10-Q 1 a2013q110-q.htm 10-Q 2013 Q1 10-Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
Form 10-Q
 
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
OR 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission file number 333-174896

 
WireCo WorldGroup Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
27-0061302
 
 
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
 
 
12200 NW Ambassador Drive
Kansas City, Missouri
 
64163
 
 
(Address of registrant's executive offices)
 
(Zip Code)
 
 
(816) 270-4700
 
 
(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  ¨   NO  x 
NOTE: While the Registrant is a voluntary filer not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), the Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
 
¨
  
Accelerated filer
 
¨
 
 
 
 
 
 
 
 
Non-accelerated filer
 
x
  
Smaller reporting company
 
¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    YES  ¨   NO  x
There is no market for the Registrant’s equity, all of which is held by affiliates of WireCo WorldGroup (Cayman) Inc. (the “Company”). As of April 30, 2013 the Registrant had 100 shares of common stock outstanding.



WireCo WorldGroup Inc.
Quarterly Report
For the period ended March 31, 2013
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



1

PART I – FINANCIAL INFORMATION
Item 1.Financial Statements (unaudited)

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
Assets
March 31, 2013
 
December 31, 2012
Current assets:
 
 
 
Cash and cash equivalents
$
36,303

 
$
49,244

Restricted cash
4,101

 
4,254

Accounts receivable, less allowance for doubtful accounts of $3,341 and $3,416, at March 31, 2013 and December 31, 2012, respectively
174,014

 
152,998

Inventories, net
239,437

 
247,559

Current deferred income tax assets
4,265

 
5,128

Prepaid expenses and other current assets
21,543

 
14,507

Total current assets
$
479,663

 
$
473,690

Property, plant and equipment, less accumulated depreciation of $130,412 and $119,121, at March 31, 2013 and December 31, 2012, respectively
369,217

 
372,461

Intangible assets, net
155,806

 
162,876

Goodwill
195,333

 
197,437

Investments in non-consolidated affiliates
2,686

 
2,768

Deferred financing fees, net
26,162

 
27,923

Other non-current assets
12,914

 
13,105

Total assets
$
1,241,781

 
$
1,250,260

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Short-term borrowings
$
—

 
$
1,594

Current maturities of long-term debt
11,567

 
20,653

Interest payable
19,087

 
6,576

Accounts payable
84,129

 
83,086

Accrued compensation and benefits
17,789

 
16,697

Other current liabilities
24,141

 
19,479

Total current liabilities
$
156,713

 
$
148,085

Long-term debt, excluding current maturities
891,184

 
893,217

Non-current deferred income tax liabilities
64,001

 
65,291

Other non-current liabilities
29,164

 
31,655

Total liabilities
$
1,141,062

 
$
1,138,248

Commitments and contingencies


 


Stockholders’ equity:
 
 
 
Common stock, $0.01 par value. 3,000,000 shares authorized; 2,053,174 shares issued and 2,004,005 shares outstanding at March 31, 2013 and December 31, 2012
$
21

 
$
21

Additional paid-in capital
219,771

 
219,137

Accumulated other comprehensive loss
(24,545
)
 
(24,028
)
Accumulated deficit
(79,953
)
 
(68,350
)
Treasury stock, at cost. 49,169 shares at March 31, 2013 and December 31, 2012
(14,465
)
 
(14,465
)
Total stockholders’ equity attributable to WireCo WorldGroup (Cayman) Inc.
$
100,829

 
$
112,315

Non-controlling interests
(110
)
 
(303
)
Total stockholders’ equity
$
100,719

 
$
112,012

Total liabilities and stockholders’ equity
$
1,241,781

 
$
1,250,260

The accompanying notes are an integral part of the unaudited consolidated financial statements.

2
WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands)
(unaudited)


 
 
Three months ended
 
 
March 31,
 
 
2013
 
2012
Net sales
 
$
222,643

 
$
166,475

Cost of sales
 
(168,017
)
 
(127,083
)
Gross profit
 
$
54,626

 
$
39,392

Other operating expenses:
 

 

Selling expenses
 
(11,143
)
 
(6,345
)
Administrative expenses
 
(21,019
)
 
(12,229
)
Amortization expense
 
(4,158
)
 
(3,202
)
Total other operating expenses
 
$
(36,320
)
 
$
(21,776
)
Operating income
 
$
18,306

 
$
17,616

Other income (expense):
 

 

Interest expense, net
 
(20,107
)
 
(11,570
)
Equity in loss of non-consolidated affiliates, net
 
(34
)
 
(440
)
Foreign currency exchange gains (losses), net
 
(10,854
)
 
8,063

Other expense, net
 
(119
)
 
(10
)
Total other expense, net
 
$
(31,114
)
 
$
(3,957
)
Income (loss) before income taxes
 
$
(12,808
)
 
$
13,659

Income tax benefit (expense)
 
1,439

 
(4,949
)
Net income (loss)
 
$
(11,369
)
 
$
8,710

Less: Net income (loss) attributable to non-controlling interests
 
234

 
(405
)
Net income (loss) attributable to WireCo WorldGroup (Cayman) Inc.
 
$
(11,603
)
 
$
9,115

The accompanying notes are an integral part of the unaudited consolidated financial statements.


3
WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)


 
 
Three months ended
 
 
March 31,
 
 
2013
 
2012
Net income (loss)
 
$
(11,369
)
 
$
8,710

Other comprehensive income (loss):
 
 
 
 
Foreign currency translation gain (loss)
 
(558
)
 
11,795

Comprehensive income (loss)
 
$
(11,927
)
 
$
20,505

Less: Comprehensive income attributable to non-controlling interests
 
193

 
85

Comprehensive income (loss) attributable to WireCo WorldGroup (Cayman) Inc.
 
$
(12,120
)
 
$
20,420

The accompanying notes are an integral part of the unaudited consolidated financial statements.



4
WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)


 
 
Three months ended
 
 
March 31,
 
 
2013
 
2012
Cash flows from operating activities:
 
 
 
 
Net income (loss)
 
$
(11,369
)
 
$
8,710

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

 

Depreciation and amortization
 
13,777

 
10,035

Amortization of debt issuance costs, discounts and premium
 
2,159

 
1,719

Equity in loss of non-consolidated affiliates, net
 
34

 
440

Shared-based compensation
 
634

 
269

Other non-cash items
 
834

 
(1,870
)
Unrealized foreign currency exchange losses (gains), net
 
8,795

 
(8,233
)
Provision for deferred income taxes
 
862

 
374

Changes in assets and liabilities:
 

 

Accounts receivable
 
(23,359
)
 
(8,720
)
Inventories
 
5,269

 
1,823

Prepaids and other assets
 
(7,171
)
 
(3,345
)
Interest payable
 
12,516

 
10,093

Accounts payable
 
1,677

 
(5,224
)
Other accrued liabilities
 
7,458

 
3,893

Net cash provided by operating activities
 
$
12,116

 
$
9,964

Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(11,464
)
 
(7,131
)
Investments in non-consolidated affiliates
 
(34
)
 
(442
)
Net cash used in investing activities
 
$
(11,498
)
 
$
(7,573
)
Cash flows from financing activities:
 
 
 
 
Principal payments on long-term debt
 
(9,368
)
 
(4,790
)
Net borrowings under former revolving credit agreements
 
—

 
6,893

Borrowings under current Revolving Loan Facility
 
31,250

 
—

Repayments under current Revolving Loan Facility
 
(32,850
)
 
—

Repayments of short-term borrowings
 
(1,586
)
 
—

Acquisition installment payments
 
—

 
(4,255
)
Net cash used in financing activities
 
$
(12,554
)
 
$
(2,152
)
Effect of exchange rates on cash and cash equivalents
 
(1,005
)
 
1,376

Increase (decrease) in cash and cash equivalents
 
$
(12,941
)
 
$
1,615

Cash and cash equivalents, beginning of period
 
49,244

 
27,663

Cash and cash equivalents, end of period
 
$
36,303

 
$
29,278

Supplemental Disclosure of Cash Flow Information:
 
 
 
 
Cash paid for interest, net of interest capitalized
 
$
5,491

 
$
1,824

Cash paid for income taxes, net of refunds
 
1,700

 
(399
)
The accompanying notes are an integral part of the unaudited consolidated financial statements.

5
WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands)
(unaudited)


(1) Interim Financial Statement Presentation
The financial information included in this quarterly report on Form 10-Q are those of WireCo WorldGroup (Cayman) Inc., the indirect parent of WireCo WorldGroup Inc., its wholly-owned subsidiaries and subsidiaries in which it has a controlling interest (the “Company”), and contains certain footnote disclosures regarding the financial information of WireCo WorldGroup (Cayman) Inc. and certain of its wholly-owned subsidiaries that guarantee, subject to customary release provisions, substantially all of the outstanding indebtedness of WireCo WorldGroup Inc. The consolidated financial statements include the activity of two entities located in Brazil and the United States ("U.S."), which are not wholly-owned, but which the Company has control. The Company reports the non-controlling interests in these consolidated subsidiaries as a component of equity separate from the Company's equity. The Company's ownership interest in certain other entities are accounted for under the equity method and are not consolidated. All intercompany transactions and balances have been eliminated in consolidation.
The accompanying unaudited interim consolidated financial statements included herein have been prepared in U.S. dollars and in accordance with U.S. generally accepted accounting principles (“GAAP”) by the Company without audit in accordance with the U.S. Securities and Exchange Commission (“SEC”) requirements for quarterly reports on Form 10-Q and, accordingly, do not include all of the annual disclosures required by U.S. GAAP. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2012.
In the opinion of management, the unaudited interim consolidated financial statements reflect all normal, recurring adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented using management’s best estimates and assumptions where appropriate. Management’s estimates and assumptions about future events affect reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates are inherently subject to judgment and actual results could differ.

