-----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, E54ssGCNUKJgvahqy1raztnDh2elzJ7M9zCjY8FXtKzHLXXRNB0n3iXqPWEtaSFL 0JPo/eEAD/f9U/khYsV+Tg== 0000950134-97-008096.txt : 19971110 0000950134-97-008096.hdr.sgml : 19971110 ACCESSION NUMBER: 0000950134-97-008096 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19971107 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL WIRE GROUP INC CENTRAL INDEX KEY: 0000947429 STANDARD INDUSTRIAL CLASSIFICATION: DRAWING AND INSULATING NONFERROUS WIRE [3357] IRS NUMBER: 431705942 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 033-93970 FILM NUMBER: 97710662 BUSINESS ADDRESS: STREET 1: 101 SOUTH HANLEY RD STREET 2: STE 1075 CITY: ST LOUIS STATE: MO ZIP: 63105 BUSINESS PHONE: 3147261323 10-K405/A 1 AMENDMENT TO FORM 10-K 1 FORM 10-K/A Amendment No. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ______________ Commission File Number 33-93970 INTERNATIONAL WIRE GROUP, INC. ------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 43-1705942 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 101 SOUTH HANLEY ROAD, ST. LOUIS, MISSOURI 63105 - ------------------------------------------ ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (314) 719-1000 -------------- Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. X YES No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] State the aggregate market value of the voting stock held by non-affiliates of the registrant. (The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing.) NO ESTABLISHED PUBLISHED PUBLIC TRADING MARKET EXISTS FOR THE COMMON STOCK, PAR VALUE $.01 PER SHARE, OF INTERNATIONAL WIRE GROUP, INC. ALL OF THE OUTSTANDING SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF INTERNATIONAL WIRE GROUP, INC. ARE HELD BY INTERNATIONAL WIRE HOLDING COMPANY. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date (applicable only to corporate registrants). OUTSTANDING AT CLASS MARCH 12, 1997 ----- -------------- COMMON STOCK 1,000 DOCUMENTS INCORPORATED BY REFERENCE NONE 2 ITEM 6. SELECTED FINANCIAL DATA THE COMPANY The selected financial information below presents the financial information for the year ended December 31, 1996 and for the seven months ended December 31, 1995, as derived from the audited consolidated financial statements of the Company. The selected financial data should be read in conjunction with the consolidated financial statements of the Company and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere herein.
RESULTS OF OPERATIONS: YEAR ENDED SEVEN MONTHS ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ----------------- ----------------- (IN THOUSANDS) Net sales ............................................... $ 546,981 $ 245,583 Cost of goods sold ...................................... 420,823 195,221 Selling, general and administrative ..................... 43,885 17,129 Depreciation and amortization ........................... 31,341 11,020 Impairment, unusual and plant closing charges ........... 84,250 1,750 Inventory valuation adjustment .......................... 8,500 -- --------- --------- Operating income (loss) ................................. (41,818) 20,463 Interest expense ........................................ (43,013) (19,931) Amortization ............................................ (3,701) (1,468) Other (expense) income .................................. 312 (158) --------- --------- Loss before income tax provision ........................ (88,220) (1,094) Income tax provision .................................... 1,262 2,197 --------- --------- Net loss ................................................ $ (89,482) $ (3,291) ========= ========= OTHER DATA: EBITDA, as adjusted(1) .................................. $ 82,273 $ 33,233 Capital expenditures .................................... $ 15,849 $ 5,751 Total assets ............................................ $ 531,020 $ 427,920 Long-term obligations (including current maturities) .... $ 447,667 $ 338,677
- ----------------- (1) As used herein, "EBITDA, as adjusted" is defined as operating income (loss) adjusted to exclude impairment, unusual and plant closing charges. EBITDA is presented because (i) it is a widely accepted indicator of a company's ability to incur and service debt and (ii) it is the basis on which the Company's compliance with certain financial covenants contained in the indenture, dated as of June 12, 1995 pursuant to which the Company issued the Senior Notes and the Amended and Restated Credit Agreement is principally determined. However, EBITDA, as adjusted, does not purport to represent cash provided by operating activities as reflected in the Company's consolidated statements of cash flow, is not a measure of financial performance under generally accepted accounting principles ("GAAP") and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Also, the measure of EBITDA, as adjusted, may not be comparable to similar measures reported by other companies. WIREKRAFT (A PREDECESSOR COMPANY) The selected financial information presented below represents the financial information of Wirekraft and its predecessor for the periods indicated. The data for the year ended November 30, 1992 and for the period December 1, 1992 through December 21, 1992 are derived from the audited financial statements of the Predecessor. The data for the period December 22, 1992 through November 30, 1993, the year ended November 30, 1994 and the six months ended May 31, 1995 are derived from the audited consolidated financial statements of Wirekraft. In connection with the December 2, 1994 acquisition of ECM and certain assets of GE (the "ECM Acquisition"), WB Holdings Inc. became a wholly-owned subsidiary of Wirekraft, and, accordingly, references to Wirekraft shall include WB Holdings Inc. The following information should be read in conjunction with the audited consolidated financial statements of Wirekraft and the Predecessor and the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere herein. 1 3
PREDECESSOR WIREKRAFT ---------------------------- -------------------------------------------- DECEMBER 1, DECEMBER 22, 1992 THROUGH 1992 THROUGH YEAR ENDED SIX MONTHS NOVEMBER 30, DECEMBER 21, NOVEMBER 30, NOVEMBER 30, ENDED MAY 31, 1992 1992 1993(1) 1994 1995 ------------ ------------ ------------ ------------ ------------ (IN THOUSANDS) RESULTS OF OPERATIONS: Net sales ............................ $ 174,684 $ 9,714 $ 181,188 $ 240,972 $ 168,053 Cost of goods sold ................... 146,597 8,339 150,092 201,602 138,851 Selling, general and administrative expenses ............ 10,869 505 10,582 14,319 13,301 Depreciation and amortization ........ 5,141 218 4,496 6,435 6,474 Compensation expense ................. -- -- -- -- 895(2) Expenses related to sale ............. -- 6,929(3) -- -- 501(4) Expenses related to plant closings ... -- -- -- -- 2,000(5) ------------ ------------ ------------ ------------ ------------ Operating income (loss) .............. 12,077 (6,277) 16,018 18,616 6,031 Interest expense ..................... (4,761) (1,418)(6) (8,645) (10,565) (8,020) Amortization of deferred financing costs ............................ -- -- (1,677) (1,995) (1,657) ------------ ------------ ------------ ------------ ------------ Income (loss) before income taxes and extraordinary item ............ 7,316 (7,695) 5,696 6,056 (3,646) Income tax provision (benefit) (7) ... -- -- 3,155 3,023 (2,114) ------------ ------------ ------------ ------------ ------------ Income (loss) before extraordinary item .............................. -- -- 2,541 3,033 (1,532) Extraordinary item ................... -- -- -- -- (7,835)(8) Net income (loss) .................... $ 7,316 $ (7,695) $ 2,541 $ 3,033 $ (9,367) ============ ============ ============ ============ ============ OTHER DATA: EBITDA, as adjusted (9)............... $ 17,218 $ 870 $ 20,514 $ 25,051 $ 15,901 Capital expenditures ................. 2,122 136 3,705 6,248 2,914 Total assets ......................... 81,074 80,421 146,671 178,488 241,277 Long-term obligations (including current maturities) ... 45,294 42,143 93,123 111,639 148,386
- --------------- (1) On December 21, 1992, WB Holdings Inc., through a series of acquisitions and mergers (the "Original Wirekraft Acquisition"), acquired all of the issued and outstanding common stock of Bristol and Burcliff, the parent companies of the general partners of the Predecessor. (2) Represents payments to senior management of Wirekraft for the redemption of employee stock options in connection with the Acquisitions. (3) Represents non-recurring expenses associated with the Original Wirekraft Acquisition, which included exit bonuses, severance arrangements and brokerage and legal fees. (4) Represents expenses of Wirekraft associated with the Acquisitions. (5) Represents expenses related to the closing of certain domestic wire harness facilities. (6) Includes write-off of deferred financing fees of $1,211 associated with the Original Wirekraft Acquisition. (7) The results of operations for the years ended November 30, 1991 and 1992 and the period from December 1, 1992 through December 21, 1992 did not include a provision for income taxes since the net income for the Predecessor is included in the income tax returns of its partners. (8) Extraordinary item in 1995 represents a $7,835 loss on early extinguishment of debt (net of income tax of $4,930). (9) As used herein, "EBITDA, as adjusted" is defined as operating income (loss) adjusted to exclude impairment, unusual and plant closing charges. EBITDA is presented because (i) it is a widely accepted indicator of a company's ability to incur and service debt and (ii) it is the basis on which the Company's compliance with certain financial covenants contained in the indenture, dated as of June 12, 1995 pursuant to which the Company issued the Senior Notes and the Amended and Restated Credit Agreement is principally determined. However, EBITDA, as adjusted, does not purport to represent cash provided by operating activities as reflected in the Company's consolidated statements of cash flow, is not a measure of financial performance under GAAP and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Also, the measure of EBITDA, as adjusted, may not be comparable to similar measures reported by other companies. 2 4 OMEGA (A PREDECESSOR COMPANY) The selected financial information below presents the financial information of Omega and its predecessor for the periods indicated. The data for the years ended December 31, 1992, 1993 and 1994 and the three months ended March 31, 1995 are derived from the audited consolidated financial statements of THL-Omega. The data for the two months ended May 31, 1995, are derived from the audited consolidated financial statements of Omega. The following information should be read in conjunction with the audited consolidated financial statements of THL-Omega and Omega and the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere herein.
