-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GYxuNnKinLFo/JHzXEbMrBYQNmyl9jgzW+Xq8cUEWDZ9FSGcUK745+Fq6cPil0fN GTAHqCWkKSKT1Y9sua6NQw== 0001104659-08-031755.txt : 20080509 0001104659-08-031755.hdr.sgml : 20080509 20080509140500 ACCESSION NUMBER: 0001104659-08-031755 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20080331 FILED AS OF DATE: 20080509 DATE AS OF CHANGE: 20080509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUPERIOR ESSEX INC CENTRAL INDEX KEY: 0001271193 STANDARD INDUSTRIAL CLASSIFICATION: NONFERROUS FOUNDRIES (CASTINGS) [3360] IRS NUMBER: 200282396 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-50514 FILM NUMBER: 08817582 BUSINESS ADDRESS: STREET 1: 150 INTERSTATE NORTH PARKWAY CITY: ATLANTA STATE: GA ZIP: 30339 10-Q 1 a08-11429_110q.htm 10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended March 31, 2008

 

or

 

o

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 0-50514

 


 

SUPERIOR ESSEX INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-0282396

(State or other jurisdiction of incorporation or
organization)

 

(I.R.S. Employer Identification No.)

 

 

 

150 Interstate North Parkway Atlanta, Georgia

 

30339

(Address of principal executive offices)

 

(Zip code)

 

770-657-6000

Registrant’s telephone number, including area code

 


 

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 o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o
(Do not check if smaller reporting company)

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x No

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes 
x No o

 

As of May 5, 2008, the registrant had 19,829,785 shares of common stock, $0.01 par value, outstanding.

 

 



 

PART I. FINANCIAL INFORMATION

 

In this Quarterly Report on Form 10-Q, the following terms have the meanings indicated below:

 

·                  Unless the context otherwise requires, the terms “we,” “us,” “our,” and “registrant,” as well as the term “Superior Essex,” refer to Superior Essex Inc. and its subsidiaries on and after November 10, 2003, the effective date of the plan of reorganization of Superior TeleCom Inc. and its subsidiaries.

 

·                  “COMEX” refers to Commodity Exchange Inc., a subsidiary of the New York Mercantile Exchange, Inc. that operates the principal U.S. copper futures and options trading market.

 

·                  “Essex Group” refers to Essex Group, Inc., a wholly-owned subsidiary of Essex International.

 

·                  “Essex International” refers to Essex International Inc., a wholly- owned subsidiary of Superior Essex Holding

 

·                  “Essex Europe” refers to Essex Europe S.A.S., a wholly-owned French holding company (formerly known as Essex Nexans Europe S.A.S.) which owns our consolidated operations in Europe.

 

·                  “LME” refers to the London Metal Exchange, which operates the principal European copper futures and options trading market.

 

·                  “SHME” refers to the Shanghai Metal Exchange, which operates the principal Asian copper futures and options trading market.

 

·                  “Superior Essex Communications” refers to Superior Essex Communications LP, a limited partnership with Superior Essex Holding as the sole limited partner and SE Communications GP, a wholly-owned subsidiary of Superior Essex Holding, as the sole general partner.

 

·                  “Superior Essex Holding” refers to Superior Essex Holding Corp., a wholly-owned subsidiary of Superior Essex, and the sole limited partner of Superior Essex Communications.

 

·                  “Superior TeleCom,” unless the context otherwise requires, refers to Superior TeleCom Inc. and its subsidiaries and the business carried on by them prior to November 10, 2003.

 

2



 

Forward-Looking Statements

 

Certain expectations and projections regarding our future performance referenced in this Form 10-Q, in other materials we file with the SEC or otherwise release to the public, and on our website are forward-looking statements. Senior officers also may make verbal statements to analysts, investors, regulators, the media and others that are forward-looking. Forward-looking statements involve matters that are not historical facts, such as statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere regarding our future operations, prospects, product demand, strategies, investments, financial condition (including liquidity and capital resources), economic performance (including growth and earnings), benefits expected as a result of our projected growth, and industry conditions. We have tried, whenever possible, to identify these statements using words such as “anticipate,” “assume,” “believe,” “can,” “could,” “estimate,” “expect,” “forecast,” “future,” “goal,” “indicate,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” target,” “will,” “would,” and similar expressions.

 

You are cautioned not to place undue reliance on our forward-looking statements. Our forward-looking statements are not guarantees of future performance and are based on currently available competitive, financial and economic data, our current expectations and assumptions, and our operating plans. While we believe that our expectations for the future are reasonable in view of the currently available information, our expectations are subject to future events, risks and inherent uncertainties, as well as potentially inaccurate expectations and assumptions, and there are numerous factors—many beyond our control—that could cause results to differ significantly from our expectations. Such events, risks and uncertainties include, but are not limited to, those set forth under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007 and in the other documents that we file with the SEC. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. There also may be other factors that we cannot anticipate or that are not described in this Form 10-Q or in our Annual Report on Form 10-K for the year ended December 31, 2007, generally because we do not perceive them to be material, that could cause results to differ significantly from our expectations.

 

Forward-looking statements are only as of the date they are made, and we do not undertake any obligation to update these statements to reflect subsequent circumstances or events except as required by federal securities laws. You are advised, however, to review any further disclosures we make on related subjects in our Form 10-Q and Form 8-K reports to the SEC.

 

3



 

ITEM 1. FINANCIAL STATEMENTS

 

SUPERIOR ESSEX INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

(in thousands, except share data)

 

(unaudited)

 

 

 

March 31,
2008

 

December 31,
2007

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

64,894

 

$

102,677

 

Accounts receivable (less allowance for doubtful accounts of $7,272 and $6,503 at March 31, 2008 and December 31, 2007, respectively)

 

467,540

 

403,132

 

Inventories, net

 

334,716

 

309,985

 

Other current assets

 

26,031

 

32,102

 

Total current assets

 

893,181

 

847,896

 

Property, plant and equipment, net

 

327,942

 

323,283

 

Intangible and other long-term assets, net

 

45,647

 

44,211

 

Total assets

 

$

1,266,770

 

$

1,215,390

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Short-term borrowings

 

$

66,705

 

$

65,859

 

Current portion of long-term debt

 

1,187

 

1,097

 

Accounts payable

 

278,658

 

245,042

 

Accrued expenses

 

105,622

 

99,970

 

Total current liabilities

 

452,172

 

411,968

 

Long-term debt

 

287,723

 

286,229

 

Other long-term liabilities

 

85,063

 

83,934

 

Total liabilities

 

824,958

 

782,131

 

Minority interest in consolidated subsidiary

 

3,060

 

2,706

 

Commitments and contingencies (note 11)

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, $.01 par value; 7,000,000 shares authorized, none issued or outstanding

 

 

 

Common stock, $.01 par value; 33,000,000 shares authorized; 21,106,315 and 21,101,554 shares issued at March 31, 2008 and December 31, 2007, respectively

 

210

 

209

 

Capital in excess of par value

 

287,199

 

286,242

 

Accumulated other comprehensive income

 

24,377

 

12,086

 

Retained earnings

 

162,114

 

154,673

 

Treasury stock, at cost (1,344,807 shares and 791,865 shares at March 31, 2008 and December 31, 2007, respectively)

 

(35,148

)

(22,657

)

Total stockholders’ equity

 

438,752

 

430,553

 

Total liabilities and stockholders’ equity

 

$

1,266,770

 

$

1,215,390

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

4



 

SUPERIOR ESSEX INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

(in thousands, except per share data)

 

(unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2008

 

2007

 

Net sales

 

$

757,160

 

$

695,628

 

Cost of goods sold (note 4)

 

691,114

 

634,383

 

Gross profit

 

66,046

 

61,245

 

Selling, general and administrative expenses

 

(43,648

)

(35,599

)

Restructuring and other charges (note 4)

 

(2,121

)

(874

)

Operating income

 

20,277

 

24,772

 

Interest expense

 

(8,318

)

(7,650

)

Interest income

 

594

 

746

 

Other expense, net

 

(1,152

)

(751

)

Income before income taxes and minority interest

 

11,401

 

17,117

 

Income tax expense

 

(3,717

)

(6,909

)

Income before minority interest

 

7,684

 

10,208

 

Minority interest in earnings of subsidiaries

 

(243

)

(1,050

)

Net income

 

$

7,441

 

$

9,158

 

 

 

 

 

 

 

Net income per share of common stock:

 

 

 

 

 

Basic

 