(2) Inventories
The major classes of inventories were as follows as of the dates indicated:
 
 
March 31, 2013
 
December 31, 2012
Raw materials
 
$
75,318

 
$
82,558

Work in process
 
27,656

 
22,906

Finished goods, net
 
136,463

 
142,095

Inventories, net
 
$
239,437

 
$
247,559


6
WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

(3) Intangible Assets and Goodwill
The components of intangible assets were as follows as of the dates indicated:
 
 
March 31, 2013
 
December 31, 2012
 
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net
carrying
amount
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net
carrying
amount
Finite-lived Assets
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
 
$
129,506

 
$
(71,236
)
 
$
58,270

 
$
130,433

 
$
(67,382
)
 
$
63,051

Trade name
 
682

 
(276
)
 
406

 
682

 
(265
)
 
417

Patented and unpatented technology
 
23,539

 
(8,122
)
 
15,417

 
23,792

 
(7,760
)
 
16,032

Other
 
6,240

 
(5,912
)
 
328

 
6,320

 
(5,961
)
 
359

Total finite-lived intangible assets
 
$
159,967

 
$
(85,546
)
 
$
74,421

 
$
161,227

 
$
(81,368
)
 
$
79,859

Indefinite-lived Asset
 
 
 
 
 
 
 
 
 
 
 
 
Trade names
 
81,385

 
 
 
81,385

 
83,017

 
 
 
83,017

Total intangible assets
 
$
241,352

 
$
(85,546
)
 
$
155,806

 
$
244,244

 
$
(81,368
)
 
$
162,876


Using the exchange rates in effect at period end, estimated amortization of intangible assets as of March 31, 2013 was as follows:
Remainder of 2013
 
$
11,898

2014
 
10,908

2015
 
10,013

2016
 
9,775

2017
 
7,917

Thereafter
 
23,910

Total
$
74,421


The change in the carrying value of goodwill was as follows as of the dates indicated:
 
Lifting Products
 
All other
 
Total
December 31, 2012
$
179,224

 
$
18,213

 
$
197,437

Foreign currency translation
(1,567
)
 
(537
)
 
(2,104
)
March 31, 2013
$
177,657

 
$
17,676

 
$
195,333


7
WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

(4) Borrowings
Long-term debt consisted of the following as of the dates indicated:
 
 
March 31, 2013
 
December 31, 2012
Borrowings under Revolving Loan Facility
 
$
48,676

 
$
50,276

Polish Debt due 2014
 
16,332

 
25,882

Term Loan due 2017
 
333,325

 
334,163

9.5% Senior Notes due 2017
 
425,000

 
425,000

11.75% Senior Notes due 2017
 
82,500

 
82,500

Other indebtedness
 
782

 
575

Total debt at face value
 
$
906,615

 
$
918,396

Less: Unamortized discount, net
 
(3,864
)
 
(4,526
)
Less: Current maturities of long-term debt
 
(11,567
)
 
(20,653
)
Total long-term debt
 
$
891,184

 
$
893,217

As of March 31, 2013, the Company was in compliance with all restrictive and financial covenants associated with its borrowings. For a detailed discussion of the Company's borrowings, see Note 8—”Borrowings” to the Company's audited consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of the annual report on Form 10-K for the year ended December 31, 2012.

Senior Secured Credit Facilities - Revolving Loan Facility and Term Loan due 2017
As of March 31, 2013, the Company's maximum borrowing capacity and availability under the Revolving Loan Facility was $145,000 and $96,324, respectively. The interest rate on the Revolving Loan Facility and Term Loan due 2017 at March 31, 2013, was 7% and 6%, respectively. Cash flows under the Revolving Loan Facility are presented gross based on the terms of the arrangement.

Interest expense, net
Net interest expense consists of:
 
 
Three months ended
 
 
March 31,
 
 
2013
 
2012
Interest on long-term debt and revolvers
 
$
18,233

 
$
12,034

Amortization of debt issuance costs, discounts and premium
 
2,159

 
1,719

Capitalized interest
 
(275
)
 
(2,120
)
Other
 
(10
)
 
(63
)
Interest expense, net
 
$
20,107

 
$
11,570



8
WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

(5) Fair Value Measurements
The Company’s short-term financial instruments include cash and cash equivalents, accounts receivable and accounts payable. The carrying amounts reported on the consolidated balance sheets for these items approximate fair market value due to their relative short-term nature.
The carrying amounts and estimated fair values of the Company’s long-term debt at March 31, 2013 were as follows:
 
 
Carrying
amount
 
Estimated
fair value
Revolving Loan Facility
 
$
48,676

 
$
48,676

Polish Debt due 2014
 
14,535

 
14,667

Term Loan due 2017
 
330,522

 
337,492

9.5% Senior Notes due 2017
 
425,736

 
444,125

11.75% Senior Notes due 2017
 
82,500

 
83,325

As the Revolving Loan Facility is a revolving credit agreement, the carrying amount approximates fair value. The estimated fair value of the Polish Debt, which is not actively traded, is determined using a discounted cash flow model (Level 3 inputs). The estimated fair value of the Term Loan due 2017 is based on rates currently available for obligations with similar terms and maturities (Level 2 inputs). The estimated fair value of the 9.5% Senior Notes is based on current market rates in inactive markets (Level 2 inputs) and the estimated fair value of the privately placed 11.75% Senior Notes is based on a model that incorporates assumptions a market participant would use in pricing the liability (Level 3 inputs).

(6) Income Taxes
The Company determines the interim tax provision by applying an estimate of the annual effective tax rate to the year-to-date pretax book income and adjusts for discrete items, if any, during the reporting period. The effective income tax rate was 11.2% and 36.2% for the three months ended March 31, 2013 and 2012, respectively.
The effective tax rate for the first quarter of 2013 and 2012 includes a valuation allowance against the Company's U.S. income tax net operating losses and U.S. interest expense deferred tax asset carryforwards as it is more likely than not that a tax benefit will not be realized. The decrease in the effective tax rate from the first quarter of 2013 as compared to the first quarter of 2012 was primarily due to a smaller proportion of the Company's income being earned in countries with higher tax rates. The decrease in income in higher tax jurisdictions can be explained in part by unrealized foreign exchange losses during the period. This decrease was reduced by the increase in the expected effective tax rate attributable to the July 2012 Lankhorst acquisition.
Unrecognized tax benefits increased $690 for the three months ended March 31, 2013.

(7) Contingencies
The Company is involved in various claims and legal actions arising in the ordinary course of business, which are incidental to its operations. The Company currently maintains insurance coverage for certain risks, such as product liability and workers’ compensation. The Company establishes accruals for litigation matters when the Company believes it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. As of March 31, 2013, the Company had accrued approximately $655 for certain outstanding legal proceedings.
If the Company has not accrued an amount because the litigation does not meet the criteria for accrual as set forth above, the Company discloses the matter if a material loss is reasonably possible and the Company is able to estimate a range of possible losses. At March 31, 2013, no legal proceedings met that criteria.

9
WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

(8) Segment Reporting
The Company reports the manufacturing, marketing, selling and distribution of steel and synthetic ropes, electromechanical cable, fabricated products, specialty steel wire and synthetic yarns as one reportable segment entitled Lifting Products. The Company aggregated ten of its total eleven operating segments, which operate in geographic regions (including the United States, Mexico, Germany, Portugal and Poland) and product divisions (including maritime and offshore rope, yarn, composites, fishing and a majority owned location in Brazil), into one reportable segment as they had similar economic and other characteristics, such as production and distribution processes, product offerings and customers. The engineered products division was not aggregated. As this operating segment did not meet the quantitative threshold determined on an annual basis, the Company included its results in the "all other" category, as a reconciling item to consolidated amounts.
Financial information for the Company's only reportable segment, reconciled to the consolidated amounts, is presented below. For the first quarter of 2012, all of the Company's operating segments were able to be aggregated into one reportable segment with no reconciling items to the consolidated financial statements.
 