THL-OMEGA OMEGA ---------------------------------------------------- ---------- THREE THREE MONTHS MONTHS YEAR ENDED DECEMBER 31, ENDED ENDED -------------------------------------- MARCH 31, MAY 31, 1992 1993 1994 1995 1995(1) ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) RESULTS OF OPERATIONS: Net sales .......................... $ 108,312 $ 107,004 $ 134,457 $ 38,736 $ 23,295 Cost of goods sold ................. 82,008 80,276 98,012 29,401 17,512 Selling, general and administrative expenses ......... 8,925 12,061 10,839 2,651 1,639 Depreciation and amortization .................... 5,488 5,191 5,761 1,459 1,233 Compensation expense ............... -- -- -- 9,715(2) -- Expenses related to sale ........... -- -- -- 1,689(3) -- ---------- ---------- ---------- ---------- ---------- Operating income (loss) ........... 11,891 9,476(4) 19,845 (6,179) 2,911 Interest expense ................... (6,526) (6,026) (5,932) (1,478) (1,797) Amortization of deferred financing costs ................. (285) (289) (262) (50) (238) Other income ....................... 1,015 772 296 32 -- ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes and extraordinary item ............. 6,095 3,933 13,947 (7,675) 876 Income tax provision (benefit) ...................... 2,550 1,892 5,787 484 171 ---------- ---------- ---------- ---------- ---------- Income (loss) before extraordinary item .............. 3,545 2,041 8,160 (8,159) 705 Extraordinary item ................. -- -- -- (1,148)(5) (4,044)(6) ---------- ---------- ---------- ---------- ---------- Net income (loss) .................. $ 3,545 $ 2,041 $ 8,160 $ (9,307) $ (3,339) ========== ========== ========== ========== ========== OTHER DATA: EBITDA, as adjusted(7).............. $ 17,379 $ 14,667(4) $ 25,606 $ 6,684 $ 4,144 Capital expenditures ............... 1,947 3,683 8,667 1,597 581 Total assets ....................... 87,342 85,868 101,675 97,657 176,659 Long-term obligations (including current maturities) .... 64,554 58,174 56,093 54,615 128,116
- --------------- (1) On March 31, 1995, Omega acquired all of the issued and outstanding common stock of THL-Omega. (2) Represents payments to senior management for the redemption of stock options and stock that was issued immediately prior to the acquisition of THL-Omega for consideration less than the fair value. (3) Represents expenses of the sellers associated with the acquisition of THL-Omega. (4) During 1993 a charge of approximately $3,100 was recorded related to certain one time bad debt write-offs. Excluding the effects of this charge, operating income and EBITDA, as adjusted, would have been $12,576 and $17,767, respectively. (5) Extraordinary item in March 1995, represents a $1,148 loss on early extinguishment of debt (net of income taxes of $765). (6) Extraordinary item in May 1995, represents a $4,044 loss on early extinguishment of debt (net of income taxes of $2,082). (7) As used herein, "EBITDA, as adjusted" is defined as operating income (loss) adjusted to exclude impairment, unusual and plant closing charges. EBITDA is presented because (i) it is a widely accepted indicator of a company's ability to incur and service debt and (ii) it is the basis on which the Company's compliance with certain financial covenants contained in the indenture, dated as of June 12, 1995 pursuant to which the Company issued the Senior Notes and the Amended and Restated Credit Agreement is principally determined. However, EBITDA, as adjusted, does not purport to represent cash provided by operating activities as reflected in the Company's consolidated statements of cash flow, is not a measure of financial performance under GAAP and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Also, the measure of EBITDA, as adjusted, may not be comparable to similar measures reported by other companies. 3 5 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS To facilitate a meaningful comparison, the following discussion and analysis includes combined results of operations of the Company, Wirekraft, Omega and ECM for periods prior to the Acquisitions. These combined results of operations have not been prepared in accordance with GAAP, which does not allow for the aggregation of financial data for entities that are not under common ownership. Nevertheless, management believes that the aggregate financial information shown below for the periods prior to the Acquisitions is helpful in understanding the past operations of the companies combined in the Acquisitions. The Company in June 1995, through a series of mergers and acquisitions, consummated the Acquisitions. As a result of certain transactions, including the Acquisitions, the acquisition of THL-Omega and the ECM Acquisition, the Company incurred substantial indebtedness and recorded significant amounts of goodwill, which resulted in interest and amortization expenses for the Company substantially greater than the interest and amortization expenses incurred by the Company's predecessors. Additionally, the accounting bases for the Company's predecessors differ from the accounting bases of the Company. Therefore, the results of operations data for the Company's predecessors are not directly comparable to the results of operations data for the Company, and the Company cautions investors against placing undue reliance on the comparative information contained herein. The Company conducts its operations through two segments: (i) wire products, which includes both non-insulated and insulated wire, and (ii) wire harness products. The table below sets forth the major components of the results of operations on a historical combined basis for the fiscal year 1994 and the five months ended May 31, 1995 and on a historical basis for the seven months ended December 31, 1995 and the year ended December 31, 1996 and should be used in reviewing the discussion and analysis of results of operations and liquidity and capital resources. Included in fiscal year 1994, and referred to as "Historical Combined Fiscal Year Ended December 31, 1994," is the year ended November 30, 1994 of Wirekraft, the year ended December 31, 1994 of THL-Omega, which was acquired by Omega in March 1995, and the eleven month period ended November 30, 1994 of ECM. Included in fiscal year 1995, and referred to as "Historical Combined Fiscal Year Ended December 31, 1995," is the five month period ended May 31, 1995 of Wirekraft, the three month period ended March 31, 1995 of THL-Omega, the two month period ended May 31, 1995 of Omega (collectively referred to as "Historical Combined Five Months Ended May 31, 1995") and the seven month period ended December 31, 1995 of the Company. Included in the year ended December 31, 1996 is the year ended December 31, 1996 of the Company, which includes the results of operations of Wire Technologies from March 5, 1996, the date of the DWT Acquisition. 4 6 RESULTS OF OPERATIONS
PREDECESSOR SUCCESSOR -------------------------- --------------------------- FISCAL YEAR FIVE MONTHS SEVEN MONTHS ENDED ENDED ENDED YEAR ENDED DECEMBER 31, MAY 31, DECEMBER 31, DECEMBER 31, 1994 1995(1) 1995 1996 ------------ ----------- ------------ ------------ (IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Wire sales............................ $272,414 $131,831 $161,741 $385,627 Wire harness sales.................... 174,716 77,279 83,842 161,354 -------- -------- -------- -------- Net sales....................... 447,130 209,110 245,583 546,981 Cost of goods sold.................... 348,633 167,456 195,221 420,823 Selling, general and administrative expenses............................ 39,746 15,714 17,129 43,885 Depreciation and amortization......... 13,310 8,313 11,020 31,341 Impairment, unusual and plant closing charges............................. -- 2,000 1,750 84,250 Inventory valuation adjustment........ -- -- -- 8,500 Compensation expense.................. -- 10,610 -- -- Expenses related to sale.............. -- 2,190 -- -- -------- -------- -------- -------- Operating income (loss)............. $ 45,441 $ 2,827 $ 20,463 $(41,818) ======== ======== ======== ========
