating process. The Company has the capability
to plate copper wire with tin and other metals. Approximately 25% of the
Company's bare wire products are plated with tin. The plating process
prevents the bare copper from oxidizing and also allows the wire to be
soldered, which is an important quality in many electrical applications.
5
<PAGE> 7
- Bunching and Stranding Process. Bunching and stranding is the process of
twisting together single strand wires to form a construction ranging from
seven to over 200 strands. If the wire is bunched, the individual strands
of wire are twisted together in a random pattern. Bunched wire is
typically used in power cords for lights and appliances. Stranded wire is
composed of a number of single end wires twisted together in a specific
geometric pattern where each strand's relative position is maintained
throughout the length of the wire. Stranded wire is typically used in
security systems, audio systems and intercom systems.
- Cabling Process. Cabling is the process of twisting bunched wire to form
a construction ranging from 49 to 47,000 strands. Cabling is used in
various industrial applications such as transportation and mining.
INSULATED WIRE PRODUCTS
As of December 31, 1998, the Company had fourteen manufacturing and
distribution facilities used to produce and distribute insulated wire. Six of
these facilities are located in Indiana, five are located in Texas, two are
located in Alabama and one is located in the Philippines. The production of
insulated wire starts with bare wire (primarily manufactured internally) and
involves the following two processes:
- Compounding Process. The Company purchases most of its compounds from
external sources; however, the Company does have the capability to
produce PVC, polyethylene, rubber and silicone insulation to meet
specific customer requirements.
- Extrusion Process. The Company insulates wire products with various
polymeric insulating compounds through an extrusion process. Extrusion
involves the feeding, melting and pumping of insulating compounds through
a die to shape it into its final form on the wire. In order to enhance
the insulation properties of certain products, certain polymeric
compounds can be cross-linked chemically after the extrusion process. The
Company has extensive chemical cross-linking capabilities.
WIRE HARNESSES PRODUCTS
As of December 31, 1998, the Company had five manufacturing facilities and
one distribution facility dedicated to wire harness products. One of these
facilities is located in Ohio, one facility is located in Indiana, three
facilities are located in Mexico and one distribution facility is located in
Texas. The manufacturing of wire harnesses involves the following four-step
process:
- Cutting and Stripping. Insulated copper wire, obtained primarily from
internal sources, is fed through cutting machines that are programmed to
cut wire to a certain length, strip the end of the wire and attach
terminals or connectors.
- Splicing and Connecting. In the second process, the lengths of wire are
spliced or joined together and additional connectors and/or terminals are
attached. Splicing, like cutting and stripping, lends itself to
automation.
- Harness Assembly. Once these two preparatory stages have been completed,
the cut and spliced wires are brought to the assembly area. Assembly
boards are used to guide each employee on the assembly line in the
placement of designated wires.
- Quality Control. Every assembly board is equipped with 100% continuity
testers that are designed into the assembly board. These testers are
designed to pinpoint any defective circuits for repair or rework. After
assembly, each harness is again tested for continuity and analyzed by a
trained inspector.
COMPETITION
As a result of the diversity of the Company's segments and product lines,
the Company believes that no single competitor competes with the Company across
the entire spectrum of the Company's product lines. However, in each of the
Company's business segments, the Company experiences competition from at least
one major competitor. The Company competes primarily on the basis of quality,
reliability, price, reputation,
6
<PAGE> 8
customer service and delivery time. The Company believes it maintains a leading
market share position in the non-captive U.S. market for each of its business
segments. Several OEMs in the end markets the Company serves have in-house or
"captive" wire and wire harness production facilities. However, these captive
facilities do not compete with the Company for sales to other customers. The
Company also sells its products to OEMs with captive production to meet needs in
excess of their internal production capacity.
BACKLOG
Due to the manner in which it processes its orders, the Company has no
significant order backlog. The Company follows the industry practice of
producing its products on an ongoing basis to meet customer demand without
significant delay. Management believes the ability to supply orders in a timely
fashion is a competitive factor in its market, and therefore, attempts to
minimize order backlog to the extent practicable.
PATENTS AND TRADEMARKS
The Company has seven patents, three patents pending, nine registered
trademarks and two trademark applications pending. The Company does not believe
that its competitive position is dependent on patent protection or that its
operations are dependent on any individual patent or trademark or group of
related patents or trademarks.
EMPLOYEES
As of January 31, 1999, the Company employed approximately 7,900 full time
employees, of which approximately 5,200 were located in Mexico. The Company
believes that it has a good relationship with its employees.
SEASONALITY
The Company does not believe that its business segments are subject to
significant seasonal fluctuations.
ENVIRONMENTAL MATTERS
The Company is subject to a number of federal, state, local and foreign
environmental laws and regulations relating to the storage, handling, use,
emission, discharge, release or disposal of materials into the environment and
the investigation and remediation of contamination associated with such
materials. These laws include, but are not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), the Water
Pollution Control Act, the Clean Air Act and the Resource Conservation and
Recovery Act, the regulations promulgated thereunder, and any state analogs. The
Company's operations also are governed by laws and regulations relating to
employee health and safety. The Company believes that it is in material
compliance with such applicable laws and regulations and that its existing
environmental controls are adequate. Further, the Company has no current plans
for substantial capital expenditures in this area.
As is the case with most manufacturers, the Company could incur costs
relating to environmental compliance, including remediation costs related to
historical hazardous materials handling and disposal practices at certain
facilities, although it does not believe that such costs would materially and
adversely affect the Company. In the past the Company has undertaken remedial
activities to address on-site soil contamination caused by historic operations.
None of these activities have resulted in any material liability. Currently, the
Company is involved with environmental monitoring activities at its Camden, New
York and Jordan, New York facilities.
The Company currently does not anticipate that compliance with
environmental laws or regulations or the costs to remediate the sites discussed
above will have a material adverse effect on the Company. As mentioned above,
however, the risk of environmental liability and remediation costs is inherent
in the nature of the Company's business and, therefore, there can be no
assurances that material environmental costs, including remediation costs, will
not arise in the future. In addition, it is possible that future developments
7
<PAGE> 9
(e.g., new regulations or stricter regulatory requirements) could result in the
Company incurring material costs to comply with applicable environmental laws
and regulations.
ITEM 2. PROPERTIES
The Company uses owned or leased properties as manufacturing and
distribution facilities, warehouses and offices throughout the United States,
Mexico, Italy and the Philippines. The Company's principal executive offices are
located in St. Louis, Missouri. All of the Company's domestic owned properties
are pledged to secure the Company's indebtedness under the Company's Amended and
Restated Credit Agreement dated as of February 12, 1997, with the Chase
Manhattan Bank, Bankers Trust Company and the other lenders party thereto, as
amended (the "Senior Bank Facility").
Listed below are the principal manufacturing and distribution facilities
operated by the Company as of December 31, 1998:
<TABLE>
<CAPTION>
LOCATION SQUARE FEET OWNED/LEASED PRIMARY PRODUCTS/END USE
- -------- ----------- ------------ --------------------------------------
<S> <C> <C> <C>
BARE WIRE
Camden, New York..................... 450,000 Owned Single End, Bunched, Stranded, Cabled
and Electroplated Wire
Williamstown, New York............... 210,000 Owned Single End, Bunched, Stranded and
Cabled Wire
Bremen, Indiana...................... 175,000 Owned Bunched Wire
Camden, New York..................... 150,000 Leased(1) Single End, Bunched, Stranded and
Cabled Wire
Pine Bluff, Arkansas................. 130,000 Owned Single End, Bunched, Stranded and
Cabled Wire
Jordan, New York..................... 120,000 Leased(1) Single End, Bunched, Stranded,
Shielding and Cabled Wire
Rome, New York....................... 112,000 Owned Bunched, Stranded, Cabled and
Electroplated Wire
Cazenovia, New York.................. 60,000 Owned Braided Wire
El Paso, Texas....................... 57,000 Owned Bunched Wire
Pine Bluff, Arkansas................. 40,000 Owned Shielding, and Braided Wire
Cerritos, California................. 19,000 Leased(5) Distribution
Turin, Italy......................... 12,000 Leased(7) Braided Wire
INSULATED WIRE
Cebu, Philippines.................... 135,000 Owned Automotive
Avilla, Indiana...................... 119,000 Owned Appliance
Elkmont, Alabama..................... 118,000 Owned Automotive
El Paso, Texas....................... 101,000 Leased(4) Appliance and Automotive
El Paso, Texas....................... 90,000 Owned Automotive
Corunna, Indiana..................... 72,000 Owned Appliance
Kendallville, Indiana................ 61,000 Leased(4) Appliance and Automotive
Kendallville, Indiana................ 60,000 Owned Appliance and Automotive
El Paso, Texas....................... 60,000 Owned Automotive
El Paso, Texas....................... 50,000 Leased(3) Distribution
Ardmore, Alabama..................... 45,000 Owned Automotive
Albion, Indiana...................... 39,000 Owned Appliance and Automotive
Corunna, Indiana..................... 32,000 Owned Appliance
El Paso, Texas....................... 28,000 Leased(4) Automotive
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
LOCATION SQUARE FEET OWNED/LEASED PRIMARY PRODUCTS/END USE
- -------- ----------- ------------ --------------------------------------
<S> <C> <C> <C>
WIRE HARNESSES
Juarez, Mexico....................... 120,000 Leased(4) Appliance
Chihuahua, Mexico.................... 100,000 Owned Appliance
Chihuahua, Mexico.................... 91,000 Leased(2) Appliance
Bucyrus, Ohio........................ 47,000 Leased(5) Truck Trailers, Farm Machinery and
Appliance
El Paso, Texas....................... 38,000 Leased(6) Distribution
Mishawaka, Indiana................... 29,000 Owned Appliance, HVAC and Lawn and Garden
</TABLE>
- ---------------
(1) The leases on the Company's Camden, New York and Jordan, New York
facilities have remaining terms of approximately 13 years. During 1997, the
Company purchased the notes that were collateralized by the Camden and
Jordan properties from an unrelated creditor. The Company negotiated a
payment schedule with the lessor which allows the lessor to retain title to
the property until the termination of the lease, at which time the Company
will have the option to purchase the properties for a nominal purchase
price.
(2) The lease has a remaining term of approximately nine years.
(3) The lease has a remaining term of approximately four years.
(4) The lease has a remaining term of approximately three years.
(5) The lease has a remaining term of approximately one year.
(6) The lease has a remaining term of three months with an option to renew for
three years.
(7) The lease is month to month.
The Company believes its plants and equipment include state-of-the-art
technology and are well maintained. Additionally, the Company believes its
facilities are suitable for their present and intended purposes and adequate for
the Company's current level of operations and expected demand for the Company's
products.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings and administrative
actions, all of which are of an ordinary or routine nature incidental to the
operations of the Company. The Company was served with notice of an action
styled Whirlpool Corporation v. Wirekraft Industries, Inc. (Case No.
97-2039-CK-T), initiated in the Second Judicial Circuit of the State of
Michigan, Berrien County Trial Court, Civil Division, on August 8, 1997. This
action, a product liability claim, relates to certain wire harness products
supplied to Whirlpool by one of the Company's predecessors during 1991 and 1992.
Such wire harness products were required by Whirlpool to include a specified
AMP, Inc. ("AMP") connector. The Company has joined AMP as a third-party
defendant. The complaint filed with respect to such lawsuit does not specify an
amount of damages. The Company filed a motion for summary disposition (judgment)
and in the fall of 1998, the trial court ruled in favor of the Company with
respect to most of Whirlpool's claims. Whirlpool is attempting to appeal the
trial court's action. The Company believes that its insurance coverage is
applicable to any of the remaining claims and the cost of defense of such claims
is being borne by the Company's insurance carriers. In the opinion of the
Company's management, all such proceedings and actions should not, individually
or in the aggregate, have a material adverse effect on the Company's results of
operations, financial condition or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth
quarter of 1998.
9
<PAGE> 11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
All of the Company's outstanding common stock is held by International Wire
Holding Company ("Holding"), and there is no established public trading market
for such. The Company has paid no dividends to common stockholders since
inception and does not have any present intention to commence payment of any
cash dividends. The Company intends to retain earnings to provide funds for
operation and expansion of the Company's business and to repay outstanding
indebtedness. The Company's ability to pay such dividends is limited by the
terms of its Senior Bank Facility and the Indentures relating to its 11 3/4%
Senior Subordinated Notes due 2005, its 14% Senior Subordinated Notes due 2005
and its 11 3/4% Series B Senior Subordinated Notes due 2005 (collectively, the
"Senior Subordinated Notes").
10
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
THE COMPANY
The selected financial data set forth below presents financial information
for the Company for the years ended December 31, 1998, 1997 and 1996, and for
the seven months ended December 31, 1995, as derived from the audited
consolidated financial statements of the Company. The selected financial data
should be read in conjunction with the Company's Consolidated Financial
Statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," each included elsewhere herein.
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales........................... $645,921 $695,148 $ 546,981 $ 245,583
Cost of goods sold.................. 464,552 530,310 420,823 195,221
Selling, general and administrative
expenses......................... 61,284 56,703 43,885 17,129
Depreciation and amortization....... 41,932 36,026 31,341 11,020
Impairment, unusual and plant
closing charges(1)............... -- 2,000 84,250 1,750
Inventory valuation adjustment(2)... -- 8,500 8,500 --
-------- -------- --------- ---------
Operating income (loss)............. 78,153 61,609 (41,818) 20,463
Interest expense.................... (50,627) (50,939) (43,013) (19,931)
Amortization of deferred financing
costs............................ (3,806) (3,932) (3,701) (1,468)
Other (expense) income.............. 95 (103) 312 (158)
-------- -------- --------- ---------
Income (loss) before income tax
provision and extraordinary
item............................. 23,815 6,635 (88,220) (1,094)
Income tax provision................ 10,002 2,654 1,262 2,197
-------- -------- --------- ---------
Income (loss) before extraordinary
item............................. 13,813 3,981 (89,482) (3,291)
Extraordinary item.................. -- (2,991)(3) -- --
-------- -------- --------- ---------
Net income (loss)........... $ 13,813 $ 990 $ (89,482) $ (3,291)
======== ======== ========= =========
OTHER DATA:
EBITDA, as adjusted(4).............. $120,085 $108,135 $ 82,273 $ 33,233
Capital expenditures................ 34,299 27,760 15,849 5,751
Total assets........................ 639,114 628,048 531,020 427,920
Long-term obligations (including
current maturities).............. 527,205 523,795 447,667 338,677
CASH FLOW DATA:
Net cash from (used in) operating
activities....................... $ 40,646 $ 33,998 $ 31,980 $ 13,334
Net cash from (used in) investing
activities....................... (42,120) (86,756) (176,108) (346,797)
Net cash from (used in) financing
activities....................... 1,474 52,758 144,128 333,463
</TABLE>
- ---------------
(1) Consists of charges relating to plant closings in the amounts of $2,000,
$6,000 and $1,750 in the years ended December 31, 1997 and 1996, and the
seven months ended December 31, 1995, respectively, and charges related to
the write-off of goodwill principally related to the Original Wirekraft
Acquisition in the amount of $78,250 in the year ended December 31, 1996.
See Note 9 to the Company's Consolidated Financial Statements included
herein.
11
<PAGE> 13
(2) Represents a pre-tax inventory valuation charge to reduce the last in, first
out ("LIFO") valuation of copper in inventory as a result of the decline in
the average price of copper during 1997 and 1996. See Note 3 to the
Company's Consolidated Financial Statements included herein.
(3) The extraordinary item in the year ended December 31, 1997 represents a
$2,991 loss on the early extinguishment of debt (net of income taxes of
$1,995).
(4) "EBITDA, as adjusted" is defined as operating income (loss) plus
depreciation, amortization of intangible assets, and impairment, unusual and
plant closing charges. EBITDA, as adjusted, is presented because (i) it is a
widely accepted indicator of a company's ability to incur and service debt
and (ii) it is the basis on which the Company's compliance with certain
financial covenants contained in the Indentures relating to its Senior
Subordinated Notes and the Senior Bank Facility is principally determined.
However, EBITDA, as adjusted, does not purport to represent cash provided by
operating activities as reflected in the Company's consolidated statements
of cash flow, is not a measure of financial performance under generally
accepted accounting principles ("GAAP") and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with GAAP. Also, the measure of EBITDA, as adjusted, may not be
comparable to similar measures reported by other companies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
12
<PAGE> 14
WIREKRAFT (A PREDECESSOR COMPANY)
The selected financial data set forth below presents financial information
for Wirekraft for the periods indicated. The data for the six months ended May
31, 1995 and the year ended November 30, 1994 are derived from the audited
consolidated financial statements of Wirekraft.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED MAY 31, NOVEMBER 30,
1995 1994
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
RESULTS OF OPERATIONS:
Net sales................................................. $168,053 $240,972
Cost of goods sold........................................ 138,851 201,602
Selling, general and administrative expenses.............. 13,301 14,319
Depreciation and amortization............................. 6,474 6,435
Compensation expense...................................... 895(1) --
Expenses related to sale.................................. 501(2) --
Expenses related to plant closings........................ 2,000(3) --
-------- --------
Operating income.......................................... 6,031 18,616
Interest expense.......................................... (8,020) (10,565)
Amortization of deferred financing costs.................. (1,657) (1,995)
-------- --------
Income (loss) before income taxes and extraordinary
item................................................... (3,646) 6,056
Income tax provision (benefit)............................ (2,114) 3,023
-------- --------
Income (loss) before extraordinary item................... (1,532) 3,033
Extraordinary item........................................ (7,835)(4) --
-------- --------
Net income (loss)................................. $ (9,367) $ 3,033
======== ========
OTHER DATA:
EBITDA, as adjusted(5).................................... $ 15,901 $ 25,051
Capital expenditures...................................... 2,914 6,248
Total assets.............................................. 241,277 178,488
Long-term obligations (including current maturities)...... 148,386 111,639
CASH FLOW DATA:
Net cash from (used in) operating activities.............. $ (3,921) $ 2,318
Net cash from (used in) investing activities.............. (47,887) (18,002)
Net cash from (used in) financing activities.............. 51,663 17,497
</TABLE>
- ---------------
(1) Represents payments to senior management of Wirekraft for the redemption of
employee stock options in connection with the Wirekraft/Omega Combination.