$

0.38

 

$

0.45

 

Diluted

 

$

0.37

 

$

0.45

 

Weighted average shares outstanding:

 

 

 

 

 

Basic

 

19,757

 

20,152

 

Diluted

 

19,929

 

20,455

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

5



 

SUPERIOR ESSEX INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(in thousands)

 

(unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2008

 

2007

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

7,441

 

$

9,158

 

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

 

 

 

 

 

Depreciation and amortization (note 4)

 

16,615

 

7,486

 

Amortization of deferred financing costs and discount

 

605

 

568

 

Minority interest in earnings of subsidiaries

 

243

 

1,050

 

Settlement of derivatives

 

2,616

 

3,778

 

Share-based compensation

 

930

 

1,988

 

Change in assets and liabilities:

 

 

 

 

 

Accounts receivable, net

 

(50,759

)

(10,236

)

Inventories, net

 

(16,867

)

5,302

 

Other current and non-current assets

 

(1,549

)

11,301

 

Accounts payable, accrued expenses and other liabilities

 

27,920

 

23,667

 

Other, net

 

(190

)

199

 

Cash flows provided by (used for) operating activities

 

(12,995

)

54,261

 

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures

 

(12,040

)

(11,679

)

Cash flows used for investing activities

 

(12,040

)

(11,679

)

Cash flows from financing activities:

 

 

 

 

 

Repayments of short-term borrowings, net

 

(3,518

)

(18,223

)

Proceeds from exercise of stock options and employee stock purchases

 

28

 

477

 

Treasury stock purchases

 

(10,869

)

 

Excess tax benefits resulting from stock options and awards

 

 

439

 

Cash flows used for financing activities

 

(14,359

)

(17,307

)

Effect of exchange rate changes on cash

 

1,611

 

116

 

Net increase (decrease) in cash and cash equivalents

 

(37,783

)

25,391

 

Cash and cash equivalents at beginning of period

 

102,677

 

53,493

 

Cash and cash equivalents at end of period

 

$

64,894

 

$

78,884

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

6



 

SUPERIOR ESSEX INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

March 31, 2008

 

(unaudited)

 

1.                                      General

 

Basis of presentation

 

The accompanying balance sheet as of December 31, 2007, which has been derived from audited financial statements, and the unaudited consolidated financial statements as of March 31, 2008 and for the three months ended March 31, 2008 and 2007, have been prepared in accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and, therefore, do not include all disclosures required by accounting principles generally accepted in the United States for complete financial statements. However, in the opinion of management, these statements reflect all adjustments (which consist only of normal recurring accruals) necessary for a fair presentation of the results of operations for the relevant periods. Results for the three months ended March 31, 2008 are not necessarily indicative of the results to be expected for the entire fiscal year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Superior Essex Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007.

 

The Company is a manufacturer and supplier of wire and cable products for the communications, energy, automotive, industrial, and commercial/residential end-markets. The Company manufactures magnet wire, fabricated insulation products, and copper and fiber optic communications wire and cable products. The Company is also a distributor of magnet wire, insulation, and related products sold to smaller original equipment manufacturers, or OEMs, and motor repair facilities. The Company converts copper cathode to copper rod for internal consumption and for sale to other wire and cable manufacturers and OEMs. The Company currently operates manufacturing facilities in the United States, Canada, the United Kingdom, France, Germany, Portugal, Italy, Mexico and China.

 

Income taxes

 

Income tax expense for interim periods is provided based on the Company’s estimated effective tax rate for the full fiscal year.  The effective tax rate for the three months ended March 31, 2008 is less than the U.S. statutory rate of 35% due to the favorable effect of lower foreign effective tax rates and the discrete first quarter 2008 effect of favorable adjustments to state effective tax rates which more than offset the negative impact of state taxes, valuation allowances provided with respect to operating losses incurred by one of the Company’s Chinese subsidiaries and liabilities for uncertain tax positions recorded in accordance with FASB Interpretation No. 48 (“FIN 48”). The effective tax rate for the three months ended March 31, 2007 exceeds the U.S. statutory rate of 35% due to the effects of state and foreign taxes and liabilities for uncertain tax positions recorded in accordance with FIN 48.

 

New accounting pronouncements

 

Effective January 1, 2008, the Company adopted certain provisions of Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”). FAS 157 establishes a common definition for fair value to be applied to guidance regarding U.S. generally accepted accounting principles requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about assets and liabilities measured at fair value on a recurring and non-recurring basis in periods subsequent to initial recognition. FAS 157 establishes a hierarchy for fair value measurements and related disclosures as follows: Level 1 - fair value measurements based on quoted prices in active markets for identical assets or liabilities; Level 2 – fair value measurements based upon significant observable market data other than quoted prices included within Level 1 or significant unobservable inputs that are corroborated by observable market data; and Level 3 – fair value measurements based on significant unobservable inputs that are not corroborated by observable market data.

 

7



 

The following table summarizes information about the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2008:

 

 

 

Fair Value Measurement Using

 

 

 

Description

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

Copper futures contracts

 

$

2,917

 

$

156

 

$

 

$

3,073

 

 

Level 2 copper futures contracts consist of Euro denominated contracts. The value of these contracts is derived from converting U.S. dollar quoted LME futures contracts into Euro based equivalents by applying the publicly traded U.S. dollar to Euro foreign exchange rate. The Company also had non-deliverable forward foreign exchange contracts outstanding at March 31, 2008 with insignificant fair value measurements using Level 2 inputs (see note 10). The fair value of the foreign currency forward exchange contracts is based on dealer quotes of market forward rates and reflects the amount the Company would receive or pay at their maturity dates for contracts involving the same currencies and maturity dates.

 

Application of FAS 157 to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis is effective for fiscal years beginning after November 15, 2008 with earlier application permitted. Nonfinancial assets and liabilities measured at fair value on a nonrecurring basis include intangible and long-lived assets measured at fair value for impairment purposes, asset retirement obligations initially measured at fair value, and those assets and liabilities initially measured at fair value in a business combination. The Company has not implemented FAS 157 for such assets and liabilities.

 

In December 2007, the FASB issued Statement of Financial Accounting Standards (“FAS”) No. 141 (revised 2007), Business Combinations (“FAS 141(R)”) which replaces FAS No. 141, Business Combinations. FAS 141(R) retains the underlying concepts of FAS 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting but FAS 141(R) changed the method of applying the acquisition method in a number of significant aspects. Changes prescribed by FAS 141(R) include, but are not limited to, requirements to expense transaction costs and costs to restructure acquired entities; record earn-outs and other forms of contingent consideration at fair value on the acquisition date; record 100% of the net assets acquired even if less than a 100% controlling interest is acquired; and to recognize any excess of the fair value of net assets acquired over the purchase consideration as a gain to the acquirer. FAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. FAS 141(R) amends FAS 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of FAS 141(R) would also apply the provisions of FAS 141(R). Early adoption is not allowed. The Company is currently evaluating the effects, if any, that FAS 141(R) may have on its consolidated financial statements.

 

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements (“FAS 160”). FAS 160 amends Accounting Research Bulletin 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements and requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. FAS 160 also clarifies that all of those transactions resulting in a change in ownership of a subsidiary are equity transactions if the parent retains its controlling financial interest in the subsidiary. FAS 160 requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent’s owners and the interests of the noncontrolling owners of a subsidiary. FAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. FAS 160 will be applied prospectively as of the beginning of the fiscal year in which the Statement is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements will be applied retrospectively for all periods presented. The Company is currently evaluating the effects, if any, that FAS 160 may have on its consolidated financial statements; however adoption of FAS 160 will result in the reclassification of the Company’s minority interest in subsidiary to equity.

 

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133 (“FAS 161”). FAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. FAS161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. FAS 161 encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company is currently evaluating the effects that FAS 161 will have on its consolidated financial statements.

 

8



 

2.                                      Inventories, net

 

At March 31, 2008 and December 31, 2007, the components of inventories were as follows:

 

 

 

March 31,
2008

 

December 31,
2007

 

 

 

(in thousands)

 

Raw materials

 

$

43,374

 

$

48,102

 

Work in process

 

98,876

 

78,792

 

Finished goods

 

336,823

 

289,413

 

 

 

479,073

 

416,307

 

LIFO reserve

 

(144,357

)

(106,322

)

 

 

$

334,716

 

$

309,985

 

 

Inventories valued using the LIFO method amounted to $186.1 million and $177.7 million at March 31, 2008 and December 31, 2007, respectively.