 
 
 
Three months ended
 
 
 
 
March 31,
 
 
 
 
2013
 
2012
Net sales
 
 
 
 
Lifting Products
$
193,268

 
$
166,475

 
All other
29,375

 
—

 
 
Total net sales
$
222,643

 
$
166,475

 
 
 
 
 
 
 
Operating income
 
 
 
 
Lifting Products
$
13,760

 
$
17,616

 
All other
4,546

 
—

 
 
Total operating income
$
18,306

 
$
17,616

 
 
 
 
 
 
 
 
 
 
 
March 31, 2013
 
December 31, 2012
Total assets
 
 
 
 
Lifting Products
$
1,140,851

 
$
1,160,518

 
All other
100,930

 
89,742

 
 
Total assets
$
1,241,781

 
$
1,250,260


10
WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

(9) Condensed Consolidating Financial Statements
Guarantees of the 9.5% Senior Notes
The Company has registered 9.5% Senior Notes, which are unsecured obligations of WireCo WorldGroup Inc. (the “Issuer”). These obligations are jointly and severally and fully and unconditionally guaranteed by WireCo WorldGroup (Cayman) Inc. ("Parent"). Certain entities controlled by the Company (collectively referred to as the “Guarantors”) also jointly and severally and fully and unconditionally guarantee these obligations, subject to customary release provisions. All voting shares for the entities presented in the “Guarantors” column are 100% owned directly or indirectly by the Company. WRCA Hong Kong Holding Company Limited, which holds the investment in the China JV, certain Lankhorst subsidiaries with significant locations in the Netherlands and France, the majority-owned location in Brazil and all joint ventures are collectively referred to as the “Non-Guarantor Subsidiaries”. There are currently no significant restrictions on the ability of WireCo WorldGroup Inc. or any guarantor to obtain funds from its subsidiaries by dividend or loan.
The following condensed consolidating financial statements are prepared with each entity’s investment in subsidiaries accounted for under the equity method. The total stockholders' equity presentation under the parent, guarantor and elimination columns was adjusted to reflect equity method accounting for accumulated other comprehensive income and comprehensive income. The adjustments eliminate investments in subsidiaries, related stockholders’ equity and other intercompany balances and transactions. During the first quarter of 2013, Lankhorst Touwfabrieken B.V. and Lankhorst Recycling Deutschland GmbH became guarantors. Also, during the third quarter of 2012, the Issuer sold its investment in the stock of two Mexican subsidiaries to a foreign affiliate. Following the completion of this intercompany sale, the Mexican subsidiaries became guarantors. These changes in the guarantor pool have been retroactively reflected in all condensed consolidating financial statements presented.



11
WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

Condensed Consolidating Balance Sheets
 
March 31, 2013
 
WireCo
WorldGroup
(Cayman) Inc.
(Parent)
 
WireCo
WorldGroup
Inc.
(Issuer)
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Elimination
Adjustments
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
18

 
$
4,999

 
$
17,373

 
$
13,913

 
$
—

 
$
36,303

Restricted cash
—

 
—

 
1,028

 
3,073

 
—

 
4,101

Accounts receivable, net
—

 
49,940

 
96,871

 
27,203

 
—

 
174,014

Intercompany accounts receivable
17,718

 
59,416

 
59,955

 
3,327

 
(140,416
)
 
—

Inventories, net
—

 
94,347

 
121,043

 
32,565

 
(8,518
)
 
239,437

Current deferred income tax assets
—

 
3,240

 
1,016

 
9

 
—

 
4,265

Prepaid expenses and other current assets
—

 
4,537

 
14,398

 
2,608

 
—

 
21,543

Total current assets
$
17,736

 
$
216,479

 
$
311,684

 
$
82,698

 
$
(148,934
)
 
$
479,663

Long-term intercompany notes receivable
—

 
488,665

 
40,733

 
112,000

 
(641,398
)
 
—

Property, plant and equipment, net
—

 
63,651

 
253,813

 
51,753

 
—

 
369,217

Intangible assets, net
—

 
41,386

 
88,530

 
25,890

 
—

 
155,806

Goodwill
—

 
117,855

 
53,842

 
23,636

 
—

 
195,333

Investments in subsidiaries
90,789

 
—

 
187,866

 
—

 
(278,655
)
 
—

Investment in non-consolidated affiliates
—

 
—

 
2,686

 
—

 
—

 
2,686

Deferred financing fees, net
—

 
26,162

 
—

 
—

 
—

 
26,162

Other non-current assets
—

 
168

 
12,597

 
180

 
(31
)
 
12,914

Total assets
$
108,525

 
$
954,366

 
$
951,751

 
$
296,157

 
$
(1,069,018
)
 
$
1,241,781

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
Current maturities of long-term debt
$
—

 
$
3,350

 
$
8,217

 
$
—

 
$
—

 
$
11,567

Interest payable
—

 
18,988

 
34

 
(118
)
 
183

 
19,087

Accounts payable
—

 
12,977

 
51,800

 
19,352

 
—

 
84,129

Accrued compensation and benefits
—

 
6,244

 
11,583

 
(38
)
 
—

 
17,789

Intercompany accounts payable
1,106

 
68,949

 
66,001

 
4,793

 
(140,849
)
 
—

Other current accrued liabilities
—

 
3,471

 
14,484

 
5,892

 
294

 
24,141

Total current liabilities
$
1,106

 
$
113,979

 
$
152,119

 
$
29,881

 
$
(140,372
)
 
$
156,713

Long-term debt, excluding current maturities
—

 
884,083

 
7,035

 
66

 
—

 
891,184

Long-term intercompany notes payable
6,700

 
—

 
595,142

 
43,050

 
(644,892
)
 
—


12
WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

Non-current deferred income tax liabilities
—

 
7,010

 
44,224

 
12,767

 
—

 
64,001

Other non-current accrued liabilities
—

 
7,629

 
19,732

 
(1,759
)
 
3,562

 
29,164

Total liabilities
$
7,806

 
$
1,012,701

 
$
818,252

 
$
84,005

 
$
(781,702
)
 
$
1,141,062

Stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
Total stockholders’ equity attributable to WireCo WorldGroup (Cayman) Inc.
100,829

 
(58,335
)
 
133,609

 
210,015

 
(285,289
)
 
100,829

Non-controlling interests
(110
)
 
—

 
(110
)
 
2,137

 
(2,027
)
 
(110
)
Total stockholders’ equity
$
100,719

 
$
(58,335
)
 
$
133,499

 
$
212,152

 
$
(287,316
)
 
$
100,719

Total liabilities and stockholders’ equity
$
108,525

 
$
954,366

 
$
951,751

 
$
296,157

 
$
(1,069,018
)
 
$
1,241,781


13
WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

 
December 31, 2012
 
WireCo
WorldGroup
(Cayman)
Inc.
(Parent)
 
WireCo
WorldGroup
Inc.
(Issuer)
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Elimination
Adjustments
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
34

 
$
2,867

 
$
24,993

 
$
21,350

 
$
—

 
$
49,244

Restricted cash
—

 
—

 
1,059

 
3,195

 
—

 
4,254

Accounts receivable, net
—

 
46,449

 
80,852

 
25,697

 
—

 
152,998

Intercompany accounts receivable
17,145

 
47,156

 
49,251

 
982

 
(114,534
)
 
—

Short-term intercompany notes receivable
—

 
3,163

 
—

 
—

 
(3,163
)
 
—

Inventories, net
—

 
97,057

 
127,022

 
32,282

 
(8,802
)
 
247,559

Current deferred income tax assets
—

 
3,240

 
1,888

 
—

 
—

 
5,128

Prepaid expenses and other current assets
—

 
2,163

 
10,932

 
1,412

 
—

 
14,507

Total current assets
$
17,179

 
$
202,095

 
$
295,997

 
$
84,918

 
$
(126,499
)
 
$
473,690

Long-term intercompany notes receivable
—

 
485,185

 
41,921

 
113,215

 
(640,321
)
 
—

Property, plant and equipment, net
—

 
65,158

 
253,800

 
53,503

 
—

 
372,461

Intangible assets, net
—

 
42,818

 
92,897

 
27,161

 
—

 
162,876

Goodwill
—

 
117,855

 
54,752

 
24,830

 
—

 
197,437

Investment in subsidiaries
102,558

 
—

 
170,145

 
—

 
(272,703
)
 
—

Investment in non-consolidated affiliates
—

 
—

 
2,768

 
—

 
—

 
2,768

Deferred financing fees, net
—

 
27,923

 
—

 
—

 
—

 
27,923

Other non-current assets
—

 
177

 
12,897

 
31

 
—

 
13,105

Total assets
$
119,737

 
$
941,211

 
$
925,177

 
$
303,658

 
$
(1,039,523
)
 
$
1,250,260

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
Short-term borrowings
$
—

 
$
—

 
$
—

 
$
1,594

 
$
—

 
$
1,594

Current maturities of long-term debt
—

 
3,350

 
17,303

 
—

 
—

 
20,653

Interest payable
—

 
6,471

 
35

 
70

 
—

 
6,576

Accounts payable
—

 
14,829

 
47,294

 
20,963

 
—

 
83,086

Accrued compensation and benefits
—

 
4,687

 
9,195

 
2,815

 
—

 
16,697

Intercompany accounts payable
1,025

 
57,790

 
50,756

 
3,624

 
(113,195
)
 
—

Short-term intercompany notes payable
—

 
—

 
7,304

 
—

 
(7,304
)
 
—

Other current accrued liabilities
—

 
3,609

 
13,709

 
3,396

 
(1,235
)
 
19,479

Total current liabilities
$
1,025

 
$
90,736

 
$
145,596

 
$
32,462

 
$
(121,734
)
 
$
148,085


14
WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

Long-term debt, excluding current maturities
—

 
886,383

 
6,834

 
—

 
—

 
893,217

Long-term intercompany notes payable
6,700

 
—

 
590,329

 
43,273

 
(640,302
)
 
—

Non-current deferred income tax liabilities
—

 
7,010

 
44,938

 
13,343

 
—

 
65,291

Other non-current accrued liabilities
—

 
7,508

 
21,825

 
(1,812
)
 