(2) Represents non-recurring expenses of Wirekraft associated with the
Wirekraft/Omega Combination, which included, among other things, brokerage
and legal fees.
(3) Represents expenses related to the closing of certain domestic wire harness
facilities.
(4) The extraordinary item in the six months ended May 31, 1995 represents a
$7,835 loss on early extinguishment of debt (net of income tax of $4,930).
(5) "EBITDA, as adjusted" is defined as operating income (loss) plus
depreciation, amortization of intangible assets, and impairment, unusual and
plant closing charges. EBITDA, as adjusted, is presented because (i) it is a
widely accepted indicator of a company's ability to incur and service debt
and (ii) it is the basis on which the Company's compliance with certain
financial covenants contained in the Indentures relating to its Senior
Subordinated Notes and the Senior Bank Facility is principally determined.
However, EBITDA, as adjusted, does not purport to represent cash provided by
operating activities as reflected in the Company's consolidated statements
of cash flow, is not a measure of financial performance under GAAP and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with GAAP. Also, the measure of EBITDA,
as adjusted, may not be comparable to similar measures reported by other
companies.
13
<PAGE> 15
OMEGA (A PREDECESSOR COMPANY)
The selected financial data set forth below presents the financial
information of Omega and its predecessor, THL-Omega Holding Corporation
("THL-Omega"), for the periods indicated. The data for the two months ended May
31, 1995, are derived from the audited consolidated financial statements of
Omega. The data for the three months ended March 31, 1995, and the year ended
December 31, 1994 are derived from the audited consolidated financial statements
of THL-Omega.
<TABLE>
<CAPTION>
OMEGA THL-OMEGA
---------- ---------------------------
TWO THREE
MONTHS MONTHS YEAR
ENDED ENDED ENDED
MAY 31, MARCH 31, DECEMBER 31,
1995(1) 1995 1994
---------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales...................................... $ 23,295 $ 38,736 $134,457
Cost of goods sold............................. 17,512 29,401 98,012
Selling, general and administrative expenses... 1,639 2,651 10,839
Depreciation and amortization.................. 1,233 1,459 5,761
Compensation expense........................... -- 9,715(2) --
Expenses related to sale....................... -- 1,689(3) --
---------- --------- --------
Operating income (loss)........................ 2,911 (6,179) 19,845
Interest expense............................... (1,797) (1,478) (5,932)
Amortization of deferred financing costs....... (238) (50) (262)
Other income................................... -- 32 296
---------- --------- --------
Income (loss) before income taxes and
extraordinary item.......................... 876 (7,675) 13,947
Income tax provision........................... 171 484 5,787
---------- --------- --------
Income (loss) before extraordinary item........ 705 (8,159) 8,160
Extraordinary item............................. (4,044)(4) (1,148)(5) --
---------- --------- --------
Net income (loss)...................... $ (3,339) $ (9,307) $ 8,160
========== ========= ========
OTHER DATA:
EBITDA, as adjusted(6)......................... $ 4,144 $ 6,684 $ 25,606
Capital expenditures........................... 581 1,597 8,667
Total assets................................... 176,659 97,657 101,675
Long-term obligations (including current
maturities)................................. 128,116 54,615 56,093
CASH FLOW DATA:
Net cash from (used in) operating activities... $ 4,987 $ 3,604 $ 11,064
Net cash from (used in) investing activities... (159,661) (1,597) (8,667)
Net cash from (used in) financing activities... 154,674 (1,536) (2,081)
</TABLE>
- ---------------
(1) On March 31, 1995, Omega, through the Original Omega Acquisition, acquired
all of the issued and outstanding common stock of THL-Omega.
(2) Represents payments to senior management for the redemption of stock options
and stock that was issued immediately prior to the Original Omega
Acquisition for consideration less than the fair value.
(3) Represents expenses of the sellers associated with the Original Omega
Acquisition.
(4) The extraordinary item in the two months ended May 31, 1995 represents a
$4,044 loss on early extinguishment of debt (net of income taxes of $2,082).
(5) The extraordinary item in the three months ended March 31, 1995 represents a
$1,148 loss on early extinguishment of debt (net of income taxes of $765).
14
<PAGE> 16
(6) "EBITDA, as adjusted" is defined as operating income (loss) plus
depreciation, amortization of intangible assets, and impairment, unusual and
plant closing charges. EBITDA, as adjusted, is presented because (i) it is a
widely accepted indicator of a company's ability to incur and service debt
and (ii) it is the basis on which the Company's compliance with certain
financial covenants contained in the Indentures relating to its Senior
Subordinated Notes and the Senior Bank Facility is principally determined.
However, EBITDA, as adjusted, does not purport to represent cash provided by
operating activities as reflected in the Company's consolidated statements
of cash flow, is not a measure of financial performance under GAAP and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with GAAP. Also, the measure of EBITDA,
as adjusted, may not be comparable to similar measures reported by other
companies.
15
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 table below sets forth the major components of the
results of operations for the years ended December 31, 1998, 1997 and 1996, and
should be used in reviewing the discussion and analysis of results of operations
and liquidity and capital resources. See Note 12 to the Company's Consolidated
Financial Statements for business segment information.
Included in the year ended December 31, 1998, are the results of operations
of Spargo Wire from April 1, 1998, the date Spargo Wire was acquired by the
Company, and the results of operations of Italtrecce from July 1, 1998, the date
Italtrecce was acquired by the Company. Included in the year ended December 31,
1997, are the results of operations of Camden from February 12, 1997, the date
of the Camden Acquisition. Included in the year ended December 31, 1996, are the
results of operations of Dekko from March 5, 1996, the date of the DWT
Acquisition.
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
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Wire sales............................................. $475,528 $529,718 $385,627
Wire harness sales..................................... 170,393 165,430 161,354
-------- -------- --------
Net sales......................................... 645,921 695,148 546,981
Cost of goods sold..................................... 464,552 530,310 420,823
Selling, general and administrative expenses........... 61,284 56,703 43,885
Depreciation and amortization.......................... 41,932 36,026 31,341
Impairment, unusual and plant closing charges.......... -- 2,000 84,250
Inventory valuation adjustment......................... -- 8,500 8,500
-------- -------- --------
Operating income (loss)........................... $ 78,153 $ 61,609 $(41,818)
======== ======== ========
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net sales for the year ended December 31, 1998 were $645.9 million,
representing a $49.2 million, or 7.1%, decrease compared to the year ended
December 31, 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. The average price of copper based upon the New
York Mercantile Exchange, Inc. ("COMEX") decreased to $.75 per pound during the
year ended December 31, 1998 from $1.03 per pound during the year ended December
31, 1997.
16
<PAGE> 18
Wire segment sales were $475.5 million, representing a $54.2 million, or
10.2%, decrease for the year ended December 31, 1998 as compared to the year
ended December 31, 1997. This decrease was the result of the decrease in the
average price of copper offset by an increase in unit growth in sales of bare
wire and cable to industrial and electronics/data communications customers. Wire
segment sales also benefited from the full year of sales related to the Camden
Acquisition (acquired in February 1997) and the incremental sales related to the
acquisitions of Spargo Wire and Italtrecce in 1998. Within the wire harness
segment, net sales for the year ended December 31, 1998 were $170.4 million,
representing a $5.0 million, or 3.0%, increase compared to the year ended
December 31, 1997. This increase in volume was due primarily to a general
increase in domestic appliance production and sales and expanded relationships
with certain customers. Volume increases were partially offset by the loss of
sales from a non-core product line discontinued in September 1997.
Cost of goods sold as a percentage of sales improved to 71.9% for the year
ended December 31, 1998 from 76.3% for the same period in 1997. This improvement
reflected synergies related to the Camden Acquisition, 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. Because the Company's
products are typically priced at a spread over the cost of copper, a lower
copper price leads to a higher gross margin percentage but generally has no
impact on gross margin dollars.
Selling, general and administrative expenses were $61.3 million for the
year ended December 31, 1998, compared to $56.7 million for the year ended
December 31, 1997. This $4.6 million increase primarily reflected the addition
of Camden for a full first quarter, the effect of the 1998 acquisitions of
Spargo Wire and Italtrecce and increased unit volume. Selling, general and
administrative expenses as a percent of net sales increased from 8.2% for the
year ended December 31, 1997 to 9.5% for the year ended December 31, 1998. This
increase was primarily due to the effect of lower copper prices on net sales.
Depreciation and amortization was $41.9 million for the year ended December
31, 1998 as compared to $36.0 million for the same period in 1997. The increase
of $5.9 million was the result of a full year of depreciation and amortization
of goodwill related to the Camden Acquisition, increased capital expenditures
and additional depreciation and amortization of goodwill related to the 1998
acquisitions of Spargo Wire and Italtrecce.
The Company recorded a pre-tax charge to operations of $2.0 million in the
year ended December 31, 1997 related to the shut down and consolidation of
certain wire segment facilities. Additionally, the Company recorded a pre-tax
inventory valuation charge of $8.5 million during the year ended December 31,
1997. This charge was the result of an adjustment to the LIFO valuation of
copper in inventory reflecting the decrease in the copper cost per pound during
fiscal 1997. The Company did not have similar charges during the year ended
December 31, 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales for the year ended December 31, 1997 were $695.1 million,
representing a $148.2 million, or 27.1%, increase over the year ended December
31, 1996. This increase occurred substantially within the wire segment, where
sales increased $144.1 million, or 37.4%, over the year ended December 31, 1996.
This increase was primarily the result of the Camden Acquisition which
contributed $119.3 million to the sales of the Company and growth in most bare
wire markets served by the Company, including computer and electronics and
industrial. These increases were partially offset by reduced demand for
automotive lead wire and a decline in copper prices. The average price of copper
based upon COMEX declined to $1.03 per pound over the year ended December 31,
1997 from $1.06 per pound during the year ended December 31, 1996. Within the
wire harness segment, sales were $165.4 million for the year ended December 31,
1997, representing a 2.5% increase over December 31, 1996. This increase was due
to increased customer demand.
Cost of goods sold as a percentage of sales decreased from 76.9% for the
year ended December 31, 1996 to 76.3% for the year ended December 31, 1997. This
improvement reflected lower current period costs achieved through the transition
of certain wire harness segment business to lower-cost Mexican facilities,
savings realized from plant consolidation actions taken in 1996, and reduced
material and logistic costs as well as the impact of declining copper prices.
Because the Company's products are typically priced at a spread over
17
<PAGE> 19
the cost of copper, a lower copper price leads to a higher gross margin
percentage but generally has no impact on gross margin dollars.
Selling, general and administrative expenses were $56.7 million for the
year ended December 31, 1997 compared to $43.9 million during the year ended
December 31, 1996, an increase of $12.8 million. Expressed as a percentage of
sales, selling, general and administrative expenses increased from 8.0% during
the year ended December 31, 1996 to 8.2% during the year ended December 31,
1997. This increase, as a percentage of sales, was partially attributable to the
effect on net sales of lower copper costs during the year ended December 31,
1997, as compared to the year ended December 31, 1996. Other cost increases
included operating expenses from Dekko for a full year and Camden for
approximately 11 months, volume related items and cost inflation.
Depreciation and amortization was $36.0 million for the year ended December
31, 1997 as compared to $31.3 million for the same period in 1996. The increase
of $4.7 million was the result of depreciation of property, plant and equipment
additions and Camden's assets acquired, amortization of goodwill from the Camden
Acquisition and the depreciation and amortization of goodwill of Dekko for a
full year. The increase was partially offset by lower amortization as the result
of the goodwill impairment charge recorded in 1996. The goodwill impairment
charge was recorded in 1996, resulting from a variety of circumstances described
below. There was no similar charge recorded in 1997.
In the first quarter of 1996, the Company adopted a new business strategy
that had a major impact on its business units. The Company's strategy considered
reducing production costs, moving production to the South and Southwest,
improving customer service and lowering selling, general and administrative
expenses. The Company developed the new strategy and business plan in the first
quarter of 1996, which it finalized in connection with the DWT Acquisition.
The DWT Acquisition was instrumental in the evaluation and implementation
of the new business strategy, due to DWT's strategically sized and located
facilities. With the DWT Acquisition, additional goodwill of $105.0 million was
recorded. With the addition of significant goodwill, the Company believed it was
appropriate to perform a comprehensive review of the carrying value of goodwill.
In addition to the DWT Acquisition, factors that were examined during the
Company's review of the carrying value of goodwill included the changes in the
appliance and automotive industries. These changes include the movement of
appliance harness requirements to Mexican manufacturing facilities and the shift
in automotive harness requirements from large, long lead-time orders to more
frequent, small, short lead-time orders. As a result of these changes, the
Company began to close several of its facilities and undertook its new business
strategy.
Upon completion of its analysis, the Company determined that the carrying
value of goodwill exceeded fair value by approximately $78.2 million. A non-cash
impairment charge of $78.2 million was recorded upon completion of this analysis
in the fourth quarter of 1996. There was no similar charge recorded in 1997.
A $2.0 million and a $6.0 million pre-tax charge to operations,
representing plant shutdown costs, were recorded during the years ended December
31, 1997 and December 31, 1996, respectively. The plant closing costs relate to
shutting down and consolidating wire segment facilities. Pre-tax inventory
valuation charges of $8.5 million were recorded during each of the years ended
December 31, 1997 and December 31, 1996. These charges were the result of an
adjustment to the LIFO valuation of copper in inventory reflecting the decrease
in the copper cost per pound during fiscal 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
Inflation has not been a material factor affecting the Company's business.
As a result of the copper price pass-through arrangements that the Company has
with its customers, fluctuations in the price of copper have not, nor are
expected to have, a material impact on the Company's profitability. The
Company's general operating expenses, such as salaries, employee benefits and
facilities costs are subject to normal inflationary pressures.
18
<PAGE> 20
Working Capital and Cash Flows
For the year ended December 31, 1998, the Company generated $40.6 million
in cash from operations, made net borrowings of $2.8 million under debt
obligations, spent $34.3 million on capital projects, used $7.8 million on the
acquisitions of Spargo Wire and Italtrecce and used $1.4 million on other
financing activities.
For the year ended December 31, 1997, the Company generated $34.0 million
in cash from operations and $6.0 million of net proceeds from the issuance of
long-term debt obligations related to the Camden Acquisition. During 1997, the
Company made net borrowings of $1.1 million under debt obligations, spent $27.8
million on capital projects, used $11.3 million related to financing fees and
used $2.1 million on other financing activities.
In June 1997, the Company generated $157.4 million in proceeds from the
issuance of 11.75% Series B Senior Subordinated Notes due June 2005, net of
financing costs of $5.8 million. The Company applied all net proceeds from this
issuance to repay a portion of the Senior Bank Facility.
For the year ended December 31, 1996, the Company generated $32.0 million
in cash from operations and $13.0 million of net proceeds from the issuance of
equity securities and long-term debt obligations related to the DWT Acquisition.
During 1996, the Company made net repayments of $21.3 million under debt
obligations, spent $15.8 million on capital projects and used $7.8 million
related to financing fees.
Financing Arrangements
The Company has outstanding $150.0 million principal amount of 11.75%
Senior Subordinated Notes due 2005 under an Indenture dated June 12, 1995 and
$150 million of 11.75% Series B Senior Subordinated Notes due June 2005 under an
Indenture dated June 17, 1997, priced at 108.75% for an effective interest rate
of 10.15% (collectively called the "Senior Notes"). The Senior Notes bear
interest at the rate of 11.75% per annum, requiring semi-annual interest
payments of $17.6 million on each June 1 and December 1. The Company also has
outstanding $5.0 million of 14% Senior Subordinated Notes due June 1, 2005 (the
"14% Notes"). The 14% Notes bear interest at the rate of 14% per annum,
requiring a semi-annual interest payment of $0.4 million on each June 1 and
December 1. Neither the Senior Notes nor the 14% Notes are subject to any
sinking fund requirements.
The Senior Bank Facility provides senior secured financing of up to $260.5
million, consisting of a $25.0 million Tranche A Loan and a $160.5 million
Tranche B Loan (collectively, the "Term Facility") and a $75.0 million revolving
credit facility (the "Revolver"). The Company is obligated to make principal
payments in respect of the Term Facility of $4.8 million in 1999, $6.0 million
in 2000, $7.3 million in 2001, $55.4 million in 2002 and $115.8 million in 2003.
The Revolver is available for working capital purposes including letters of
credit. The commitments terminate and all amounts under the Revolver then
outstanding mature in 2002. As of December 31, 1998, there was $189.3 million
outstanding under the Term Facility and $43.5 million of unused borrowing
capacity under the Revolver.
The Company's obligations under the Senior Bank Facility bear interest at
floating rates and require interest payments on varying dates depending on the
interest rate option selected by the Company. At December 31, 1998, the weighted
average interest rate on outstanding borrowings under the Senior Bank Facility
was 7.53%.
In connection with the Camden Acquisition, the Company assumed debt related
to two Industrial Revenue Bonds (the "IRBs") totaling $15.5 million. The IRBs
are due in August 2005 and March 2016 in the amounts of $9.0 million and $6.5
million, respectively. The IRBs bear interest at a rate per annum which is tied
to the Tax Exempt Money Market Index. Rates change weekly and interest is paid
monthly. The IRBs are collateralized by letters of credit totaling $15.5
million. As of December 31, 1998, the weighted average interest rate on the IRBs
was 3.42%.
19
<PAGE> 21
Liquidity
The principal raw material used in the Company's products is copper. The
market price of copper is subject to significant fluctuations. Working capital
needs change whenever the Company experiences a significant change in copper
prices. A $0.10 per pound change in the price of copper changes the Company's
working capital by approximately $5.0 million. The Company enters into
contractual relationships with most of its customers to adjust its prices based
upon the prevailing market prices on the COMEX. This approach is patterned after
the Company's arrangement with its copper suppliers and is designed to remove
the risk associated with fluctuating copper prices.
As part of the impairment charge in 1996 (as more fully described in Note 9
to the Company's Consolidated Financial Statements for the year ended December
31, 1998 included herein) the Company accrued $4.2 million for anticipated
losses related to product liability claims associated with the Original
Wirekraft Acquisition. These claims are for a non-wire product utilized in the
appliance industry that the Company has not manufactured since 1992. The
Company's policy is to record the probable and reasonably estimable loss related
to product liability claims. In 1996, the claims significantly increased as a
result of the receipt of claims accumulated by insurance companies related to
prior periods. Accordingly, the Company revised its estimated liability
outstanding on actual claims reported and its estimate of claims incurred but
not reported.