 

3.                                      Comprehensive income

 

The components of comprehensive income for the three months ended March 31, 2008 and 2007 were as follows:

 

 

 

2008

 

2007

 

 

 

(in thousands)

 

Net income

 

$

7,441

 

$

9,158

 

Foreign currency translation adjustment, net of income tax of $7 and $321 for the three months ended March 31, 2008 and 2007, respectively

 

10,689

 

380

 

Reclassification adjustment for actuarial gains of defined benefit plans included in net income, net of income tax of $2 for the three months ended March 31, 2007

 

 

(3

)

Reclassification adjustment for prior service costs of defined benefit plans included in net income, net of income tax of $7 for the three months ended March 31, 2008 and 2007

 

12

 

12

 

Unrealized holding gains on derivatives during the period, net of income tax of $1,228 and $973 for the three months ended March 31, 2008 and 2007, respectively

 

1,906

 

1,517

 

Reclassification adjustment for (gains) losses on derivatives included in net income, net of income tax of $202 and $(504) for the three months ended March 31, 2008 and 2007, respectively

 

(316

)

784

 

Net unrealized gains on derivatives

 

1,590

 

2,301

 

Comprehensive income

 

$

19,732

 

$

11,848

 

 

The components of accumulated other comprehensive income at March 31, 2008 and December 31, 2007 were as follows:

 

 

 

March 31,
2008

 

December 31,
2007

 

 

 

(in thousands)

 

Foreign currency translation adjustment, net of tax of $551 and $544 at March 31, 2008 and December 31, 2007, respectively

 

$

26,634

 

$

15,945

 

Actuarial losses of defined benefit plans, net of tax of $2,405 at March 31, 2008 and December 31, 2007

 

(3,110

)

(3,110

)

Prior service costs of defined benefit plans, net of tax of $248 and $255 at March 31, 2008 and December 31, 2007, respectively

 

(439

)

(451

)

Unrealized gain (loss) on derivatives, net of tax of $(829) and $197 at March 31, 2008 and December 31, 2007, respectively

 

1,292

 

(298

)

 

 

$

24,377

 

$

12,086

 

 

9



 

4.                                      Restructuring and other charges

 

On January 23, 2008, the Company announced that it is consolidating and restructuring its North American magnet wire and distribution and copper rod segments’ manufacturing facilities. The changes are expected to more efficiently match production capabilities to industry demand levels and to customer requirements. The restructuring involves a phased closure of the magnet wire manufacturing and copper rod continuous casting facilities located in Vincennes, Indiana, and the relocation of existing production to other North American magnet wire and distribution facilities. The closures are expected to be completed by the first quarter of 2009. The Company’s Board of Directors authorized the action on January 16, 2008 and the restructuring was communicated to employees on January 23, 2008. The total restructuring charges are estimated at $22 million, consisting of non-cash charges of approximately $15 million, principally through accelerated depreciation, and cash charges of approximately $3 million relating to employee severance and retention and $4 million relating to equipment relocation and facility closure costs associated with the restructuring. The Company expects to incur the majority of these charges in 2008. The North American magnet wire and distribution and copper rod segment restructuring activities for the three months ended March 31, 2008 are summarized as follows:

 

 

 

Accelerated
Depreciation

 

Employee
Severance

 

Employee
Retention

 

Equipment
Relocation
and Other
Facility
Exit Costs

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts charged to expense

 

$

7,429

 

$

1,335

 

$

237

 

$

430

 

$

9,431

 

Non-cash charges against assets

 

(7,429

)

 

 

 

(7,429

)

Cash payments

 

 

(15

)

 

(430

)

(445

)

Balance at March 31, 2008

 

$

 

$

1,320

 

$

237

 

$

 

$

1,557

 

 

Accelerated depreciation charges reflect changes in estimated useful lives and residual values for long-lived assets that will be taken out of service prior to the end of their original service period and have been reported as a component of cost of goods sold in the accompanying statement of operations. All other charges associated with the restructuring have been reported as a component of restructuring and other charges in the accompanying statement of operations. Employee retention costs relate to incentives that will be paid to Vincennes’ employees who remain employed until certain future termination dates and meet specified safety and attendance goals and are accrued over the retention period. Total restructuring costs of $9.4 million for the three months ended March 31, 2008 include $8.0 million related to the North American magnet wire and distribution segment and $1.4 million related to the copper rod segment.

 

In March 2008, the Company announced that Essex Europe had initiated discussions with the appropriate French employee representative bodies for the potential closure of its magnet wire manufacturing facility in Chauny, France. The Chauny facility is leased from Nexans through October 2009 and currently has approximately 130 employees. Restructuring and other charges for the three months ended March 31, 2008 include $0.1 million consisting primarily of professional fees related to these discussions.

 

Essex Europe recorded a restructuring provision of $0.3 million during the three months ended March 31, 2007 related to a workforce reduction at its Viana de Castelo, Portugal manufacturing facility. The majority of the costs related to severance payments and related benefits and were paid during 2007. Restructuring and other charges for the three months ended March 31, 2007 also included the write-off of $0.4 million of deferred business acquisition costs and $0.1 million of professional fees incurred in connection with the administration of Superior TeleCom’s plan of reorganization.

 

5.                                      Acquisitions

 

Invex acquisition

 

On July 31, 2007, Essex Europe acquired all of the outstanding common stock of Invex S.p.A. (“Invex”), a leading European magnet wire producer based in Italy for a cash purchase price of $41.1 million. The Company believes the acquisition will complement its existing European operations and should provide near- and long-term synergy opportunities in the areas of sales and administration, internal enamel usage, and other logistical, procurement and manufacturing arrangements. The purchase was financed with cash on hand. The acquisition was accounted for using the purchase method of accounting and the results of the acquired operations have been included in the consolidated results of operations of the Company from the date of acquisition. Invex is included in the Company’s European magnet wire and distribution segment.

 

10



 

The Company is in the process of finalizing certain asset and liability valuations and therefore the allocation of the purchase price is subject to refinement and adjustment.

 

                                                Tianjin acquisition

 

On July 26, 2007, the Company acquired Nexans’ 80% ownership interest in Essex Magnet Wire (Tianjin) Ltd. (formerly known as Nexans Tianjin Magnet Wires and Cables Co., Ltd.) which owns and operates a magnet wire facility located in Tianjin, China, for a cash purchase price of $9.3 million. In addition to complementing its existing magnet wire manufacturing facility in Suzhou, China, the Company believes this acquisition provides a significant market presence in the Chinese market for rectangular wires and related products used primarily by large transformer manufacturers in high-performance power generators and transformers. The acquisition was accounted for using the purchase method of accounting and the results of the acquired operations have been included in the consolidated results of operations of the Company from the date of acquisition. The operations of Essex Magnet Wire (Tianjin) Ltd. are included in the Company’s Asia/Pacific magnet wire segment. The Company is in the process of finalizing certain asset and liability valuations and therefore the allocation of the purchase price is subject to refinement and adjustment.

 

Essex Europe minority interest acquisition

 

On June 27, 2007, as provided for in the Essex Europe shareholders agreement, the Company exercised its option to purchase Nexans’ 40% minority interest in Essex Europe for a cash payment of $29.6 million, including acquisition costs of $0.2 million. The acquisition of the minority interest was accounted for using the purchase method of accounting.

 

The following pro forma consolidated results of operations for the three months ended March 31, 2007 have been prepared as if the acquisition of the Essex Europe minority interest had occurred at January 1, 2007. The extraordinary gain directly attributable to the transaction is included in the pro forma consolidated results of operations.

 

Net sales

 

$

695,628

 

Income before extraordinary gain

 

10,499

 

Net income

 

13,729

 

Net income per share:

 

 

 

Basic

 

 

 

Income before extraordinary gain

 

0.52

 

Net income

 

0.68

 

Diluted

 

 

 

Income before extraordinary gain

 

0.51

 

Net income

 

0.67

 

 

                                                Simcoe acquisition

 

On April 27, 2007, the Company acquired certain assets and assumed certain liabilities related to Nexans’ remaining North American magnet wire business in Simcoe, Canada. This acquisition provided the Company with an increased market presence in the North American market for magnet wire products used in the transformer and power generation end markets. The Simcoe acquisition was completed for a cash purchase price, after adjustment, of $12.7 million. The acquisition was accounted for using the purchase method of accounting and the results of the acquired operations have been included in the consolidated results of operations of the Company from the date of acquisition. The Simcoe operations are included in the North American magnet wire and distribution segment.