- --------------- (1) The results of operations data related to Wirekraft for the five months ended May 31, 1995 excludes the one month period ended December 31, 1994. Loss from operations of Wirekraft for the one month period ended December 31, 1994 was $64. 5 7 YEAR ENDED DECEMBER 31, 1996 COMPARED TO HISTORICAL COMBINED FISCAL YEAR ENDED DECEMBER 31, 1995 Net sales for the year ended December 31, 1996 were $547.0 million, representing a $92.3 million, or 20.3%, increase over the Historical Combined Fiscal Year Ended December 31, 1995. This increase occurred substantially within the wire segment, where sales increased $92.1 million, or 31.3%, over the Historical Combined Fiscal Year Ended December 31, 1995. This increase reflected $139.7 million of net sales from Wire Technologies, as well as continued growth in the Company's automotive, cable and control signal market accounts. These increases were partially offset by a decline in copper prices. In general, the Company prices its products based upon a spread over the cost of copper, which results in a decreased dollar value of sales when copper prices decrease. The average price of copper based upon the COMEX declined to $1.06 per pound over the year ended December 31, 1996 from $1.35 per pound during the Historical Combined Fiscal Year Ended December 31, 1995. Within the wire harness segment, sales remained constant at $161.4 million during the year ended December 31, 1996. This constant level of sales represented strong sales from most major wire harness customers other than Whirlpool. Sales to Whirlpool declined during the year due to the expiration of a transition supply agreement in October 1995. Cost of goods sold as a percent of sales decreased from 79.8% to 76.9% for the year ended December 31, 1996. This decrease was due to the result of negotiated price reductions for certain purchased materials and the elimination of the majority of outside purchases of non-insulated wire subsequent to the acquisition of THL-Omega in 1995. Wirekraft's purchases of non-insulated wire from outside suppliers declined as Omega's non-insulated wire production for Wirekraft increased. In addition, the change in cost of goods sold as a percent of sales reflected cost reductions achieved within both the wire and wire harness segments resulting from plant consolidation actions taken in 1995 and 1996, as well as the impact of declining copper prices. Because the Company's products are typically priced at a spread over the cost of copper, a lower copper price leads to a higher gross margin percentage but generally has no impact on gross margin dollars. YEAR ENDED DECEMBER 31, 1996 COMPARED TO SEVEN MONTHS ENDED DECEMBER 31, 1995 Net sales for the year ended December 31, 1996 were $547.0 million, representing an increase of $301.4 million over the seven months ended December 31, 1995. This increase included wire segment sales of $223.9 million and wire harness segment sales of $77.5 million. The increase was primarily the result of the additional five months of operations of the Company in 1996, as compared to 1995 and the inclusion of $139.7 million of wire segment sales as the result of the DWT Acquisition in March 1996. These increases were partially offset by a decline in copper prices. Generally, the Company prices its products based upon a spread over copper, which results in a decreased dollar value of sales when copper prices decrease. The average price of copper based upon the COMEX declined to $1.06 per pound over the year ended December 31, 1996 from $1.35 per pound during the seven months ended December 31, 1995. Cost of goods sold as a percentage of sales decreased from 79.5% for the seven months ended December 31, 1995 to 76.9% for the year ended December 31, 1996. This decrease was due to the result of negotiated price reductions for certain purchased materials and the elimination of the majority of outside 6 8 purchases of non-insulated wire. Wirekraft's purchases of non-insulated wire from outside sources declined as Omega's non-insulated wire production for Wirekraft increased. In addition, the change in cost of goods sold as a percent of sales reflected cost reductions achieved within both the wire and wire harness segments resulting from plant consolidation actions taken in 1995 and 1996, as well as the impact of declining copper prices. Because the Company's products are typically priced at a spread over the cost of copper, a lower copper price leads to a higher gross margin percentage but generally has no impact on gross margin dollars. Selling, general and administrative expenses were $43.9 million for the year ended December 31, 1996 compared to $17.1 million during the seven months ended December 31, 1995, an increase of $26.8 million. The increase was primarily the result of the additional five months of operations of the Company in 1996, as compared to 1995 and the inclusion of $5.7 million of expenses from the DWT Acquisition. Expressed as a percentage of sales, selling, general and administrative expenses increased from 7.0% during the seven months ended December 31, 1995 to 8.0% during the year ended December 31, 1996. This increase, as a percentage of sales, was partially attributable to the effect on net sales of higher copper costs during the seven months ended December 31, 1995, as compared to the year ended December 31, 1996. Other cost increases included volume related items and cost inflation. Depreciation and amortization was $31.3 million for the year ended December 31, 1996 compared to $11.0 million for the seven months ended December 31, 1995. This increase of $20.3 million was the result of the additional five months of operations of the Company in 1996, as compared to 1995, as well as additional depreciation of property, plant and equipment from 1996 additions and the amortization of goodwill from the DWT Acquisition. In the first quarter of 1996, the Company adopted a new business strategy that had a major impact on its business units. The Company's strategy considered reducing production costs, moving production to the South and Southwest, improving customer service and lowering selling, general and administrative expenses. The Company developed the new strategy and business plan in the first quarter of 1996, which it finalized in connection with the DWT Acquisition. The DWT Acquisition was instrumental in the evaluation and implementation of the new business strategy, due to DWT's strategically sized and located facilities. With the DWT Acquisition, additional goodwill of $105.0 million was recorded. With the addition of significant goodwill, the Company believed it was appropriate to perform a comprehensive review of the carrying value of goodwill. In addition to the DWT Acquisition, factors that were examined during the Company's review of the carrying value of goodwill included the changes in the appliance and automotive industries. These changes include the movement of appliance harness requirements to Mexican manufacturing facilities and the shift in automotive harness requirements from large, long lead-time orders to more frequent, small, short lead-time orders. As a result of these changes, the Company closed certain of its facilities and undertook its new business strategy. Upon completion of its analysis, the Company determined that the carrying value of goodwill exceeded fair value by approximately $78.2 million. A non-cash impairment charge of $78.2 million was recorded upon completion of the analysis in the fourth quarter of 1996. A $6.0 million pre-tax charge to operations was recorded during the year ended December 31, 1996, representing plant closing costs. The plant closing costs relate to shutting down and consolidating six facilities. There was a similar charge of $1.8 million for the seven months ended December 31, 1995. An $8.5 million pre-tax inventory valuation charge was recorded during the year ended December 31, 1996. This charge was the result of an adjustment to the LIFO valuation of copper in inventory reflecting the decrease in the copper cost per pound during fiscal 1996. There was no similar charge for the seven months ended December 31, 1995. HISTORICAL COMBINED FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO HISTORICAL COMBINED FISCAL YEAR ENDED DECEMBER 31, 1994 Net sales for the Historical Combined Fiscal Year Ended December 31, 1995 were $454.7 million, representing a $7.6 million, or 1.7%, increase over the Historical Combined Fiscal Year Ended December 31, 1994. This increase in net sales was primarily attributable to an increase in sales of wire products which grew 7 9 to $293.6 million in 1995 from $272.4 million in 1994, an increase of $21.2 million, or 7.8%. The increase was largely due to rising copper prices. In general, the Company prices its products based upon a spread over the cost of copper, which results in an increased dollar volume of sales when copper prices increase. The average price of copper based on the COMEX rose to $1.35 per pound during the Historical Combined Fiscal Year Ended December 31, 1995 from $1.07 per pound during the Historical Combined Fiscal Year Ended December 31, 1994. The increase in wire sales was also bolstered by growth in specialty accounts which primarily occurred in the security, alarm, data communications and fine wire businesses. The increase in sales of wire products was offset somewhat by a slowdown in the automotive industry as well as by several model related changeovers at key automotive customers. Within the wire harness segment, sales decreased $13.6 million, or 7.8%, for the Historical Combined Fiscal Year Ended December 31, 1995 as compared to the Historical Combined Fiscal Year Ended December 31, 1994. This decrease reflects a decline in sales to Whirlpool. This decline was pursuant to an agreement effective October 1, 1994, whereby Whirlpool began transitioning certain wire harness purchases to its own captive operation in Mexico and other third party suppliers. The wire harness segment, however, retained Whirlpool's dishwasher harness business. Cost of goods sold as a percent of sales increased to 79.8% from 78.0% for the Historical Combined Fiscal Year Ended December 31, 1995 compared to the Historical Combined Fiscal Year Ended December 31, 1994. The change was primarily due to the increase in the average price of copper. Because the Company's products are typically priced at a spread over the cost of copper, a higher copper price leads to a lower gross margin percentage but generally has no impact on gross margin dollars. The increasing cost of materials used to insulate wire, which include resins and plasticizers, and the impact of producing to shorter average runs during the mid-year automotive slowdown and customer inventory adjustment period also had dampening effects on margins. HISTORICAL COMBINED