4,134

 
31,655

Total liabilities
$
7,725

 
$
991,637

 
$
809,522

 
$
87,266

 
$
(757,902
)
 
$
1,138,248

Stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
Total stockholders’ equity attributable to WireCo WorldGroup (Cayman) Inc.
112,315

 
(50,426
)
 
115,958

 
214,787

 
(280,319
)
 
112,315

Non-controlling interests
(303
)
 
—

 
(303
)
 
1,605

 
(1,302
)
 
(303
)
Total stockholders’ equity
$
112,012

 
$
(50,426
)
 
$
115,655

 
$
216,392

 
$
(281,621
)
 
$
112,012

Total liabilities and stockholders’ equity
$
119,737

 
$
941,211

 
$
925,177

 
$
303,658

 
$
(1,039,523
)
 
$
1,250,260




15
WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
 
Three months ended March 31, 2013
 
WireCo
WorldGroup
(Cayman)
Inc. (Parent)
 
WireCo
WorldGroup
Inc. (Issuer)
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Elimination
Adjustments
 
Consolidated
Net sales
$
—

 
$
79,542

 
$
130,340

 
$
42,221

 
$
(29,460
)
 
$
222,643

Cost of sales
—

 
(61,650
)
 
(101,258
)
 
(34,852
)
 
29,743

 
(168,017
)
Gross profit
—

 
17,892

 
29,082

 
7,369

 
283

 
54,626

Other operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Selling expenses
—

 
(3,413
)
 
(5,767
)
 
(1,963
)
 
—

 
(11,143
)
Administrative expenses
(75
)
 
(10,058
)
 
(8,731
)
 
(2,155
)
 
—

 
(21,019
)
Amortization expense
—

 
(1,432
)
 
(2,194
)
 
(532
)
 
—

 
(4,158
)
Total other operating expenses
(75
)
 
(14,903
)
 
(16,692
)
 
(4,650
)
 
—

 
(36,320
)
Operating income (loss)
(75
)
 
2,989

 
12,390

 
2,719

 
283

 
18,306

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income (expense), net
(101
)
 
(10,808
)
 
(10,200
)
 
1,002

 
—

 
(20,107
)
Equity in loss of non-consolidated affiliates, net
—

 
(34
)
 
—

 
—

 
—

 
(34
)
Equity earnings (losses) from subsidiaries
(11,427
)
 
—

 
6,506

 
—

 
4,921

 
—

Foreign currency exchange gains (losses), net
—

 
206

 
(13,450
)
 
2,390

 
—

 
(10,854
)
Other income (expense), net
—

 
(139
)
 
18

 
2

 
—

 
(119
)
Total other income (expense), net
(11,528
)
 
(10,775
)
 
(17,126
)
 
3,394

 
4,921

 
(31,114
)
Income (loss) before income taxes
(11,603
)
 
(7,786
)
 
(4,736
)
 
6,113

 
5,204

 
(12,808
)
Income tax benefit (expense)
—

 
(123
)
 
1,451

 
111

 
—

 
1,439

Net income (loss)
(11,603
)
 
(7,909
)
 
(3,285
)
 
6,224

 
5,204

 
(11,369
)
Less: Net income (loss) attributable to non-controlling interests
—

 
—

 
(262
)
 
496

 
—

 
234

Net income (loss) attributable to WireCo WorldGroup (Cayman) Inc.
$
(11,603
)
 
$
(7,909
)
 
$
(3,023
)
 
$
5,728

 
$
5,204

 
$
(11,603
)
Comprehensive income (loss)
$
(11,927
)
 
$
(7,909
)
 
$
(3,843
)
 
$
17,394

 
$
(5,642
)
 
$
(11,927
)
 

16
WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

 
Three months ended March 31, 2012
 
WireCo
WorldGroup
(Cayman)
Inc. (Parent)
 
WireCo
WorldGroup
Inc. (Issuer)
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Elimination
Adjustments
 
Consolidated
Net sales
$
—

 
$
83,991

 
$
109,039

 
$
—

 
$
(26,555
)
 
$
166,475

Cost of sales
—

 
(66,448
)
 
(85,736
)
 
—

 
25,101

 
(127,083
)
Gross profit
—

 
17,543

 
23,303

 
—

 
(1,454
)
 
39,392

Other operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Selling expenses
—

 
(2,962
)
 
(3,383
)
 
—

 
—

 
(6,345
)
Administrative expenses
(282
)
 
(12,613
)
 
737

 
(71
)
 
—

 
(12,229
)
Amortization expense
—

 
(1,432
)
 
(1,770
)
 
—

 
—

 
(3,202
)
Total other operating expenses
(282
)
 
(17,007
)
 
(4,416
)
 
(71
)
 
—

 
(21,776
)
Operating income (loss)
(282
)
 
536

 
18,887

 
(71
)
 
(1,454
)
 
17,616

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
—

 
(9,024
)
 
(2,546
)
 
—

 
—

 
(11,570
)
Equity in loss of non-consolidated affiliates, net
—

 
(442
)
 
—

 
—

 
2

 
(440
)
Equity earnings (losses) from subsidiaries
9,396

 
2,143

 
(7,790
)
 
—

 
(3,749
)
 
—

Foreign currency exchange gains (losses), net
1

 
(1,074
)
 
9,136

 
—

 
—

 
8,063

Other income (expense), net
—

 
(74
)
 
64

 
—

 
—

 
(10
)
Other expense, net
9,397

 
(8,471
)
 
(1,136
)
 
—

 
(3,747
)
 
(3,957
)
Income (loss) before income taxes
9,115

 
(7,935
)
 
17,751

 
(71
)
 
(5,201
)
 
13,659

Income tax expense
—

 
(462
)
 
(4,487
)
 
—

 
—

 
(4,949
)
Net income (loss)
9,115

 
(8,397
)
 
13,264

 
(71
)
 
(5,201
)
 
8,710

Less: Net loss attributable to non-controlling interests
—

 
—

 
(405
)
 
—

 
—

 
(405
)
Net income (loss) attributable to WireCo WorldGroup (Cayman) Inc.
$
9,115

 
$
(8,397
)
 
$
13,669

 
$
(71
)
 
$
(5,201
)
 
$
9,115

Comprehensive income (loss)
$
20,505

 
$
(8,397
)
 
$
25,059

 
$
(71
)
 
$
(16,591
)
 
$
20,505




17
WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

Condensed Consolidating Statements of Cash Flows
 
Three months ended March 31, 2013
 
WireCo
WorldGroup
(Cayman)
Inc. (Parent)
 
WireCo
WorldGroup
Inc. (Issuer)
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Elimination
Adjustments
 
Consolidated
Net cash provided by (used in) operating activities
$
(16
)
 
$
6,367

 
$
5,464

 
$
301

 
$
—

 
$
12,116

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
(1,446
)
 
(8,983
)
 
(1,035
)
 
—

 
(11,464
)
Investments in non-consolidated affiliates
—

 
(34
)
 
—

 
—

 
—

 
(34
)
Intercompany dividends received
—

 
—

 
4,008

 
—

 
(4,008
)
 
—

Net cash used in investing activities
—

 
(1,480
)
 
(4,975
)
 
(1,035
)
 
(4,008
)
 
(11,498
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
Principal payments on long-term debt
—

 
(838
)
 
(8,530
)
 
—

 
—

 
(9,368
)
Increases (decreases) in intercompany notes
—

 
(317
)
 
962

 
(645
)
 
—

 
—

Borrowings under Revolving Loan Facility
—

 
31,250

 
—

 
—

 
—

 
31,250

Repayments under Revolving Loan Facility
—

 
(32,850
)
 
—

 
—

 
—

 
(32,850
)
Repayments of short-term borrowings
—

 
—

 
—

 
(1,586
)
 
—

 
(1,586
)
Intercompany dividends paid
—

 
—

 
—

 
(4,008
)
 
4,008

 
—

Net cash used in financing activities
—

 
(2,755
)
 
(7,568
)
 
(6,239
)
 
4,008

 
(12,554
)
Effect of exchange rates on cash and cash equivalents
—

 
—

 
(541
)
 
(464
)
 
—

 
(1,005
)
Increase (decrease) in cash and cash equivalents
(16
)
 
2,132

 
(7,620
)
 
(7,437
)
 
—

 
(12,941
)
Cash and cash equivalents, beginning of period
34

 
2,867

 
24,993

 
21,350

 
—

 
49,244

Cash and cash equivalents, end of period
$
18

 
$
4,999

 
$
17,373

 
$
13,913

 
$
—

 
$
36,303



18
WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

 
Three months ended March 31, 2012
 
WireCo
WorldGroup
(Cayman)
Inc. (Parent)
 
WireCo
WorldGroup
Inc. (Issuer)
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Elimination
Adjustments
 
Consolidated
Net cash provided by (used in) operating activities
$
(3
)
 
$
2,671

 
$
7,296

 
$
—

 
$
—

 
$
9,964

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
(2,090
)
 
(5,041
)
 
—

 
—

 
(7,131
)
Investments in non-consolidated affiliates
—

 
(442
)
 
—

 
—

 
—

 
(442
)
Net cash used in investing activities
—

 
(2,532
)
 
(5,041
)
 
—

 
—

 
(7,573
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
Principal payments on long-term debt
—