 

6.                                      Debt

 

At March 31, 2008 and December 31, 2007, short-term borrowings and long-term debt consist of the following:

 

 

 

March 31,
2008

 

December 31,
2007

 

 

 

(in thousands)

 

Short-term borrowings:

 

 

 

 

 

Essex Europe factoring agreement

 

$

49,165

 

$

46,103

 

Essex Magnet Wire (Tianjin) Ltd. credit facility

 

11,835

 

14,280

 

Essex Magnet Wire (Suzhou) Ltd. credit facilities

 

5,705

 

5,476

 

 

 

$

66,705

 

$

65,859

 

Long-term debt:

 

 

 

 

 

9% senior notes (net of discount of $4,235 and $4,446 at March 31, 2008 and December 31, 2007, respectively)

 

$

252,865

 

$

252,654

 

Series A redeemable preferred stock of Superior Essex Holding

 

5,000

 

5,000

 

Term loan of Essex Magnet Wire (Suzhou) Ltd.

 

13,691

 

13,143

 

3% convertible bonds of Invex

 

9,167

 

8,432

 

Other

 

8,187

 

8,097

 

 

 

288,910

 

287,326

 

Less current portion of long-term debt

 

1,187

 

1,097

 

Total long-term debt

 

$

287,723

 

$

286,229

 

 

11



 

Superior Essex Communications and Essex Group are borrowers under a $225 million senior secured credit facility. Interest on the senior secured credit facility accrues on outstanding borrowings at an annual rate equal to, at the borrowers’ option, LIBOR or a base rate, plus, in each case, an applicable margin, determined quarterly based on average borrowing availability, ranging from 1.00% to 2.00% for LIBOR loans and from 0% to 0.75% for base rate loans. Obligations under the senior secured credit facility are secured by substantially all domestic assets of the Company and 65% of the voting stock of certain of the Company’s foreign subsidiaries. Availability under the senior secured credit facility is subject to a borrowing base equal to the lesser of (1) $225 million less outstanding letters of credit and (2) a specified percentage of eligible accounts receivable and inventory less specified reserves. The specified percentages are (i) 85% of the value of the eligible accounts receivable and with respect to inventory the lesser of (a) $110 million or (b) the lesser of (x) 65% of the value of eligible inventory and (y) 85% multiplied by the net orderly liquidation percentage then applicable multiplied by the value of the eligible inventory. Certain of the specified reserves that reduce availability are not fixed and may be increased or imposed by the administrative agent for the amended and restated senior secured credit facility at its reasonable credit judgment. The borrowers are obligated to pay an unused commitment fee of 0.25% per annum on the unused amount of the maximum committed amounts and a fee of 0.125% per annum on the outstanding face amount of outstanding letters of credit. No borrowings were outstanding under the senior secured credit facility at March 31, 2008 and undrawn availability was $224.5 million.

 

The senior secured credit facility contains covenants which may limit Superior Essex Communications’ and Essex Group’s and their subsidiaries’ ability to (i) pay dividends, redeem capital stock or make other restricted payments, (ii) sell or dispose of assets, (iii) incur additional indebtedness or permit liens to exist on Company property, (iv) engage in transactions with affiliates and (v) make additional investments or acquisitions. Capital expenditures, distributions, acquisitions and asset dispositions are not limited so long as no event of default exists and the borrowers meet certain availability and liquidity conditions specified in the senior secured credit facility.

 

The indenture governing the 9% senior notes contains covenants which restrict the ability of the Company and certain of its subsidiaries to, among other things: incur additional debt and issue preferred stock; make certain distributions, investments and other restricted payments; create certain liens; enter into transactions with affiliates; and merge, consolidate or sell substantially all of the Company’s assets.

 

7.                                      Income per share

 

The computation of basic and diluted net income per share for the three months ended March 31, 2008 and 2007 is as follows:

 

 

 

2008

 

2007

 

 

 

Net
Income

 

Shares

 

Per Share
Amount

 

Net
Income

 

Shares

 

Per Share
Amount

 

 

 

(in thousands, except per share amounts)

 

Basic net income per common share

 

$

7,441

 

19,757

 

$

0.38

 

$

9,158

 

20,152

 

$

0.45

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock awards

 

 

82

 

 

 

 

113

 

 

 

Stock options

 

 

90

 

 

 

 

190

 

 

 

Diluted net income per common share

 

$

7,441

 

19,929

 

$

0.37

 

$

9,158

 

20,455

 

$

0.45

 

 

A total of 333,387 and 216,152 anti-dilutive weighted average shares with respect to outstanding stock options, restricted stock awards and contingently issuable performance share awards have been excluded from the computation of diluted income per share for the three months ended March 31, 2008 and 2007, respectively. The potential dilutive effect of the $6 million Invex convertible bonds has not been included in the diluted income per share calculations for the three months ended March 31, 2008 as the Company intends to settle the debt in cash.

 

8.                                      Stock-based compensation plans

 

In November 2003, the Company adopted the Superior Essex Inc. 2003 Stock Incentive Plan (the “2003 Plan”) pursuant to which a committee of the Company’s board of directors was authorized to grant stock options or restricted stock awards to employees, non-employee directors and certain service providers. The 2003 Plan permitted grants of awards or options to purchase up to 1,833,333 shares of authorized but unissued common stock, stock held in treasury or both. Stock options under the 2003 Plan could be granted with an exercise price less than, equal to or greater than the stock’s fair market value at the date of grant. The term of stock options granted under the 2003 Plan could not exceed 10 years.

 

12



 

In May 2005, the shareholders of the Company approved the Superior Essex Inc. 2005 Incentive Plan (the “2005 Plan”) pursuant to which a committee of the Company’s board of directors may grant stock options, stock appreciation rights, restricted stock, restricted stock units, deferred stock units, performance awards, dividend and interest equivalents and cash-based awards to eligible employees, officers, non-employee directors and consultants. Stock options can be granted under the 2005 Plan with an exercise price equal to or greater than the stock’s fair market value at the date of grant. The term of stock options granted may not exceed 10 years. As a result of adoption of the 2005 Plan, no further grants or awards may be made pursuant to the 2003 Plan. In May 2007, the shareholders of the Company approved an amendment to the 2005 Plan to, among other things, increase the number of shares that may be issued under the Plan by 500,000 shares and adjust the share reserve provisions. Immediately after the 2007 amendment, and subject to adjustment as provided in the 2005 Plan, the aggregate number of shares of common stock available for issuance under the 2005 Plan was (i) 500,000, plus (ii) shares underlying awards outstanding under the 2005 Plan as of May 3, 2007, plus (iii) shares remaining available for issuance under the 2005 Plan as of May 2, 2007, plus (iv) a number of additional shares underlying awards outstanding under the 2003 Plan that lapse for any reason, plus (v) a number of additional shares delivered or withheld on or after May 3, 2007 to cover the exercise price and/or satisfy tax withholding obligations with respect to awards outstanding under the 2003 Plan.

 

In April 2007 and August 2007, the Company granted performance share awards to certain of the Company’s officers and key employees under the 2005 Plan, as amended. Under the terms of the award the executives may vest in up to 275,738 shares of the Company’s common stock on December 31, 2009 contingent upon meeting specified performance goals during the three-year period ended December 31, 2009. In April 2008, the Company granted performance shares to certain of the Company’s officers and key employees. Under the terms of the award the executives may vest in up to 515,534 shares of the Company’s common stock on December 31, 2010 contingent upon meeting specified performance goals during the three-year period ended December 31, 2010. Compensation expense related to the performance share awards is based on the grant date fair value of the award and the estimated number of shares that will ultimately vest. Compensation expense for the three months ended March 31, 2007 included $0.9 million resulting from a change in the estimated number of performance shares that will ultimately vest. Compensation expense is subject to future adjustment based upon changes in expected performance.

 

Total compensation cost related to all stock-based compensation plans was $0.9 million and $2.0 million for the three months ended March 31, 2008 and 2007, respectively. As of March 31, 2008, there was $5.6 million of unrecognized compensation cost related to the Company’s stock-based compensation plans which is expected to be recognized over a weighted average period of 1.8 years.