FIVE MONTHS ENDED MAY 31, 1995 COMPARED TO HISTORICAL COMBINED FISCAL YEAR ENDED DECEMBER 31, 1994 Net sales for the Historical Combined Five Months Ended May 31, 1995 were $209.1 million, representing a $238.0 million decrease from the Historical Combined Fiscal Year Ended December 31, 1994. This decrease included wire segment sales of $140.6 million and wire harness segment sales of $97.4 million. The decrease was primarily the result of a full twelve months of operations for the 1994 period compared to only five months of operations included the 1995 period. This decrease was partially offset by rising copper prices. In general, the Company prices its products based upon a spread over the cost of copper, which results in an increased dollar volume of sales when copper prices increase. The average price of copper based on the COMEX rose to $1.35 per pound during the Historical Combined Five Months Ended May 31, 1995 from $1.07 per pound during the Historical Combined Fiscal Year Ended December 31, 1994. Cost of sales as a percentage of sales increased to 80.1% for the Historical Combined Five Months Ended May 31, 1995 from 78.0% for the Historical Combined Fiscal Year Ended December 31, 1994. The change was primarily due to the increase in the average price of copper. Because the Company's products are typically priced at a spread over the cost of copper, a higher copper price leads to a lower gross margin percentage but generally has no impact on gross margin dollars. Selling, general and administrative expenses were $15.7 million for the Historical Combined Five Months Ended May 31, 1995 compared to $39.8 million for the Historical Combined Fiscal Year Ended December 31, 1994, a decrease of $24.1 million. Expressed as a percentage of sales, selling, general and administrative expenses decreased to 7.5% for the Historical Combined Five Months Ended May 31, 1995, from 8.9% for the Historical Combined Fiscal Year Ended December 31, 1994. The decrease in the percentage of sales was primarily attributable to cost containment efforts, movement away from commissioned sales representatives to a captive sales force and consolidation in administrative positions. Depreciation and amortization was $8.3 million for the Historical Combined Five Months Ended May 31, 1995, compared to $13.3 million for the Historical Combined Fiscal Year Ended December 31, 1994. This decrease of $5.0 million was primarily the result of a full twelve months of operations for the 1994 period compared to only five months of operations included the 1995 period. This decrease was partially offset by 8 10 depreciation of property, plant and equipment additions and the amortization of goodwill from the ECM Acquisition and the acquisition of THL-Omega. During the Historical Combined Five Months Ended May 31, 1995, the Company recorded a $2.0 million charge to operations to provide for plant closing costs including shut-down costs, commitment costs for leased equipment and key personnel and severance related costs. There was no similar charge for the Historical Combined Fiscal Year Ended December 31, 1994. During the Historical Combined Five Months Ended May 31, 1995, the Company recorded $10.6 million in compensation expense and $2.2 million for expenses related to the Original Wirekraft Acquisition and the acquisition of THL-Omega. There was no similar charge for the Historical Combined Fiscal Year Ended December 31, 1994. 9 11 LIQUIDITY AND CAPITAL RESOURCES Working Capital and Cash Flows For the year ended December 31, 1996, the Company generated $32.0 million in cash from operations and $13.0 million of net proceeds from the issuance of equity securities and long-term debt obligations related to the DWT Acquisition. During 1996, the Company made net repayments of $21.3 million under debt obligations, spent $15.8 million on capital projects and used $7.8 million related to financing fees. For the Historical Combined Year Ended December 31, 1995, the Company generated $25.2 million in cash from operations and $23.0 million of net proceeds from the issuance of equity securities and long-term debt obligations related to acquisitions. During 1995, the Company made net repayments of $17.6 million under debt obligations ($12.5 million repaid by the predecessor companies in connection with the Acquisitions), spent approximately $10.5 million on capital projects and used $21.0 million to pay financing fees ($7.0 million of which were incurred in connection with the acquisition of THL-Omega). For the Historical Combined Year Ended December 31, 1994, the Company generated $13.4 million in cash from operations and $3.8 million from the issuance of certain notes. Cash was used in 1994 primarily to fund capital expenditures of $14.9 million. Financing Arrangements In connection with the Camden Acquisition, Holding and the Company entered into an Amended and Restated Credit Agreement dated as of February 12, 1997 with certain financial institutions. The Amended and Restated Credit Agreement provides senior secured financing of up to $428.5 million, consisting of an $111.0 million, five year Term A loan, an $115.0 million, seven year Term B loan, an $127.5 million, eight year Term C loan (collectively the "Term Facility") and a $75.0 million revolving loan and letter of credit facility (the "Revolver"). The Company is obligated to make principal payments in respect of the Term Facility of $20.3 million in 1997, $23.1 million in 1998, $28.3 million in 1999, $42.6 million in 2000, $56.6 million in 2001, $73.2 million in 2002 and $92.4 million in 2003. The Revolver is available for working capital purposes including letters of credit. The commitments terminate and all amounts under the Revolver then outstanding mature in 2000. As of March 12, 1997, there was $336.2 million outstanding under the Term Facility and $67.4 million of unused borrowing capacity under the Revolver. The Company's obligations under the Amended and Restated Credit Agreement bear interest at floating rates and require interest payments on varying dates depending on the interest rate option selected by the Company. At March 12, 1997, weighted average interest rate on outstanding borrowings under the Amended and Restated Credit Agreement was 8.69%. 10 12 Within 90 days of the date of the Amended and Restated Credit Agreement, the Company is required to enter into interest rate agreements to assure the net interest cost to the Company on at least 50% of the sums of the aggregate principal amount of the Term Facility, the aggregate principal amount of the Senior Notes, and the aggregate liquidation preference of the Senior Preferred Stock (or the aggregate principal amount of the Senior Notes issued in exchange for the Senior Preferred Stock pursuant to the terms thereof) for a period of at least two years. As of March 12, 1997, the Company had entered into two such agreements. These agreements provide ceilings of 7.0% on $55.5 million of indebtedness through May 1997, 8.0% on $63.5 million of indebtedness through May 1998, 7.0% on $32.5 million of indebtedness through March 1998 and 8.0% on $32.5 million of indebtedness through March 1999. In connection with the Acquisitions, Holding and the Company issued $150.0 million principal amount of Senior Notes due 2005 under an indenture (the "Indenture"), dated June 12, 1995. The Senior Notes bear interest at the rate of 11.75% per annum, requiring semi-annual interest payments of $8.8 million on each June 1 and December 1. The Senior Notes are not subject to any sinking fund requirements. Liquidity The principal raw material used in the Company's products is copper. The market price of copper is subject to significant fluctuations. Increased working capital needs occur whenever the Company experiences a significant rise in copper prices. A $0.10 per pound change in the price of copper changes the Company's working capital by approximately $2.8 million. The Company enters into contractual relationships with most of its customers to adjust it prices based upon the prevailing market prices on the COMEX. This approach is patterned after the Company's arrangement with its copper suppliers and is designed to remove the risk associated with fluctuating copper prices. As part of the impairment charge in 1996 as more fully described in Note 10 to the Company's financial statements for the year ended December 31, 1996, the Company has accrued $4.2 million for anticipated losses related to product liability claims associated with the Original Wirekraft Acquisition. These claims are for a non-wire product in the appliance industry that the Company has not manufactured since 1992. The Company's policy is to record the probable and reasonably estimable loss related to product liability claims. In 1996, the claims significantly increased as a result of the receipt of claims accumulated by insurance companies related to prior periods. Accordingly, the Company revised its estimated liability outstanding on actual claims reported and its estimate of claims incurred but not reported. In developing its estimated liability outstanding on actual claims reported, the Company considered historic settlement rates. The Company has estimated its liability outstanding on actual claims reported to be $1.5 million. In determining its estimate of claims incurred but not reported, the Company considered historical claim levels and amounts relative to total product shipped. Additionally, the Company considered historical settlement rates to develop its estimate of incurred but not reported claims of $2.7 million. Due to the uncertainties associated with these product claims, the future cost of final settlement of these claims may differ from the liability currently accrued. However, in the Company's opinion, the impact of final settlement of these claims on future operations, financial position and liquidity will not be material. The Company's primary source of liquidity are cash flows from operations and borrowings under the Revolver, which are 11 13 subject to a borrowing base calculation. The major uses of cash in 1997 are expected to be for debt service requirements and capital expenditures. In 1997, debt service requirements are estimated at $68 million while capital expenditures are estimated at $23 million. Management believes that cash from operating activities, together with available borrowings under the Revolver, if necessary, should be sufficient to permit the Company to meet these financial obligations. ITEM 8. FINANCIAL STATEMENTS INDEX TO FINANCIAL STATEMENTS
