<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
--------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- -----------------------
33-93970
(Commission File Number)
International Wire Group, Inc.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
43-1705942
(I.R.S. Employer Identification No.)
101 South Hanley Road
St. Louis, MO 63105
(314) 719-1000
(Address, including zip code, and telephone number,
including area code, of Registrant's principal
executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Outstanding at
Class October 31, 2000
------------------- ----------------
<S> <C>
Common Stock 1,000
</TABLE>
<PAGE> 2
INTERNATIONAL WIRE GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
<S> <C>
International Wire Group, Inc.
Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999 ................................. 3
Consolidated Statements of Operations for the three months and nine months ended September 30,
2000 and 1999 ......................................................................................... 4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 1999 ................ 5
Notes to Consolidated Financial Statements ................................................................. 6
Management's Discussion and Analysis of Financial Condition and Results of Operations ...................... 17
Quantitative and Qualitative Disclosure About Market Risk .................................................. 21
PART II - OTHER INFORMATION ...................................................................................... 22
SIGNATURES ....................................................................................................... 23
</TABLE>
2
<PAGE> 3
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
2000 1999
--------- ---------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $ 25,740 $ 7,425
Accounts receivable, less allowance of $2,101
and $2,879, respectively ................................. 102,363 101,310
Inventories ................................................ 72,428 92,142
Prepaid expenses and other ................................. 8,672 12,223
Deferred income taxes ...................................... 12,866 15,436
--------- ---------
Total current assets ..................................... 222,069 228,536
Property, plant and equipment, net ........................... 157,508 184,660
Deferred financing costs, net ................................ 6,148 14,011
Intangible assets, net ....................................... 199,469 243,627
Other assets ................................................. 2,895 7,273
--------- ---------
Total assets ............................................. $ 588,089 $ 678,107
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term obligations ................ $ 2,088 $ 9,606
Accounts payable ........................................... 43,648 48,655
Accrued and other liabilities .............................. 18,299 22,654
Accrued payroll and payroll related items .................. 8,933 12,858
Customers' deposits ........................................ 19,907 20,987
Accrued interest ........................................... 12,446 4,041
--------- ---------
Total current liabilities ................................ 105,321 118,801
Long-term obligations, less current maturities ............... 333,576 526,338
Deferred income taxes ........................................ 16,311 21,772
Other long-term liabilities .................................. 24,900 30,926
--------- ---------
Total liabilities ........................................ 480,108 697,837
Stockholder's equity (deficit):
Common stock, $.01 par value, 1,000 shares
authorized, issued and outstanding ....................... 0 0
Contributed capital ........................................ 246,644 124,751
Carryover of predecessor basis ............................. (67,762) (67,762)
Accumulated deficit ........................................ (70,901) (76,719)
--------- ---------
Total stockholder's equity (deficit) ..................... 107,981 (19,730)
--------- ---------
Total liabilities and stockholder's equity (deficit) ..... $ 588,089 $ 678,107
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE> 4
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ....................................... $ 138,079 $ 116,655 $ 428,201 $ 359,040
Operating expenses:
Cost of goods sold ............................ 103,343 83,831 317,486 258,298
Selling, general and
administrative expenses ...................... 11,028 10,173 35,737 31,690
Depreciation and
amortization ................................. 9,416 9,008 27,698 25,941
Unusual charge ................................ 650 -- 650 --
--------- --------- --------- ---------
Operating income ................................ 13,642 13,643 46,630 43,111
Other income (expense):
Interest expense .............................. (9,237) (10,545) (31,478) (33,564)
Amortization of deferred
financing costs .............................. (414) (629) (1,625) (1,893)
--------- --------- --------- ---------
Income from continuing operations
before income tax provision, cumulative
effect of change in accounting principle
and extraordinary item ........................ 3,991 2,469 13,527 7,654
Income tax provision ............................ 1,716 1,093 6,515 3,490
--------- --------- --------- ---------
Income from continuing
operations before
cumulative effect of change
in accounting principle and
extraordinary item ............................ 2,275 1,376 7,012 4,164
Income (loss) from discontinued
operations, net of income taxes of
($1,569) and $1,131 for the three
months ended September 30, 2000 and
1999, respectively and $29 and $4,379
for the nine months ended September 30,
2000 and 1999, respectively .................. (2,081) 1,695 1,553 6,701
--------- --------- --------- ---------
Income before cumulative effect of
change in accounting principle
and extraordinary item ........................ 194 3,071 8,565 10,865
Cumulative effect of change in
accounting for start-up costs,
net of tax benefit of $592 .................... -- -- -- (818)
--------- --------- --------- ---------
Income before extraordinary item ................ 194 3,071 8,565 10,047
Extraordinary item - loss related
to early extinguishment of debt,
net of tax benefit of $2,073 .................. -- -- (2,747) --
--------- --------- --------- ---------
Net income ...................................... $ 194 $ 3,071 $ 5,818 $ 10,047
========= ========= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE> 5
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-----------------------
2000 1999
--------- --------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income .................................................... $ 5,818 $ 10,047