 
(250
)
 
(4,540
)
 
—

 
—

 
(4,790
)
Net borrowings under revolving credit agreements
—

 
6,893

 
—

 
—

 
—

 
6,893

Acquisition installment payments
—

 
—

 
(4,255
)
 
—

 
—

 
(4,255
)
Increases (decreases) in intercompany notes
—

 
(6,233
)
 
6,233

 
—

 
—

 
—

Net cash provided by (used in) financing activities
—

 
410

 
(2,562
)
 
—

 
—

 
(2,152
)
Effect of exchange rates on cash and cash equivalents
—

 
—

 
1,376

 
—

 
—

 
1,376

Increase (decrease) in cash and cash equivalents
(3
)
 
549

 
1,069

 
—

 
—

 
1,615

Cash and cash equivalents, beginning of period
3

 
2,265

 
25,385

 
10

 
—

 
27,663

Cash and cash equivalents, end of period
$
—

 
$
2,814

 
$
26,454

 
$
10

 
$
—

 
$
29,278




19

Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Unless the context otherwise requires, the use of the terms “WireCo,” the “Company,” “we,” “our” or “us” in the following refers to WireCo WorldGroup (Cayman) Inc., its wholly-owned subsidiaries and subsidiaries in which it has a controlling interest.
Management’s Discussion and Analysis (“MD&A”) provides a reader of our financial statements with a narrative from the perspective of our management on our consolidated financial condition, results of operations, liquidity and capital resources on a historical basis and certain other factors that have affected recent earnings, as well as those factors that may affect future earnings. This MD&A is provided as a supplement to, and should be read in conjunction with the unaudited interim consolidated financial statements and accompanying notes included in this quarterly report. Additionally, our MD&A should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2012.

Forward-Looking Statements
This quarterly report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which reflect the current views and assumptions of management with respect to future events regarding our business and industry in general. These forward looking statements include all statements, other than statements of historical fact, regarding our financial position, business strategy and other plans and objectives for future operations. In some cases, forward-looking statements are identified by terminology such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “pro forma,” “seek” or “continue” or the negative of those terms or other comparable terminology. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this quarterly report are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. Such statements are subject to a number of risks and uncertainties, many of which are beyond our control. You are cautioned that any such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward-looking statements as a result of various factors, including but not limited to those set forth under “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2012. Such factors include, among others:

•
the general economic conditions in markets and countries where we have operations;
•
our ability to meet quality standards;
•
risks associated with our manufacturing activities;
•
the competitive environment in which we operate;
•
changes in the availability or cost of raw materials, energy and labor;
•
foreign currency exchange rate fluctuations;
•
the impact of environmental issues and changes in environmental laws and regulations;
•
violations of laws and regulations;
•
our ability to develop and maintain competitive advantages;
•
our ability to successfully execute and integrate acquisitions;
•
breach in technology;
•
labor disturbances, including any resulting from suspension or termination of our collective bargaining agreements;
•
the impact of safety issues and changes in safety laws and regulations;
•
our ability to implement and maintain sufficient internal controls;
•
comparability of our specified scaled disclosure requirements applicable to emerging growth companies;
•
our significant indebtedness;
•
covenant restrictions; and
•
the interests of our principal equity holder may not be aligned with the holders of our 9.5% Senior Notes.

Any forward-looking statements that we make in this quarterly report speak only as of the date of such statement and we undertake no obligation to update such statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

BUSINESS OVERVIEW
We manufacture high-performance steel and synthetic rope, electromechanical cable (“EMC”), fabricated products, specialty steel wire, synthetic yarns and engineered products. We maintain a comprehensive product portfolio across the diverse end markets we serve, including oil and gas (both offshore and onshore), mining, infrastructure, crane, fishing, marine and other general industrial end markets. We have a global manufacturing footprint of 25 facilities, which includes our majority owned

20

location in Brazil and our joint ventures in China, India and Greece. With the addition of Koninklijke Lankhorst-Euronete Group B.V. (“Lankhorst”), we are no longer able to aggregate all our operating segments, but Lifting Products continues to be our one reportable segment. For discussion on the Company's segments, refer to Note 8—“Segment Reporting” to our interim unaudited consolidated financial statements included in this quarterly report.

First Quarter Highlights
Net sales increased $56.2 million during the three months ended March 31, 2013 compared to the three months ended March 31, 2012 primarily due to our recent acquisition of Lankhorst on July 12, 2012. Acquisition Adjusted EBITDA as a percentage of pro forma sales increased from 16% for the first quarter of 2012 to 17% for the first quarter of 2013. This higher return is primarily due to improved margin performance in targeted end markets, reduced sales of low margin products and benefits from the integration of the Lankhorst acquisition. Our operations generated cash of $12.1 million during the three months ended March 31, 2013, an increase of 22% over the period ended March 31, 2012.
The table below depicts actual net sales and pro forma net sales for the three months ended March 31, 2013 compared to the same period in 2012. Pro forma net sales decreased $8.2 million primarily due to the decline in specialty steel wire sales impacted by the slowdown in Mexican infrastructure projects and our decision to discontinue the sale of low margin wire products and the decline in our North American oil and gas business driven by lower rig counts. These declines were partially offset from growth in our engineered products division.
 
 
Three months ended March 31,
 
 
2013
 
2012
 
 
(in thousands)
Net sales as reported
 
$
222,643

 
$
166,475

Lankhorst pre-acquisition net sales
 
—

 
64,341

Pro forma net sales
 
$
222,643

 
$
230,816

We reported Acquisition Adjusted EBITDA of $37.6 million and a net loss of $11.4 million for the three months ended March 31, 2013, compared to Acquisition Adjusted EBITDA of $38.0 million, which includes Lankhorst pre-acquisition Adjusted EBITDA, and net income of $8.7 million for the same period in 2012. For the definitions of Adjusted EBITDA and Acquisition Adjusted EBITDA and formal reconciliations to net income (loss), see the section titled “Non-GAAP Financial Measures”. Despite the decline in pro forma net sales of 4% quarter over quarter, Acquisition Adjusted EBITDA declined only 1%.
 
 
Three months ended March 31,
 
 
2013
 
2012
 
 
(in thousands)
Adjusted EBITDA
 
$
37,563

 
$
30,641

Lankhorst pre-acquisition Adjusted EBITDA
 
—

 
7,318

Acquisition Adjusted EBITDA
 
$
37,563

 
$
37,959

Net income (loss) as reported
 
$
(11,369
)
 
$
8,710

Operating income was $0.7 million higher than the same period in 2012. Our recent acquisition of Lankhorst accounted for $10.2 million of the total $14.5 million increase in selling, administrative and amortization expenses for the three months ended March 31, 2013 over the same period in 2012. The net loss of $11.4 million for the first quarter of 2013 was primarily due to $8.5 million more in interest expense related to $902.8 million of outstanding debt at March 31, 2013 compared to $600.1 million at March 31, 2012, and foreign currency exchange losses of $10.9 million for the three months ended March 31, 2013 compared to $8.1 million of foreign currency exchange gains for the three months ended March 31, 2012. The majority of the foreign currency exchange gain/loss activity is unrealized and relates to the revaluation of intercompany loans.

Consolidated Results of Operations
This section focuses on significant items that impacted our operating results for the three months ended March 31, 2013 compared to the three months ended March 31, 2012. Most notably, our acquisition of Lankhorst on July 12, 2012 affects the comparability of period-over-period results. Operating results of Lankhorst are included in our consolidated statements of operations since the date of acquisition. Also, our results of operations have been converted to U.S. dollars from multiple currencies, which primarily include the euro, the Mexican peso and the Polish złoty. Our revenues and certain expenses are

21

affected by fluctuations in the value of the U.S. dollar against these local currencies. The results of operations for any quarter are not necessarily indicative of the results to be expected for other periods or the full fiscal year.

Three months ended March 31, 2013 compared to three months ended March 31, 2012
The following table presents selected consolidated financial data for the three months ended March 31, 2013 and 2012:
 
 
Three months ended March 31,
 
Change
 
 
2013
 
2012
 
Dollars
 
Percent
 
 
(dollars in thousands)
 
 
Net sales
 
$
222,643

 
$
166,475

 
$
56,168

 
34
%
Gross profit
 
54,626

 
39,392

 
15,234

 
39
%
Other operating expenses
 
(36,320
)
 
(21,776
)
 
(14,544
)
 
67
%
Other expense, net
 
(31,114
)
 
(3,957
)
 
(27,157
)
 
686
%
Income tax benefit (expense)
 
1,439

 
(4,949
)
 
6,388

 
NM

Net income (loss)
 
$
(11,369
)
 
$
8,710

 
$
(20,079
)
 
NM

Gross profit as % of net sales
 
25
%
 
24
%
 
 
 
 
Other operating expenses as % of net sales
 
16
%
 
13
%
 
 
 
 
NM = Not Meaningful

Net sales
Our consolidated net sales increased $56.2 million, or 34%, during the quarter ended March 31, 2013 as compared to the same period in 2012. Of the increase, $68.9 million was attributable to our acquisition of Lankhorst and $1.2 million was related to foreign currency exchange rate fluctuations, partially offset by a $9.2 million decline in specialty steel wire sales and a $4.0 million decline in steel rope sales.
The Lankhorst acquisition increased our sales mix of synthetic rope and yarns and contributed engineered products to our business mix. Synthetic rope sales represented 11% of our total consolidated net sales for the three months ended March 31, 2013 compared to 5% for the same period in 2012. Engineered products represented 13% of our total consolidated net sales for the three months ended March 31, 2013.
Specialty steel wire sales decreased $9.2 million over the same period in 2012 primarily due to lower demand of prestressed concrete strand as Mexican governmental infrastructure projects were delayed and our decision to reduce production of certain wire products due to low margins primarily in Mexico. Specialty steel wire sales represented 13% of our total consolidated net sales for the three months ended March 31, 2013 compared to 23% for the same period in 2012.
Steel rope sales decreased $4.0 million over the same period in 2012 primarily due to a decrease in drilling activity and lower rig counts in North America caused by low natural gas prices. Steel rope sales represented 44% of our total consolidated net sales for the three months ended March 31, 2013 compared to 57% for the same period in 2012. The North American rig count per Baker Hughes was 2,294 rigs as of March 31, 2013 compared to 2,471 rigs as of March 31, 2012, a 7% decrease year-over-year. According to Credit Suisse, analysts expect the North American rig count to close out the year 130 -170 rigs higher than current levels. Regarding other end markets, we saw modest increases in our crane and mining end markets, which partially offset the decline in oil and gas activity.
There were no significant changes in EMC or fabricated products over the same period in prior year.