INTERNATIONAL WIRE GROUP, INC. PAGE ---- Report of Coopers & Lybrand L.L.P., Independent Public Accountants ............................ 13 Consolidated Balance Sheets as of December 31, 1996 and December 31, 1995 ..................... 14 Consolidated Statements of Operations for the year ended December 31, 1996 and seven months ended December 31, 1995 ....................................................... 15 Consolidated Statement of Stockholders' Equity for the year ended December 31, 1996 and seven months ended December 31, 1995 ....................................................... 16 Consolidated Statements of Cash Flows for the year ended December 31, 1996 and seven months ended December 31, 1995 ....................................................... 17 Notes to Consolidated Financial Statements .................................................... 18 Report of Coopers & Lybrand L.L.P., Independent Public Accountants ............................ 37 Consolidated Financial Statement Schedule for the year ended December 31, 1996 and the seven months ended December 31, 1995: Schedule II - Valuation and Qualifying Accounts .. 38 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) Report of Coopers & Lybrand L.L.P., Independent Public Accountants ............................ 39 Consolidated Statements of Operations for the six months ended May 31, 1995 and the year ended November 30, 1994 .................................................................... 40 Consolidated Statements of Stockholders' Equity for the six months ended May 31, 1995 and the year ended November 30, 1994 ........................................................... 41 Consolidated Statements of Cash Flows for the six months ended May 31, 1995 and the year ended November 30, 1994 .................................................................... 42 Notes to Consolidated Financial Statements .................................................... 43 OMEGA WIRE CORP. Report of Coopers & Lybrand L.L.P., Independent Public Accountants ............................ 51 Consolidated Statement of Operations for the two months ended May 31, 1995 .................... 52 Consolidated Statement of Stockholders' Equity for the two months ended May 31, 1995 ......................................................................... 53 Consolidated Statement of Cash Flows for the two months ended May 31, 1995 .................... 54 Notes to Consolidated Financial Statements .................................................... 55 THL-OMEGA HOLDING CORPORATION Report of Coopers & Lybrand L.L.P., Independent Public Accountants ............................ 60 Consolidated Statement of Operations and Retained Earnings for the three months ended March 31, 1995 ....................................................................... 61 Consolidated Statement of Cash Flows for the three months ended March 31, 1995 ................ 62 Notes to Consolidated Financial Statements .................................................... 63 Report of Price Waterhouse L.L.P., Independent Public Accountants ............................. 66 Consolidated Statements of Operations and Retained Earnings for the year ended December 31, 1994 .......................................................................... 67 Consolidated Statements of Cash Flows for the year ended December 31, 1994 .................... 68 Notes to Consolidated Financial Statements .................................................... 69
12 14 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of International Wire Group, Inc.: We have audited the accompanying consolidated balance sheets of International Wire Group, Inc. and subsidiaries as of December 31, 1996 and December 31, 1995, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the year ended December 31, 1996 and seven months ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of International Wire Group, Inc. and subsidiaries as of December 31, 1996 and December 31, 1995, and the consolidated results of their operations and their cash flows for the year ended December 31, 1996 and the seven months ended December 31, 1995, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. St. Louis, Missouri February 28, 1997 13 15 INTERNATIONAL WIRE GROUP, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
DECEMBER 31, DECEMBER 31, 1996 1995 ------------ ------------ Current assets: Accounts receivable, less allowance of $1,363 and $860 ........ $ 71,181 $ 47,180 Inventories ................................................... 60,362 57,777 Prepaid expenses and other .................................... 5,060 2,733 Deferred income taxes ......................................... 4,741 125 ------------ ------------ Total current assets ....................................... 141,344 107,815 Property, plant and equipment, net ................................. 118,551 82,259 Deferred financing costs, net ...................................... 21,222 16,688 Intangible assets, net ............................................. 244,655 215,400 Other assets ....................................................... 5,248 5,758 ------------ ------------ Total assets ............................................... $ 531,020 $ 427,920 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term obligations ................... $ 20,948 $ 12,662 Accounts payable .............................................. 45,832 37,627 Accrued and other liabilities ................................. 33,150 20,323 Customers' deposits ........................................... 8,033 5,688 Accrued interest .............................................. 4,648 2,516 ------------ ------------ Total current liabilities .................................. 112,611 78,816 Long-term obligations, less current maturities ..................... 426,719 326,015 Deferred income taxes .............................................. 14,719 8,194 Other long-term liabilities ........................................ 12,162 4,897 ------------ ------------ Total liabilities .......................................... 566,211 417,922 Stockholders' equity (deficit): Common stock, $.01 par value, 1,000 shares authorized, issued and outstanding ..................................... 0 0 Series A senior cumulative exchangeable redeemable preferred stock, $.01 par value, $25 liquidation value, 400,000 shares authorized, issued and outstanding ... 4 -- Contributed capital ........................................... 125,340 81,051 Carryover of predecessor basis ................................ (67,762) (67,762) Accumulated deficit ........................................... (92,773) (3,291) ------------ ------------ Total stockholders' equity (deficit) ....................... (35,191) 9,998 ------------ ------------ Total liabilities and stockholders' equity (deficit) ....... $ 531,020 $ 427,920 ============ ============
See accompanying notes to the consolidated financial statements 14 16 INTERNATIONAL WIRE GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
YEAR ENDED SEVEN MONTHS ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ----------------- ----------------- Net sales .......................................... $ 546,981 $ 245,583 Operating expenses: Cost of goods sold .............................. 420,823 195,221 Selling, general and administrative ............. 43,885 17,129 Depreciation and amortization ................... 31,341 11,020 Impairment, unusual and plant closing charges ... 84,250 1,750 Inventory valuation adjustment .................. 8,500 -- ---------- ---------- Operating income (loss) ............................ (41,818) 20,463 Other income (expense): Interest expense ................................ (43,013) (19,931) Amortization of deferred financing costs ........ (3,701) (1,468) Other, net ...................................... 312 (158) ---------- ---------- Loss before income tax provision ................... (88,220) (1,094) Income tax provision ............................... 1,262 2,197 ---------- ---------- Net loss ........................................... $ (89,482) $ (3,291) ========== ==========
See accompanying notes to the consolidated financial statements 15 17 INTERNATIONAL WIRE GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE SEVEN MONTHS ENDED DECEMBER 31, 1995 (IN THOUSANDS)