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization ............................... 29,323 27,834
Income from discontinued operations ......................... (1,582) (11,080)
Cumulative effect of change in accounting
for start-up costs ......................................... -- 1,410
Extraordinary items ......................................... 4,820 --
Change in assets and liabilities of
continuing operations:
Accounts receivable ....................................... (14,389) (17,528)
Inventories ............................................... (593) 8,919
Other assets .............................................. (412) (8,540)
Accounts payable .......................................... 5,480 9,150
Accrued and other liabilities ............................. (5,224) (5,744)
Accrued interest .......................................... 8,405 9,929
Other long-term liabilities ............................... (6,519) (166)
--------- --------
Net cash provided by continuing operations .................... 25,127 24,231
Net cash provided by discontinued
operations .................................................. 430 20,450
--------- --------
Net cash provided by operating activities ....................... 25,557 44,681
--------- --------
Cash flows used in investing activities:
Capital expenditures of continuing
operations ................................................... (14,103) (15,889)
Capital expenditures of discontinued
operations .................................................. (982) (6,561)
--------- --------
Net cash used in investing activities ........................... (15,085) (22,450)
--------- --------
Cash flows provided by (used in) financing
activities:
Equity proceeds ............................................... 66 42
Repurchase stock of Holding ................................... -- (228)
Repayment of long-term obligations ............................ (200,024) (5,340)
Repayment on revolver (net) ................................... -- (9,000)
Financing fees and other ...................................... (699) --
Net proceeds from sale of Wire Harness
business .................................................... 208,500 --
--------- --------
Net cash provided by (used in) financing
activities .................................................... 7,843 (14,526)
--------- --------
Net change in cash and cash equivalents ......................... 18,315 7,705
Cash at beginning of the period ................................. 7,425 --
--------- --------
Cash at end of the period ....................................... $ 25,740 $ 7,705
========= ========
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE> 6
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(Unaudited)
1. Basis of Presentation
Unaudited Interim Consolidated Financial Statements
The unaudited interim consolidated financial statements reflect all
adjustments, consisting only of normal recurring adjustments which are,
in the opinion of management, necessary for a fair presentation of the
financial position and results of operations of International Wire Group,
Inc. (the "Company"). The results for the three and nine months ended
September 30, 2000 are not necessarily indicative of the results that may
be expected for a full fiscal year. These financial statements should be
read in conjunction with the audited consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission for the year ended
December 31, 1999. Also see Note 2 - Discontinued Operations and
Contributed Capital.
Recently Issued Accounting Standards
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"). SFAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives), and for
hedging activities. SFAS 133, as amended by SFAS 137, is effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000,
with earlier application encouraged. The adoption of FAS 133 is not
expected to have a material impact on the Company's consolidated
financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101") which addresses certain criteria for revenue
recognition. SAB 101, as amended by SAB 101A and SAB 101B, outlines the
criteria that must be met to recognize revenue and provides guidance for
disclosures related to revenue recognition policies. The adoption of SAB
101 is not expected to have a material impact on the Company's
consolidated financial position or results of operations.
2. Discontinued Operations and Contributed Capital
On March 29, 2000, the Company consummated the sale of its Wire Harness
business to Viasystems International, Inc. ("Viasystems") for $210,000 in
cash (the "Wire Harness Sale"). The Company and Viasystems are commonly
controlled by affiliates of Hicks, Muse, Tate & Furst Incorporated. As
such, the Company has accounted for the Wire Harness Sale on a basis
consistent with the accounting for a transfer of assets between commonly
owned entities. The Company has recorded an addition to contributed
capital related to the transaction of $121,713, which represents the
excess of the proceeds over the net book value of the assets disposed
plus the related expenses, approximately $1,500, and estimated taxes of
$7,000. The results of operations of the Wire Harness business have been
reclassified to discontinued operations for all periods presented.
The purchase price was determined by senior management of both companies.
In addition, each of the boards of directors received opinions from
nationally recognized financial advisors that the purchase price was
fair,
6
<PAGE> 7
from a financial point of view, to each of the respective parties. In
connection with the Wire Harness Sale, the Company entered into a supply
agreement to supply substantially all of the Wire Harness business'
insulated wire requirements through 2003, which is a continuation of
existing practice. In connection with the Wire Harness Sale, the Company
agreed to indemnify Viasystems for certain claims and litigation
including any current or future claims related to the case titled
Whirlpool Corporation v. Wirekraft Industries, Inc. ("Whirlpool Case"),
certain product liability claims, as described in the purchase agreement,
and any current or future liabilities associated with the Internal
Revenue Service examination of the U.S. income tax return of Kirtland
Indiana, Limited Partnership for the tax period ended December 21, 1992.
During the third quarter of 2000, Viasystems reached a settlement in the
Whirlpool Case and agreed to pay the plaintiff $3,650. The Company
recognized a charge to income (loss) from discontinued operations for the
three and nine months ended September 30, 2000 of $2,081, net of income
tax benefit, as a result of its indemnification obligation. The Company
believes that final resolution of the remaining matters will not have a
material adverse effect on the Company and that adequate amounts of
reserves have been established.