Gross profit
Gross profit increased $15.2 million and gross profit as a percentage of sales (“gross margin”) increased from 24% for the three months ended March 31, 2012 to 25% for the three months ended March 31, 2013. Margin enhancement resulting from management's decision to reduce production of low margin wire was partially offset by the inclusion of Lankhorst sales, which have had historically lower margin profiles than our steel and synthetic rope products.


22


Other operating expenses
 
 
Three months ended March 31,
 
Change
 
 
2013
 
2012
 
Dollars
 
Percent
 
 
(dollars in thousands)
Selling expenses
 
$
(11,143
)
 
$
(6,345
)
 
$
(4,798
)
 
76
%
Administrative expenses
 
(21,019
)
 
(12,229
)
 
(8,790
)
 
72
%
Amortization expense
 
(4,158
)
 
(3,202
)
 
(956
)
 
30
%
Other operating expenses
 
$
(36,320
)
 
$
(21,776
)
 
$
(14,544
)
 
67
%
Other operating expenses increased $14.5 million, or 67%, for the three months ended March 31, 2013 compared to the same period in 2012. Our recent acquisition of Lankhorst accounted for $10.2 million of the increase. Overall, total other operating expenses as a percentage of net sales increased from 13% for the period ended March 31, 2012 to 16% for the period ended March 31, 2013.
Selling expenses increased $4.8 million, or 76%, over the same period in 2012. Of the increase, $3.8 million was related to our acquisition of Lankhorst. The remaining increase was primarily due to increased commissions at certain subsidiaries and additional payroll costs associated with our investment in our international sales force. Foreign currency exchange rate fluctuations had no material impact on the change.
Administrative expenses increased $8.8 million, or 72%, over the same period in 2012. Of the increase, $5.3 million was related to Lankhorst administrative expenses. Compensation costs increased $1.9 million primarily due to higher incentive bonuses earned, new positions, salary increases and severance charges. Share-based compensation was $0.4 million higher due to options granted in the third quarter of 2012. Also, we recognized $0.9 million more in administrative expenses in the first quarter of 2013 compared to the same period in 2012 related to corporate employees' travel to subsidiary locations and professional services associated with public reporting requirements, litigation and the year-end audit. Foreign currency exchange rate fluctuations had no material impact on the change.
Amortization expense increased $1.0 million, or 30%, over the same period in 2012 due to the amortization of Lankhorst's intangibles.

Other expense, net
Other expense increased by $27.2 million, or 686%, for the three months ended March 31, 2013, compared to the same period in 2012. Significant components of this change were as follows:
 
 
Three months ended March 31,
 
Change
 
 
2013
 
2012
 
Dollars
 
Percent
 
 
(dollars in thousands)
Interest expense, net
 
$
(20,107
)
 
$
(11,570
)
 
$
(8,537
)
 
74
 %
Equity in loss of non-consolidated affiliates, net
 
(34
)
 
(440
)
 
406

 
(92
)%
Foreign currency exchange gains (losses), net
 
(10,854
)
 
8,063

 
(18,917
)
 
235
 %
Other expense, net
 
(119
)
 
(10
)
 
(109
)
 
1,090
 %
Total other expense, net
 
$
(31,114
)
 
$
(3,957
)
 
$
(27,157
)
 
686
 %
Interest expense increased $8.5 million for the three months ended March 31, 2013 primarily due to additional debt outstanding to fund the Lankhorst acquisition and refinance existing debt. On July 12, 2012, the Company issued $82.5 million aggregate principal amount of 11.75% Senior Notes resulting in approximately $2.4 million of increased interest expense for this quarterly period. Also on July 12, 2012, the Company retired the Term Loan due 2014 with a portion of the proceeds from the $335.0 million Term Loan due 2017, resulting in $3.7 million of net additional interest expense for this quarterly period. The amortization of debt issuance costs and the discount related to the new issuances resulted in an additional $0.4 million in interest expense for the three months ended March 31, 2013. Prior to 2012, we did not capitalize interest on construction in progress for property, plant and equipment at our Mexican subsidiaries. During the first quarter of 2012, we corrected this error and capitalized $1.9 million of interest.
For the three months ended March 31, 2013, foreign currency exchange losses were $10.9 million compared to foreign currency exchange gains of $8.1 million for the same period in 2012. At March 31, 2013 and 2012, we had intercompany loans that required remeasurement in the aggregate amounts of $489.1 million and $184.4 million, respectively. The revaluation of

23

$212.3 million of new intercompany loans denominated in U.S. dollars at our Lankhorst subsidiaries contributed to $4.1 million of the losses recorded during the first quarter of 2013. The revaluation of other intercompany loans denominated in U.S. dollars for subsidiaries whose functional currency is the euro resulted in $5.6 million of the losses recognized. The U.S. dollar to euro exchange rate at December 31, 2012 was $1.00 to €0.7579 compared to $1.00 to €0.7809 at March 31, 2013. The revaluation of U.S. dollar denominated intercompany loans for our Polish subsidiary resulted in $3.9 million of the losses recognized during 2013. The U.S. dollar to Polish złoty exchange rate at December 31, 2012 was $1.00 to zł.3.0878 compared to $1.00 to zł.3.2647 at March 31, 2013. These losses were offset by $4.7 million of gains related to the remeasurement of new intercompany loans issued to the affiliated Mexican acquisition company in September 2012. The U.S. dollar to the Mexican peso exchange rate was $1.00 to $12.9880 at December 31, 2012 compared to $1.00 to $12.3546 at March 31, 2013. In 2012, the net foreign currency exchange gain recognized on the revaluation of intercompany loans was due to the appreciation of the euro and the Polish złoty against the U.S. dollar. The U.S. dollar to the euro exchange rate at December 31, 2011 was $1.00 to €0.7729 compared to $1.00 to €0.7487 at March 31, 2012. The U.S. dollar to Polish złoty exchange rate at December 31, 2011 was $1.00 to zł.3.4127 compared to $1.00 to zł.3.1063 at March 31, 2012.

Income tax benefit/expense
For the three months ended March 31, 2013, we recorded an income tax benefit of $1.4 million compared to income tax expense of $4.9 million for the three months ended March 31, 2012. The resulting effective tax rate for the first quarter of 2013 and 2012 was 11.2% and 36.2%, respectively. The effective tax rate for the first quarter of 2013 and 2012 includes a valuation allowance against our U.S. income tax net operating losses and U.S. interest expense deferred tax asset carryforwards as it is more likely than not that a tax benefit will not be realized. The decrease in the effective tax rate from the first quarter of 2013 as compared to the first quarter of 2012 was primarily due to a smaller proportion of our income being earned in countries with higher tax rates. The decrease in income in higher tax jurisdictions can be explained in part by unrealized foreign exchange losses during the period. This decrease was reduced by the increase in the expected effective tax rate attributable to the July 2012 Lankhorst acquisition.