CARRYOVER OF COMMON PREFERRED CONTRIBUTED PREDECESSOR ACCUMULATED STOCK STOCK CAPITAL BASIS DEFICIT TOTAL ------------ ------------ ------------ ------------ ------------ ------------ Capital contributed ........... $ 0 $ -- $ 81,951 $ -- $ -- $ 81,951 Issuance costs ................ -- -- (900) -- -- (900) Carryover of predecessor basis ...................... -- -- -- (67,762) -- (67,762) Net loss ...................... -- -- -- -- (3,291) (3,291) ------------ ------------ ------------ ------------ ------------ ------------ Balance December 31, 1995 ..... 0 -- 81,051 (67,762) (3,291) 9,998 Capital contributed ........... -- -- 35,493 -- -- 35,493 Issuance of preferred stock ... -- 4 9,996 -- -- 10,000 Issuance costs ................ -- -- (1,200) -- -- (1,200) Net loss ...................... -- -- -- -- (89,482) (89,482) ------------ ------------ ------------ ------------ ------------ ------------ Balance December 31, 1996 ..... $ 0 $ 4 $ 125,340 $ (67,762) $ (92,773) $ (35,191) ============ ============ ============ ============ ============ ============
See accompanying notes to the consolidated financial statements 16 18 INTERNATIONAL WIRE GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED SEVEN MONTHS ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ----------------- ------------------ Cash flows provided by (used in) operating activities: Net loss ................................................. $ (89,482) $ (3,291) Adjustment to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization ............................ 31,341 11,020 Impairment and unusual charge ............................ 78,250 -- Amortization of deferred financing costs ................. 3,701 1,468 Inventory valuation adjustment ........................... 8,500 -- Deferred income taxes .................................... 3,184 274 Change in assets and liabilities, net of acquisitions: Accounts receivable .................................... (1,878) 12,094 Inventories ............................................ (3,645) (9,590) Prepaid expenses and other ............................. (4,829) (846) Accounts payable ....................................... 1,216 1,232 Accrued and other liabilities .......................... 2,299 (2,084) Accrued interest ....................................... 2,132 2,516 Income taxes payable/refundable ........................ 1,914 778 Other long-term liabilities ............................ (723) (237) ---------- ---------- Net cash from operating activities .......................... 31,980 13,334 ---------- ---------- Cash flows provided by (used in) investing activities: Acquisitions, net of cash ................................ (160,259) (341,046) Capital expenditures, net ................................ (15,849) (5,751) ---------- ---------- Net cash used in investing activities ....................... (176,108) (346,797) ---------- ---------- Cash flows provided by (used in) financing activities: Equity proceeds .......................................... 45,039 15,048 Proceeds from issuance of long-term obligations .......... 128,200 337,500 Repayment of long-term obligations ....................... (21,311) (5,085) Financing fees and other ................................. (7,800) (14,000) ---------- ---------- Net cash from financing activities .......................... 144,128 333,463 ---------- ---------- Net change in cash and cash equivalents ..................... -- -- Cash and cash equivalents at beginning of the period ........ -- -- ---------- ---------- Cash and cash equivalents at end of the period .............. $ -- $ -- ========== ==========
See accompanying notes to the consolidated financial statements 17 19 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1996 AND SEVEN MONTHS ENDED DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) 1. THE COMPANY International Wire Group, Inc. ("Group" or the "Company"), a Delaware corporation, was formed to participate in the transactions contemplated by the Acquisitions (as described below). On June 12, 1995, Wirekraft Holdings Corp. ("Wirekraft"), Omega Wire Corp. ("Omega"), International Wire Holding Company ("Holding"), the sole common stockholder of Group, Wirekraft Acquisition Company and certain shareholders of Wirekraft and Omega entered into a series of acquisitions and mergers (the "Acquisitions") pursuant to which Group acquired all of the common equity securities (and all securities convertible into such securities) of Wirekraft and all of the common equity securities of Omega. The Company has designated June 1, 1995, as the effective date of the Acquisitions for financial reporting purposes. The Company through its two segments, the Wire segment and the Harness segment, is engaged in the design, manufacture and marketing of non-insulated and insulated copper wire and wire harnesses. The Company's products are used by a wide variety of customers primarily in the appliance, computer and data communications, automotive and industrial equipment industries. The total purchase price of the Acquisitions was approximately $420,591, which included the redemption of certain equity securities, the retirement of existing indebtedness of Wirekraft and Omega and the payment of related fees and costs, is summarized as follows: Redemption of common stock, equity rights, warrants and options ..................................................... $104,810 Repayment of existing indebtedness ................................. 275,460 Redemption of preferred stock ...................................... 26,321 Fees and costs ..................................................... 14,000 -------- $420,591 ========
In accordance with EITF 88-16, "Basis in Leveraged Buy Out Transactions," the Acquisitions have been accounted for at "predecessor basis". The total acquisition costs have been allocated to the acquired net assets as follows: Current assets .................................................... $ 117,504 Property, plant and equipment ..................................... 83,253 Goodwill .......................................................... 209,818 Fees and costs .................................................... 19,000 Other assets ...................................................... 3,749 Current liabilities ............................................... (58,707) Other liabilities ................................................. (21,788) Carryover predecessor basis ....................................... 67,762 --------- $ 420,591 =========
18 20 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Unaudited pro forma data, which present condensed results of operations for the twelve months ended December 31, 1995 as though the Acquisitions and related financing had occurred at the beginning of the period, is as follows: Net sales ........................................................... $454,693 Net income (loss) ................................................... $ 3,406
2. DWT ACQUISITION On March 5, 1996, Wire Technologies, Inc. ("Wire Technologies"), a wholly-owned subsidiary of the Company, acquired the businesses of Hoosier Wire, Inc., Dekko Automotive Wire, Inc., Albion Wire, Inc. and Silicones, Inc., a group of affiliated companies operating together under the trade name Dekko Wire Technology Group (the "DWT Acquisition"). The total consideration of $173,239 paid in connection with the DWT Acquisition including fees, expenses and certain adjustments consisted of (i) cash and (ii) warrants for the purchase of 2,000,000 shares of Common Stock, par value $.01 per share, of Holding. The DWT Acquisition and the related transaction fees and expenses were funded with (i) $128,200 of senior debt under the Amended Credit Agreement, (ii) $35,000 from the issuance of 35,000,000 shares of Common Stock, par value $.01 per share, of Holding, (iii) $39 from the issuance of 3,888,889 shares of Class A Common Stock, par value $.01 per share, of Holding, and (iv) $10,000 from the issuance of 400,000 shares of Series A Senior Cumulative Exchangeable Redeemable Preferred Stock, par value $.01 per share, of the Company (sold in units together with warrants for the purchase of shares of Common Stock, par value $.01 per share, of Holding). The DWT Acquisition was accounted for using the purchase method of accounting whereby the total acquisition cost has been allocated to the consolidated assets and liabilities based upon their estimated respective fair values. The total acquisition cost is allocated to the acquired net assets as follows: Current assets .................................................... $ 37,669 Property, plant and equipment ..................................... 36,020 Goodwill .......................................................... 105,041 Other, non-current ................................................ 3,515 Fees and costs .................................................... 7,800 Current liabilities ............................................... (15,306) Other liabilities ................................................. (1,500) --------- $ 173,239 =========
Unaudited pro forma results of operations of the Company for the years ended December 31, 1996 and December 31, 1995, are included below. Such pro forma presentation has been prepared assuming that the DWT Acquisition and related financing had occurred as of January 1, 1996 and January 1, 1995, respectively, and that the Acquisitions (as described in Note 1) had occurred as of January 1, 1995.