3. Unusual Item
In the third quarter of 2000, the Company relocated certain
administrative functions from its St. Louis, Missouri office to its
Camden, New York office. As a result of this transition, certain
employees of the Company were offered and accepted severance agreements.
The Company recorded an unusual charge of $650, before income tax,
related to the future payments associated with these agreements.
4. Extraordinary Item - Loss Related to Early Retirement of Debt
Substantially all of the net proceeds (after the payment of fees and
expenses) from the Wire Harness Sale were used to repay indebtedness
outstanding under the Company's senior credit facility. Accordingly, the
Company recorded an extraordinary loss of $2,747, net of income tax
benefit, related to the write-off of deferred financing fees.
5. Inventories
The composition of inventories at September 30, 2000 and December 31,
1999 is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Raw materials .............. $17,548 $30,723
Work-in-process ............ 30,006 19,168
Finished goods ............. 24,874 42,251
------- -------
Total ..................... $72,428 $92,142
======= =======
</TABLE>
The carrying value of inventories on a last-in, first-out basis, at
September 30, 2000 and December 31, 1999, approximate their current cost.
6. Property, Plant and Equipment
The composition of property, plant and equipment at September 30, 2000
and December 31, 1999 is as follows:
7
<PAGE> 8
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Land ............................... $ 3,633 $ 3,759
Buildings and improvements ......... 56,826 51,367
Machinery and equipment ............ 234,297 270,892
Construction in progress ........... 4,069 2,824
--------- ---------
298,825 328,842
Less accumulated depreciation ...... (141,317) (144,182)
--------- ---------
$ 157,508 $ 184,660
========= =========
</TABLE>
7. Long-Term Obligations
The composition of long-term obligations at September 30, 2000 and
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Amended and Restated Credit Agreement:
Revolving credit facility ...................... $ -- $ --
Term facility .................................. 2,728 200,500
Senior Subordinated Notes ........................ 150,000 150,000
Series B Senior Subordinated Notes ............... 150,000 150,000
Series B Senior Subordinated Notes Premium ....... 8,900 9,979
Industrial revenue bonds ......................... 15,500 15,500
Other ............................................ 8,536 9,965
-------- --------
335,664 535,944
Less, current maturities ......................... 2,088 9,606
-------- --------
$333,576 $526,338
======== ========
</TABLE>
The schedule of principal payments for long-term obligations, excluding
premium, at September 30, 2000 is as follows:
<TABLE>
<S> <C>
2000........................................ $ 1,431
2001........................................ 2,114
2002........................................ 1,385
2003........................................ 114
2004........................................ 125
Thereafter.................................. 321,595
---------
Total..................................... $ 326,764
=========
</TABLE>
In connection with the Wire Harness Sale, the Company repaid all of the
outstanding borrowing on the Term A1 Loan and Term B Loan of the Amended
and Restated Credit Agreement dated June 17, 1997, as amended (the
"Credit Agreement"). Additionally, the Company repaid a portion of the
Term A Loan. As of September 30, 2000, the Credit Agreement provides
senior secured financing under the Term A Loan of up to $2,728 (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 is due September 30,
2002, at which time the Revolver is also due.
Borrowings under the Term A Loan and Revolver bear interest, at the
option of the Company, at a rate per annum equal to (a) the Alternate
Base Rate
8
<PAGE> 9
(as defined in the Credit Agreement) plus an applicable margin as defined
in the Credit Agreement; or (b) the Eurodollar Rate (as defined in the
Credit Agreement) plus an applicable margin as defined in the Credit
Agreement. The Alternate Base Rate and Eurodollar Rate margins are
established quarterly based on a formula as defined in the Credit
Agreement. Interest payment dates vary depending on the interest rate
option to which the Term Facility and the Revolver are tied, but
generally interest is payable quarterly. The Credit Agreement contains
several financial covenants which, among other things, require the
Company to maintain certain financial ratios and restrict the Company's
ability to incur indebtedness, make capital expenditures and pay
dividends.
The Company's 11 3/4% Senior Subordinated Notes, 11 3/4% Series B Senior
Subordinated Notes, and 14% Senior Subordinated Notes (collectively, the
"Senior Notes") restrict, among other things, the incurrence of
additional indebtedness by the Company, the payment of dividends and
other distributions in respect of the Company's capital stock, the
imposition of restrictions on the payment of dividends and other
distributions by the Company's subsidiaries, the creation of liens on the
properties and the assets of the Company to secure certain subordinated
debt and certain mergers, sales of assets and transactions with
affiliates.
8. Business Segment Information
The Company operates its business as one business segment.