The Company continues to review the status of the claims and adjust the
liability accordingly. In developing its estimated liability outstanding on
actual claims reported, the Company considered historic settlement rates. In
determining its estimate of claims incurred but not reported, the Company
considered historical claim levels, amounts relative to total product shipped
and historical settlement rates. The reserve for product liability claims was
$2.4 million and $3.4 million at December 31, 1998 and 1997, respectively.
Due to the uncertainties associated with these product claims, the future
cost of final settlement of these claims may differ from the liability currently
accrued. However, in the Company's opinion, the impact of final settlement of
these claims should not, individually or in the aggregate, have a material
adverse effect on the Company's results of operations, financial condition or
cash flows.
The Company's primary sources of liquidity are cash flows from operations
and borrowings under the Revolver, which are subject to a borrowing base
calculation. The major uses of cash in 1999 are expected to be for debt service
requirements and capital expenditures. In 1999, debt service requirements are
estimated at approximately $57.0 million while capital expenditures are
estimated at approximately $27.0 million. Management believes that cash from
operating activities, together with available borrowings under the Revolver, if
necessary, should be sufficient to permit the Company to meet these financial
obligations.
IMPACT OF THE 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 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
20
<PAGE> 22
to be non-compliant and the appropriate computer hardware and network equipment
necessary to run the new software package. As of December 31, 1998, 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 several 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 December 31, 1998,
approximately $5.8 million of the costs have been incurred. The majority of the
expenditures relate to the purchase of new software, hardware and consulting
costs 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 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
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 December 31, 1998, approximately $205 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 1998 interest expense would have
21
<PAGE> 23
increased by approximately $4.1 million, resulting in a decrease to the
Company's net income and after tax cash flow of approximately $2.4 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 evaluates from time-to-time various currency hedging programs that
could reduce the risk.
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. 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.
22
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTERNATIONAL WIRE GROUP, INC
Report of PricewaterhouseCoopers LLP, Independent Public
Accountants............................................ 24
Consolidated Balance Sheets as of December 31, 1998 and
December 31, 1997...................................... 25
Consolidated Statements of Operations for the years ended
December 31, 1998, December 31, 1997 and December 31,
1996................................................... 26
Consolidated Statements of Stockholder's Equity (Deficit)
for the years ended December 31, 1998, December 31,
1997 and December 31, 1996............................. 27
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, December 31, 1997 and December 31,
1996................................................... 28
Notes to Consolidated Financial Statements................ 29
Consolidated Financial Statement Schedule for the years
ended December 31, 1998, December 31, 1997 and December
31, 1996:
Schedule II -- Valuation and Qualifying Accounts.......... 49
</TABLE>
23
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
International Wire Group, Inc.:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of International Wire Group, Inc. and its subsidiaries at December 31,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and the financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
St. Louis, Missouri
January 29, 1999
24
<PAGE> 26
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
AS OF DECEMBER 31,
ASSETS
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Current assets:
Accounts receivable, less allowance of $2,633 and
$2,078................................................. $ 81,369 $ 87,201
Inventories............................................... 82,968 74,406
Prepaid expenses and other................................ 16,510 9,881
Deferred income taxes..................................... 12,107 17,392
-------- --------
Total current assets.............................. 192,954 188,880
Property, plant and equipment, net.......................... 178,647 165,239
Deferred financing costs, net............................... 20,265 23,592
Intangible assets, net...................................... 241,230 242,336
Other assets................................................ 6,018 8,001
-------- --------
Total assets.............................................. $639,114 $628,048
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term obligations............... $ 6,222 $ 4,493
Accounts payable.......................................... 34,461 48,761
Accrued and other liabilities............................. 38,334 39,143
Customers' deposits....................................... 22,588 19,978
Accrued interest.......................................... 3,674 4,834
-------- --------
Total current liabilities......................... 105,279 117,209
Long-term obligations, less current maturities............ 520,983 519,302
Deferred income taxes..................................... 13,184 12,840
Other long-term liabilities............................... 31,228 24,525
-------- --------
Total liabilities................................. 670,674 673,876
Stockholder's equity (deficit):
Common stock, $.01 par value, 1,000 shares authorized,
issued and outstanding................................. 0 0
Contributed capital....................................... 114,172 113,717
Carryover of predecessor basis............................ (67,762) (67,762)
Accumulated deficit....................................... (77,970) (91,783)
-------- --------
Total stockholder's equity (deficit).............. (31,560) (45,828)
-------- --------
Total liabilities and stockholder's equity
(deficit)....................................... $639,114 $628,048
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements
25
<PAGE> 27
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................ $645,921 $695,148 $546,981
Operating expenses:
Cost of goods sold..................................... 464,552 530,310 420,823
Selling, general and administrative expenses........... 61,284 56,703 43,885
Depreciation and amortization.......................... 41,932 36,026 31,341
Impairment, unusual and plant closing charges.......... -- 2,000 84,250
Inventory valuation adjustment......................... -- 8,500 8,500
-------- -------- --------
Operating income (loss).................................. 78,153 61,609 (41,818)
Other income (expense):
Interest expense....................................... (50,627) (50,939) (43,013)
Amortization of deferred financing costs............... (3,806) (3,932) (3,701)
Other, net............................................. 95 (103) 312
-------- -------- --------
Income (loss) before income tax provision and
extraordinary item..................................... 23,815 6,635 (88,220)
Income tax provision................................... 10,002 2,654 1,262
-------- -------- --------
Income (loss) before extraordinary item.................. 13,813 3,981 (89,482)
Extraordinary item -- loss related to early
extinguishment of debt, net of taxes of $1,995. ....... -- (2,991) --
-------- -------- --------
Net income (loss).............................. $ 13,813 $ 990 $(89,482)
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements
26
<PAGE> 28
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
CARRYOVER OF
COMMON PREFERRED CONTRIBUTED PREDECESSOR ACCUMULATED
STOCK STOCK CAPITAL BASIS DEFICIT TOTAL
------ --------- ----------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995... $ 0 $ 0 $ 81,051 $(67,762) $ (3,291) $ 9,998
Capital contributed......... -- -- 35,493 -- -- 35,493
Issuance of preferred
stock..................... -- 4 9,996 -- -- 10,000
Issuance costs.............. -- -- (1,200) -- -- (1,200)
Net loss.................... -- -- -- -- (89,482) (89,482)
---- ----- -------- -------- -------- --------
Balance December 31, 1996... 0 4 125,340 (67,762) (92,773) (35,191)
---- ----- -------- -------- -------- --------
Capital contributed......... -- -- 451 -- -- 451
Repurchase of stock of
Holding................... -- -- (700) -- -- (700)
Conversion of preferred
stock to debt............. -- (4) (9,996) -- -- (10,000)
Preferred stock dividend.... -- -- (1,378) -- -- (1,378)
Net income.................. -- -- -- -- 990 990
---- ----- -------- -------- -------- --------
Balance December 31, 1997... 0 -- 113,717 (67,762) (91,783) (45,828)
Capital contributed......... -- -- 455 -- -- 455
Net income.................. -- -- -- -- 13,813 13,813
---- ----- -------- -------- -------- --------
Balance December 31, 1998... $ 0 $ 0 $114,172 $(67,762) $(77,970) $(31,560)
==== ===== ======== ======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements
27
<PAGE> 29
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss)...................................... $ 13,813 $ 990 $(89,482)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 41,932 36,026 31,341
Impairment and unusual charges...................... -- -- 78,250
Amortization of deferred financing costs............ 3,806 3,932 3,701
Extraordinary loss on early extinguishment of
debt.............................................. 4,986 --
Inventory valuation adjustment...................... -- 8,500 8,500
Deferred income taxes............................... 5,629 901 3,184
Change in assets and liabilities, net of
acquisitions:
Accounts receivable............................... 9,998 (456) (1,878)
Inventories....................................... (7,995) (1,835) (3,645)
Prepaid expenses and other........................ (11,474) (6,273) (4,829)
Accounts payable.................................. (17,686) (9,171) 1,216
Accrued and other liabilities..................... (2,341) 2,278 2,299
Accrued interest.................................. (1,160) 186 2,132
Income taxes payable/refundable................... (1,113) (2,976) 1,914
Other long-term liabilities....................... 7,237 (3,090) (723)
-------- -------- --------
Net cash from operating activities............. 40,646 33,998 31,980
-------- -------- --------
Cash flows used in investing activities:
Acquisitions, net of cash.............................. (7,821) (58,996) (160,259)
Capital expenditures................................... (34,299) (27,760) (15,849)
-------- -------- --------
Net cash used in investing activities.......... (42,120) (86,756) (176,108)
-------- -------- --------
Cash flows provided by (used in) financing activities:
Equity proceeds........................................ -- -- 45,039
Proceeds from issuance of long-term obligations........ -- 228,125 128,200
Repayment of long-term obligations..................... (5,339) (143,836) (21,301)
Borrowing (repayment) on revolver...................... 8,175 (18,165) (10)
Repurchase of stock of Holding......................... -- (700) --
Cash dividends paid on preferred stock................. -- (1,378) --
Financing fees and other............................... (1,362) (11,288) (7,800)
-------- -------- --------
Net cash from financing activities............. 1,474 52,758 144,128
-------- -------- --------
Net change in cash and cash equivalents........ -- -- --
Cash and cash equivalents at beginning of the period..... -- -- --
-------- -------- --------
Cash and cash equivalents at end of the period........... $ -- $ -- $ --
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements
28
<PAGE> 30
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
1. COMPANY BACKGROUND AND ACQUISITIONS
International Wire Group, Inc. ("Group" or the "Company"), a Delaware
corporation, through its two segments, the Wire Segment and the Wire Harness
Segment, is engaged in the design, manufacture and marketing of bare and
insulated copper wire and wire harnesses. The Company's products are used by a
wide variety of customers primarily in the appliance, automotive, computer and
data communications and industrial equipment industries.
The Company was formed to participate in the transactions contemplated by
the Acquisitions (as described below). On June 12, 1995, Wirekraft Holdings
Corp. ("Wirekraft"), Omega Wire Corp. ("Omega"), International Wire Holding
Company ("Holding"), the sole common stockholder of Group, Wirekraft Acquisition
Company and certain shareholders of Wirekraft and Omega entered into a series of
acquisitions and mergers (the "Acquisitions") pursuant to which Group acquired
all of the common equity securities (and all securities convertible into such
securities) of Wirekraft and all of the common equity securities of Omega. In
accordance with EITF 88-16, "Basis in Leveraged Buy Out Transactions," the
Acquisitions have been accounted for at "predecessor basis."
On March 5, 1996, the Company acquired the businesses of Hoosier Wire,
Inc., Dekko Automotive Wire, Inc., Albion Wire, Inc. and Silicones, Inc.
(collectively "Dekko"), a group of affiliated companies operating together under
the trade name Dekko Wire Technology Group (the "DWT Acquisition"). Dekko was
engaged in the design, manufacture and marketing of insulated and bare copper
wire.
The DWT Acquisition was accounted for using the purchase method of
accounting whereby the total acquisition cost has been allocated to the
consolidated assets and liabilities based upon their estimated respective fair
values. The total acquisition cost is allocated to the acquired net assets as
follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 37,669
Property, plant and equipment............................... 36,020
Goodwill.................................................... 105,041
Other, non-current.......................................... 3,515
Fees and costs.............................................. 7,800
Current liabilities......................................... (15,306)
Other liabilities........................................... (1,500)
--------
$173,239
========
</TABLE>
On February 12, 1997, the Company acquired all of the issued and
outstanding common stock of Camden Wire Co., Inc. ("Camden"), a wholly-owned
subsidiary of Oneida LTD, for total consideration of approximately $65,000 (the
"Camden Acquisition"). Camden was engaged in the design, manufacture and
marketing of non-insulated bare and tin-plated copper wire.
The total consideration of $65,000 paid in connection with the Camden
Acquisition, including fees and expenses, consisted of (i) cash and (ii) the
assumption of debt related to Industrial Revenue Bonds, a non-cash item. The
cash portion of the consideration paid and the transaction fees and expenses
incurred in connection with the Camden Acquisition were funded with $65,000 of
senior debt under the Amended and Restated Credit Agreement (see Note 6).
29
<PAGE> 31
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Camden Acquisition was accounted for using the purchase method of
accounting whereby the total acquisition cost has been allocated to the
consolidated assets and liabilities based upon their estimated respective fair
values. The total acquisition cost is allocated to the acquired net assets as
follows:
<TABLE>
<S> <C>
Current assets.............................................. $42,844
Property, plant & equipment................................. 44,053
Goodwill.................................................... 4,922
Other, non-current.......................................... 4,313
Fees and costs.............................................. 3,250
Current liabilities......................................... (28,959)
Other liabilities........................................... (5,423)
-------
$65,000
=======
</TABLE>
In 1998, the Company made two strategic acquisitions, the acquisition of
the assets of Spargo Wire Company, Inc. (the "Spargo Acquisition") and the
acquisition of Italtrecce S.r.l. (the "Italtrecce Acquisition"). The
acquisitions were accounted for using the purchase method of accounting. The
total consideration paid in connection with these acquisitions, including fees
and expenses, was $7,821.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Group and its
wholly owned subsidiaries. All material intercompany balances and transactions
have been eliminated in consolidation.
Revenue Recognition
Sales and related cost of goods sold are included in income when goods are
shipped to customers.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the last-in, first-out ("LIFO") method.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is calculated
using the straight-line method. The average estimated lives utilized in
calculating depreciation are as follows: building -- 25 to 40 years; building
improvements -- 15 years; machinery and equipment -- 3 to 11 years; and
furniture and fixtures -- 5 years. Leasehold improvements are amortized over the
shorter of the term of the respective lease or the life of the respective
improvement.
Intangible Assets
Intangible assets consist principally of goodwill arising from the excess
of cost over the value of net assets acquired which is amortized using the
straight-line method over forty years. In fiscal 1996, the Company completed a
review of the carrying value of goodwill, which resulted in an impairment (see
Note 9). Accumulated amortization aggregated $33,704 and $25,911 at December 31,
1998 and 1997, respectively.
The Company periodically evaluates goodwill to assess recoverability. The
Company considers various factors in determining if goodwill may be impaired.
These factors include reductions in estimated future cash
30
<PAGE> 32
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
flows, significant events impacting the Company's business and changes in the
business environment. The Company further assesses the recoverability of
goodwill by comparing the value of goodwill as indicated by a discounted cash
flow analysis to the carrying value of goodwill. The discounted cash flow
analysis consists of discounted free cash flows for a projection period plus a
terminal value, which is calculated by dividing estimated annual unlevered net
income by the weighted average cost of capital less an assumed growth rate. Upon
consideration of these factors, if the Company determines that an impairment has
occurred, the Company determines the impairment charge by comparing the carrying
value of goodwill to the adjusted fair value of the Company, as calculated
through a discounted cash flow analysis. In fiscal 1996, the Company completed a
review of the carrying value of goodwill, which resulted in an impairment charge
(see Note 9).
Deferred Financing Costs
Deferred financing costs, consisting of fees and other expenses associated
with debt financing are amortized over the term of the related debt using the
straight-line method, which approximates the effective interest method.
Accumulated amortization aggregated $12,907 and $9,101 at December 31, 1998 and
1997, respectively.
Foreign Currency
The Company has operations in Mexico, the Philippines and Italy. The U.S.
dollar is the functional currency for the majority of the Company's foreign
transactions. All gains and losses from translation and transactions are
determined using a combination of current and historical rates and are included
in net income.
Interest Rate Hedging Arrangement
As of December 31, 1998, the Company had one interest rate protection
agreement for the purpose of hedging against rising interest rates. The fees the
Company paid for these arrangements are included in deferred financing fees and
amortized on a straight-line basis over the life of the arrangements. This
agreement provides the Company with a ceiling on the three month London
Interbank Offered Rate ("LIBOR") of 8.0% on $32,500 of indebtedness through
March 1999. The Company estimates that fair value approximates carrying value of
the interest rate hedging arrangement.
Fair Value of Financial Instruments
The Company's financial instruments, excluding the Senior Notes (as
hereinafter defined) are carried at fair value or amounts that approximate fair
value. The Company has estimated the fair market value of the Senior Notes using
current market data. The fair market value of the Senior Notes was approximately
$318,750 and $330,000 at December 31, 1998 and 1997, respectively.
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Statement of Cash Flows
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments purchased with maturities of three
months or less to be cash equivalents. Interest paid for the years ended
December 31, 1998, 1997 and 1996, was $51,787, $50,753 and $40,881,
respectively. Taxes paid
31
<PAGE> 33
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for the years ended December 31, 1998 and 1997, and refunded, net of payments
for the year ended December 31, 1996, were $5,644, $2,817 and $4,073,
respectively.
During the year ended December 31, 1997, the Company entered into certain
non-cash investing and financing activities. In 1997, the Company exchanged
$10,000 of Series A Senior Cumulative Exchangeable Redeemable Preferred Stock
for debt.
In fiscal 1998, 1997 and 1996, the Company recorded capital lease
obligations of $1,044, $0 and $2,348, respectively, for property, plant and
equipment.
Significant Customer
A significant portion of the Company's sales were to a major customer
within the Wire Harness Segment. Sales to this customer represented 15%, 14% and
18% of net sales for the years ended December 31, 1998, 1997 and 1996,
respectively.
Reclassification
Certain items in the prior year financial statements have been reclassified
to conform with the current period presentation.
Recently Issued Accounting Standards
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. The Company had
approximately $4.0 million in net capitalized start-up costs remaining at
December 31, 1998, which the Company expects to expense in accordance with SOP
98-5 in the first quarter of 1999.
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
this statement will not have a significant impact on the results of operations
or financial position of the Company.
3. INVENTORIES
The composition of inventories is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1998 1997
------- -------
<S> <C> <C>
Raw materials............................................... $41,777 $33,983
Work-in process............................................. 13,047 15,992
Finished goods.............................................. 28,144 24,431
------- -------
Total inventories................................. $82,968 $74,406
======= =======
</TABLE>
32
<PAGE> 34
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The current cost of inventories at December 31, 1998 and 1997 approximated
the carrying cost.
In connection with the decline in the average price of copper, the Company
recorded a pre-tax inventory valuation charge of $8,500 for the year ended
December 31, 1997 to reduce the LIFO valuation of copper in inventory.
4. PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1998 1997
--------- --------
<S> <C> <C>
Land...................................................... $ 3,836 $ 4,281
Buildings and improvements................................ 53,262 47,698
Machinery and equipment................................... 232,614 199,171
Construction in progress.................................. 7,004 5,977
--------- --------
296,716 257,127
Less: accumulated depreciation............................ (118,069) (91,888)
--------- --------
$ 178,647 $165,239
========= ========
</TABLE>
5. FINANCING COSTS AND RELATED PARTY TRANSACTIONS
In connection with the DWT Acquisition, the Company incurred aggregate fees
and costs of $7,800. Costs of $6,600 related to the Amended and Restated Credit
Agreement (as hereinafter defined) are included in deferred financing costs and
are being amortized over the terms of the related borrowings. Costs of $1,200
related to the issuance of Holding's common stock and the Preferred Stock (as
defined in Note 7) have been deducted from the proceeds to reduce the carrying
value of the common stock and the Preferred Stock. In connection with the Camden
Acquisition, the Company incurred aggregate fees and costs of $3,250 which are
included in deferred costs and are being amortized over the term of the related
borrowings. All costs related to the Amended and Restated Credit Agreement are
included in deferred financing costs and are being amortized over the terms of
the related borrowings on a straight-line basis.
In June 1997, the Company refinanced debt under the Amended and Restated
Credit Agreement. Accordingly, the Company recorded an extraordinary loss of
$2,601, net of income tax related to the write-off of deferred financing fees.
In addition, the Company repurchased $5,000 of debt and recorded an
extraordinary loss of $390, net of income tax, related to a prepayment premium.
In connection with the Acquisitions and the related financing, the Company
entered into a Monitoring and Oversight Agreement ("Agreement") with Hicks, Muse
& Co. Partners, L.P. ("Hicks Muse Partners"), an affiliate of the Company,
pursuant to which the Company paid Hicks Muse Partners cash fees of $2,500 and
$900 as compensation for financial advisory services received in connection with
the DWT Acquisition and the Camden Acquisition, respectively. The fees paid in
connection with the DWT Acquisition were allocated as deferred financing costs
or as a deduction from the cash proceeds received from the sale of the common
stock of Holding and all fees paid associated with the Camden Acquisition were
included in deferred financing costs. The Agreement further provides that the
Company shall pay Hicks Muse Partners an annual fee of $500, for ten years for
monitoring and oversight services adjusted annually at the end of each fiscal
year to an amount equal to 0.1% of the consolidated net sales of the Company,
but in no event less than $500 annually. The obligation under the Agreement and
the related deferred financing costs have been recorded in the consolidated
balance sheets.
33
<PAGE> 35
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM OBLIGATIONS
The composition of long-term obligations at December 31, 1998 and 1997 is
as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Amended and Restated Credit Agreement:
Revolving credit facility................................ $ 9,000 $ 825
Term facility............................................ 180,250 183,750
Senior Subordinated Notes.................................. 150,000 150,000
Series B Senior Subordinated Notes......................... 150,000 150,000
Series B Senior Subordinated Notes Premium................. 11,295 12,485
Industrial revenue bonds................................... 15,500 15,500
Other...................................................... 11,160 11,235
-------- --------
527,205 523,795
Less, current maturities................................... 6,222 4,493
-------- --------
$520,983 $519,302
======== ========
</TABLE>
The schedule of principal payments (excluding amortization of premium) for
long-term obligations at December 31, 1998 is as follows:
<TABLE>
<S> <C>
1999........................................................ $ 6,222
2000........................................................ 7,570
2001........................................................ 8,631
2002........................................................ 55,480
2003........................................................ 115,989
Thereafter.................................................. 322,018
--------
Total..................................................... $515,910
========
</TABLE>
During 1997, the Company issued $150,000 of 11.75% Series B Senior
Subordinated Notes due June 2005 (the "Series B Notes"), priced at 108.75% for
an effective interest rate of 10.15%. The proceeds of this issuance were used to
pay down the term facility of the Amended and Restated Credit Agreement.
Amended and Restated Credit Agreement
In connection with the issuance of the Series B Notes, the Company amended
the Amended and Restated Credit Agreement dated June 17, 1997. As amended, the
Amended and Restated Credit Agreement provides senior secured financing of up to
$260,500, consisting of a $25,000 Term A Loan and a $160,500 Term B Loan
(collectively, the "Term Facility") and a $75,000 revolving loan and letter of
credit facility (the "Revolver"). Mandatory principal payments of the Term
Facility are due in quarterly installments. The final installment of the Term A
loan is due September 30, 2002, at which time the Revolver is also due. The
final installment of the Term B Loan is due September 30, 2003.
Borrowings under the Term A Loan and Revolver bear interest, at the option
of Group, at a rate per annum equal to (a) the Alternate Base Rate (as defined
in the Amended and Restated Credit Agreement) plus 0.25% or (b) the Eurodollar
Rate (as defined in the Amended and Restated Credit Agreement) plus 1.25%.
Borrowings under the Term B Loan bear interest, at the option of Group, at a
rate per annum equal to (a) the Alternate Base Rate plus 1.0% or (b) the
Eurodollar Rate plus 2.0%. The Alternate Base Rate and Eurodollar Rate margins
are established quarterly based on a formula as defined in the Amended and
Restated Credit Agreement. Interest payment dates vary depending on the interest
rate option to which the
34
<PAGE> 36
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Term Facility and the Revolver are tied, but generally interest is payable
quarterly. The Amended and Restated Credit Agreement contains several financial
covenants which, among other things, require Group to maintain certain financial
ratios and restrict Group's ability to incur indebtedness, make capital
expenditures and pay dividends. The weighted average interest rate on
outstanding borrowings was 7.53% and 7.82% at December 31, 1998 and 1997,
respectively.
Senior Subordinated Notes and Series B Senior Subordinated Notes
The Senior Subordinated Notes issued in connection with the Acquisitions
and the Series B Notes issued in connection with the refinancing of the Term
Facility (collectively called the "Senior Notes") were issued under similar
indentures (the "Indentures") dated June 12, 1995 and June 17, 1997,
respectively. The Senior Notes represent unsecured general obligations of Group
and are subordinated to all Senior Debt (as defined in the Indentures) of Group.
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 Senior Notes mature on June 1, 2005. Interest on the Senior Notes is
payable semi-annually on each June 1 and December 1. The Senior Notes bear
interest at the rate of 11.75% per annum. The Senior Notes may not be redeemed
prior to June 1, 2000, except in the event of a Change of Control (as defined)
and at such applicable premium (as defined). The Senior Notes are redeemable, at
the Company's option, at the redemption prices of 105.875% at June 1, 2000, and
at decreasing prices to 100% at June 1, 2003, and thereafter, with accrued
interest.
The Senior Notes restrict, among other things, the incurrence of additional
indebtedness by the Company, the payment of dividends and other distributions in
respect of the Company's capital stock, the payment of dividends and other
distributions by the Company's subsidiaries, the 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.
Industrial Revenue Bonds
In connection with the Camden Acquisition, the Company assumed debt related
to two Industrial Revenue Bonds (the "IRB's") totaling $15,500. The IRB's are
due in August, 2005 and March, 2016 in the amounts of $9,000 and $6,500,
respectively. The IRB's bear interest at a rate per annum which is tied to the
Tax Exempt Money Market Index which resulted in an effective rate of 3.42% and
3.83% at December 31, 1998 and 1997, respectively. Rates change weekly and
interest is paid monthly. The IRB's are collateralized by letters of credit
totaling $15,500.
7. PREFERRED STOCK
In connection with the DWT Acquisition, the Company issued 400,000 shares
of Series A Senior Cumulative Exchangeable Redeemable Preferred Stock, par value
$.01 (the "Preferred Stock"). In accordance with the Certificate of Designation
of the Preferred Stock, cumulative dividends were payable quarterly at the rate
of 14% per annum. The Preferred Stock had a liquidation preference of $25.00 per
share and a par value of $.01 per share. In 1997, the Company exchanged all
shares of Preferred Stock for debt and paid all dividends in arrears related to
the Preferred Stock.
35
<PAGE> 37
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109. The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Current:
Federal............................................ $ 2,535 $ 169 $ --
State.............................................. 736 776 935
Foreign............................................ 1,102 808 264
------- ------ ------
4,373 1,753 1,199
Deferred:
Federal............................................ 4,586 1,020 (64)
State.............................................. 1,043 (119) 127
------- ------ ------
5,629 901 63
------- ------ ------
10,002 2,654 1,262
Tax benefit on extraordinary item.................... -- (1,995) --
------- ------ ------
Total provision............................ $10,002 $ 659 $1,262
======= ====== ======
</TABLE>
The components of income (loss) before income taxes and extraordinary item
and the effects of significant adjustments to tax computed at the federal
statutory rate were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1998 1997 1996
------- ------ --------
<S> <C> <C> <C>
Domestic........................................... $28,482 $1,639 $(90,060)
Foreign............................................ (4,667) 4,996 1,840
------- ------ --------
Income (loss) before income taxes and extraordinary
item............................................. $23,815 $6,635 $(88,220)
======= ====== ========
</TABLE>
Reconciliation between the statutory income tax rate and effective tax rate
is summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1998 1997 1996
------- ------ --------
<S> <C> <C> <C>
U.S. Federal statutory rate at 35%................. $ 8,335 $2,324 $(30,877)
State taxes, net of federal effect................. 1,156 427 690
Foreign taxes...................................... 736 (875) (430)
Nondeductible expenses............................. 510 1,144 31,814
Other.............................................. (735) (366) 65
------- ------ --------
$10,002 $2,654 $ 1,262
======= ====== ========
</TABLE>
36
<PAGE> 38
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of significant temporary differences representing deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1998 1997 1996
------- ------ -------
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable reserves...................... $ 1,106 $ 720 $ 477
Accrued liabilities not yet deductible............ 1,393 2,672 3,497
Inventories....................................... 8,808 8,608 1,205
Net operating loss carryforward................... 799 5,077 --
AMT credit carryforward........................... 2,259 -- --
Postretirement benefits........................... 2,912 3,158 --
Other............................................. 341 315 227
------- ------ -------
17,618 20,550 5,406
Deferred tax liabilities:
Depreciation and amortization..................... 18,695 15,998 14,684
Other............................................. -- -- 700
------- ------ -------
18,695 15,998 15,384
------- ------ -------
Net deferred tax asset (liability)........ $(1,077) $4,552 $(9,978)
======= ====== =======
</TABLE>
The Company's net operating loss expires in periods ranging from the year
2010 through the year 2011. The Company has no present intention of remitting
undistributed earnings of its foreign subsidiaries (aggregating $6,000 at
December 31, 1998) and, accordingly, no deferred tax liability has been
established relative to these earnings.
In 1998, the Internal Revenue Service (the "IRS") completed its review of
one of the Company's wholly owned subsidiaries' U. S. income tax returns for the
taxable periods 1993 through 1995. The resolution of the examination had no
material impact on the Company. The IRS is currently performing an examination
of Kirtland Indiana Limited Partnership's, a predecessor of the Company, U. S.
income tax return for the taxable period ended December 21, 1992 and may propose
various adjustments to increase taxable income. Management believes that the
resolution of these matters will not have a material adverse effect on the
future financial position, operations or cash flows of the Company.
9. IMPAIRMENT, UNUSUAL AND PLANT CLOSING CHARGES
Commencing in the first quarter of 1996, the Company began a comprehensive
review of the strategic position of its individual business units. The original
goodwill related to the Wirekraft acquisition recognized long-term customer
relationships and plant locations that were strategically sized, located and
customer focused. Due to intense competition in the appliance and automotive
markets and the loss of the portion of business from a major appliance customer
in 1995, the Company developed and executed new business strategies in 1996,
including the DWT Acquisition, to maintain customer volume levels, meet
competitive pressures and address key changes within the marketplace. As a
result, the Company embarked on a major plant consolidation program including
the utilization of facilities purchased in the DWT Acquisition and transitioning
of business from the Midwest to the Southwest and Mexico.
During the development of the new business strategies in 1996, the Company
formulated a plan to realign the plant capacity through plant closings and
consolidations of Wire Segment facilities. To that end, the Company charged an
additional $6,000 to the reserve through December 31, 1996. As future costs of
the 1996 plan became reasonably estimable, the Company charged an additional
$2,000 to the reserve in 1997 relating
37
<PAGE> 39
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to the closure of plants in the Wire Segment. The plant closing reserve includes
provisions for shut-down costs from the period of the plant closure to the date
of disposal, commitment costs for leased property and key personnel and
severance related costs. During 1998, 1997 and 1996, plant closing actions
resulted in the reduction of approximately 90, 300 and 50 employees,
respectively. There have been ten Wire Harness Segment facilities and six Wire
Segment facilities closed to date.
The following table summarizes the activity in the plant closing reserve
for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
Balance, beginning of period......................... $1,445 $2,462 $ 700
Charges to operations:
Facility shut-down costs........................... -- 1,875 3,872
Lease commitments.................................. -- -- 773
Key personnel and severance costs.................. -- 125 1,355
------ ------ -------
-- 2,000 6,000
Costs incurred:
Facility shut-down costs........................... (69) (1,979) (3,017)
Lease commitments.................................. (236) (230) (134)
Key personnel and severance costs.................. (61) (808) (1,087)
------ ------ -------
(366) (3,017) (4,238)
------ ------ -------
Balance, end of period............................... $1,079 $1,445 $ 2,462
====== ====== =======
</TABLE>
The Company periodically evaluates the adequacy of the reserve balances and
estimated future expenditures, including assumptions used and the period over
which such costs are expected to be incurred.
In December 1996, the Company completed its review of the carrying value of
goodwill, resulting in an impairment charge of $78,250 for the year ended
December 31, 1996. In determining the goodwill impairment charge, the Company
completed financial projections through the year 2000. These projections reflect
the Company's business strategies and were based on current industry trends,
forecasts and expected developments. A discounted cash flow analysis of the
consolidated entity was used to calculate the fair market value of the Company
and was based upon the Company's acquisition strategy which focuses on the
identification and realization of certain synergies existing between the
acquired businesses. The calculated fair value of the Company is determined as
the sum of discounted free cash flows through the year 2000 plus a terminal
value, which is calculated using a discounted cash flow terminal value approach,
determined by capitalizing unlevered net income in the last year of the
projection by dividing unlevered net income by the weighted average cost of
capital, less an assumed future growth rate. The calculated fair market value
was compared to net tangible assets (net working capital and net property, plant
and equipment). The difference between net tangible assets and the fair market
value was compared to net goodwill to determine the goodwill impairment charge.
In connection with the impairment charge recorded in December 1996, the
Company provided $4,201 for anticipated losses of related to product liability
claims associated with the period preceding the original acquisition of
Wirekraft in 1992. These claims are for a non-wire product in the appliance
industry that the Company has not manufactured since 1992. The Company's policy
is to record the probable and reasonably estimable loss related to product
liability claims. In developing its estimated liability outstanding on actual
claims reported, the Company considered historical settlement rates. The Company
has estimated its liability outstanding on actual claims reported at December
31, 1998 and 1997 to be $1,574 and $1,971, respectively.
38
<PAGE> 40
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In determining its estimate of claims incurred but not reported, the
Company considered historical claim levels and amounts relative to total product
shipped. Additionally, the Company considered historical settlement rates to
develop its estimate for incurred but not reported claims at December 31, 1998
and 1997 of $818 and $1,471, respectively. Due to the uncertainties associated
with these product claims, the future cost of final settlement of these claims
may differ from the liability currently accrued. However, in the Company's
opinion, the impact of final settlement of these claims on future operations,
financial position and cash flows will not be material.
10. RETIREMENT BENEFITS AND STOCK OPTION PLANS
The Company sponsors a number of defined contribution retirement plans
which provide retirement benefits for eligible employees. Company contribution
expense related to these retirement plans for the years ended December 31, 1998,
1997 and 1996 amounted to approximately $3,837, $3,442 and $1,208, respectively.
Holding's Qualified and Non-Qualified Stock Option Plan (the "Option Plan")
provides for the granting of up to 4,795,322 shares of common stock to officers
and key employees of Holding and the Company. Under the Option Plan, options
granted approximate market value of the common stock at the date of grant. Such
options vest ratably over a five year period commencing on the first anniversary
date after the date of grant, and vested options are exercisable at the
discretion of the committee appointed to administer the Option Plan. Generally,
an option may be exercised only if the holder is an officer or employee of
Holding or the Company at the time of exercise. Options granted under the Option
Plan are not transferable, except by will and the laws of descent and
distribution.
Holding and the Company also granted Performance Options (the "Performance
Options") to certain key executives in 1996 and 1995. The Performance Options
are exercisable only on the occurrence of certain events. The exercise price for
the Performance Options is initially equal to $1.00 per share and, effective
each anniversary of the grant date, the per share exercise price for the
Performance Options is equal to the per share exercise price for the prior year
multiplied by 1.09. The Performance Options terminate on the tenth anniversary
date of the date of grant.
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for the Option Plan.
Accordingly, no compensation cost has been recognized for the Option Plan and
the Performance Options. There may be compensation expense in future periods to
the extent that the fair value of the stock exceeds the exercise price of the
Performance Options. Had compensation cost for the Option Plan and the
Performance Options been determined based upon the fair value at the grant date
for awards under these plans consistent with the methodology prescribed under
SFAS No. 123, the Company's net income (loss) would approximate the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1998 1997 1996
------- ---- --------
<S> <C> <C> <C>
As reported......................................... $13,813 $990 $(89,482)
Pro forma........................................... $13,503 $800 $(89,759)
</TABLE>
The minimum value of each option grant is estimated on the date of grant
with the following assumptions in 1998, 1997 and 1996, respectively: (i)
risk-free interest rates of 6.0% in 1998, 6.4% to 6.6% in 1997, and 5.9% to 6.5%
in 1996 and (ii) expected life of 10 years.
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. Additional awards in future years are anticipated.