Non-GAAP Financial Measures
We define Adjusted EBITDA as net income (loss) plus, without duplication: interest expense, income tax expense (benefit), depreciation and amortization, as further adjusted by (i) all fees and costs incurred in connection with any merger, consolidation, acquisition or offering of debt or equity securities, (ii) realized and unrealized gains (losses) resulting from foreign currency transactions, (iii) payments of advisory fees pursuant to the Management Fee Letter with Paine & Partners, LLC (“Paine & Partners”), (iv) all amounts deducted in arriving at net income (loss) in respect of severance packages payable in connection with the termination of any officer, director or employee, (v) business optimization expenses and other reorganization or restructuring charges, reserves or expenses (which, for the avoidance of doubt, will include, without limitation, the effect of inventory optimization programs, plant closures, facility consolidations, retention, systems establishment costs (including costs of instituting systems and controls to comply with the Sarbanes-Oxley Act of 2002), contract termination costs, future lease commitments and excess pension charges), (vi) other expenses, such as share-based compensation expense and income or loss on our investments in joint ventures and (vii) non-cash items increasing such consolidated net income, other than the accrual of revenue in the ordinary course of business. We define Acquisition Adjusted EBITDA as Adjusted EBITDA plus pre-acquisition EBITDA of the acquired companies.
We have disclosed Adjusted EBITDA and Acquisition Adjusted EBITDA, non-GAAP performance and liquidity measures, as a means to enhance communications with security holders. Management uses Adjusted EBITDA as a measure for internal evaluation of performance and incentive plan purposes. Acquisition Adjusted EBITDA is used to compare our financial measure to those of our peers and for debt covenant calculations. The Term Loan due 2017 and Revolving Loan Facility credit agreement include covenants that require the Company to maintain a total net leverage ratio that does not exceed 6.25:1.00, which steps down to 5.00:1.00 over time, and an interest coverage ratio that is not less than 1.50:1.00, which steps up to 2.00:1.00 over time, measured at the end of each quarter using the preceding four quarters consolidated Acquisition Adjusted EBITDA.
Adjusted EBITDA and Acquisition Adjusted EBITDA differ from net income (loss) and cash flows from operating activities, the most comparable GAAP financial measures, in that they exclude and add back certain items. These items are excluded or included because management believes the adjustments permit them to better evaluate normalized operational earnings and to evaluate liquidity using the ratio of Acquisition Adjusted EBITDA to total debt. As a result, Adjusted EBITDA and Acquisition Adjusted EBITDA may not reflect important aspects of the results of our operations and cash flows. The concepts of Adjusted EBITDA and Acquisition Adjusted EBITDA have important limitations as analytical tools and should not be considered in isolation, nor as a substitute for, or superior to, analysis of our results as reported under GAAP. For example, Adjusted EBITDA and Acquisition Adjusted EBITDA exclude certain tax payments that may represent a reduction in cash available to us; do not

24

reflect any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future; do not reflect capital cash expenditures, future requirements for capital expenditures or contractual commitments; do not reflect changes in, or cash requirements for, our working capital needs; and do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness. Our presentation and calculation of Adjusted EBITDA and Acquisition Adjusted EBITDA may not be comparable to that of other companies.

The following is a reconciliation of net income (loss) to Adjusted EBITDA and Acquisition Adjusted EBITDA:
 
 
Three months ended March 31,
 
 
2013
 
2012
 
 
(dollars in thousands)
Net income (loss) (GAAP)
 
$
(11,369
)
 
$
8,710

Plus:
 
 
 
 
Interest expense, net
 
20,107

 
11,570

Income tax expense (benefit)
 
(1,439
)
 
4,949

Depreciation and amortization
 
13,777

 
10,035

Equity in loss of non-consolidated affiliates, net
 
34

 
440

Foreign currency exchange losses (gains), net
 
10,854

 
(8,063
)
Share-based compensation
 
634

 
269

Other expense, net
 
119

 
10

Acquisition costs
 
33

 
219

Purchase accounting (inventory step-up and other)
 
923

 
—

Bank fees
 
311

 
482

Advisory fees
 
1,037

 
851

Reorganization and restructuring charges
 
1,962

 
851

Sarbanes-Oxley implementation
 
231

 
318

Other adjustments
 
349

 
—

Adjusted EBITDA (Non-GAAP)
 
$
37,563

 
$
30,641

Lankhorst pre-acquisition Adjusted EBITDA (a)
 
—

 
7,318

Acquisition Adjusted EBITDA (Non-GAAP)
 
$
37,563

 
$
37,959


25

The following is a reconciliation of cash flows from operating activities to Adjusted EBITDA and Acquisition Adjusted EBITDA:
 
 
 
Three months ended March 31,
 
 
2013
 
2012
 
 
(dollars in thousands)
Net cash provided by operating activities (GAAP)
 
$
12,116

 
$
9,964

Plus: Adjustments to reconcile net income (loss) to Adjusted EBITDA:
 
 
 
 
Interest expense, net
 
20,107

 
11,570

Income tax expense (benefit)
 
(1,439
)
 
4,949

Foreign currency exchange losses (gains), net
 
10,854

 
(8,063
)
Other expense, net
 
119

 
10

Acquisition costs
 
33

 
219

Purchase accounting (inventory step-up and other)
 
923

 
—

Bank fees
 
311

 
482

Advisory fees
 
1,037

 
851

Reorganization and restructuring charges
 
1,962

 
851

Sarbanes-Oxley implementation
 
231

 
318

Other adjustments
 
349

 
—

Less: Cash flow adjustments to net income (loss) not included in Adjusted EBITDA
 
 
 
 
Amortization of debt issuance costs, discounts and premium
 
(2,159
)
 
(1,719
)
Other non-cash items
 
(834
)
 
1,870

Unrealized foreign currency exchange gains (losses), net
 
(8,795
)
 
8,233

Provision for deferred income taxes
 
(862
)
 
(374
)
Changes in assets and liabilities
 
3,610

 
1,480

Adjusted EBITDA (Non-GAAP)
 
$
37,563

 
$
30,641

Lankhorst pre-acquisition Adjusted EBITDA (a)
 
—

 
7,318

Acquisition Adjusted EBITDA (Non-GAAP)
 
$
37,563

 
$
37,959


(a)
The Lankhorst acquisition closed on July 12, 2012 and its results have been included in our consolidated statements of operations since the date of acquisition. A pro forma adjustment was included for the 91 days ended March 31, 2012 as if the acquisition had been consummated on the first day of 2012 for comparative purposes. This amount represents the net income of Lankhorst before deductions for interest, taxes, depreciation and amortization. Also, we adjusted for the purchase of the remaining 40% of our Australian subsidiary and disposal of the yachting division and certain other transactions related to percentage-of-completion accounting and start-up costs. The pro forma adjustment was converted from euros to U.S. dollars using the average exchange rate for the period of $1.00 to €0.7752.

LIQUIDITY AND CAPITAL RESOURCES
Overview
Our principal sources of liquidity consist of cash from operations and borrowings under our Revolving Loan Facility. Our principal uses of cash are to support operations and service our debt. During the first quarter of 2013, we generated cash from operations of $12.1 million, paid principal payments of $9.4 million on our long-term debt and reduced our borrowings outstanding under the Revolving Loan Facility by $1.6 million.
Based on current expectations, management believes that existing cash balances, operating cash flows and the Revolving Loan Facility will be sufficient to fund anticipated operating, capital and debt service requirements and other commitments in 2013. However, there can be no assurance of the cost or availability of future borrowings, if any, under our credit facilities or in the debt markets.

26


Available Liquidity
Our liquidity is influenced by many factors, including the amount and timing of cash collections from our customers, fluctuations in the cost of our raw materials and the amount we invest in capital expenditures and acquisitions. We monitor the cost of our raw materials and pass along price increases and decreases accordingly. We currently have no plans to enter into derivative agreements to mitigate raw material price changes in any of our facilities. Total available liquidity, defined as total availability under our Revolving Loan Facility plus cash and cash equivalents, was $132.6 million at March 31, 2013 and $144.0 million at December 31, 2012. Components of available liquidity were as follows on the dates indicated:
 
 
March 31, 2013
 
December 31, 2012
 
 
(in thousands)
Availability under Revolving Loan Facility
 
$
96,324

 
$
94,724

Cash and cash equivalents
 
36,303

 
49,244

Total available liquidity
 
$
132,627

 
$
143,968

We reinvest the earnings of substantially all of our non-U.S. subsidiaries in those respective operations. The foreign operating subsidiaries use cash generated from earnings to fund working capital, invest in capital expenditures and service interest and principal payments on intercompany debt. Our outstanding debt is primarily issued by the U.S. operating subsidiary and there are intercompany loans within the corporate legal structure that are paid with earnings from the operating subsidiaries in foreign jurisdictions to provide liquidity in the U.S. for interest and principal payments on our outstanding debt. Of the consolidated cash and cash equivalents balance of $36.3 million at March 31, 2013, cash and cash equivalents held in foreign countries were $31.9 million, of which $29.5 million was held in the subsidiaries’ local currency. The cash balances in currencies other than the U.S. dollar are primarily in the euro and the Mexican peso, all of which can be readily converted to U.S. dollars.

Working Capital 
 
 
March 31, 2013
 
December 31, 2012
 
 
(in thousands)
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
36,303

 
$
49,244

Other current assets
 
443,360

 
424,446

Total current assets
 
479,663

 
473,690

Less: Total current liabilities
 
(156,713
)
 
(148,085
)
Working capital
 
$
322,950

 
$
325,605


27


Cash Flow Information
The following table summarizes our cash flows from operating, investing and financing activities for the three months ended March 31, 2013 and 2012, respectively.
 
 
Three months ended March 31,
 
 
2013
 
2012
 
 
(dollars in thousands)
Cash flows provided by (used in)
 
 
 
 
Operating activities
 
$
12,116

 
$
9,964

Investing activities
 
(11,498
)
 
(7,573
)
Financing activities
 
(12,554
)
 
(2,152
)
Effect of exchange rates on cash and cash equivalents
 
(1,005
)
 
1,376

Net increase (decrease) in cash and cash equivalents
 
$
(12,941
)
 
$
1,615

Cash and cash equivalents, beginning of period
 
49,244

 
27,663

Cash and cash equivalents, end of period
 
$
36,303

 
$
29,278


Cash from Operating Activities
 
 
Three months ended March 31,
 
 
2013
 
2012
 
 
(dollars in thousands)
Net income (loss)
 
$
(11,369
)
 
$
8,710

Adjustments to reconcile net income (loss) to net cash provided by operating activities
 
27,095


2,734

Changes in assets and liabilities
 
(3,610
)

(1,480
)
Net cash provided by operating activities
 
$
12,116

 
$
9,964

Cash flow from operations increased over prior period primarily due to cash flows from Lankhorst operations, offset in part by increased tax and interest payments. 