1996 1995 -------- -------- Net sales ............................................. $574,827 $601,709 Net income (loss) ..................................... $(88,994) $ (2,613)
19 21 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of Group and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Revenue Recognition Sales and related cost of goods sold are included in income when goods are shipped to customers. Inventories Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out ("LIFO") method. Property, Plant and Equipment Property, plant and equipment is stated at cost. Depreciation is calculated using the straight-line method. The average estimated lives utilized in calculating depreciation are as follows: building - 25 to 40 years; building improvements - 15 years; machinery and equipment - 3 to 11 years; and furniture and fixtures - 5 years. Leasehold improvements are amortized over the shorter of the term of the respective lease or the life of the respective improvement. In fiscal 1996, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 121 requires impairment losses to be recorded on long-lived assets used in operations when indications of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Intangible Assets Intangible assets consist principally of goodwill arising from the excess of cost over the value of net assets acquired which is amortized using the straight-line method over forty years. In fiscal 1996, the Company completed a review of the carrying value of goodwill, which resulted in an impairment (see Note 10). Accumulated amortization aggregated $18,182 and $8,783 at December 31, 1996 and December 31, 1995, respectively. The Company periodically evaluates goodwill to assess recoverability. The Company considers various factors in determining if goodwill may be impaired. These factors include reductions in estimated future cash flows, significant events impacting the Company's business and changes in the business environment. The Company further assesses the recoverability of goodwill by comparing the value of goodwill as indicated by a discounted cash flow analysis to the carrying value of goodwill. The discounted cash flow analysis consists of discounted free cash flows for a projection period plus a terminal value, which is calculated by dividing estimated annual unlevered net income by the weighted average cost of capital less an assumed growth rate. Upon consideration of these factors, if the Company determines that an impairment has occurred, the Company determines the impairment charge by comparing the carrying value of goodwill to the adjusted fair value of the Company, as calculated through a discounted cash flow analysis. In fiscal 1996, the Company completed a review of the carrying value of goodwill, which resulted in an impairment charge (see Note 10). 20 22 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred Financing Costs Deferred financing costs, consisting of fees and other expenses associated with the debt financing are amortized over the term of the related debt using the effective interest method and the straight-line method which approximates the effective interest method. Accumulated amortization aggregated $5,169 and $1,468 at December 31, 1996 and December 31, 1995, respectively. Foreign Currency For operations in Mexico, the Company's functional currency is the U.S. dollar. Gains and losses from translation and transactions are determined using a combination of current and historical rates and are included in net income. Interest Rate Hedging Arrangement In 1996, the Company entered into an interest rate hedging arrangement for the purpose of hedging against rising interest rates. The company paid a fee of approximately $200 for the arrangement. This fee is included in deferred financing fees and amortized on a straight-line basis over the life of the arrangement, through May 1998. The interest rate hedging arrangement provides a ceiling interest rate of 7.0% on $55,000 of indebtedness through May 1997 and a ceiling interest rate of 8.0% on $63,500 of indebtedness thereafter through May 1998. The Company estimates that fair value approximates carrying value of the interest rate hedging arrangement, due to the short life of the arrangement and the relative stability of interest rates in 1996. Fair Value of Financial Instruments The Company's financial instruments, excluding the Senior Notes (as hereinafter defined) are carried at fair value or amounts that approximate fair value. The Company has estimated the fair value of the Senior Notes using current market data. At December 31, 1996, the estimated fair market value of the Senior Notes was $162,000. Estimates and Assumptions The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Statement of Cash Flows For purposes of the consolidated statement of cash flows, the Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. Interest paid for the year ended December 31, 1996 and seven months ended December 31, 1995 was $40,881 and $17,415, respectively. Taxes refunded, net of payments for the year ended December 31, 1996 and taxes paid for the seven months ended December 31, 1995 were $4,073 and $1,145, respectively. During the year ended December 31, 1996 and seven months ended December 31, 1995, the Company entered into certain non-cash investing and financing activities. In connection with the Acquisitions, certain shares of Omega and Wirekraft common stock and Class A common stock were exchanged for shares of Holding common stock. The total amount of shares exchanged was $66,903. In fiscal 1996 and 1995, the Company recorded capital lease obligations of $2,348 and $680 respectively, for property, plant and equipment. Significant Customer A significant portion of the Company's sales were to a major customer within the Harness segment. Sales to this customer represented 18% and 19% of net sales for the year ended December 31, 1996 and the seven months ended December 31, 1995, respectively. 21 23 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. INVENTORIES The composition of inventories is as follows:
December 31, December 31, 1996 1995 ------------ ------------ Raw materials .................................... $ 26,191 $ 19,451 Work-in-process .................................. 14,908 15,916 Finished goods ................................... 19,263 22,410 ------------ ------------ Total inventories ........................... $ 60,362 $ 57,777 ============ ============
The current cost of inventories is approximately $57,267 and $56,035 at December 31, 1996 and December 31, 1995. In connection with the decline in the average price of copper during fiscal 1996 the Company recorded an $8,500 pre-tax inventory valuation charge to reduce the LIFO valuation of copper in inventory. 5. PROPERTY, PLANT AND EQUIPMENT The composition of property, plant and equipment is as follows:
December 31, December 31, 1996 1995 ------------ ------------ Land ........................................... $ 2,797 $ 2,061 Buildings and improvements ..................... 31,546 20,848 Machinery and equipment ........................ 121,013 76,668 ------------ ------------ 155,356 99,577 Less: accumulated depreciation ................. (36,805) (17,318) ------------ ------------ $ 118,551 $ 82,259 ============ ============
6. FINANCING COSTS AND RELATED PARTY TRANSACTIONS In connection with the Acquisitions, the Company incurred aggregate fees and costs of $14,000. Costs of $13,100 related to the Senior Notes and Credit Agreement (see Note 7) are included in deferred financing costs and are being amortized over the terms of the related borrowings. Costs of $900 related to the issuance of Holding's common stock have been deducted from the proceeds to reduce the carrying value of the common stock. In connection with the DWT Acquisition, the Company incurred aggregate fees and costs of $7,800. Costs of $6,600 related to the Amended Credit Agreement (as hereinafter defined) are included in deferred financing costs and are being amortized over the terms of the related borrowings. Costs of $1,200 related to the issuance of Holding's common stock and the Preferred Stock (as defined in Note 8) have been deducted from the proceeds to reduce the carrying value of the common and preferred stock. In connection with the Acquisitions and the related financing, the Company entered into a Monitoring and Oversight Agreement ("Agreement") with Hicks, Muse & Co. Partners, L.P. ("Hicks, Muse") (an affiliate of the Company) pursuant to which the Company paid Hicks, Muse a cash fee of $3,725 as compensation for financial advisory services. Pursuant to the Agreement, the Company paid Hicks, Muse a cash fee of $2,500 as compensation for financial advisory services received in connection with the DWT Acquisition. The fees have been allocated based upon the issuance proceeds to the debt and equity securities issued in connection with the Acquisitions and the DWT 22 24 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Acquisition as deferred financing costs or as a deduction from the cash proceeds received from the sale of the common stock of Holding. The Agreement further provides that the Company shall pay Hicks, Muse an annual fee of $500, for ten years for monitoring and oversight services adjusted annually at the end of each fiscal year to an amount equal to .1% of the consolidated net sales of the Company, but in no event less than $500 annually. The obligation under the Agreement and the related deferred financing costs have been recorded in the consolidated balance sheets. 7. LONG-TERM OBLIGATIONS The composition of long-term obligations is as follows:
December 31, December 31, 1996 1995 ------------ ------------ Credit Agreement: Revolver .................................... $ 18,990 $ 19,000 Term Facility ............................... 271,404 163,813 Senior Subordinated Notes ...................... 150,000 150,000 Capital lease and other obligations ............ 7,273 5,864 ------------ ------------ 447,667 338,677 Less, current maturities ....................... (20,948) (12,662) ------------ ------------ $ 426,719 $ 326,015 ============ ============
The schedule of principal payments for long-term obligations at December 31, 1996 is as follows: 1997 ................................................................ $ 20,948 1998 ................................................................ 23,782 1999 ................................................................ 29,123 2000 ................................................................ 58,568 2001 ................................................................ 41,457 Thereafter .......................................................... 273,789 -------- Total ............................................................ $447,667 ========