 

The following table summarizes stock option activity for the three months ended March 31, 2008:

 

 

 

Shares

 

Weighted
Average
Exercise
Price

 

Weighted
Average
Remaining
Contractual
Term (in
years)

 

Aggregate
Intrinsic
Value (in
thousands)

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2007

 

394,993

 

$

17.54

 

 

 

 

 

Granted

 

2,500

 

23.90

 

 

 

 

 

Exercised

 

(1,433

)

17.84

 

 

 

 

 

Forfeitures

 

 

 

 

 

 

 

Outstanding at March 31, 2008

 

396,060

 

$

17.58

 

6.7

 

$

4,174

 

Exercisable at March 31, 2008

 

231,178

 

$

14.66

 

6.2

 

$

3,110

 

 

Options to purchase 2,500 shares of common stock with a weighted average Black Scholes fair value per option of $11.08 were granted during the three months ended March 31, 2008. No options were granted during the three months ended March 31, 2007. The fair value for options granted during the three months ended March 31, 2008 was estimated at the date of grant using the Black Scholes option pricing model and the following weighted average assumptions: expected volatility of 43%; dividend yield of 0%; risk-free interest rate of 3.0%; and expected life of 6.25 years. The expected volatility is estimated using the historical daily volatility of the Company’s stock as well as the historical volatilities of publicly-traded stock of certain of the Company’s competitors. The Company has not made any dividend payments on its common stock and does not intend to declare cash dividends on its stock in the foreseeable future. The risk-free interest rate is based on U.S. Treasury yields in effect at the time of grant for the expected term of the stock options. The expected term was determined using the “simplified” method, as prescribed by the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107.

 

13



 

The following table summarizes the status of the Company’s unvested share awards, including the performance share awards discussed above, for the three months ended March 31, 2008:

 

 

 

Shares
Outstanding

 

Weighted Average
Grant Date
Fair Value

 

 

 

 

 

 

 

Nonvested share awards outstanding at December 31, 2007

 

422,555

 

$

31.66

 

Granted

 

1,859

 

23.79

 

Vested

 

 

 

Forfeited

 

 

 

Nonvested share awards outstanding at March 31, 2008

 

424,414

 

$

31.63

 

Nonvested share awards at March 31, 2008 expected to vest

 

274,347

 

$

29.83

 

 

9.                                      Employee benefits

 

The components of net periodic benefit cost of the Company’s defined benefit pension plans for the three months ended March 31, 2008 and 2007 are presented below.

 

 

 

2008

 

2007

 

 

 

(in thousands)

 

Components of net periodic benefit cost:

 

 

 

 

 

Service cost

 

$

660

 

$

677

 

Interest cost

 

2,494

 

2,102

 

Expected return on plan assets

 

(2,731

)

(2,303

)

Amortization of actuarial gains

 

 

(5

)

Amortization of prior service costs

 

19

 

19

 

 

 

$

442

 

$

490

 

 

The Company’s cash contributions to the defined benefit plans amounted to $0.5 million and $1.6 million during the three months ended March 31, 2008 and 2007, respectively. The Company expects to make additional cash contributions of $4.9 million for the remainder of 2008.

 

In March 2008, the Compensation Committee of the Board of Directors adopted an amended and restated Senior Executive Retirement Plan (the “Amended and Restated SERP”) to replace the Company’s existing SERP agreement. The Amended and Restated SERP is effective April 1, 2008 and provides for, among other things, a reduction in the benefit accrual rate from 2.5% per year in the case of the Chief Executive Officer and 2.0% in the case of the Executive Vice Presidents to 1.5% for periods on and after January 1, 2009. In consideration of this reduction, the Company granted 41,167 restricted stock awards to the affected officers on April 1, 2008.

 

10.                               Derivative financial instruments

 

The Company, to a limited extent, uses or has used forward fixed price contracts and derivative financial instruments to manage commodity price, interest rate and foreign currency exchange risks. The Company does not hold or issue financial instruments for investment or trading purposes. The Company is exposed to credit risk in the event of nonperformance by counterparties for foreign exchange forward contracts, commodity forward price contracts and commodity futures contracts but the Company does not anticipate nonperformance by any of these counterparties. The amount of such exposure is generally limited to any unrealized gains within the underlying contracts.

 

Commodity price risk management

 

The cost of copper, the Company’s most significant raw material, has historically been subject to considerable volatility. To manage the risk associated with such volatility, the Company enters into copper futures purchase contracts to match the metal component of customer product pricing with the copper cost component of the inventory shipped. These futures contracts have been designated as cash flow hedges with unrealized gains and losses recorded in other comprehensive income. Gains and losses are reclassified into earnings, as a component of cost of goods sold, when the hedged transactions are reflected in the statement of operations. Hedge ineffectiveness, which is not significant, is immediately recognized in

 

14



 

earnings. The Company’s copper futures purchase contracts designated as cash flow hedges are summarized as follows at March 31, 2008 and December 31, 2007:

 

Type

 

Notional
Amount

 

Maturity
Date

 

Weighted
Average
Contract Rate

 

Fair Value
Gain (Loss)

 

 

 

(in thousands of
pounds)

 

 

 

 

 

(in
thousands)

 

March 31, 2008:

 

 

 

 

 

 

 

 

 

Copper

 

3,300

 

2008

 

$

3.18

 

$

2,121

 

 

 

 

 

 

 

 

 

 

 

December 31, 2007:

 

 

 

 

 

 

 

 

 

Copper

 

5,450

 

2008

 

3.14

 

$

(495

)

 

All of the unrealized gains on commodity futures outstanding at March 31, 2008 are expected to be reclassified to earnings within the next twelve months.

 

The Company also periodically enters into commodity futures contracts which represent economic hedges but have not been designated as hedges for accounting purposes (“non-designated derivatives”). These futures contracts are intended to minimize the risks associated with forward product pricing for customers and changing copper prices. The Company uses copper futures purchase contracts to match the copper component of customer product pricing with the copper cost component of the inventory shipped. The Company uses copper futures sales contracts to fix a portion of the gross margin related to the copper component of certain of our products. Gains and losses on these non-designated derivatives are recorded in income as a component of cost of goods sold. Net gains on non-designated derivatives were $1.4 million for the three months ended March 31, 2008. The Company did not enter into any non-designated derivatives during the three months ended March 31, 2007.

 

The Company’s non-designated commodities futures contracts outstanding at March 31, 2008 are summarized as follows:

 

Type

 

Notional
Amount

 

Maturity
Date

 

Weighted
Average
Contract Rate

 

Fair Value
Gain (Loss)

 

 

 

(in thousands of 
pounds)

 

 

 

 

 

(in
thousands)

 

March 31, 2008:

 

 

 

 

 

 

 

 

 

Copper purchase contracts

 

3,273

 

2008

 

$

3.40

 

$

955

 

Copper purchase contracts

 

165

 

2009

 

3.29

 

65

 

Copper sales contracts

 

3,449

 

2008

 

3.80

 

(70

)

Copper sales contracts

 

55

 

2009

 

3.79

 

2

 

 

 

 

 

 

 

 

 

$

952

 

December 31, 2007:

 

 

 

 

 

 

 

 

 

Copper purchase contracts

 

2,876

 

2008

 

3.07

 

$

(293

)

 

Foreign currency exchange risk management

 

The Company engages in the sale and purchase of products which result in accounts receivable and accounts payable denominated in foreign currencies. Additionally, the Company enters into intercompany loans, some of which are not considered long-term investments, among subsidiaries with differing functional currencies. As a result, fluctuations in the value of foreign currencies create exposures which can adversely affect the Company’s results of operations. The Company attempts to manage its transactional foreign currency exchange risk by economically hedging foreign currency cash flow forecasts arising from the settlement of accounts receivable, accounts payable and intercompany accounts. Where naturally offsetting foreign currency positions do not occur, the Company hedges certain, but not all, of its foreign currency exposures through the use of non-deliverable foreign currency forward exchange contracts. These contracts generally have maturities of less than two months and represent non-designated derivatives. Changes in the fair value of these contracts, together with gains and losses on foreign currency transactions, are reflected in current earnings as a component of other income and expense. Net gains recognized on foreign currency forward exchange contracts were $1.3 million for the three months ended March 31, 2008. The Company also recognized $1.9 million of losses on foreign currency transactions during the three months ended March 31, 2008.

 

15



 

The following table summarizes information about foreign currency forward exchange contract derivatives as of March 31, 2008 and December 31, 2007. These contracts are generally executed on the last day of the reporting period and therefore the fair value of contracts outstanding at March 31, 2008 and December 31, 2007 is not significant.