39
<PAGE> 41
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in the status of the Option Plan are summarized below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE OPTIONS OPTIONS
PER SHARE GRANTED VESTED
---------------- ---------- ---------
<S> <C> <C> <C>
December 31, 1995........................ $1.00 3,400,000 --
Granted................................ $1.02 1,865,249 --
Vested................................. $1.00 -- 195,249
Forfeitures............................ $1.00 (1,250,000) --
----- ---------- ---------
December 31, 1996........................ $1.01 4,015,249 195,249
Granted................................ $1.40 1,350,000 --
Vested................................. $1.03 -- 915,000
Forfeitures............................ $1.00 (888,805) (28,805)
----- ---------- ---------
December 31, 1997........................ $1.12 4,476,444 1,081,444
Granted................................ $1.81 225,000 --
Vested................................. $1.12 -- 885,000
Forfeitures............................ $1.41 (304,992) (44,992)
----- ---------- ---------
December 31, 1998........................ $1.14 4,396,452 1,921,452
===== ========== =========
</TABLE>
Changes in the status of the Performance Options are summarized below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE OPTIONS OPTIONS
PER SHARE GRANTED VESTED
---------------- ---------- ---------
<S> <C> <C> <C>
December 31, 1995........................ $1.00 2,966,178 --
Granted................................ $1.00 1,236,566 --
----- ---------- ---------
December 31, 1996........................ $1.06 4,202,744 --
Granted................................ $ -- -- --
----- ---------- ---------
December 31, 1997........................ $1.16 4,202,744 --
Granted................................ $ -- -- --
Forfeitures............................ $1.26 (350,228) --
----- ---------- ---------
December 31, 1998........................ $1.26 3,852,516 --
===== ========== =========
</TABLE>
The weighted average grant-date fair value of options granted during 1998,
1997 and 1996 was $1.04, $0.75 and $0.48 per share, respectively. Of the
4,396,452 options outstanding under the Option Plan at December 31, 1998,
3,075,000 have an exercise price at $1.00 per share, 1,055,000 at $1.40 per
share, 41,452 at $1.63 per share and 225,000 at $1.81 per share and have
weighted average remaining contractual lives of between 7 and 10 years. The
weighted average exercise price of options vested at December 31, 1998 is $1.06
per share.
Of the Performance Options outstanding at December 31, 1998, 2,718,997 and
1,133,519 have exercise prices of $1.30 and $1.19 respectively, and have
weighted average remaining contractual lives of between 7 and 8 years.
In addition to the options granted to officers and key employees through
the Option Plan, the Company also granted options to purchase 300,000 shares of
Holding Common Stock at $1.00 per share to directors of the Company. These
options were issued and vested in 1995.
40
<PAGE> 42
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
The Company leases certain property, transportation vehicles and other
equipment. Total rental expense under operating leases was $6,511, $5,862 and
$2,237 for the years ended December 31, 1998, 1997 and 1996, respectively.
Future minimum lease payments under capital and operating leases for the years
ended December 31 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
<S> <C> <C>
1999........................................................ $ 1,860 $ 3,343
2000........................................................ 1,884 2,906
2001........................................................ 1,450 2,625
2002........................................................ 405 1,792
2003........................................................ 395 911
Thereafter.................................................. 2,475 2,738
------- -------
Total minimum lease payments.............................. 8,469 $14,315
=======
Less amount representing interest......................... (2,908)
-------
Present value of net minimum lease payments............... $ 5,561
=======
</TABLE>
The Company is subject to legal proceedings and claims that arise in the
normal course of business. In the opinion of management, the ultimate
liabilities with respect to these actions will not have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.
12. BUSINESS SEGMENT INFORMATION
In 1998, the Company adopted 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.
The Company conducts its operations through two business segments, a Wire
Segment and a Wire Harness Segment. The Wire Segment is comprised of two
operating divisions. The accounting policies of the segments are the same as
those described in Note 2 to the consolidated financial statements, "Significant
Accounting Policies." 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.
41
<PAGE> 43
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The table below presents information about reported segments for the years
ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
WIRE
WIRE HARNESS CONSOLIDATED
-------- -------- ------------
<S> <C> <C> <C>
December 31, 1998
Sales................................................. $502,013 $170,393 $672,406
Intersegment sales.................................... (26,485) -- (26,485)
-------- -------- --------
Sales to customers.................................... 475,528 170,393 645,921
Depreciation and amortization......................... 34,343 7,589 41,932
Operating income...................................... 56,741 21,412 78,153
Total assets.......................................... $539,527 $ 99,587 $639,114
December 31, 1997
Sales................................................. $553,925 $165,430 $719,355
Intersegment sales.................................... (24,207) -- (24,207)
-------- -------- --------
Sales to customers.................................... 529,718 165,430 695,148
Depreciation and amortization......................... 28,589 7,437 36,026
Impairment, unusual and plant closing charges......... 2,000 -- 2,000
Inventory valuation adjustment........................ 8,500 -- 8,500
Operating income...................................... 41,261 20,348 61,609
Total assets.......................................... $536,782 $ 91,266 $628,048
December 31, 1996
Sales................................................. $406,026 $161,354 $567,380
Intersegment sales.................................... (20,399) -- (20,399)
-------- -------- --------
Sales to customers.................................... 385,627 161,354 546,981
Depreciation and amortization......................... 24,880 6,461 31,341
Impairment, unusual and plant closing charges......... 84,250 -- 84,250
Inventory valuation adjustment........................ 8,500 -- 8,500
Operating loss........................................ (29,443) (12,375) (41,818)
Total assets.......................................... $437,524 $ 93,496 $531,020
</TABLE>
A reconciliation of total operating income for reportable segments to
consolidated income (loss) before income tax provision and extraordinary item
for the years ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Total operating income (loss) for reportable
segments............................................. $ 78,153 $ 61,609 $(41,818)
Other income (expense):
Interest expense..................................... (50,627) (50,939) (43,013)
Amortization of deferred financing costs............. (3,806) (3,932) (3,701)
Other, net........................................... 95 (103) 312
-------- -------- --------
Consolidated income (loss) before income tax provision
and extraordinary item............................... $ 23,815 $ 6,635 $(88,220)
======== ======== ========
</TABLE>
42
<PAGE> 44
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is sales and long-lived asset information by geographic area
as of and for the years ended December 31:
<TABLE>
<CAPTION>
SALES LONG-LIVED ASSETS
-------------------------------- --------------------
1998 1997 1996 1998 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
United States..................... $635,253 $695,148 $546,981 $416,190 $422,334
Foreign........................... 40,915 35,885 34,757 29,970 16,834
Eliminations...................... (30,247) (35,885) (34,757) -- --
-------- -------- -------- -------- --------
$645,921 $695,148 $546,981 $446,160 $439,168
======== ======== ======== ======== ========
</TABLE>
Foreign sales are based on the country in which the legal subsidiary is
domiciled. Sales from no single foreign country were material to the
consolidated sales of the Company.
13. 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 other than 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.
43
<PAGE> 45
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED
-------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash..................................... $ -- $ -- $ -- $ -- $ --
Accounts receivable...................... -- 79,444 2,969 (1,044) 81,369
Inventories.............................. -- 80,803 2,165 -- 82,968
Other current 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
Intangible assets, net................... 20,265 236,725 4,505 -- 261,495
Investment in subsidiaries............... 666,004 -- -- (666,004) --
Other assets............................. -- 5,613 405 -- 6,018
-------- --------- -------- --------- --------
Total assets................... $686,269 $ 579,586 $ 40,307 $(667,048) $639,114
======== ========= ======== ========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
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>
44
<PAGE> 46
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED
-------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales........................... $ -- $635,253 $ 40,915 $(30,247) $645,921
Operating expenses:
Cost of goods sold................ -- 468,918 25,881 (30,247) 464,552
Selling, general and
administrative expenses........ -- 47,782 13,502 -- 61,284
Depreciation and amortization..... -- 35,754 6,178 -- 41,932
-------- -------- --------- -------- --------
Operating income (loss)............. -- 82,799 (4,646) -- 78,153
Other income (expense):
Interest expense.................. (49,762) (844) (21) -- (50,627)
Amortization of deferred financing
costs.......................... (3,806) -- -- -- (3,806)
Equity in net income of
subsidiaries................... 67,381 -- -- (67,381) --
Other, net........................ -- 95 -- 95
-------- -------- --------- -------- --------
Income (loss) before income tax
provision......................... 13,813 82,050 (4,667) (67,381) 23,815
Income tax provision................ -- 8,900 1,102 -- 10,002
-------- -------- --------- -------- --------
Net income.......................... $ 13,813 $ 73,150 $ (5,769) $(67,381) $ 13,813
======== ======== ========= ======== ========
</TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED
------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash from operating activities.... $(4,031) $32,561 $ 6,036 $ 6,080 $40,646
------- ------- -------- ------- -------
Cash flows used in investing
activities:
Acquisitions, net of cash........... -- (7,821) -- -- (7,821)
Capital expenditures................ -- (22,283) (12,016) -- (34,299)
------- ------- -------- ------- -------
Net cash used in investing
activities.......................... -- (30,104) (12,016) -- (42,120)
------- ------- -------- ------- -------
Cash flows provided by (used in)
financing activities:
Equity proceeds..................... -- 100 5,980 (6,080) --
Borrowing (repayment) of long-term
obligations...................... 4,031 (969) (226) -- 2,836
Financing fees and other............ -- (1,362) -- -- (1,362)
------- ------- -------- ------- -------
Net cash from (used in) financing
activities.......................... 4,031 (2,231) 5,754 (6,080) 1,474
------- ------- -------- ------- -------
Net change in cash.................... $ -- $ 226 $ (226) $ -- $ --
======= ======= ======== ======= =======
</TABLE>
45
<PAGE> 47
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED
-------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash.................................. $ -- $ (226) $ 226 $ -- $ --
Accounts receivable................... -- 86,521 680 -- 87,201
Inventories........................... -- 74,406 -- -- 74,406
Other current assets.................. -- 27,273 -- -- 27,273
-------- -------- ------- --------- --------
Total current assets........ -- 187,974 906 -- 188,880
Property, plant and equipment, net.... -- 150,443 14,796 -- 165,239
Intangible assets, net................ 23,592 242,336 -- -- 265,928
Investment in subsidiaries............ 592,643 -- -- (592,643) --
Other assets.......................... -- 5,963 2,038 -- 8,001
-------- -------- ------- --------- --------
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
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>
46
<PAGE> 48
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............................ $ -- $695,148 $35,885 $(35,885) $695,148
Operating expenses:
Cost of goods sold................. -- 551,311 14,884 (35,885) 530,310
Selling, general and administrative
expenses........................ -- 44,190 12,513 -- 56,703
Depreciation and amortization...... -- 33,347 2,679 -- 36,026
Impairment, unusual and plant
closing charges................. -- 2,000 -- -- 2,000
Inventory valuation adjustment..... -- 8,500 -- -- 8,500
--------- -------- ------- -------- --------
Operating income (loss).............. -- 55,800 5,809 -- 61,609
Other income (expense):
Interest expense................... (49,753) (1,186) -- -- (50,939)
Amortization of deferred financing
costs........................... (3,932) -- -- -- (3,932)
Equity in net income of
subsidiaries.................... 57,666 -- -- (57,666) --
Other, net......................... -- (98) (5) -- (103)
--------- -------- ------- -------- --------
Income before income tax provision
and extraordinary item............. 3,981 54,516 5,804 (57,666) 6,635
Income tax provision................. -- 1,846 808 -- 2,654
--------- -------- ------- -------- --------
Income before extraordinary item..... 3,981 52,670 4,996 (57,666) 3,981
Extraordinary item................... (2,991) -- -- -- (2,991)
--------- -------- ------- -------- --------
Net income................. $ 990 $ 52,670 $ 4,996 $(57,666) $ 990
========= ======== ======= ======== ========
</TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash from operating activities... $ (53,585) $ 78,917 $ 8,666 $ -- $ 33,998
--------- -------- ------- -------- --------
Cash flows used in investing
activities:
Acquisitions, net of cash.......... -- (58,996) -- -- (58,996)
Capital expenditures............... -- (19,062) (8,698) -- (27,760)
--------- -------- ------- -------- --------
Net cash used in investing
activities......................... -- (78,058) (8,698) -- (86,756)
--------- -------- ------- -------- --------
Cash flows provided by (used in)
financing activities:
Equity proceeds.................... 331 (451) 120 -- --
Proceeds from issuance of long-term
obligations..................... 228,125 -- -- -- 228,125
Repayment of long-term
obligations..................... (161,505) (496) -- -- (162,001)
Repurchase of stock of Holding..... (700) -- -- -- (700)
Cash dividends paid on preferred
stock........................... (1,378) -- -- -- (1,378)
Financing fees and other........... (11,288) -- -- -- (11,288)
--------- -------- ------- -------- --------
Net cash from financing activities... 53,585 (947) 120 -- 52,758
--------- -------- ------- -------- --------
Net change in cash................... $ -- $ (88) $ 88 $ -- $ --
========= ======== ======= ======== ========
</TABLE>
47
<PAGE> 49
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................ $ -- $546,981 $34,757 $(34,757) $546,981
Operating expenses:
Cost of goods sold..................... -- 435,164 20,416 (34,757) 420,823
Selling, general and administrative
expenses............................ -- 33,384 10,501 -- 43,885
Depreciation and amortization.......... -- 29,688 1,653 -- 31,341
Impairment, unusual and plant closing
charges............................. -- 84,250 -- -- 84,250
Inventory valuation adjustment......... -- 8,500 -- -- 8,500
--------- -------- ------- -------- --------
Operating income (loss).................. -- (44,005) 2,187 -- (41,818)
Other income (expense):
Interest expense....................... (41,187) (1,410) (416) -- (43,013)
Amortization of deferred financing
costs............................... (3,701) -- -- -- (3,701)
Equity in net loss of subsidiaries..... (46,794) -- -- 46,794 --
Other, net............................. -- 243 69 -- 312
--------- -------- ------- -------- --------
Income (loss) before income tax
provision.............................. (91,682) (45,172) 1,840 46,794 (88,220)
Income tax provision..................... (2,200) 3,197 265 -- 1,262
--------- -------- ------- -------- --------
Net income (loss).............. $ (89,482) $(48,369) $ 1,575 $ 46,794 $(89,482)
========= ======== ======= ======== ========
</TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash from operating activities....... $ 16,189 $ 12,881 $ 2,910 $ -- $ 31,980
--------- -------- ------- -------- --------
Cash flows used in investing activities:
Acquisitions, net of cash.............. (160,259) -- -- -- (160,259)
Capital expenditures................... -- (13,048) (2,801) -- (15,849)
--------- -------- ------- -------- --------
Net cash used in investing activities.... (160,259) (13,048) (2,801) -- (176,108)
--------- -------- ------- -------- --------
Cash flows provided by (used in)
financing activities:
Equity proceeds........................ 44,289 750 -- -- 45,039
Proceeds from issuance of long-term
obligations......................... 128,200 -- -- -- 128,200
Repayment of long-term obligations..... (20,619) (692) -- -- (21,311)
Financing fees and other............... (7,800) -- -- -- (7,800)
--------- -------- ------- -------- --------
Net cash from financing activities....... 144,070 58 -- -- 144,128
--------- -------- ------- -------- --------
Net change in cash....................... $ -- $ (109) $ 109 $ -- $ --
========= ======== ======= ======== ========
</TABLE>
48
<PAGE> 50
INTERNATIONAL WIRE GROUP, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ALLOWANCE FOR DOUBTFUL COLLECTION OF
ACCOUNTS -- DEDUCTED FROM BALANCE AT PREVIOUSLY BALANCE AT
ACCOUNTS RECEIVABLES IN THE BEGINNING WRITTEN OFF END OF
BALANCE SHEET OF PERIOD PROVISION WRITE-OFFS ACCOUNTS ACQUISITIONS PERIOD
- ---------------------------------- ---------- ---------- ---------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1996...... $ 860 $337 $ (71) $12 $225 $1,363
Year ended December 31, 1997...... $1,363 $888 $(388) $12 $203 $2,078
Year ended December 31, 1998...... $2,078 $787 $(250) $18 $ -- $2,633
</TABLE>
49
<PAGE> 51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON AUDITING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names and positions of the directors and executive
officers of Holding and the Company. All directors hold office until the next
annual meeting of stockholders of Holding and the Company, and until their
successors are duly elected and qualified. All officers serve at the pleasure of
the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
James N. Mills......................... 61 Chairman of the Board and Chief Executive Officer of
Holding and the Company
Charles W. Tate........................ 54 Director of Holding and the Company
Jack D. Furst.......................... 40 Director of Holding and the Company
John A. Gavin.......................... 67 Director of Holding and the Company
Thomas P. Danis........................ 51 Director of Holding and the Company
Richard W. Vieser...................... 71 Director of Holding and the Company
Joseph M. Fiamingo..................... 49 Director, President and Chief Operating Officer of
Holding and the Company
Rodney D. Kent......................... 51 Director of Holding and the Company, President and
Chief Executive Officer of Omega
David M. Sindelar...................... 41 Senior Vice President and Chief Financial Officer of
Holding,
Senior Vice President of the Company
Glenn J. Holler........................ 51 Vice President -- Finance of the Company
</TABLE>
James N. Mills is Chairman of the Board and Chief Executive Officer of the
Company and of Holding and has held such position since April 1995. Mr. Mills
serves as Chairman of the Board and Chief Executive Officer of Mills & Partners,
a St. Louis-based investment and management services firm. Mr. Mills is also
Chairman of the Board and Chief Executive Officer of Viasystems Group, Inc. Mr.
Mills was Chairman of the Board and Chief Executive Officer of Berg Electronics
Corp. and Chairman of the Board of Berg Electronics Group, Inc. from April 1993
through October 1998, Crain Holding Corp. and Crain Industries, Inc. from August
1995 through December 1997, Jackson Holding Company and Jackson Products, Inc.
from February 1993 through August 1995. Mr. Mills was Executive Vice President
of McGraw-Edison Company, a company engaged in the electronic, industrial,
commercial and automotive industries, from 1978 to 1985, and served as
Industrial Group President and President of the Bussmann Division of the
McGraw-Edison Company from 1980 to 1984.
Charles W. Tate is a director of the Company and has held such position
since April 1995. Mr. Tate is President of Hicks Muse. Before joining Hicks Muse
as a Managing Director and Principal in 1991, Mr. Tate had over 19 years of
experience in investment and merchant banking with Morgan Stanley & Co.
Incorporated, including ten years in the mergers and acquisitions department and
the last two and one-half years as a Managing Director in Morgan Stanley & Co.