Cash from Investing Activities
 
 
Three months ended March 31,
 
 
2013
 
2012
 
 
(dollars in thousands)
Capital expenditures
 
$
(11,464
)
 
$
(7,131
)
Investments in non-consolidated affiliates
 
(34
)
 
(442
)
Net cash used in investing activities
 
$
(11,498
)
 
$
(7,573
)
In comparison to the 2012 calendar year, we expect to invest less funds in capital expenditures during 2013. We plan to fund these capital projects with cash from operations and short-term borrowings on our revolver.

28

Cash from Financing Activities
 
 
Three months ended March 31,
 
 
2013
 
2012
 
 
(dollars in thousands)
Principal payments on long-term debt
 
$
(9,368
)
 
$
(4,790
)
Net borrowings (repayments) under revolving credit agreements
 
(1,600
)
 
6,893

Repayments of short-term borrowings
 
(1,586
)
 
—

Acquisition installment payments
 
—

 
(4,255
)
Net cash used in financing activities
 
$
(12,554
)
 
$
(2,152
)
Principal payments on our debt of $20.7 million are due in 2013. As of March 31, 2013, we have no non-routine commitments, such as the acquisition installments, to fund in 2013.

Revolving Loan Facility Activity
Of the $145.0 million of borrowing capacity, we had borrowed $48.7 million as of March 31, 2013, leaving $96.3 million of availability. Our Revolving Loan Facility activity for the three months ended March 31, 2013 was as follows:
 
 
Amount
 
Weighted-average
interest rate
 
 
(dollars in thousands)
Amount outstanding at March 31, 2013
 
$
48,676

 
7.00
%
Average amount outstanding from January 1, 2013 through March 31, 2013
 
51,132

 
7.00
%
Maximum amount outstanding from January 1, 2013 through March 31, 2013
 
56,926

 
7.00
%

Long-term Debt
For a detailed discussion of our borrowings, see Note 8—“Borrowings” to our audited consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of our annual report on Form 10-K for the year ended December 31, 2012. Components of long-term debt at March 31, 2013 and December 31, 2012 are included in Note 4—“Borrowings” to our unaudited interim consolidated financial statements included in Part I, Item 1 of this quarterly report.

Off-balance Sheet Arrangements
Our liquidity is not dependent on the use of off-balance sheet financing arrangements other than in connection with our operating leases, which have not materially changed from our Contractual Obligations and Commitments table as disclosed in our annual report on Form 10-K for the year ended December 31, 2012.

Contractual Obligations and Commitments
As of March 31, 2013, there have been no material changes in our contractual obligations and commitments from
those reported in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our annual report on Form 10-K for the year ended December 31, 2012.

Critical Accounting Policies
A discussion of our critical accounting policies can be found in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our annual report on Form 10-K for the year ended December 31, 2012. There have been no significant changes in our critical accounting policies since year-end.

Recently Issued Accounting Standards
None applicable.


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Item 3.Quantitative and Qualitative Disclosures About Market Risk

Other than as discussed below, there was no material change during the three months ended March 31, 2013 from the
information included in Part II, Item 7A, Quantitative and Qualitative Disclosures about Market Risk, in our annual report on
Form 10-K for the year ended December 31, 2012.
Foreign Currency Exchange Rate Risk. The consolidated financial statements are prepared in U.S. dollars.  The assets and liabilities of certain of our foreign subsidiaries are denominated in foreign currencies, which create exposure to changes in foreign currency exchange rates. The activity in the Foreign currency exchange gains (losses), net line item included in our consolidated statements of operations primarily results from foreign currency exchange rate fluctuations related to intercompany loans denominated in U.S. dollars with subsidiaries whose functional currency is primarily the euro, Polish złoty or Mexican peso. At March 31, 2013, we had intercompany loans that required remeasurement in the aggregate amount of $489.1 million. For the three months ended March 31, 2013, we recognized unrealized foreign currency exchange losses of $8.8 million on these intercompany loans. A hypothetical 10% change in the U.S. dollar to the euro exchange rate would result in an increase or decrease in the foreign currency exchange loss of approximately $33.5 million. A hypothetical 10% change in the U.S. dollar to the Polish złoty exchange rate would result in an increase or decrease in the foreign currency exchange loss of approximately $7.0 million. A hypothetical 10% change in the U.S. dollar to the Mexican peso exchange rate would result in an increase or decrease in the foreign currency exchange gain of approximately $9.2 million. The foreign currency exchange gains and losses recognized as a result of the remeasurement are unrealized until such time that the loans are paid. We manage this risk by monitoring our foreign currency denominated cash inflows and outflows.

Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company's management, under the supervision and with the participation of its interim chief executive officer and chief financial officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d - 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Disclosure controls and procedures provide reasonable assurance that information required to be disclosed in reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and is accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. Based on that evaluation, the Company's interim chief executive officer and chief financial officer concluded that, due to an unremediated material weakness in internal control over financial reporting in the area of accounting for income taxes described below, the Company's disclosure controls and procedures were not effective.
Notwithstanding the unremediated material weakness, management, including our interim chief executive officer and chief financial officer, believes the consolidated financial statements included in this quarterly report on Form 10-Q fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.

Changes in Internal Control over Financial Reporting
As reported in the quarterly report on Form 10-Q for the period ended September 30, 2012 and in the annual report on Form 10-K for the period ended December 31, 2012, the Company identified a material weakness in internal control over financial reporting in the area of accounting for income taxes. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, the Company did not maintain sufficient, effective controls over the preparation and review of income taxes related to the complete and accurate recording of the Company's tax provision, deferred tax balances (net of required valuation allowance), and uncertain tax positions.
There was no change in the Company's internal control over financial reporting that occurred during the Company's first quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. We are, however, continuing to implement remedial actions as outlined in our plan disclosed in Item 9A of our annual report on Form 10-K for the year ended December 31, 2012. The current plan (i) provides for additional time for tax preparation and review in the Company's closing process, (ii) reassigns tax and financial reporting personnel to review the Company's income tax provision, deferred income taxes (net of required valuation allowance) and uncertain tax positions, and (iii) improves internal communications through planning meetings and status calls with the tax advisors, provision preparers, reviewers, and international component teams, especially with regard to non-routine transactions and the related income tax effects thereof. During the first three months of 2013, we have taken steps to implement this plan to remediate this material weakness, including evaluating the need to hire additional internal tax resource(s).

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Management anticipates the actions described above and the resulting improvements in controls will strengthen the Company's internal control over financial reporting and will, over time, address the related material weakness identified. However, the above material weakness will not be considered remediated until these improvements have been fully implemented and operating effectively for an adequate period of time.


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PART II – OTHER INFORMATION

Item 1.Legal Proceedings
We are not a party to any material legal proceedings. From time to time, we are involved in routine litigation arising in the ordinary course of business, which is incidental to our operations. For further information required by this item, refer to Note 7—“Contingencies” to our unaudited interim consolidated financial statements included in Part I, Item 1 of this quarterly report.

Item 1A.Risk Factors
There were no material changes during the quarter to the Risk Factors disclosed in Item 1A, Risk Factors, in our annual report on Form 10-K for the year ended December 31, 2012.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
None.

Item 3.     Defaults Upon Senior Securities
None.

Item 4.Mine Safety Disclosures
Not applicable.

Item 5.     Other Information
None.

Item 6. Exhibits
Exhibit
No.

 
Description of Exhibits Incorporated by Reference
 
 
10.1

 
Resignation Agreement, dated April 11, 2013, between WireCo WorldGroup Inc. and Ira Glazer, former CEO
 
 
 
10.2

 
Retention Agreement, dated April 24, 2013, between WireCo WorldGroup Inc. and Eric Bruder, COO
 
 
 
10.3

 
Resignation Agreement, dated May 1, 2013, between WireCo WorldGroup Inc. and J. Keith McKinnish, former CFO
 
 
 
31.1

 
Interim CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
31.2

 
CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
32.1

 
Interim CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
32.2

  
CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
101

  
The following financial information from WireCo WorldGroup (Cayman) Inc.’s quarterly report on Form 10-Q for the quarter ended March 31, 2013, formatted in XBRL (Extensible Business Reporting Language) includes (i) Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012, (ii) Consolidated Statements of Operations for the three months ended March 31, 2013 and 2012, (iii) Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2013 and 2012, (iv) Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012, (v) the Notes to Consolidated Financial Statements and (vi) document and entity information.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
WireCo WorldGroup Inc.
 
 
 
 
 
 
 
(Registrant)
 
 
 
 
 
Dated:
May 10, 2013
 
 
 
By:
 
/s/ Brian G. Block
 
 
 
 
 
 
 
Brian G. Block
 
 
 
 
 
 
 
Senior Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Signatory for Registrant)
 
 
 
 
 
 
 




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