 

Derivatives

 

Notional Amount

 

Weighted
Average
Contract Rate

 

 

 

(in thousands)

 

 

 

March 31, 2008:

 

 

 

 

 

 

 

U.S. dollars for Euros

 

3,900

 

USD

 

0.63

 

Canadian dollars for U.S. dollars

 

9,700

 

USD

 

1.03

 

Canadian dollars for U.S. dollars

 

12,900

 

CAD

 

0.97

 

British pounds for Euros

 

9,000

 

EURO

 

0.79

 

Euros for U.S. dollars

 

2,945

 

EURO

 

1.58

 

British pounds for Euros

 

1,600

 

GBP

 

1.26

 

 

 

 

 

 

 

 

 

December 31, 2007:

 

 

 

 

 

 

 

U.S. dollars for Euros

 

4,100

 

USD

 

0.68

 

Canadian dollars for U.S dollars

 

4,000

 

USD

 

0.99

 

Canadian dollars for U.S. dollars

 

13,000

 

CAD

 

1.01

 

British pounds for Euros

 

7,000

 

EURO

 

0.74

 

Euros for U.S. dollars

 

1,980

 

EURO

 

1.46

 

British pounds for Euros

 

1,700

 

GBP

 

1.35

 

 

11.                               Commitments and contingencies

 

Legal matters

 

The Company is involved in lawsuits, claims, investigations and proceedings, including those described below, consisting of commercial, employment, employee benefits, environmental and other matters which arise in the ordinary course of business. In accordance with SFAS No. 5, Accounting for Contingencies, the Company records a liability when management believes it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Management believes it has adequate provisions for any such matters. The Company reviews these provisions at least quarterly and adjusts these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. Litigation is inherently unpredictable. However, management believes it has valid defenses with respect to all legal matters against the Company and its subsidiaries and does not believe any known matters, either individually or in the aggregate, will have a material adverse effect on its business, financial condition, liquidity or results of operations.

 

In 2003, Superior TeleCom, Essex Electric Inc., now known as Exeon Inc. (“Exeon”), and other plaintiffs filed lawsuits (the “2003 Copper Action”) under Section 1 of the Sherman Act against certain defendants based on an alleged conspiracy to elevate the prices of certain copper products during certain periods from 1993 to 1996. On June 4, 2007, the parties to the 2003 Copper Action (including all plaintiffs and defendants) entered into a settlement pursuant to which the 2003 Copper Action was dismissed with prejudice. The terms of the settlement are confidential. A portion of the settlement proceeds (approximately $27,000,000) were held in escrow by plaintiffs’ counsel (the “Escrowed Settlement Proceeds”). The Company and Exeon, each claimed to be entitled to the Escrowed Settlement Proceeds and filed claims with respect to the Escrowed Settlement Proceeds and matters related thereto.

 

In April 2008, the Company and Exeon reached an agreement to settle their claims. Under this settlement agreement, the Company received $19.6 million of the Escrowed Settlement Proceeds. Legal fees relating to the Exeon matter have been expensed as incurred (see note 15).

 

On January 29, 2008, Belden Technologies, Inc. and Belden CDT (Canada) Inc. (“Belden”) filed a Complaint against the Company and Superior Essex Communications in the United States District Court for the District of Delaware, alleging that the Company infringed U.S. Patent Nos. 5,424,491; 6,074,503; 6,570,095; 6,596,944; 6,998,537; and 7,179,999. Belden Technologies, Inc. and Belden CDT (Canada) Inc. v. Superior Essex Inc. and Superior Essex Communications L.P., Case No. 08-63, U.S. District Court for the District of Delaware. The six patents-in-suit are directed to communication cables

 

16



 

and related manufacturing processes in the premises products field. Belden completed service of the Complaint and summons upon the Company on April 10, 2008. The Company will vigorously defend against the suit.

 

The Company operates in nine countries in Europe, North America and Asia-Pacific and its international operations have grown significantly over the past two years, primarily through acquisitions. The Company is implementing its code of ethics and procedures to assure compliance with laws and regulations throughout its operations. Through its processes to ensure compliance with laws and regulations, in 2007 the Company identified certain U.S trade control compliance issues.

 

These issues include isolated sales of products by a foreign subsidiary which were not in compliance with U.S. trade control laws related to Cuba. The Company voluntarily reported these transactions related to Cuba to the U.S. Department of Treasury, Office of Foreign Asset Control. Upon discovery of transactions related to Cuba, the Company undertook a comprehensive review of transactions that may involve embargoed countries. The Company has completed that review and has identified no further transactions that were not in compliance with U.S. laws related to embargoed countries.

 

In addition, through this review, the Company learned that it shipped a coating for its magnet wire products to its manufacturing operations in Mexico and China and such shipments were misclassified under the U.S. export laws. Such shipments occurred on a regular basis without required export authorization. The Company voluntarily reported such violations to the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”). On January 26, 2008, BIS granted licenses for shipments of the coating to the Company’s facilities in Mexico and China.

 

To the extent the Company violated U.S. export regulations, fines and other penalties may be imposed. Because these matters are now pending before the indicated agencies, there can be no assurance that any actual fines or penalties imposed will not have a material adverse affect on the Company’s business, financial condition, liquidity or results of operations.

 

Since approximately 1990, Essex International and certain subsidiaries have been named as defendants in a number of product liability lawsuits brought by electricians, other skilled tradesmen and others claiming injury, in a substantial majority of cases, from exposure to asbestos found in electrical wire products produced many years ago. Litigation against various past insurers of Essex International who had previously refused to defend and indemnify Essex International against these lawsuits was settled during 1999. Under the settlement, Essex International was reimbursed for substantially all of its costs and expenses incurred in the defense of these lawsuits, and the insurers have undertaken to defend, are currently directly defending and, if it should become necessary, will indemnify Essex International against those asbestos lawsuits, subject to the terms and limits of the respective policies. Under the plan of reorganization, certain of the claimants in these actions will only be able to assert claims against the insurers under applicable insurance coverage and related arrangements. Management believes that Essex International’s exposure, if any, in these matters will not have a material adverse effect either individually, or in the aggregate, upon the Company’s business, financial condition, liquidity or results of operations.

 

Environmental matters

 

The Company is subject to federal, foreign, state and local environmental laws and regulations in each of the jurisdictions in which it owns or operates facilities governing, among other things, emissions into the air, discharges to water, the use, handling and disposal of hazardous substances and the investigation and remediation of soil and groundwater contamination both on-site at past and current facilities and at off-site disposal locations. The Company does not believe that compliance with environmental laws and regulations will have a material effect on its capital expenditures, net income or competitive position.

 

A liability for environmental remediation and other environmental costs is accrued when it is considered probable and the costs can be reasonably estimated. The Company has accrued amounts with respect to environmental matters that it believes were adequate at March 31, 2008. These accruals are not material to the Company’s operations or financial position.

 

Purchase commitments

 

The Company accepts certain customer orders for future delivery at fixed prices. As copper is the most significant raw material used in the manufacturing process, the Company enters into forward fixed-price purchase commitments with its suppliers for copper to match its cost to the value of the copper expected to be billed to customers. At March 31, 2008, the Company had forward fixed-price copper purchase commitments for delivery of 31.7 million pounds through June 2009 for $116.5 million. Additionally, at March 31, 2008, the Company had forward purchase fixed-price commitments for

 

17



 

0.5 million pounds of aluminum through December 2008, 203,000 megawatts of electricity through 2011 and 180,000 MMBTUs of natural gas through December 2008 amounting to $0.7 million, $18.0 million and $1.4 million, respectively.

 

Other

 

On November 28, 2007, the Company announced a share repurchase program authorized by the Board of Directors to purchase up to $20 million of its outstanding common stock through open market purchases at times and prices considered attractive. The Company had repurchased 366,118 shares for $9.1 million as of December 31, 2007. In January 2008, the Company purchased an additional 495,661 shares for $10.9 million and completed its repurchases under the plan. The share repurchases were pursuant to a 10b5-1 trading plan. The Company repurchased a total of 861,779 shares at an average price of $23.21 per share.

 

12.                               Related party transactions

 

Essex Europe has entered into agreements to purchase a significant portion of its copper rod and pre-drawn copper wire requirements from Nexans. The purchase agreements expire on December 31, 2008 with automatic one year renewals unless cancelled by either party upon six months prior notice in the case of copper rod and twelve months prior notice in the case of pre-drawn copper wire. Total purchases pursuant to these agreements amounted to $61.2 million and $74.9 million for the three months ended March 31, 2008 and 2007, respectively. In December 2007, Nexans provided notice that they did not intend to renew the pre-drawn wire agreement under the current terms and conditions.