9. Guarantor Subsidiaries
The Senior Notes are fully and unconditionally (as well as jointly and
severally) guaranteed on an unsecured, senior subordinated basis by each
subsidiary of the Company (the "Guarantor Subsidiaries") other than
IWG-Philippines, Inc., IWG International, Inc., Italtrecce-Societa
Italiana Trecce & Affini S.r.l., International Wire SAS, Tresse Metalique
J. Forissier, S.A., Cablerie E. Charbonnet, S.A., Forissier Connectique,
S.A. and Hermitec, S.A. (the "Non-Guarantor Subsidiaries"). Each of the
Guarantor Subsidiaries and Non-Guarantor Subsidiaries is wholly owned by
the Company.
The following condensed, consolidating financial statements of the
Company include the accounts of the Company, the combined accounts of the
Guarantor Subsidiaries and the combined accounts of the Non-Guarantor
Subsidiaries. Given the size of the Non-Guarantor Subsidiaries relative
to the Company on a consolidated basis, separate financial statements of
the respective Guarantor Subsidiaries are not presented because
management has determined that such information is not material in
assessing the Guarantor Subsidiaries.
9
<PAGE> 10
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
--------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
AS OF SEPTEMBER 30, 2000
ASSETS
Cash and cash equivalents ............ $ -- $ 22,824 $ 2,916 $ -- $ 25,740
Accounts receivable .................. -- 83,394 18,969 -- 102,363
Inventories .......................... -- 61,767 10,661 -- 72,428
Other assets ......................... -- 20,474 1,064 -- 21,538
--------- --------- ------- --------- ---------
Total current assets .............. -- 188,459 33,610 -- 222,069
Property, plant and equipment, net ... -- 134,808 22,700 -- 157,508
Investment in subsidiaries ........... 641,117 -- -- (641,117) --
Intangibles and other assets ......... 8,836 189,814 9,862 -- 208,512
--------- --------- ------- --------- ---------
Total assets ...................... $ 649,953 $ 513,081 $66,172 $(641,117) $ 588,089
========= ========= ======= ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities .................. $ 13,128 $ 80,658 $11,535 $ -- $ 105,321
Long-term obligations, less
current maturities ................. 315,946 17,630 -- -- 333,576
Other long-term liabilities .......... -- 40,325 886 -- 41,211
Intercompany (receivable) payable .... 145,136 (182,049) 36,913 -- --
--------- --------- ------- --------- ---------
Total liabilities ................. 474,210 (43,436) 49,334 -- 480,108
Stockholder's equity:
Common stock ........................ 0 0 0 0 0
Contributed capital ................. 246,644 497,571 10,855 (508,426) 246,644
Carryover of predecessor basis ...... -- (67,762) -- -- (67,762)
Retained earnings
(accumulated deficit) ............. (70,901) 126,708 5,983 (132,691) (70,901)
--------- --------- ------- --------- ---------
Total stockholder's
equity .......................... 175,743 556,517 16,838 (641,117) 107,981
--------- --------- ------- --------- ---------
Total liabilities and
stockholder's equity ............ $ 649,953 $ 513,081 $66,172 $(641,117) $ 588,089
========= ========= ======= ========= =========
</TABLE>
10
<PAGE> 11
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
--------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
AS OF DECEMBER 31, 1999
ASSETS
Cash and cash equivalents ........... $ -- $ 7,131 $ 294 $ -- $ 7,425
Accounts receivable ................. -- 84,278 17,284 (252) 101,310
Inventories ......................... -- 83,593 8,549 -- 92,142
Other assets ........................ -- 24,456 3,203 -- 27,659
--------- --------- ------- --------- ---------
Total current assets ............. -- 199,458 29,330 (252) 228,536
Property, plant and equipment,
net ............................... -- 149,212 35,448 -- 184,660
Intangible assets, net .............. 18,484 229,358 9,796 -- 257,638
Investment in subsidiaries .......... 736,090 -- -- (736,090) --
Other assets ........................ -- 3,147 4,126 -- 7,273
--------- --------- ------- --------- ---------
Total assets ..................... $ 754,574 $ 581,175 $78,700 $(736,342) $ 678,107
========= ========= ======= ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIT)
Current liabilities ................. $ 11,674 $ 92,255 $15,124 $ (252) $ 118,801
Long-term obligations, less
current maturities ................ 507,479 18,859 -- -- 526,338
Other long-term liabilities ......... -- 51,849 849 -- 52,698
Intercompany (receivable)
payable ........................... 187,389 (231,846) 44,457 -- --
--------- --------- ------- --------- ---------
Total liabilities ................ 706,542 (68,883) 60,430 (252) 697,837
Stockholder's equity
(deficit):
Common stock ....................... 0 0 0 0 0
Contributed capital ................ 124,751 572,012 10,867 (582,879) 124,751
Carryover of predecessor
basis ............................ -- (67,762) -- -- (67,762)
Retained earnings
(accumulated deficit) ............ (76,719) 145,808 7,403 (153,211) (76,719)
--------- --------- ------- --------- ---------
Total stockholder's equity
(deficit) ...................... 48,032 650,058 18,270 (736,090) (19,730)
--------- --------- ------- --------- ---------
Total liabilities and
stockholder's equity
(deficit) .................... $ 754,574 $ 581,175 $78,700 $(736,342) $ 678,107
========= ========= ======= ========= =========
</TABLE>
11
<PAGE> 12
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