Incorporated's merchant banking group. Mr. Tate serves as a director of
International Home Foods, Inc., Seguros Comercial America, S.A. de C.V. and
Vidrio Formas, S.A.
Jack D. Furst is a Director of the Company and has held such position since
April 1995. Mr. Furst is a Partner of Hicks Muse and has held such position
since 1989. Mr. Furst has approximately 17 years of private equity investment
experience. At Hicks Muse, Mr. Furst is involved in all aspects of its business
and has been actively involved in capital raising and originating, structuring
and monitoring of investments. Mr. Furst is primarily responsible for managing
Hicks Muse's relationship with Mills & Partners. Prior to joining Hicks Muse,
Mr. Furst was a Vice President and subsequently a Partner of Hicks & Haas
Incorporated from 1987 to
50
<PAGE> 52
May 1989. From 1984 to 1986, Mr. Furst was a Merger and Acquisition/Corporate
Finance Specialist for The First Boston Corporation in New York. Before joining
First Boston, Mr. Furst was a Financial Consultant at Price Waterhouse. Mr.
Furst serves on the board of directors of Cooperative Computing, Inc.,
Viasystems Group, Inc., Hedstrom Corporation and OmniAmerica, Inc.
John A. Gavin is a director of the Company and has held such position since
June 1995. Mr. Gavin is the founder and Chairman of the Board of Gamma Holdings,
an international capital and consulting firm established in 1968, and is a
Partner and Managing Director of Hicks, Muse, Tate & Furst (Latin America),
Incorporated and has held such position since 1996. From 1987 to 1990, Mr. Gavin
was President of Univisa Satellite Communications, a part of a Spanish-speaking
broadcast network. Prior thereto, Mr. Gavin served as a Vice President of
Atlantic Richfield Company from 1986. From 1981 to 1986, Mr. Gavin served as the
United States Ambassador to Mexico. Mr. Gavin also serves as a director of
Atlantic Richfield Company, Apex Mortgage Capital, Krause's and the Hotchkis and
Wiley Funds.
Thomas P. Danis is a director of the Company and has held such position
since June 1995. Mr. Danis has been Chairman of the Board of Aon Risk Services
of Missouri, Inc., a company engaged in the insurance brokerage business, since
1993. In 1979, Mr. Danis co-founded an insurance brokerage firm, a joint venture
with Corroon & Black, which was ultimately purchased by Corroon & Black in 1984.
Mr. Danis also serves as a director of Commerce Bank, N.A.
Richard W. Vieser is a director of the Company and has held such position
since September 1995. Mr. Vieser is the retired Chairman of the Board, Chief
Executive Officer and President of Lear Siegler, Inc. (a diversified
manufacturing company), the former Chairman of the Board and Chief Executive
Officer of FL Industries, Inc. and FL Aerospace (formerly Midland-Ross
Corporation), also diversified manufacturing companies, and the former President
and Chief Operating Officer of McGraw-Edison Co. He is currently a director of
Ceridian Corporation (formerly Control Data Corporation), Dresser Industries,
Inc., INDRESCO Inc., Sybron International Corporation and Varian Associates,
Inc. He is a former director of Berg Electronics Corp. and Berg Electronics
Group, Inc.
Joseph M. Fiamingo is a director of the Company and has held such position
since October 1996. Mr. Fiamingo also serves as President and Chief Operating
Officer of the Company and has held such positions since September 1996.
Previously, Mr. Fiamingo held the position of Vice President of Operations and
Technology of the Company from June 1996 and President and Chief Operating
Officer of Wirekraft from October 1995. Prior thereto, Mr. Fiamingo was employed
by General Cable Corporation from 1972 to 1995 where he held various senior
management level positions including President and Vice President and General
Manager of several divisions of General Cable and most recently, Executive Vice
President of Operations.
Rodney D. Kent is a director of the Company and has held such position
since April 1995. Mr. Kent also serves as President and Chief Executive Officer
of Omega and has held such positions since 1983. Mr. Kent served as Assistant to
the President of Omega from 1974 to 1983. Prior to joining Omega, Mr. Kent was
employed with Flexo Wire from 1973 to 1974 and Camden Wire Company from 1970 to
1973. Mr. Kent also serves as a director of Oneida Savings Bank.
David M. Sindelar is Senior Vice President and Chief Financial Officer of
the Company and of Holding and has held such positions since April 1995. Mr.
Sindelar is also President and Chief Operating Officer of Mills & Partners, Inc.
and Senior Vice President and Chief Financial Officer of Viasystems, Inc. and
Viasystems Group, Inc. Mr. Sindelar previously served as Senior Vice President
and Chief Financial Officer of Berg Electronics Corp. and Berg Electronics
Group, Inc. from April 1993 through October 1998. Mr. Sindelar was Senior Vice
President and Chief Financial Officer of Crain Industries, Inc. and Crain
Holdings Corp. from August 1995 through December 1997. Mr. Sindelar also was
Senior Vice President and Chief Financial Officer of Jackson Holding Company and
Jackson Products, Inc. from February 1993 through August 1995.
Glenn J. Holler is Vice President -- Finance of the Company and has held
such position since August 1996. Prior to joining the Company, Mr. Holler was
employed by Vigoro Industries, Inc. as Vice President, Finance from 1994 to
1996. From 1983 to 1994, Mr. Holler held several positions at Moog Automotive,
Inc. including Vice President -- Finance and Senior Vice President -- Finance.
51
<PAGE> 53
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash and noncash compensation earned by
the Chief Executive Officer and the four other most highly compensated executive
officers of Holding and the Company (the "Named Executive Officers"). Such
compensation was paid by or on behalf of the Company during the years ended
December 31, 1998, 1997 and 1996. The bonuses included in annual compensation
were paid subsequent to year end. As of the date hereof, the Company has not
granted any stock appreciation rights.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION($) (1)
---- ---------- --------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
James N. Mills........................ 1998 502,944 500,000 -- --
Chairman of the Board and 1997 395,000 548,000 --
Chief Executive Officer of Holding 1996 485,281 548,000 412,188(2) --
Joseph M. Fiamingo.................... 1998 350,350 227,500 -- --
President and Chief Operating 1997 316,502 195,000 -- --
Officer of Holding and the Company 1996 202,166 123,337 600,000(3)
Rodney D. Kent........................ 1998 325,000 177,631 -- 119,671(4)
President and Chief Executive 1997 316,960 207,564 -- 153,196(4)
Officer of Omega 1996 323,911 193,714 -- 142,289(4)
David M. Sindelar..................... 1998 223,486 177,600 -- --
Senior Vice President and 1997 169,000 150,000 -- --
Chief Financial Officer of Holding 1996 201,422 121,000 309,143(2)
Senior Vice President of the Company
Glenn J. Holler....................... 1998 231,030 110,225 -- --
Vice President -- Finance of 1997 217,579 103,144 -- --
the Company 1996 86,072 50,000 250,000(3) --
</TABLE>
- ---------------
(1) Holding and the Company provide to certain executive officers, a car
allowance, reimbursement for club memberships, insurance policies and
certain other benefits. The aggregate incremental cost of these benefits to
Holding and the Company for each officer do not exceed the lesser of
$50,000 or 10% of the total annual salary and bonus reported for each
officer.
(2) Reflects Performance Options (as hereinafter defined) granted by Holding.
For a description of the material terms of such options, see " -- Benefit
Plans -- Performance Options."
(3) Reflects options to purchase common stock of Holding, par value $0.01 per
share ("Holding Common Stock"), granted under the Option Plan (as
hereinafter defined). The options vest in five equal annual installments
commencing on the first anniversary date of the grant, subject to
acceleration under certain circumstances, including a Change of Control (as
defined in the Option Plan).
(4) Represents (i) $0, $45,792 and $45,792 in premiums paid on life insurance
policies for the benefit of Mr. Kent in 1998, 1997 and 1996, respectively
and (ii) $51,562, $47,888 and $44,700 in annual deferred compensation and
$68,109, $59,516 and $51,797 in annual interest accruals thereon earned by
Mr. Kent in 1998, 1997 and 1996, respectively, pursuant to his employment
agreement.
OPTION GRANTS IN LAST FISCAL YEAR
There were no options issued to the Named Executive Officers during fiscal
1998.
52
<PAGE> 54
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
No options were exercised by the Named Executive Officers during fiscal
1998. The following table summarizes the value of unexercised options as of
December 31, 1998. The per share fair market value of the Holding Common Stock
used to make the calculations in the following table is $1.81, which is the fair
market value attributed to the Holding Common Stock by the Board of Directors on
May 5, 1998.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR END AT FISCAL YEAR END
ACQUIRED ON VALUE --------------------------- ---------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James N. Mills................ 0 0 0 1,400,913 0 759,806
Joseph M. Fiamingo............ 0 0 480,000 520,000 388,800 421,200
Rodney D. Kent................ 0 0 240,000 160,000 194,400 129,600
David M. Sindelar............. 0 0 0 1,050,690 0 569,858
Glenn J. Holler............... 0 0 100,000 150,000 81,000 121,500
</TABLE>
EMPLOYMENT AGREEMENTS
James N. Mills Employment Agreement. Mr. James N. Mills entered into an
employment agreement with Holding and the Company on June 12, 1995. Pursuant to
such employment agreement, Mr. Mills will serve as the Chairman of the Board and
Chief Executive Officer of Holding and the Company through June 11, 2000. Mr.
Mills is required to devote such business time and attention to the transaction
of the Company's business as is reasonably necessary to discharge his duties
under the employment agreement. Subject to the foregoing limitation on his
activities, Mr. Mills is free to participate in other business endeavors.
The compensation provided to Mr. Mills under his employment agreement
includes an annual base salary of not less than $300,000, subject to adjustment
at the sole discretion of the Board of Directors of Holding, and such benefits
as are customarily accorded the executives of Holding and the Company for as
long as the employment agreement is in force. In addition, Mr. Mills is entitled
to an annual bonus in an amount to be determined at the sole discretion of the
Board of Directors of Holding.
Mr. Mills' employment agreement also provides that if Mr. Mills' employment
is terminated without cause, Mr. Mills will continue to receive his then current
salary for the longer of the remainder of the employment period or 18 months
following such termination. In addition, Mr. Mills' employment agreement
provides that if Mr. Mills is terminated due to death or disability, Mr. Mills'
estate, heirs, or beneficiaries, as applicable, will receive, in addition to any
other benefits provided under any benefit plan, his then current salary for a
period of 18 months from the date of termination.
Joseph M. Fiamingo Employment Agreement. Mr. Joseph M. Fiamingo entered
into an employment agreement with Holding and the Company on September 25, 1996.
Pursuant to such employment agreement, Mr. Fiamingo will serve as President and
Chief Operating Officer of Holding and the Company through September 24, 1999.
The compensation provided to Mr. Fiamingo under his employment agreement
includes an annual base salary of not less than $260,000, subject to adjustment
at the sole direction of the Board of Directors of Holding, and such benefits as
are customarily accorded the executives of Holding and the Company for as long
as the employment agreement is in force. In addition, Mr. Fiamingo is entitled
to an annual bonus in an amount to be determined by the Chairman of the Board of
Holding of up to sixty-five percent of his base compensation.
Mr. Fiamingo's employment agreement also provides that if Mr. Fiamingo's
employment is terminated without cause, Mr. Fiamingo will continue to receive
his then current salary for the remainder of such employment agreement. In
addition, Mr. Fiamingo's employment agreement provides that if Mr. Fiamingo is
terminated due to death or disability, Mr. Fiamingo's estate, heirs, or
beneficiaries, as applicable, will receive,
53
<PAGE> 55
in addition to any other benefits provided under any benefit plan, his then
current salary for a period of 12 months from the date of termination.
Rodney D. Kent Employment Agreement. Mr. Kent entered into an employment
agreement with Omega on March 14, 1995. Pursuant to such employment agreement,
Mr. Kent will serve as President and Chief Executive Officer of Omega through
March 28, 2000. Mr. Kent is required to devote substantially all of his business
time and attention to the performance of his duties under the employment
agreement.
The compensation provided to Mr. Kent under his employment agreement
includes an annual base salary of not less than $325,000, subject to increase at
the sole discretion of the Board of Directors of Omega, and certain other
benefits for as long as the employment agreement is in force. In addition,
during each year of employment, an additional 15% of the annual base salary is
credited to a deferred compensation account for the benefit of Mr. Kent, which
deferred compensation account is annually credited with an interest accrual of
8% on the balance of the account for the prior year. Further, Mr. Kent is
entitled to an annual bonus in an amount to be determined at the sole discretion
of the Chairman of the Board of Holding of up to sixty-five percent of his
annual base salary.
Mr. Kent's employment agreement also provides that if Mr. Kent's employment
is terminated by Omega without cause or due to disability or death, Mr. Kent or
his estate, heirs or beneficiaries, as applicable, will receive, in addition to
any other benefits provided him or them under any benefit plan, Mr. Kent's then
current salary for a period of 24 months from Mr. Kent's termination without
cause or his disability or death. In the event that Mr. Kent terminates his
employment and receives a bona fide offer of employment from a competitor of the
Company, Mr. Kent will receive, in addition to any other benefits provided under
any benefit plan, Mr. Kent's then current salary for a period of 24 months from
such termination, but only in the event that Omega elects to enforce certain
non-competition provisions of the employment agreement.
David M. Sindelar Employment Agreement. Mr. David M. Sindelar entered into
an employment agreement with Holding and the Company on June 12, 1995. Pursuant
to such employment agreement, Mr. Sindelar will serve as the Senior Vice
President and Chief Financial Officer of Holding and Senior Vice President of
the Company through June 11, 2000. Mr. Sindelar is required to devote such
business time and attention to the transaction of the Company's business as is
reasonably necessary to discharge his duties under the employment agreement.
Subject to the foregoing limitation on his activities, Mr. Sindelar is free to
participate in other business endeavors.
The compensation provided to Mr. Sindelar under his employment agreement
includes an annual base salary of not less than $150,000, subject to adjustment
at the sole discretion of the Board of Directors of Holding, and such benefits
as are customarily accorded the executives of Holding and Senior Vice President
of the Company for as long as the employment agreement is in force. In addition,
Mr. Sindelar is entitled to an annual bonus in an amount to be determined at the
sole discretion of the Board of Directors of Holding.
Mr. Sindelar's employment agreement also provides that if Mr. Sindelar's
employment is terminated without cause, Mr. Sindelar will continue to receive
his then current salary for the longer of the remainder of the employment period
or 18 months following such termination. In addition, Mr. Sindelar's employment
agreement provides that if Mr. Sindelar is terminated due to death or
disability, Mr. Sindelar's estate, heirs, or beneficiaries, as applicable, will
receive, in addition to any other benefits provided under any benefit plan, his
then current salary for a period of 18 months from the date of termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation decisions are made by the Board of Directors. Messrs. James N.
Mills, Joseph M. Fiamingo and Rodney D. Kent served as both executive officers
and directors during 1998, and are expected to serve in such capacities in 1999.
54
<PAGE> 56
COMPENSATION OF DIRECTORS
Directors who are officers, employees or otherwise an affiliate of Holding
or the Company receive no compensation for their services as directors. Each
director of Holding and the Company who is not also an officer, employee or an
affiliate of Holding or the Company (an "Outside Director") will receive an
annual retainer of $12,000 and a fee of $1,000 for each meeting of the board of
directors at which the director is present. Directors of Holding and the Company
are entitled to reimbursement of their reasonable out-of-pocket expenses in
connection with their travel to and attendance at meetings of the board of
directors or committees thereof.
BENEFIT PLANS
Stock Option Plan
Holding's qualified and non-qualified stock option plan (the "Option Plan")
provides for the granting of up to 4,795,322 shares of Holding Common Stock to
officers and key employees of Holding and the Company. Under the Option Plan, as
of February 26, 1999, Holding has granted options to purchase 4,396,452 shares
of Holding common stock, 3,075,000 at $1.00 per share, 1,055,000 at $1.40 per
share, 41,452 at $1.625 per share and 225,000 at $1.81 per share, the fair
market value of Holding Common Stock at the date of grant as determined by the
Board of Directors of Holding. Such options vest ratably over a five year period
commencing on the first anniversary date after the date of grant, subject to
acceleration in the discretion of the committee appointed to administer the
Option Plan in the event of a Change of Control (as defined in the Option Plan).
Generally, an option may be exercised only if the holder is an officer or
employee of Holding or the Company at the time of exercise. Options granted
under the Option Plan are not transferable, except by will and the laws of
descent and distribution. Except as expressly provided otherwise in any
optionee's agreement relating to the grant of options under the Option Plan, in
the event an optionee's employment with Holding, the Company or a related entity
terminates at any time, Holding or its designees shall have the right to
repurchase from the optionee (or optionee's representatives) (i) the number of
shares of Holding Common Stock acquired upon exercise of an option and (ii) the
optionee's right to acquire that number of shares of Holding Common Stock which
an optionee can acquire upon exercise immediately prior to such repurchase. The
purchase price to be paid is calculated on the basis of the fair market value
(as defined in the Option Plan) of Holding Common Stock multiplied by the number
of shares of Holding Common Stock to be acquired (less the aggregate exercise
price in the event such repurchase option is exercised by Holding with respect
to the optionee's right to acquire Holding Common Stock).
Performance Options
On March 31, 1995, Omega granted options (the "Performance Options") to
purchase 1,958,762 shares of common stock of Omega ("Omega Common Stock"). Mr.
Mills was granted Performance Options to purchase 652,921 shares of Omega Common
Stock, and Performance Options to purchase the remaining 1,305,841 shares of
Omega Common Stock were granted to certain officers of Omega who are also
affiliated with Mills & Partners of which 163,230 have been terminated. In
connection with the Wirekraft/Omega Combination and pursuant to the terms of the
option agreements (the "Performance Option Agreements") related to the
Performance Options, the Performance Options became options to purchase an
identical number of shares of Holding Common Stock.
On June 12, 1995, the Company granted Performance Options to purchase
1,007,416 shares of Holding Common Stock. Mr. Mills was granted Performance
Options to purchase 335,804 shares of Holding Common Stock, and Performance
Options to purchase the remaining 671,612 shares of Holding Common Stock were
granted to certain officers of the Company who are also affiliated with Mills &
Partners of which 83,951 have been terminated.