 

The Company sells magnet wire to and provides certain tolling services for its 50% owned joint venture, Femco Magnet Wire Corporation (“Femco”). Net sales to Femco were $5.6 million and $6.4 million for the three months ended March 31, 2008 and 2007, respectively. The Company’s equity in the loss of Femco was $0.6 million and $0.4 million for the three months ended March 31, 2008 and 2007, respectively.

 

13.                               Business segments

 

The Company manufactures a portfolio of wire and cable products for the communications, energy, automotive, industrial, and commercial/residential end markets grouped into the following reportable segments: (i) communications cable, (ii) North American magnet wire and distribution, (iii) European magnet wire and distribution, (iv)Asia/Pacific magnet wire and (v) copper rod. The communications cable segment manufactures and markets copper and fiber optic outside plant wire and cable for voice and data transmission in telecommunications networks and copper and fiber optic datacom or premises wire and cable for use within homes and offices for local area networks, Internet connectivity and other applications. The North American magnet wire and distribution segment manufactures and markets magnet wire and related products to major OEMs for use in motors, transformers and electrical coils and controls primarily in North America. The North American magnet wire and distribution segment also distributes magnet wire and fabricated insulation products manufactured by the Company and related accessory products purchased from third parties to small OEMs and motor repair facilities. The European magnet wire and distribution segment consists of Essex Europe and manufactures and markets magnet wire used in motors, transformers and electrical coils and controls primarily in Europe. The European magnet wire and distribution segment also produces enamels that are used both for internal consumption in the production of magnet wire and for sale to third parties. As a result of the Tianjin, China acquisition in July 2007 (see note 5) and certain management reporting changes made during the third quarter of 2007, the Company began reporting a new segment, the Asia/Pacific magnet wire segment. The Asia/Pacific magnet wire segment includes the Tianjin, China business and the Company’s manufacturing operations in Suzhou, China. The operations of the Suzhou facility were previously included in the North American magnet wire and distribution segment. All prior period segment information has been retrospectively adjusted to reflect the current segment reporting structure. The copper rod segment includes sales of copper rod produced by the Company’s North American continuous casting units to external customers. The copper rod segment also produces copper rod for internal processing which is recorded by the consuming segment at cost as a component of cost of goods sold. Corporate and other charges consist primarily of parent company and corporate payroll costs, including stock-based compensation charges, corporate headquarters costs and corporate legal, audit and accounting fees and compliance costs. The components of restructuring and other charges are discussed in note 4.

 

The Company’s chief operating decision maker evaluates segment performance based on a number of factors with operating income, excluding corporate and other costs and restructuring and other charges, being the most critical. Accordingly, corporate and other costs and restructuring and other charges are not allocated to the Company’s reportable segments.

 

18



 

Financial information with respect to reportable segments is presented below. Corporate and other items shown below are provided to reconcile to the accompanying consolidated statements of operations.

 

 

 

Three Months Ended
March 31,

 

 

 

2008

 

2007

 

 

 

(in thousands)

 

Net sales:

 

 

 

 

 

Communications cable

 

$

196,476

 

$

215,998

 

North American magnet wire and distribution

 

295,779

 

246,714

 

European magnet wire and distribution

 

233,959

 

160,393

 

Asia/Pacific magnet wire

 

16,684

 

126

 

Copper rod

 

14,262

 

72,397

 

 

 

$

757,160

 

$

695,628

 

Operating income (loss):

 

 

 

 

 

Communications cable

 

$

18,914

 

$

18,001

 

North American magnet wire and distribution (1)

 

5,798

 

9,522

 

European magnet wire and distribution

 

6,407

 

6,055

 

Asia/Pacific magnet wire

 

419

 

(976

)

Copper rod (2)

 

(1,309

)

(46

)

Corporate and other

 

(7,831

)

(6,910

)

Restructuring and other charges

 

(2,121

)

(874

)

 

 

$

20,277

 

$

24,772

 

 

 

 

March 31,
2008

 

December 31,
2007

 

 

 

(in thousands)

 

Total assets:

 

 

 

 

 

Communications cable

 

$

370,816

 

$

377,895

 

North American magnet wire and distribution

 

366,881

 

336,231

 

European magnet wire and distribution

 

433,684

 

405,307

 

Asia/Pacific magnet wire

 

82,772

 

74,746

 

Copper rod

 

12,407

 

15,560

 

Corporate and other

 

210

 

5,651

 

 

 

$

1,266,770

 

$

1,215,390

 

 


(1)                           Includes $6.1 million of accelerated depreciation charges related to restructuring activities for the three months ended March 31, 2008 (see note 4).

 

(2)                           Includes $1.3 million of accelerated depreciation charges related to restructuring activities for the three months ended March 31, 2008 (see note 4).

 

19



 

14.                               Supplemental guarantor information

 

The 9% senior unsecured notes were issued by Superior Essex Communications and Essex Group, as joint and several obligors. The notes are fully and unconditionally guaranteed by the Company and each of its existing and future domestic restricted subsidiaries (as defined in the indenture governing the notes). All of the Company’s current domestic subsidiaries, other than IP Licensing LLP, are restricted subsidiaries. The following consolidating information presents information about the Company (the “Parent”), the issuers, guarantor subsidiaries and non-guarantor subsidiaries. Investments in subsidiaries are presented on the equity method. Intercompany transactions are eliminated in consolidation.

 

 

 

Balance Sheet Information

 

 

 

March 31, 2008

 

 

 

Parent

 

Issuers

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Total

 

 

 

(in thousands)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

104

 

$

47,866

 

$

391

 

$

16,533

 

$

 

$

64,894

 

Accounts receivable, net

 

 

222,340

 

3,347

 

241,853

 

 

467,540

 

Inventories, net

 

 

163,982

 

24,812

 

145,922

 

 

334,716

 

Other current assets

 

1,700

 

7,797

 

588

 

18,441

 

(2,495

)

26,031

 

Total current assets

 

1,804

 

441,985

 

29,138

 

422,749

 

(2,495

)

893,181

 

Property, plant and equipment, net

 

739

 

179,501

 

15,434

 

132,268

 

 

327,942

 

Intangible and other long-term assets

 

161

 

28,961

 

10

 

16,931

 

(416

)

45,647

 

Investment in subsidiaries

 

313,725

 

179,343

 

250,348

 

 

(743,416

)

 

Intercompany accounts

 

137,658

 

 

35,048

 

 

(172,706

)

 

Total assets

 

$

454,087

 

$

829,790

 

$

329,978

 

$

571,948

 

$

(919,033

)

$

1,266,770

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

 

$

 

$

 

$

66,705

 

$

 

$

66,705

 

Current portion of long-term debt

 

 

 

 

1,187

 

 

1,187

 

Accounts payable

 

553

 

141,540

 

6,860

 

129,705

 

 

278,658

 

Accrued expenses

 

5,565

 

32,601

 

479

 

69,472

 

(2,495

)

105,622

 

Total current liabilities

 

6,118

 

174,141

 

7,339

 

267,069

 

(2,495

)

452,172

 

Long term-debt

 

 

259,865

 

5,000

 

22,858

 

 

287,723

 

Other long-term liabilities

 

9,217

 

39,156

 

3,914

 

33,192

 

(416

)

85,063

 

Intercompany accounts

 

 

38,423

 

 

134,283

 

(172,706

)

 

Total liabilities

 

15,335

 

511,585

 

16,253

 

457,402

 

(175,617

)

824,958

 

Minority interest

 

 

 

 

3,060

 

 

3,060

 

Stockholders’ equity

 

438,752

 

318,205

 

313,725

 

111,486

 

(743,416

)

438,752

 

 

 

$

454,087

 

$

829,790

 

$

329,978

 

$

571,948

 

$

(919,033

)

$

1,266,770

 

 

20



 

 

 

Balance Sheet Information
December 31, 2007

 

 

 

Parent

 

Issuers

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Total

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

180

 

$

79,379

 

$

168

 

$

22,950

 

$

 

$

102,677

 

Accounts receivable, net

 

 

176,299

 

2,815

 

224,018

 

 

403,132

 

Inventories, net

 

 

164,834

 

12,075

 

133,076

 

 

309,985

 

Other current assets

 

1,808

 

8,195

 

589

 

18,022

 

3,488

 

32,102

 

Total current assets

 

1,988

 

428,707

 

15,647

 

398,066

 

3,488

 

847,896

 

Property, plant and equipment, net

 

901

 

188,571

 

13,509

 

120,302

 

 