-------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2000
Net sales ................................ $ -- $ 120,790 $ 17,289 $ -- $ 138,079
Operating expenses:
Cost of goods sold ................... -- 90,535 12,808 -- 103,343
Selling, general and
administrative expenses ............. -- 10,289 739 -- 11,028
Depreciation and amortization ........ 672 7,759 985 -- 9,416
Unusual item ......................... -- 650 -- -- 650
-------- --------- -------- -------- ---------
Operating income ......................... (672) 11,557 2,757 -- 13,642
Other income (expense):
Interest expense ..................... (8,886) (258) (93) -- (9,237)
Amortization of deferred
financing costs ..................... (414) -- -- -- (414)
Equity in net income of
subsidiaries ........................ 12,247 -- -- (12,247) --
-------- --------- -------- -------- ---------
Income from continuing operations
before income tax provision ........... 2,275 11,299 2,664 (12,247) 3,991
Income tax provision ..................... -- 1,538 178 -- 1,716
-------- --------- -------- -------- ---------
Income from continuing
operations ............................ 2,275 9,761 2,486 (12,247) 2,275
Loss from discontinued
operations, net of income tax
benefit of $1,569 ..................... (2,081) -- -- -- (2,081)
-------- --------- -------- -------- ---------
Net income ............................... $ 194 $ 9,761 $ 2,486 $(12,247) $ 194
======== ========= ======== ======== =========
</TABLE>
12
<PAGE> 13
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
-------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000
Net sales ............................... $ -- $ 379,813 $ 48,388 $ -- $ 428,201
Operating expenses:
Cost of goods sold .................. -- 282,542 34,944 -- 317,486
Selling, general and
administrative expenses ............ -- 32,827 2,910 -- 35,737
Depreciation and amortization ....... 1,991 22,677 3,030 -- 27,698
Unusual item ........................ -- 650 -- -- 650
-------- --------- -------- -------- ---------
Operating income ........................ (1,991) 41,117 7,504 -- 46,630
Other income (expense):
Interest expense .................... (30,666) (260) (552) -- (31,478)
Amortization of deferred
financing costs .................... (1,625) -- -- -- (1,625)
Equity in net income of
subsidiaries ....................... 44,928 -- -- (44,928) --
-------- --------- -------- -------- ---------
Income from continuing operations
before income tax provision
and extraordinary items ............. 10,646 40,857 6,952 (44,928) 13,527
Income tax provision .................... -- 5,707 808 -- 6,515
-------- --------- -------- -------- ---------
Income from continuing operations
before extraordinary items .......... 10,646 35,150 6,144 (44,928) 7,012
Income (loss) from discontinued
operations, net of taxes of $29 ..... (2,081) 2,288 1,346 -- 1,553
-------- --------- -------- -------- ---------
Income before extraordinary
items ............................... 8,565 37,438 7,490 (44,928) 8,565
Extraordinary items, net of
income tax benefit of $2,073 ........ (2,747) -- -- -- (2,747)
-------- --------- -------- -------- ---------
Net income .............................. $ 5,818 $ 37,438 $ 7,490 $(44,928) $ 5,818
======== ========= ======== ======== =========
</TABLE>
13
<PAGE> 14
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
-------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED
September 30, 1999
Net sales .................................. $ -- $ 111,567 $ 5,088 $ -- $ 116,655
Operating expenses:
Cost of goods sold ..................... -- 79,750 4,081 -- 83,831
Selling, general and
administrative expenses ............... -- 10,036 137 -- 10,173
Depreciation and amortization .......... 156 8,074 778 -- 9,008
-------- --------- ------- -------- ---------
Operating income ........................... (156) 13,707 92 -- 13,643
Other income (expense):
Interest expense ....................... (10,320) (216) (9) -- (10,545)
Amortization of deferred
financing costs ....................... (629) -- -- -- (629)
Equity in net income
(loss) of subsidiaries ................. 14,176 -- -- (14,176) --
-------- --------- ------- -------- ---------
Income (loss) from continuing
operations before income tax
provision and cumulative effect
of change in accounting principle ...... 3,071 13,491 83 (14,176) 2,469
Income tax provision ....................... -- 1,077 16 -- 1,093
-------- --------- ------- -------- ---------
Income (loss) from continuing
operations ............................. 3,071 12,414 67 (14,176) 1,376
Income (loss) from discontinued
operations, net of taxes of $1,131 ..... -- (1,462) 3,157 -- 1,695
-------- --------- ------- -------- ---------
Net income ................................. $ 3,071 $ 10,952 $ 3,224 $(14,176) $ 3,071
======== ========= ======= ======== =========
</TABLE>
14
<PAGE> 15
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
-------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED
September 30, 1999
Net sales ................................... $ -- $ 344,991 $ 14,049 $ -- $ 359,040
Operating expenses:
Cost of goods sold ...................... -- 246,866 11,432 -- 258,298
Selling, general and
administrative expenses ................ -- 31,282 408 -- 31,690
Depreciation and amortization ........... 467 22,634 2,840 -- 25,941
-------- --------- -------- -------- ---------
Operating income ............................ (467) 44,209 (631) -- 43,111