On March 5, 1996, the Company granted Performance Options to purchase
1,236,566 shares of Holding Common Stock, Mr. Mills was granted Performance
Options to purchase 412,188 shares of Holding Common Stock, and
55
<PAGE> 57
Performance Options to purchase the remaining 824,378 shares of Holding
Common Stock were granted to certain officers of the Company who are also
affiliated with Mills & Partners of which 103,047 have been terminated.
The Performance Options are exercisable only in the event that Hicks, Muse,
Tate and Furst Equity Fund II, L.P. ("HM Fund II") has realized an overall rate
of return of at least 35% per annum, compounded annually, on all equity funds
invested by it in Holding. Subject to the foregoing, the Performance Options are
exercisable (i) immediately prior to a Liquidity Event (as hereinafter defined),
(ii) concurrently with the consummation of a Qualified IPO (as hereinafter
defined), or (iii) on December 31, 2004 (with respect to the Performance Options
granted on March 31, 1995 and June 12, 1995) or on December 31, 2005 (with
respect to the Performance Options granted on March 5, 1996). A "Liquidity
Event" generally means (i) one or more sales or other dispositions of Holding
Common Stock if, thereafter, the amount of Holding Common Stock owned by HM Fund
II is reduced by 50%, (ii) any merger, consolidation or other business
combination of Holding pursuant to which any person or group acquires a majority
of the common stock of the resulting entity, or (iii) any sale of all or
substantially all of the assets of Holding. A "Qualified IPO" means a firm
commitment underwritten public offering of Holding Common Stock for gross
proceeds of at least $25.0 million.
The exercise price for the Performance Options is initially equal to $1.00
per share and, effective each anniversary of the grant date, the per share
exercise price for the Performance Options is equal to the per share exercise
price for the prior year multiplied by 1.09. The exercise price of the
Performance Options and the number of shares of Holding Common Stock for which
the Performance Options are exercisable is subject to adjustment in the event of
certain fundamental changes in the capital structure of Holding. The Performance
Options terminate on the tenth anniversary of the date of grant.
56
<PAGE> 58
ITEM 12. SECURITIES OWNERSHIP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the issued and outstanding shares of common stock of the Company are
held by Holding. The following table sets forth as of December 31, 1998 certain
information regarding the beneficial ownership of the voting securities of
Holding by each person who beneficially owns more than 5% of any class of
Holding voting securities and by the directors and certain executive officers of
Holding, individually, and by the directors and executive officers of Holding as
a group. The Class A Common Stock, par value $0.01 per share, of Holding
("Holding Class A Common Stock") votes together with the Holding Common Stock as
a single class and is entitled to one vote for each share.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
---------------------------------------------------------------
HOLDING CLASS A
HOLDING COMMON STOCK COMMON STOCK
------------------------ -----------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF PERCENT OF
SHARES CLASS SHARES CLASS TOTAL
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS:
HM Parties(2)...................... 118,561,452 100.0% -- -- 90.1%
c/o Hicks, Muse, Tate & Furst
Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Rodney D. Kent(3).................... 5,940,000 5.0% -- -- 4.5%
c/o Omega Wire, Inc.
12 Masonic Avenue Camden, New York
13316
OFFICERS AND DIRECTORS:
James N. Mills(4).................. 1,702,034 1.4% 13,000,000 100.0% 11.2%
Thomas P. Danis(5)................. 200,000 * -- -- *
Jack D. Furst(2)................... 118,561,452 100.0% -- -- 90.1%
John A. Gavin(6)................... 235,957 * -- -- *
Charles W. Tate(2)................. 118,561,452 100.0% -- -- 90.1%
Rodney D. Kent(3).................. 5,940,000 5.0% -- -- 4.5%
Richard W. Vieser(7)............... 235,957 * -- -- *
Joseph M. Fiamingo(8).............. 480,000 * -- -- *
David M. Sindelar(9)............... -- -- 3,648,482 28.1% 2.8%
Glenn J. Holler(10)................ 100,000 * -- -- *
All executive officers and
directors as a group (10
persons)(11).................... 118,561,452 100.0% 13,000,000 100.0% 100.0%
</TABLE>
- ---------------
* Less than one percent.
(1) Holding Class A Common Stock is convertible into Holding Common Stock (i)
at the option of any holder thereof at any time, (ii) at the option of
Holding upon the occurrence of a Triggering Event (as defined below), and
(iii) mandatorily at March 31, 2005. A "Triggering Event" means any sale of
substantially all of the assets of Holding or any merger, consolidation or
other business combination of Holding in which Hicks Muse and its
affiliates cease to own at least 50% of the resulting entity. Each share of
Holding Class A Common Stock is convertible into a fraction of a share of
Holding Common Stock equal to the quotient of (i) the fair market value of
a share of Holding Common Stock at the time of conversion less the sum of
$0.99 plus imputed interest thereon at a rate of 9% per annum, compounded
annually, at the time of conversion, divided by (ii) the fair market value
of a share of Holding Common Stock at the time of conversion. Because the
fraction of a share of Holding Common Stock into which Holding Class A
Common Stock is convertible is determinable only at the time of a
57
<PAGE> 59
conversion, shares of Holding Common Stock are not included in the shares of
Holding Common Stock beneficially owned in the foregoing table.
(2) Includes (i) shares owned of record by HM Fund II, a limited partnership of
which the sole general partner is HM2/GP Partners, L.P., a limited
partnership of which the sole general partner is Hicks, Muse GP Partners,
L.P., a limited partnership of which the sole general partner is Hicks,
Muse, Tate & Furst Fund II Incorporated, a corporation affiliated with
Hicks Muse; (ii) shares owned of record by HM2/Wire/Hunt Partners, L.P.,
HM2/Wire/Sunwestern Partners, L.P. and HM2/Wire/Hubbard Partners, L.P.,
limited partnerships of which the sole general partner is HM2/GP Partners,
L.P.; (iii) shares owned of record by certain individuals that Hicks Muse
has the power to direct the voting of with respect to the election of
directors; and (iv) shares owned of record by certain individuals subject
to an irrevocable proxy in favor of Hicks Muse. Thomas O. Hicks is a
controlling stockholder of Hicks Muse and serves as Chairman of the Board,
President, Chief Executive Officer, Chief Operating Officer and Secretary
of Hicks Muse. Accordingly, Mr. Hicks may be deemed to be the beneficial
owner of Holding Common Stock held by HM Fund II. John R. Muse, Charles W.
Tate, Jack D. Furst, Lawrence D. Stuart, Michael J. Levitt, David B.
Deniger and Dan H. Blanks are officers, directors and minority stockholders
of Hicks Muse and as such may be deemed to share with Mr. Hicks the power
to vote or dispose of Holding Common Stock held by HM Fund II. Each of
Messrs. Hicks, Muse, Tate, Furst, Stuart, Levitt, Deniger and Blanks
disclaims the existence of a group and disclaims beneficial ownership of
Holding Common Stock not respectively owned of record by him.
(3) Includes 240,000 shares of Holding Common Stock issuable to Mr. Kent upon
exercise of options granted under the Option Plan that are currently
exercisable. Does not include 160,000 shares of Holding Common Stock
issuable to Mr. Kent upon exercise of options granted under the Option Plan
that are not currently exercisable. See "Executive Compensation -- Benefit
Plans -- Stock Option Plan."
(4) Includes shares of Holding Class A Common Stock held by James N. Mills and
shares of Holding Class A Common Stock that Mr. Mills has the power to vote
by proxy. Does not include 1,400,913 shares of Holding Common stock
issuable to Mr. Mills upon the exercise of Performance Options that are not
currently exercisable. See "Executive Compensation -- Benefit
Plans -- Performance Options."
(5) Includes 100,000 shares of Holding Common Stock issuable to Mr. Danis upon
exercise of options granted in 1995 that are currently exercisable.
(6) Includes 100,000 shares of Holding Common Stock issuable to Mr. Gavin upon
exercise of options granted in 1995 that are currently exercisable.
(7) Includes 100,000 shares of Holding Common Stock issuable to Mr. Vieser upon
exercise of options granted in 1995 that are currently exercisable.
(8) Consists of 480,000 shares of Holding Common Stock issuable to Mr. Fiamingo
upon exercise of options granted under the Option Plan that are currently
exercisable. Does not include 520,000 shares of Holding Common Stock
issuable to Mr. Fiamingo upon exercise of options granted under the option
plan that are not currently exercisable. See "Executive
Compensation -- Benefit Plans -- Stock Option Plan."
(9) Does not include 1,050,690 shares of Holding Common Stock issuable to Mr.
Sindelar upon exercise of Performance Options that are not currently
exercisable. See "Executive Compensation -- Benefit Plans -- Performance
Options."
(10) Consists of 100,000 shares of Holding Common Stock issuable to Mr. Holler
upon exercise of options granted under the Option Plan that are currently
exercisable. Does not include 150,000 shares of Holding Common Stock
issuable to Mr. Holler upon exercise of options granted under the Option
Plan that are not currently exercisable. See "Executive
Compensation -- Benefit Plans -- Stock Option Plan."
(11) Includes (i) shares of Holding Class A Common Stock held by executive
officers and directors and shares of Holding Class A Common Stock as to
which Hicks Muse has the power to direct the voting of
58
<PAGE> 60
with respect to the election of directors and to which Mr. Mills has the power
to vote by proxy and (ii) 790,000 shares of Holding Common Stock issuable to
executives and directors of the Company upon exercise of options that are
currently exercisable. Does not include 5,652,516 shares of Holding Common
Stock issuable to executive officers of Holding upon the exercise of
Performance Options and options under the Option Plan that are not
currently exercisable. See "Executive Compensation -- Benefit
Plans -- Stock Option Plan" and "-- Performance Options."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIPS WITH HICKS MUSE
Monitoring and Oversight Agreement
On June 12, 1995, Holding and the Company entered into a ten-year agreement
(the "Monitoring and Oversight Agreement") with Hicks, Muse & Co. Partners, L.P.
("Hicks Muse Partners"), a limited partnership of which the sole general partner
is HM Partners Inc., a corporation affiliated with Hicks Muse, pursuant to which
they pay an annual fee of $500,000 for oversight and monitoring services to
Holding and the Company. The annual fee is adjustable at the end of each fiscal
year to an amount equal to 0.1% of the consolidated net sales of the Company,
but in no event less than $500,000. Hicks Muse Partners also will be entitled to
receive a fee equal to 1.5% of the transaction value (as defined) for each
add-on transaction (as defined) in which the Company is involved. The term
"transaction value" means the total value of any add-on transaction, including,
without limitation, the aggregate amount of the funds required to complete the
add-on transaction (excluding any fees payable pursuant to the Monitoring and
Oversight Agreement and any fees, if any, paid to any other person or entity for
financial advisory, investment banking, brokerage, or any other similar services
rendered in connection with such add-on transaction) including the amount of any
indebtedness, preferred stock or similar items assumed (or remaining
outstanding). The term "add-on transaction" means any future proposal for a
tender offer, acquisition, sale, merger, exchange offer, recapitalization,
restructuring, or other similar transaction directly or indirectly involving
Holding, the Company, or any of their respective subsidiaries and any other
person or entity. In 1998, the Company paid Hicks Muse Partners cash financial
advisory fees of approximately $70,000 and $60,000 as compensation for its
services as financial advisor in connection with the acquisitions of Spargo Wire
and Italtrecce, respectively.
Messrs. Tate and Furst, directors of Holding and the Company, are each
principals of Hicks Muse Partners. In addition, Holding and the Company have
agreed to indemnify Hicks Muse Partners, its affiliates and shareholders, and
their respective directors, officers, agents, employees and affiliates from and
against all claims, actions, proceedings, demands, liabilities, damages,
judgments, assessments, losses and costs, including fees and expenses, arising
out of or in connection with the services rendered by Hicks Muse Partners in
connection with the Monitoring and Oversight Agreement.
The Monitoring and Oversight Agreement makes available the resources of
Hicks Muse Partners concerning a variety of financial and operational matters.
The services that have been and will continue to be provided by Hicks Muse
Partners could not otherwise be obtained by Holding and the Company without the
addition of personnel or the engagement of outside professional advisors. In
management's opinion, the fees provided for under this agreement reasonably
reflect the benefits received and to be received by Holding and the Company.
Stockholders Agreement
Each investor in any class of common stock of Holding has entered into a
stockholders agreement (the "Stockholders Agreement"). The Stockholders
Agreement, among other things, grants preemptive rights and certain registration
rights to the parties thereto and contains provisions requiring the parties
thereto to sell their shares of common stock in connection with certain sales of
Holding's common stock by Hicks Muse ("drag-along right") and granting the
parties thereto the right to include a portion of their shares of common stock
in certain sales in which Hicks Muse does not exercise its drag-along rights
("tag-along rights"). In addition, the Stockholders agreement contains an
irrevocable proxy pursuant to which all parties to the Stockholders Agreement
grant to Hicks Muse the power to vote all shares of Holding Common Stock held by
59
<PAGE> 61
such parties. The Stockholders Agreement terminates on its tenth anniversary
date, although the preemptive rights, drag-along rights and tag-along rights
contained therein terminate earlier upon the consummation of a firm commitment
underwritten public offering of Holding Common Stock.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
See Index to Financial Statements and Financial Schedules on page 23 of
this report.
Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S> <C>
2.1 -- Agreement and Plan of Merger dated as of June 2, 1995, among
Omega Wire Corp., Wirekraft Holdings Corp., International
Wire Holding Company, International Wire Group, Inc. and
Wirekraft Acquisition Company(1)
2.2 -- Agreement and Plan of Merger, dated as of March 5, 1996,
among Hoosier Wire, Inc., International Wire Group, Inc.,
and Wire Technologies, Inc.(2)
2.3 -- Asset Purchase Agreement, dated as of March 5, 1996, among
Dekko Automotive Wire, Inc., International Wire Holding
Company, International Wire Group, Inc., and Wire
Technologies, Inc.(2)
2.4 -- Asset Purchase Agreement, dated as of March 5, 1996, among
International Wire Holding Company, International Wire
Group, Inc., and Wire Technologies, Inc.(2)
2.5 -- Asset Purchase Agreement, dated as of March 5, 1996, among
Silicones, International Wire Holding Company, International
Wire Group, Inc., and Wire Technologies, Inc.(2)
3.1 -- Restated Certificate of Incorporation of International Wire
Group, Inc.(4)
3.2 -- By-Laws of International Wire Group, Inc.(1)
4.1 -- Indenture, dated as of June 12, 1995, among International
Wire Group, Inc., as Issuer, the Subsidiary Guarantors (as
therein defined) and IBJ Schroder Bank & Trust Company, as
Trustee.(1)
4.2 -- Form of the 11 3/4% Note (included in Exhibit 4.1, Exhibit
A).
4.3 -- Exchange and Registration Rights Agreement, dated as of June
12, 1995, among International Wire Group, Inc., the
Subsidiary Guarantors (as therein defined), Chemical
Securities Inc. and BT Securities Corporation.(1)
4.4 -- First Supplemental Indenture, dated as of March 5, 1996, by
and among International Wire Group, Inc., Wire Technologies,
Inc., the subsidiary guarantors party thereto, and IBJ
Schroder Bank & Trust Company, as Trustee.(2)
4.5 -- Certificate of Designation of Series A Senior Cumulative
Exchangeable Redeemable Preferred Stock of International
Wire Group, Inc.(2)
4.6 -- Second Supplemental Indenture, dated as of December 20,
1996, by International Wire Group, Inc. the subsidiary
guarantors party thereto, and IBJ Schroder Bank and Trust
Company, as Trustee.(5)
4.7 -- Indenture, dated as of February 12, 1997, among
International Wire Group, Inc., as Issuer, the Subsidiary
Guarantors (as therein defined) and IBJ Schroder Bank and
Trust Company, as Trustee.(6)
4.8 -- Form of 14% Note (included in Exhibit 4.7, Exhibit A).
</TABLE>
60
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S> <C>
4.9 -- Preferred Stock and Warrant Purchase Agreement dated as of
March 5, 1996, by and among International Wire Holding
Company, International Wire Group, Inc., Chemical Equity
Associates and Hicks, Muse, Tate & Furst Equity Fund II,
L.P.(6)
4.10 -- Third Supplemental Indenture, dated as of February 12, 1997,
by and among International Wire Group, Inc., the subsidiary
guarantors party thereto, and IBJ Schroder Bank and Trust
Company, as Trustee.(6)
4.11 -- First Supplemental Indenture, dated as of June 10, 1997, by
and among International Wire Group, Inc., the subsidiary
guarantors party thereto, and IBJ Schroder Bank and Trust
Company, as Trustee.(6)
4.12 -- Indenture, dated as of June 17, 1997, among International
Wire Group, Inc., as Issuer, the Subsidiary Guarantors(as
therein defined) and IBJ Schroder Bank and Trust Company, as
Trustee.(6)
4.13 -- Form of 11 3/4% Series B Note (included in Exhibit 4.12,
Exhibit (A)).
10.1 -- Parts Sourcing Contract, dated as of December 2, 1994, among
Wirekraft Industries, Inc. and General Electric Company
(Confidential treatment has been granted with respect to
certain portions of this exhibit).(1)
10.2 -- Schedule of Substantially Identical Domestic Subsidiary
Security Agreements.(1)
10.3 -- Agreement of Sublease, dated as of December 31, 1991,
between Oneida County Industrial Development Agency and OWI
Corporation.(1)
10.4 -- Agreement of Sublease, dated as of December 31, 1991,
between Onondaga County Industrial Development Agency and
OWI Corporation.(1)
10.5 -- Sublease Agreement, dated as of March 31, 1994, between
Productos de Control, S.A. de C.V. and Wirekraft Industries,
Inc.(1)
10.6 -- Lease Contract, dated as of August 1, 1994, between Parques
Industriales Mexicanos, S.A. de C.V. and Electro Componentes
de Mexico, S.A. de C.V.(1)
10.7 -- Lease Contract, dated as of March 15, 1998, between Parques
Industriales Mexicanos, S.A. de C.V. and Electro Componentes
de Mexico, S.A. de C.V.(7)
10.8+ -- Employment Agreement, dated as of June 12, 1995, among
International Wire Holding Company, International Wire Group
Inc. and certain of its subsidiaries and James N. Mills.(4)
10.9+ -- Employment Agreement, dated as of June 12, 1995, among
International Wire Holding Company, International Wire Group
Inc. and certain of its subsidiaries and David M.