323,283

 

Intangible and other long-term assets

 

9,150

 

30,350

 

11

 

14,016

 

(9,316

)

44,211

 

Investment in subsidiaries

 

298,323

 

155,612

 

242,711

 

 

(696,646

)

 

Intercompany accounts

 

142,360

 

 

40,355

 

 

(182,715

)

 

Total assets

 

$

452,722

 

$

803,240

 

$

312,233

 

$

532,384

 

$

(885,189

)

$

1,215,390

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

 

$

 

$

 

$

65,859

 

$

 

$

65,859

 

Current portion of long-term debt

 

 

 

 

1,097

 

 

1,097

 

Accounts payable

 

265

 

111,857

 

5,219

 

127,701

 

 

245,042

 

Accrued expenses

 

3,376

 

32,846

 

78

 

60,182

 

3,488

 

99,970

 

Total current liabilities

 

3,641

 

144,703

 

5,297

 

254,839

 

3,488

 

411,968

 

Long term-debt

 

 

259,654

 

5,000

 

21,575

 

 

286,229

 

Other long-term liabilities

 

18,528

 

39,681

 

3,613

 

31,428

 

(9,316

)

83,934

 

Intercompany accounts

 

 

56,552

 

 

126,163

 

(182,715

)

 

Total liabilities

 

22,169

 

500,590

 

13,910

 

434,005

 

(188,543

)

782,131

 

Minority interest

 

 

 

 

2,706

 

 

2,706

 

Stockholders’ equity

 

430,553

 

302,650

 

298,323

 

95,673

 

(696,646

)

430,553

 

Total liabilities and stockholders’ equity

 

$

452,722

 

$

803,240

 

$

312,233

 

$

532,384

 

$

(885,189

)

1,215,390

 

 

21



 

 

 

Statement of Operations Information

 

 

 

Three Months Ended March 31, 2008

 

 

 

Parent

 

Issuers

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Total

 

 

 

(in thousands)

 

Net sales

 

$

7,680

 

$

473,007

 

$

62,418

 

$

289,532

 

$

(75,477

)

$

757,160

 

Cost of goods sold

 

 

433,891

 

57,401

 

267,619

 

(67,797

)

691,114

 

Gross profit

 

7,680

 

39,116

 

5,017

 

21,913

 

(7,680

)

66,046

 

Selling, general and administrative expenses

 

(7,680

)

(30,771

)

(180

)

(12,697

)

7,680

 

(43,648

)

Restructuring and other charges

 

 

(1,962

)

(40

)

(119

)

 

(2,121

)

Operating income

 

 

6,383

 

4,797

 

9,097

 

 

20,277

 

Interest expense

 

 

(7,461

)

(119

)

(3,268

)

2,530

 

(8,318

)

Interest income

 

2,129

 

529

 

405

 

61

 

(2,530

)

594

 

Other income (expense), net

 

29

 

(565

)

(30

)

(586

)

 

(1,152

)

Income (loss) before income taxes, equity in earnings of subsidiaries and minority interest

 

2,158

 

(1,114

)

5,053

 

5,304

 

 

11,401

 

Income tax expense

 

(666

)

219

 

(1,791

)

(1,479

)

 

(3,717

)

Equity in earnings of subsidiaries

 

5,949

 

6,925

 

3,110

 

 

(15,984

)

 

Minority interest in income of subsidiary

 

 

 

 

(243

)

 

(243

)

Net income

 

$

7,441

 

$

6,030

 

$

6,372

 

$

3,582

 

$

(15,984

)

$

7,441

 

 

 

 

Statement of Operations Information

 

 

 

Three Months Ended March 31, 2007

 

 

 

Parent

 

Issuers

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Total

 

 

 

(in thousands)

 

Net sales

 

$

6,937

 

$

529,167

 

$

52,262

 

$

168,812

 

$

(61,550

)

$

695,628

 

Cost of goods sold

 

 

483,776

 

48,793

 

156,427

 

(54,613

)

634,383

 

Gross profit

 

6,937

 

45,391

 

3,469

 

12,385

 

(6,937

)

61,245

 

Selling, general and administrative expenses

 

(6,903

)

(28,559

)

(182

)

(6,892

)

6,937

 

(35,599

)

Restructuring and other charges

 

(80

)

(39

)

 

(755

)

 

(874

)

Operating income (loss)

 

(46

)

16,793

 

3,287

 

4,738

 

 

24,772

 

Interest expense

 

(2

)

(8,382

)

(119

)

(905

)

1,758

 

(7,650

)

Interest income

 

1,758

 

730

 

 

16

 

(1,758

)

746

 

Other income (expense), net

 

46

 

(530

)

(11

)

(256

)

 

(751

)

Income before income taxes, equity in earnings of subsidiaries and minority interest

 

1,756

 

8,611

 

3,157

 

3,593

 

 

17,117

 

Income tax expense

 

(650

)

(2,959

)

(1,215

)

(2,085

)

 

(6,909

)

Equity in earnings of subsidiaries

 

8,052

 

2,478

 

6,110

 

 

(16,640

)

 

Minority interest in income of subsidiaries

 

 

 

 

(1,050

)

 

(1,050

)

Net income

 

$

9,158

 

$

8,130

 

$

8,052

 

$

458

 

$

(16,640

)

$

9,158

 

 

22



 

 

 

Statement of Cash Flows Information

 

 

 

Three Months Ended March 31, 2008

 

 

 

Parent

 

Issuers

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Total

 

 

 

(in thousands)

 

Cash flows provided by (used for) operating activities

 

$

3,184

 

$

(1,739

)

$

(7,248

)

$

(7,192

)

$

 

$

(12,995

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

(10

)

(3,190

)

(1,902

)

(6,938

)

 

(12,040

)

Investment in subsidiaries

 

 

(6,000

)

 

 

6,000

 

 

Intercompany accounts

 

7,591

 

 

9,373

 

 

(16,964

)

 

Cash flows provided by (used for) investing activities

 

7,581

 

(9,190

)

7,471

 

(6,938

)

(10,964

)

(12,040

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayments of short-term borrowings, net

 

 

 

 

(3,518

)

 

(3,518

)

Proceeds from exercise of stock options and employee stock purchases

 

28

 

 

 

 

 

28

 

Capital contributions

 

 

 

 

1,500

 

(1,500

)

 

Treasury stock purchases

 

(10,869

)

 

 

 

 

(10,869

)

Intercompany accounts

 

 

(20,584

)

 

8,120

 

12,464

 

 

Cash flows provided by (used for) financing activities

 

(10,841

)

(20,584

)

 

6,102

 

10,964

 

(14,359

)

Effect of exchange rate changes on cash

 

 

 

 

1,611

 

 

1,611

 

Net increase (decrease) in cash and cash equivalents

 

(76

)

(31,513

)

223

 

(6,417

)

 

(37,783

)

Cash and cash equivalents at beginning of period

 

180

 

79,379

 

168

 

22,950

 

 

102,677

 

Cash and cash equivalents at end of period

 

$

104

 

$

47,866

 

$

391

 

$

16,533

 

$

 

$

64,894

 

 

23



 

 

 

Statement of Cash Flows Information

 

 

 

Three Months Ended March 31, 2007

 

 

 

Parent

 

Issuers

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Total

 

 

 

(in thousands)

 

Cash flows provided by operating activities

 

$3,009

 

$29,915

 

$1,986

 

$19,351

 

$—

 

$54,261

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

(29

)

(2,875

)

(152

)

(8,623

)

 

(11,679

)

Intercompany accounts

 

(4,387

)

 

(1,719

)

 

6,106

 

 

Investment in subsidiaries

 

 

(2,400

)

 

 

2,400

 

 

Cash flows used for investing activities

 

(4,416

)

(5,275

)

(1,871

)

(8,623

)

8,506

 

(11,679

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayments of short-term borrowings, net

 

 

 

 

(18,223

)

 

(18,223

)

Proceeds from exercise of stock options and employee stock purchases

 

477

 

 

 

 

 

477

 

Capital contributions

 

 

 

 

600

 

(600

)

 

Other

 

439

 

 

 

 

 

 

439

 

Intercompany accounts

 

 

2,812

 

 

5,094

 

(7,906

)

 

Cash flows provided by (used for) financing activities

 

916

 

2,812

 

 

(12,529

)

(8,506

)

(17,307

)

Effect of exchange rate changes on cash

 

 

 

 

116

 

 

116

 

Net increase (decrease) in cash and cash equivalents

 

(491</