Other income (expense):
Interest expense ........................ (32,787) (768) (9) -- (33,564)
Amortization of deferred
financing costs ........................ (1,893) -- -- -- (1,893)
Equity in net income of
subsidiaries ........................... 45,194 -- -- (45,194) --
-------- --------- -------- -------- ---------
Income from continuing operations
before income tax provision
and cumulative effect of
change in accounting principle .......... 10,047 43,441 (640) (45,194) 7,654
Income tax provision ........................ -- 3,402 88 -- 3,490
-------- --------- -------- -------- ---------
Income (loss) from continuing
operations before cumulative
effect of change in accounting
principle ............................... 10,047 40,039 (728) (45,194) 4,164
Income (loss) from discontinued
operations, net of taxes of $4,379 ...... -- (4,082) 10,783 -- 6,701
-------- --------- -------- -------- ---------
Income before cumulative effect
of change in accounting principle ....... 10,047 35,957 10,055 (45,194) 10,895
Cumulative effect of change in
accounting for start-up costs,
net of tax benefit of $592 ................ -- (818) -- -- (818)
-------- --------- -------- -------- ---------
Net income .................................. $ 10,047 $ 35,139 $ 10,055 $(45,194) $ 10,047
======== ========= ======== ======== =========
</TABLE>
15
<PAGE> 16
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
--------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000
Net cash provided by (used
in) operating activities ................... $ (8,961) $ 28,222 $ 6,296 $ -- $ 25,557
--------- -------- ------- ------- ---------
Cash flows used in investing
activities for capital
expenditures ............................... -- (11,411) (3,674) -- (15,085)
--------- -------- ------- ------- ---------
Cash flows provided by (used in)
financing activities:
Equity proceeds .......................... 66 -- -- -- 66
Repayment of long-term
obligations ............................ (198,906) (1,118) -- -- (200,024)
Financing fees and other ................. (699) -- -- -- (699)
Net proceeds from sale of
Wire Harness business .................. 208,500 -- -- -- 208,500
--------- -------- ------- ------- ---------
Net cash provided by (used in)
financing activities ....................... 8,961 (1,118) -- -- 7,843
--------- -------- ------- ------- ---------
Net change in cash and cash equivalents ...... $ -- $ 15,693 $ 2,622 $ -- $ 18,315
========= ======== ======= ======= =========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
--------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
Net cash from operating activities ........... $ 13,723 $ 24,083 $ 6,875 $ -- $ 44,681
--------- -------- ------- ------- ---------
Cash flows used in investing
activities for capital
expenditures ............................... -- (16,271) (6,179) -- (22,450)
--------- -------- ------- ------- ---------
Cash flows provided by (used in)
financing activities:
Equity proceeds .......................... 42 -- -- -- 42
Repurchase of stock of Holding ........... (228) -- -- -- (228)
Repayment of long-term obligations ....... (13,537) (737) (66) -- (14,340)
--------- -------- ------- ------- ---------
Net cash provided by (used in)
financing activities ....................... (13,723) (737) (66) -- (14,526)
--------- -------- ------- ------- ---------
Net change in cash and cash equivalents ...... $ -- $ 7,075 $ 630 $ -- $ 7,705
========= ======== ======= ======= =========
</TABLE>
16
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis includes the results of operations for the
three and nine months ended September 30, 2000, compared to the three and nine
months ended September 30, 1999.
On December 29, 1999, the Company acquired (the "Forissier Group Acquisition")
the business of a group of three French wire and cable manufacturers
(collectively, the "Forissier Group"). Included in the three and nine months
ended September 30, 2000, are the results of operations of the Forissier Group.
On March 29, 2000, the Company consummated the sale of its Wire Harness business
to Viasystems International, Inc. ("Viasystems") for $210.0 million in cash (the
"Wire Harness Sale"). The Company and Viasystems are commonly controlled by
affiliates of Hicks, Muse, Tate & Furst Incorporated. As such, the Company has
accounted for the Wire Harness Sale on a basis consistent with the accounting
for a transfer of assets between commonly owned entities. The Company has
recorded an addition to contributed capital related to the transaction of $121.7
million which represents the excess of the proceeds over the net book value of
the assets disposed plus the related expenses, approximately $1.5 million, and
estimated taxes of $7.0 million. The results of operations of the Wire Harness
business have been reclassified to discontinued operations for all periods
presented. The purchase price was determined by senior management of both
companies. In addition, each of the boards of directors received opinions from
nationally recognized financial advisors that the purchase price was fair, from
a financial point of view, to each of the respective parties. In connection with
the Wire Harness Sale, the Company entered into a supply agreement to supply
substantially all of the Wire Harness business' insulated wire requirements
through 2003, which is a continuation of existing practice.