Sindelar.(4)
10.10+ -- Employment Agreement, dated as of March 14, 1995, between
Omega Wire, Inc. and Rodney D. Kent.(1)
10.11+ -- Option Agreement, dated as of March 31, 1995, between Omega
Wire Corp. and James N. Mills.(1)
10.12+ -- Option Agreement, dated as of March 31, 1995, between Omega
Wire Corp. and David M. Sindelar.(1)
10.13+ -- Option Agreement dated as of June 12, 1995, between Omega
Wire Corp. and David M. Sindelar.(1)
10.14+ -- Option Agreement dated as of June 12, 1995, between
International Wire Group, Inc. and David M. Sindelar.(1)
10.15+ -- Option Agreement dated as of August 28, 1995, between
International Wire Group, Inc. and Larry S. Bacon.(3)
</TABLE>
61
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S> <C>
10.16 -- Stockholders Agreement dated as of June 12, 1995, among
International Wire Holding Company and the Stockholders
signatories thereto.(1)
10.17 -- Monitoring and Oversight Agreement dated as of June 12,
1995, among International Wire Holding Company,
International Wire Group, Inc. and Hicks, Muse & Co.
Partners, L.P.(1)
10.18+ -- Option Agreement dated as of August 28, 1995 between
International Wire Group, Inc. and W. Thomas McGhee.(3)
10.19+ -- 1995 Stock Option Plan of International Wire Holding
Company.(4)
10.20+ -- Form of Option Agreement of International Wire Holding
Company under 1995 Stock Option Plan.(4)
10.21 -- Agreement dated as of December 29, 1995 among Wirekraft
Industries, Inc. and General Electric Company (Confidential
treatment has been granted with respect to certain portions
of this exhibit).(4)
10.22 -- Amended and Restated Credit Agreement, dated as of February
12, 1997, among International Wire Group, Inc.,
International Wire Holding Company, the several lenders from
time to time parties thereto, Chase Manhattan Bank, as
Administrative Agent, and Bankers Trust Company, as
Documentation Agent.(5)
10.23+ -- Employment Agreement, dated as of September 25, 1996, among
International Wire Holding Company and International Wire
Group, Inc. and Joseph M. Fiamingo.(5)
10.24+ -- Option Agreement, dated as of November 5, 1995, between
International Wire Holding Company and Joseph M.
Fiamingo.(5)
10.25+ -- Option Agreement, dated as of November 6, 1996, between
International Wire Holding Company and Joseph M.
Fiamingo.(5)
10.26 -- First Amendment to Amended and Restated Credit Agreement,
dated as of June 17, 1997, among International Wire Group,
Inc., International Wire Holding Company, the Several
Lenders from time to time parties thereto, the Chase
Manhattan Bank, as Administrative Agent, and Bankers Trust
Company, as Documentation Agent.(6)
10.27 -- Second Amendment and Waiver to Amended and Restated Credit
Agreement, dated as of September 29, 1997, among
International Wire Group, Inc., International Wire Holding
Company, the Several Lenders from time to time parties
thereto, the Chase Manhattan Bank, as Administrative Agent,
and Bankers Trust Company, as Documentation Agent.(7)
10.28+ -- Option Agreement, dated as of August 6, 1996, between
International Wire Holding Company and Glenn J. Holler.(7)
21.1 -- Subsidiaries of International Wire Group, Inc.*
27.0 -- Financial Data Schedule.*
</TABLE>
- ---------------
(1) Incorporated by reference to the Registration Statement on Form S-1
(33-93970) of International Wire Group, Inc. as declared effective by the
Securities and Exchange Commission on September 29, 1995.
(2) Incorporated by reference to the Current Report on Form 8-K of International
Wire Group, Inc. as filed with the Securities Exchange Commission on March
20, 1996.
(3) Incorporated by reference to the Quarterly Report on Form 10-Q of
International Wire Group, Inc. for the fiscal quarter ended September 30,
1995.
(4) Incorporated by reference to the Annual Report on Form 10-K of International
Wire Group, Inc. for the fiscal year ended December 31, 1995.
62
<PAGE> 64
(5) Incorporated by reference to the Annual Report on Form 10-K of International
Wire Group, Inc. for the fiscal year ended December 31, 1996.
(6) Incorporated by reference to the Registration Statement on Form S-1
(333-26925) of International Wire Group, Inc. as declared effective by the
Securities and Exchange Commission on November 12, 1997.
(7) Incorporated by reference to the Annual Report on Form 10-K of International
Wire Group, Inc. for the fiscal year ended December 31, 1997.
* Filed herewith.
+ Indicates compensatory plan or arrangement.
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K with the Securities and
Exchange Commission during the quarter ended December 31, 1998.
63
<PAGE> 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTERNATIONAL WIRE GROUP, INC.
Date: March 30, 1999 By: /s/ GLENN J. HOLLER
----------------------------------
Glenn J. Holler,
Vice President-Finance (Principle
Accounting Officer of
International Wire Group, Inc.)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES N. MILLS Chairman of the Board of Directors and March 30, 1999
- --------------------------------------------- Chief Executive Officer (Principal
(James N. Mills) Executive Officer)
/s/ DAVID M. SINDELAR Senior Vice President and Chief March 30, 1999
- --------------------------------------------- Financial Officer (Principal Financial
(David M. Sindelar) Officer)
/s/ GLENN J. HOLLER Vice President -- Finance (Principal March 30, 1999
- --------------------------------------------- Accounting Officer)
(Glenn J. Holler)
/s/ THOMAS P. DANIS Director March 30, 1999
- ---------------------------------------------
(Thomas P. Danis)
/s/ JACK D. FURST Director March 30, 1999
- ---------------------------------------------
(Jack D. Furst)
/s/ JOHN A. GAVIN Director March 30, 1999
- ---------------------------------------------
(John A. Gavin)
/s/ CHARLES W. TATE Director March 30, 1999
- ---------------------------------------------
(Charles W. Tate)
/s/ RICHARD W. VIESER Director March 30, 1999
- ---------------------------------------------
(Richard W. Vieser)
/s/ RODNEY D. KENT Director March 30, 1999
- ---------------------------------------------
(Rodney D. Kent)
/s/ JOSEPH M. FIAMINGO Director, President and Chief March 30, 1999
- --------------------------------------------- Operating Officer of Holding and the
(Joseph M. Fiamingo) Company
</TABLE>
64
<PAGE> 66
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS
FILED PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT BY REGISTRANTS
WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE SECURITIES
EXCHANGE ACT
The registrant has not sent to its security holders any annual report to
security holders covering the registrant's last fiscal year or sent any proxy
statement, form of proxy or other proxy soliciting material with respect to any
annual or special meeting of security holders to more than ten of the
registrant's security holders.
65
<PAGE> 67
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION NO. PAGE
------- ----------- ----------
<C> <C> <S> <C>
2.1 -- Agreement and Plan of Merger dated as of June 2, 1995, among
Omega Wire Corp., Wirekraft Holdings Corp., International
Wire Holding Company, International Wire Group, Inc. and
Wirekraft Acquisition Company(1)
2.2 -- Agreement and Plan of Merger, dated as of March 5, 1996,
among Hoosier Wire, Inc., International Wire Group, Inc.,
and Wire Technologies, Inc.(2)
2.3 -- Asset Purchase Agreement, dated as of March 5, 1996, among
Dekko Automotive Wire, Inc., International Wire Holding
Company, International Wire Group, Inc., and Wire
Technologies, Inc.(2)
2.4 -- Asset Purchase Agreement, dated as of March 5, 1996, among
International Wire Holding Company, International Wire
Group, Inc., and Wire Technologies, Inc.(2)
2.5 -- Asset Purchase Agreement, dated as of March 5, 1996, among
Silicones, International Wire Holding Company, International
Wire Group, Inc., and Wire Technologies, Inc.(2)
3.1 -- Restated Certificate of Incorporation of International Wire
Group, Inc.(4)
3.2 -- By-Laws of International Wire Group, Inc.(1)
4.1 -- Indenture, dated as of June 12, 1995, among International
Wire Group, Inc., as Issuer, the Subsidiary Guarantors (as
therein defined) and IBJ Schroder Bank & Trust Company, as
Trustee.(1)
4.2 -- Form of the 11 3/4% Note (included in Exhibit 4.1, Exhibit
A).
4.3 -- Exchange and Registration Rights Agreement, dated as of June
12, 1995, among International Wire Group, Inc., the
Subsidiary Guarantors (as therein defined), Chemical
Securities Inc. and BT Securities Corporation.(1)
4.4 -- First Supplemental Indenture, dated as of March 5, 1996, by
and among International Wire Group, Inc., Wire Technologies,
Inc., the subsidiary guarantors party thereto, and IBJ
Schroder Bank & Trust Company, as Trustee.(2)
4.5 -- Certificate of Designation of Series A Senior Cumulative
Exchangeable Redeemable Preferred Stock of International
Wire Group, Inc.(2)
4.6 -- Second Supplemental Indenture, dated as of December 20,
1996, by International Wire Group, Inc. the subsidiary
guarantors party thereto, and IBJ Schroder Bank and Trust
Company, as Trustee.(5)
4.7 -- Indenture, dated as of February 12, 1997, among
International Wire Group, Inc., as Issuer, the Subsidiary
Guarantors (as therein defined) and IBJ Schroder Bank and
Trust Company, as Trustee.(6)
4.8 -- Form of 14% Note (included in Exhibit 4.7, Exhibit A).
4.9 -- Preferred Stock and Warrant Purchase Agreement dated as of
March 5, 1996, by and among International Wire Holding
Company, International Wire Group, Inc., Chemical Equity
Associates and Hicks, Muse, Tate & Furst Equity Fund II,
L.P.(6)
4.10 -- Third Supplemental Indenture, dated as of February 12, 1997,
by and among International Wire Group, Inc., the subsidiary
guarantors party thereto, and IBJ Schroder Bank and Trust
Company, as Trustee.(6)
4.11 -- First Supplemental Indenture, dated as of June 10, 1997, by
and among International Wire Group, Inc., the subsidiary
guarantors party thereto, and IBJ Schroder Bank and Trust
Company, as Trustee.(6)
</TABLE>
<PAGE> 68
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION NO. PAGE
------- ----------- ----------
<C> <C> <S> <C>
4.12 -- Indenture, dated as of June 17, 1997, among International
Wire Group, Inc., as Issuer, the Subsidiary Guarantors(as
therein defined) and IBJ Schroder Bank and Trust Company, as
Trustee.(6)
4.13 -- Form of 11 3/4% Series B Note (included in Exhibit 4.11,
Exhibit (A)
10.1 -- Parts Sourcing Contract, dated as of December 2, 1994, among
Wirekraft Industries, Inc. and General Electric Company
(Confidential treatment has been granted with respect to
certain portions of this exhibit).(1)
10.2 -- Schedule of Substantially Identical Domestic Subsidiary
Security Agreements.(1)
10.3 -- Agreement of Sublease, dated as of December 31, 1991,
between Oneida County Industrial Development Agency and OWI
Corporation.(1)
10.4 -- Agreement of Sublease, dated as of December 31, 1991,
between Onondaga County Industrial Development Agency and
OWI Corporation.(1)
10.5 -- Sublease Agreement, dated as of March 31, 1994, between
Productos de Control, S.A. de C.V. and Wirekraft Industries,
Inc.(1)
10.6 -- Lease Contract, dated as of August 1, 1994, between Parques
Industriales Mexicanos, S.A. de C.V. and Electro Componentes
de Mexico, S.A. de C.V.(1)
10.7 -- Lease Contract, dated as of March 15, 1998, between Parques
Industriales Mexicanos, S.A. de C.V. and Electro Componentes
de Mexico, S.A. de C.V.(7)
10.8+ -- Employment Agreement, dated as of June 12, 1995, among
International Wire Holding Company, International Wire Group
Inc. and certain of its subsidiaries and James N. Mills.(4)
10.9+ -- Employment Agreement, dated as of June 12, 1995, among
International Wire Holding Company, International Wire Group
Inc. and certain of its subsidiaries and David M.
Sindelar.(4)
10.10+ -- Employment Agreement, dated as of March 14, 1995, between
Omega Wire, Inc. and Rodney D. Kent.(1)
10.11+ -- Option Agreement, dated as of March 31, 1995, between Omega
Wire Corp. and James N. Mills.(1)
10.12+ -- Option Agreement, dated as of March 31, 1995, between Omega
Wire Corp. and David M. Sindelar.(1)
10.13+ -- Option Agreement dated as of June 12, 1995, between Omega
Wire Corp. and David M. Sindelar.(1)
10.14+ -- Option Agreement dated as of June 12, 1995, between
International Wire Group, Inc. and David M. Sindelar.(1)
10.15+ -- Option Agreement dated as of August 28, 1995, between
International Wire Group, Inc. and Larry S. Bacon.(3)
10.16 -- Stockholders Agreement dated as of June 12, 1995, among
International Wire Holding Company and the Stockholders
signatories thereto.(1)
10.17 -- Monitoring and Oversight Agreement dated as of June 12,
1995, among International Wire Holding Company,
International Wire Group, Inc. and Hicks, Muse & Co.
Partners, L.P.(1)
10.18+ -- Option Agreement dated as of August 28, 1995 between
International Wire Group, Inc. and W. Thomas McGhee.(3)
10.19+ -- 1995 Stock Option Plan of International Wire Holding
Company.(4)
10.20+ -- Form of Option Agreement of International Wire Holding
Company under 1995 Stock Option Plan.(4)
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION NO. PAGE
------- ----------- ----------
<C> <C> <S> <C>
10.21 -- Agreement dated as of December 29, 1995 among Wirekraft
Industries, Inc. and General Electric Company (Confidential
treatment has been granted with respect to certain portions
of this exhibit).(4)
10.22 -- Amended and Restated Credit Agreement, dated as of February
12, 1997, among International Wire Group, Inc.,
International Wire Holding Company, the several lenders from
time to time parties thereto, Chase Manhattan Bank, as
Administrative Agent, and Bankers Trust Company, as
Documentation Agent.(5)
10.23+ -- Employment Agreement, dated as of September 25, 1996, among
International Wire Holding Company and International Wire
Group, Inc. and Joseph M. Fiamingo.(5)
10.24+ -- Option Agreement, dated as of November 5, 1995, between
International Wire Holding Company and Joseph M.
Fiamingo.(5)
10.25+ -- Option Agreement, dated as of November 6, 1996, between
International Wire Holding Company and Joseph M.
Fiamingo.(5)
10.26 -- First Amendment to Amended and Restated Credit Agreement,
dated as of June 17, 1997, among International Wire Group,
Inc., International Wire Holding Company, the Several
Lenders from time to time parties thereto, the Chase
Manhattan Bank, as Administrative Agent, and Bankers Trust
Company, as Documentation Agent.(6)
10.27 -- Second Amendment and Waiver to Amended and Restated Credit
Agreement, dated as of September 29, 1997, among
International Wire Group, Inc., International Wire Holding
Company, the Several Lenders from time to time parties
thereto, the Chase Manhattan Bank, as Administrative Agent,
and Bankers Trust Company, as Documentation Agent.(7)
10.28+ -- Option Agreement, dated as of August 6, 1996, between
International Wire Holding Company and Glenn J. Holler.(7)
21.1 -- Subsidiaries of International Wire Group, Inc.*
27.0 -- Financial Data Schedule.*
</TABLE>
- ---------------
(1) Incorporated by reference to the Registration Statement on Form S-1
(33-93970) of International Wire Group, Inc. as declared effective by the
Securities and Exchange Commission on September 29, 1995.
(2) Incorporated by reference to the Current Report on Form 8-K of International
Wire Group, Inc. as filed with the Securities Exchange Commission on March
20, 1996.
(3) Incorporated by reference to the Quarterly Report on Form 10-Q of
International Wire Group, Inc. for the fiscal quarter ended September 30,
1995.
(4) Incorporated by reference to the Annual Report on Form 10-K of International
Wire Group, Inc. for the fiscal year ended December 31, 1995.
(5) Incorporated by reference to the Annual Report on Form 10-K of International
Wire Group, Inc. for the fiscal year ended December 31, 1996.
(6) Incorporated by reference to the Registration Statement on Form S-1
(333-26925) of International Wire Group, Inc. as declared effective by the
Securities and Exchange Commission on November 12, 1997.
(7) Incorporated by reference to the Annual Report on Form 10-K of International
Wire Group, Inc. for the fiscal year ended December 31, 1997.
* Filed herewith.
+ Indicates compensatory plan or arrangement.
(b) Reports on Form 8-K
The Company has not filed any report on Form 8-K with the Securities and
Exchange Commission during the quarter ended December 31, 1998.
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF
INTERNATIONAL WIRE GROUP, INC.
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION OR
SUSIDIARY ORGANIZATION
<S> <C>
Wirekraft Industries, Inc................................. Delaware
ECM Holding Company....................................... Delaware
Wirekraft Employment Company.............................. Delaware
Electro Componentes de Mexico, S.A. de C.V................ Mexico
Wirekraft Industries de Mexico, S.A. de C.V............... Mexico
Omega Wire, Inc........................................... Delaware
OWI Corporation........................................... New York
Wire Technologies, Inc.................................... Indiana
Wire Harness Industries, Inc.............................. Delaware
Camden Wire Company, Inc.................................. New York
IWG-Philippines, Inc...................................... Philippines
IWG International, Inc.................................... Barbados
International Wire Rome Operations, Inc................... Delaware
Italtrecce-Societa Italiana Trecce & Affini S.r.l......... Italy
</TABLE>
<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-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 84,002
<ALLOWANCES> 2,633
<INVENTORY> 82,968
<CURRENT-ASSETS> 192,954
<PP&E> 296,716
<DEPRECIATION> 118,069
<TOTAL-ASSETS> 639,114
<CURRENT-LIABILITIES> 105,279
<BONDS> 520,983
0
0
<COMMON> 0
<OTHER-SE> (31,560)
<TOTAL-LIABILITY-AND-EQUITY> 639,114
<SALES> 645,921
<TOTAL-REVENUES> 645,921
<CGS> 464,552
<TOTAL-COSTS> 464,552
<OTHER-EXPENSES> 41,932
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,433
<INCOME-PRETAX> 23,815
<INCOME-TAX> 10,002
<INCOME-CONTINUING> 13,813
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,813
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