A portion of the Company's revenues is derived from processing customer-owned
("tolled") copper. The value of tolled copper is excluded from both sales and
costs of sales of the Company, as title to these materials and the related risks
of ownership do not pass to the Company.
The cost of copper has historically been subject to fluctuations. While
fluctuations in the price of copper may directly affect the per unit prices of
the Company's products, these fluctuations have not had, nor are expected to
have, a material impact on the Company's profitability due to copper price
pass-through arrangements that the Company has with its customers. These sales
arrangements are based on similar variations of monthly copper price formulas.
Use of these copper price formulas minimizes the differences between raw
material copper costs charged to the cost of sales and the pass-through pricing
charged to customers.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
Net sales for the quarter were $138.1 million, an increase of $21.4 million, or
18.4%, compared to the three months ended September 30, 1999. This increase in
sales was primarily the result of increased demand in the general industrial,
electronics/data communications and automotive markets, incremental sales from
the Forissier Group and an increase in the average selling price of copper. In
general, the Company prices its wire products based on a spread over the cost of
copper, which results in an increased dollar value of sales when copper costs
increase. The average price of copper based on the New York Mercantile Exchange,
17
<PAGE> 18
Inc. ("COMEX") increased to $0.87 per pound during the quarter from $0.78 per
pound during the three months ended September 30, 1999.
Cost of goods sold as a percentage of sales increased to 74.8% for the three
months ended September 30, 2000, from 71.9% for the three months ended September
30, 1999. This change was due primarily to the increased cost and selling price
of copper.
Selling, general and administrative expenses increased $0.9 million to $11.0
million for the three months ended September 30, 2000, compared to $10.2 million
for the same period in 1999 due to the additional costs related to the Forissier
Group operations and incremental costs from higher unit volume.
Depreciation and amortization was $9.4 million for the three months ended
September 30, 2000, compared to $9.0 million for the same period in 1999. The
increase of $0.4 million was primarily the result of depreciation of property,
plant and equipment additions and amortization of goodwill related to the
Forissier Group Acquisition.
In the third quarter of 2000, the Company relocated certain administrative
functions from its St. Louis, Missouri offices to its Camden, New York offices.
As a result of this transition, certain employees of the Company were offered
and accepted severance agreements. The Company recorded an unusual charge of
$0.7 million before tax related to the future payments associated with these
agreements. There were no such unusual charges during the third quarter of 1999.
In connection with the Wire Harness Sale, the Company agreed to indemnify
Viasystems for certain claims and litigation including any current or future
claims related to the case titled Whirlpool Corporation v. Wirekraft Industries,
Inc. ("Whirlpool Case"). During the third quarter of 2000, Viasystems reached a
settlement in the Whirlpool Case and agreed to pay the plaintiff $3.7 million.
The Company recognized a charge to income (loss) from discontinued operations of
$2.1 million, net of income tax benefit, as a result of its indemnification
obligation.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
Net sales were $428.2 million, an increase of $69.2 million, or 19.3%, in the
nine months ended September 30, 2000 as compared to the nine months ended
September 30, 1999. Year-over-year increases in unit volume to the general
industrial, electronics/data communications and automotive markets were
partially offset by a decrease in sales to the appliance industry from slowing
industry growth and customers' inventory reductions. Incremental sales from the
Forissier Group acquisition and higher copper prices also contributed to the
increased sales. The average price for copper based on COMEX increased to $0.83
per pound during the nine months ended September 30, 2000 from $0.70 per pound
for the nine months ended September 30, 1999.
Cost of goods sold as a percentage of sales increased to 74.1% for the nine
months ended September 30, 2000, from 71.9% for the nine months ended September
30, 1999. This change was due primarily to the increased cost and selling price
of copper. Cost reductions achieved from improved operating efficiencies and a
favorable shift in product mix partially offset these factors.
Selling, general and administrative expenses increased $4.0 million to $35.7
million for the nine months ended September 30, 2000, compared to $31.7 million
for the same period in 1999 due to the additional costs related to the Forissier
Group operations and incremental costs from higher unit volume.
Depreciation and amortization was $27.7 million for the nine months ended
September 30, 2000, compared to $25.9 million for the same period in 1999. The
18
<PAGE> 19
increase of $1.8 million was primarily the result of depreciation of property,
plant and equipment additions and amortization of goodwill related to the
Forissier Group Acquisition.
In the third quarter of 2000, the Company relocated certain administrative
functions from its St. Louis, Missouri offices to its Camden, New York offices.
As a result of this transition, certain employees of the Company were offered
and accepted severance agreements. The Company recorded an unusual charge of
$0.7 million before tax related to the future payments associated with these
agreements. There were no such unusual charges during the first nine months of
1999.
Effective January 1, 1999, the Company adopted Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities," which requires costs of
start-up activities and organization costs to be expensed as incurred. In the
nine months ended September 30, 1999, the Company had a charge of $1.4 million
related to the cumulative effect of this change in accounting principle. There
was no such charge in the first nine months of 2000.
In connection with Wire Harness Sale, the Company utilized the majority of the
proceeds to pay down outstanding debt on the Company's senior bank facility.
Accordingly, the Company recognized a one-time charge of $4.8 million related to
the write-off of deferred fees associated with the repayment. There was no such
charge in the first nine months of 1999.
In connection with the Wire Harness Sale, the Company agreed to indemnify
Viasystems for certain claims and litigation including any current or future
claims related to the case titled Whirlpool Corporation v. Wirekraft Industries,
Inc. ("Whirlpool Case"). During the third quarter of 2000, Viasystems reached a
settlement in the Whirlpool Case and agreed to pay the plaintiff $3.7 million.
The Company recognized a charge to income (loss) from discontinued operations of
$2.1 million, net of income tax benefit, as a result of its indemnification
obligation.
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.
Net cash provided by continuing operations for the nine months ended September
30, 2000 was $25.1 million, compared to $24.2 million for the nine months ended
September 30, 1999. This increase was primarily due to improved operating
results which were partially offset by fluctuations in working capital
requirements, primarily inventory, other assets and accounts payable levels,
from the previous year-end to September 30 of each respective year.
Net cash used in investing activities, representing capital expenditures, was
$15.1 million for the nine months ended September 30, 2000, compared to $22.5
million for the nine months ended September 30, 1999. Most of the decrease was
due to lower capital expenditures associated with discontinued operations.
Net cash provided by (used in) financing activities was $7.8 million for the
nine months ended September 30, 2000, compared to ($14.5) million for the same
period in 1999. In March 2000, the Company generated $208.5 million in proceeds
from the sale of the Wire Harness business, net of transaction costs of
approximately $1.5 million. The Company applied substantially all of the net
proceeds from this sale for repayment of outstanding obligations under the
19
<PAGE> 20
Company's Amended and Restated Credit Agreement. The Company is currently
finalizing with the sellers of the Forissier Group the calculation of the
"earn-out" portion of the purchase price related to the Forissier Acquisition.
Since such amount has not been determined, the Company has not recorded the
liability and related goodwill as of September 30, 2000. The Company does not
expect the final payment to have a material adverse effect on the Company's
consolidated financial position or results of operations.
The Company's ability to fund its liquidity and capital requirements and to pay
its indebtedness is limited to its ability to receive dividends and other
distributions from its subsidiaries. The Company's Amended and Restated Credit
Agreement and its Senior Notes prohibit the Company from imposing certain
restrictions on the ability of its subsidiaries to pay dividends or make other
distributions to the Company.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No.133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
SFAS 133, as amended by SFAS 137, is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000, with earlier application encouraged.
The adoption of FAS 133 is not expected to have a material impact on the
Company's consolidated financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101")
which addresses certain criteria for revenue recognition. SAB 101, as amended by
SAB 101A and SAB 101B, outlines the criteria that must be met to recognize
revenue and provides guidance for disclosures related to revenue recognition
policies. The adoption of SAB 101 is not expected to have a material impact on
the Company's consolidated financial position or results of operations.
20
<PAGE> 21
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not ordinarily hold market risk sensitive instruments for
trading purposes. The Company does, however, recognize market risk from interest
rate, foreign currency exchange and commodity price exposure.
INTEREST RATE RISK
With the sale of the Wire Harness business and the subsequent repayment of debt
outstanding under the Company's Amended and Restated Credit Agreement, the
Company has reduced its exposure to fluctuations in interest rates. At September
30, 2000, approximately $18.2 million of the Company's long-term debt,
specifically, borrowings outstanding under the Company's Amended and Restated
Credit Agreement and the Company's borrowings related to Industrial Revenue
Bonds, bears interest at variable rates.
FOREIGN CURRENCY RISK
The Company has foreign operations in the Philippines, Italy and France.
Accordingly, the Company has some transactions that are denominated in foreign
currencies and are subject to market risk with respect to fluctuations in the
relative value of currencies.
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.
21
<PAGE> 22
PART II. OTHER INFORMATION
Item 1. Material Developments in Litigation
On March 29, 2000, the Company consummated the sale of its Wire Harness business
to Viasystems International, Inc. ("Viasystems") for $210.0 million in cash (the
"Wire Harness Sale"). In connection with the Wire Harness Sale, the Company
agreed to indemnify Viasystems for any current or future claims related to the
litigation titled Whirlpool Corporation v. Wirekraft Industries, Inc. (Case No.
97-7039-CK-T) ("Whirlpool Case"). During the third quarter of 2000, Viasystems
reached a settlement in the Whirlpool Case and agreed to pay the plaintiff $3.7
million.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the reporting period.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTERNATIONAL WIRE GROUP, INC.
Dated: November 14, 2000 By: /s/ DAVID M. SINDELAR
---------------------------------------
Name: David M. Sindelar
Title: Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ GLENN J. HOLLER
---------------------------------------
Name: Glenn J. Holler
Title: Chief Accounting Officer
23
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