Credit Agreement In connection with the DWT Acquisition, Group and Holding entered into an Amended Credit Agreement (the "Amended Credit Agreement") dated as of March 5,1996 with certain financial institutions. Borrowings under the Amended Credit Agreement are collateralized by first priority mortgages and liens on all of the assets of Group. In addition, borrowings under the Amended Credit Agreement are guaranteed by Holding. The Amended Credit Agreement consists of an $111,000 term loan (the "Term A Loan"), an $82,500 term loan (the "Term B Loan"), a $95,000 term loan (the "Term C Loan", collectively, the "Term Facility") and a $75,000 revolving credit facility (the "Revolver"). The Revolver provides that up to $10,000 of such facilities may be used for the issuance of letters of credit. At December 31, 1996, Group had $930 in outstanding letters of credit and $55,966 of unused borrowing capacity under the Amended Credit Agreement. A commitment fee on the unused portion of the Revolver of .5% is payable quarterly. The Amended Credit Agreement contains several financial covenants which, among other things, require Group to maintain certain financial ratios and restrict Group's ability to incur 23 25 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) indebtedness, make capital expenditures and pay dividends. Mandatory principal payments of the Term Facility are due in quarterly installments. The final installment on the Term A Loan is due on September 30, 2000 at which time the Revolver is also due. The final installment on the Term B Loan is due on September 30, 2002, and the final installment on the Term C Loan is due on September 30, 2003. The Amended Credit Agreement requires annual prepayments of the Term Facility based on "Excess Cash Flow" (as defined in the Amended Credit Agreement). Borrowings under the Term A Loan and Revolver bear interest, at the option of Group, at a rate per annum equal to (a) the Alternate Base Rate (as defined in the Amended Credit Agreement) plus 1.5% or (b) the Eurodollar Rate (as defined in the Amended Credit Agreement) plus 2.5%. Borrowings under the Term B Loan bear interest, at the option of Group, at a rate per annum equal to (a) the Alternate Base Rate (as defined in the Amended Credit Agreement) plus 2.0% or (b) the Eurodollar Rate (as defined in the Amended Credit Agreement) plus 3.0%. Borrowings under the Term C Loan bear interest, at the option of Group, at a rate per annum equal to (a) the Alternate Base Rate (as defined in the Amended Credit Agreement plus 2.5% or (b) the Eurodollar Rate (as defined in the Amended Credit Agreement) plus 3.5%. The Alternate Base Rate and Eurodollar Rate margins are established quarterly based on a formula as defined in the Amended Credit Agreement. Interest payment dates vary depending on the interest rate option to which the Term Facility and the Revolver are tied, but generally interest is payable quarterly. The weighted average interest rate on outstanding borrowings was 8.75% and 8.59% at December 31, 1996 and December 31, 1995, respectively. Senior Subordinated Notes The Senior Subordinated Notes due 2005 ("the Senior Notes") were issued under an indenture, dated June 12, 1995 (the "Indenture") in connection with the Acquisitions. The Senior Notes represent unsecured general obligations of Group and are subordinated to all Senior Debt (as defined in the Indenture) of Group. The Senior Notes, which were originally sold pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended, were exchanged for identical notes registered under such Act in November, 1995. The Senior Notes are fully and unconditionally (as well as jointly and severally) guaranteed on an unsecured, senior subordinated basis by each subsidiary of the Company (the "Guarantor Subsidiaries") other than Electro Componentes de Mexico, S.A. de C.V. and Wirekraft Industries de Mexico, S.A. de C.V. (The "Non-Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries and Non-Guarantor Subsidiaries is wholly owned by the Company. (see Note 14). The Senior Notes mature on June 1, 2005. Interest on the Senior Notes is payable semi-annually on each June 1 and December 1. The Senior Notes bear interest at the rate of 11.75% per annum. The Senior Notes may not be redeemed prior to June 1, 2000, except in the event of a Change of Control (as defined) or Initial Public Offering (as defined) 24 26 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and at such applicable premium (as defined). The Senior Notes are redeemable, at the Company's option, at the redemption prices of 105.875% at June 1, 2000, and at decreasing prices to 100% at June 1, 2003, and thereafter, with accrued interest. In addition, prior to June 1, 1998, the Company may redeem, within guidelines specified in the Indenture, up to $50,000 of the Senior Notes with the proceeds of one or more Equity Offerings (as defined) by the Company or Holding at a redemption price of 110%, with accrued interest. The Senior Notes restrict, among other things, the incurrence of additional indebtedness by the Company, the payment of dividends and other distributions in respect of the Company's capital stock, the payment of dividends and other distributions by the Company's subsidiaries, the creating of liens on the properties and the assets of the Company to secure certain subordinated debt and certain mergers, sales of assets and transactions with affiliates. 8. PREFERRED STOCK In connection with the DWT Acquisition, the Company issued 400,000 shares of Series A Senior Cumulative Exchangeable Redeemable Preferred Stock (the "Preferred Stock"). In accordance with the Certificate of Designation of the Preferred Stock (the "Certificate of Designation"), cumulative dividends are payable quarterly at the rate of 14% per annum. Dividend rates could increase upon the occurrence of any Event of Non-Compliance (as defined in the Certificate of Designation). At December 31, 1996, dividends in arrears were $1,200 or $2.99 per share. The Preferred Stock has a liquidation preference of $25.00 per share and a par value of $.01 per share. The Preferred Stock is exchangeable, at the option of the Company, for 14.0% Senior Subordinated Exchange Notes due June 1, 2005 (the "Exchange Notes") (see Note 15). The Preferred Stock ranks with respect to the payment of dividends and the distribution of assets upon dissolution, liquidation, or winding up of the Company, prior to all other capital stock of the Company. The Company may redeem the Preferred Stock, in whole or in part, at any time. If such redemption occurs prior to December 31, 1997, the redemption price shall equal the Makewhole Price (as defined in the Certificate of Designation). If such redemption occurs on or after December 31, 1997, the redemption price shall equal the product of the liquidation preference plus all accrued and unpaid dividends, multiplied by the applicable Redemption Percentage (as defined in the Certificate of Designation). 25 27 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. INCOME TAXES The Company accounts for income taxes in accordance with the provisions of SFAS No. 109. The provision (benefit) for income taxes is as follows:
Year Seven Months Ended Ended December 31, December 31, 1996 1995 ------------ ------------ Current: State ........................................ $ 935 $ 1,262 Foreign ...................................... 264 661 ------------ ------------ 1,199 1,923 Deferred: Federal ...................................... (64) (530) State ........................................ 127 804 ------------ ------------ 63 274 ------------ ------------ Total ...................................... $ 1,262 $ 2,197 ============ ============
Reconciliation between the statutory income tax rate and effective tax rate is summarized below: U.S. Federal statutory rate .................... $ (30,877) $ (372) State taxes, net of federal effect ............. 690 1,364 Foreign taxes .................................. (430) 789 Nondeductible expenses ......................... 31,814 397 Other .......................................... 65 19 ------------ ------------ $ 1,262 $ 2,197 ============ ============
The tax effects of significant temporary differences representing deferred tax assets and liabilities are as follows: Deferred tax assets: Accounts receivable reserves ................... $ 477 $ 298 Accrued liabilities not yet deductible ......... 3,497 2,540 Inventories .................................... 3,381 -- Net operating loss carry forward ............... -- 3,544 Other .......................................... 227 87 ------------ ------------ 7,582 6,469 ------------ ------------ Deferred tax liabilities: Depreciation and amortization .................. 14,684 11,809 Inventories .................................... 2,176 2,523 Other .......................................... 700 206 ------------ ------------ 17,560 14,538 ------------ ------------ Net deferred tax liability ..................... $ 9,978 $ 8,069 ============ ============
26 28 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. IMPAIRMENT, UNUSUAL AND PLANT CLOSING CHARGES Commencing in the first quarter of 1996, the Company began a comprehensive review of the strategic position of its individual business units. The original goodwill related to the original Wirekraft acquisition recognized long-term customer relationships and plant locations that were strategically sized, located and customer focused. Due to intense competition in the appliance and automotive markets and the loss of the portion of the business from a major appliance customer in 1995, the Company developed and executed new business strategies in 1996, including the DWT Acquisition, to maintain customer volume levels, meet competitive pressures and address key changes within the marketplace. As a result, the Company embarked on a major plant consolidation program including the utilization of facilities purchased in the DWT Acquisition and transitioning of business from the Midwest to the Southwest and Mexico. To this end, six plants were closed in 1995 and another six plants were closed in 1996. The Company recorded a pre-tax charge to operations of $6,000 in 1996 and $1,750 in 1995 to provide for plant closing costs. The plant closing costs include provisions for shut-down costs from the period of the plant closure to the date of disposal, commitment costs for leased property and key personnel and severance related costs. During 1996 and 1995, plant closing actions resulted in the reduction of approximately 45 and 55 employees, respectively. Plant closing costs accrued at December 31, 1996 and December 31, 1995 were $2,462 and $700, respectively. There have been no adjustments to amounts charged to expense. Following is a summary of activity in the accounts related to the plant closing costs accrued:
SEVEN MONTHS YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, 1996 1995 ------------ ------------ Balance, beginning of period............................... $ 700 $ -- Charges to operations: Facility shut-down costs................................. 3,872 731 Lease commitments........................................ 773 67 Key personnel and severance costs........................ 1,355 952 ------- ------ 6,000 1,750 Costs incurred: Facility shut-down costs................................. (3,017) (339) Lease commitments........................................ (134) (67) Key personnel and severance costs........................ (1,087) (644) ------- ------ (4,238) (1,050) ------- ------ Balance, end of period..................................... $ 2,462 $ 700 ======= ======
27 29 In December 1996, the Company completed its review of the carrying value of goodwill, resulting in an impairment charge of $78,250. In determining the goodwill impairment charge, the Company completed financial projections through the year 2000. These projections reflect the Company's business strategies and were based on current industry trends, forecasts and expected developments. A discounted cash flow analysis of the consolidated entity was used to calculate the fair market value of the Company and was based upon the Company's acquisition strategy which focuses on the identification and realization of certain synergies existing between the acquired businesses. The calculated fair value of the Company is determined as the sum of discounted free cash flows through the year 2000 plus a terminal value, which is calculated using a discounted cash flow terminal value approach, determined by capitalizing unlevered net income in the last year of the projection by dividing unlevered net income by the weighted average cost of capital, less an assumed future growth rate. The calculated fair market value was compared to net tangible assets (net working capital and net property, plant and equipment). The difference between net tangible assets and the fair market value was compared to net goodwill to determine the goodwill impairment charge. In connection with this review and impairment charge, the Company has provided for anticipated losses of $4,201 related to product liability claims associated with the period preceding the original acquisition of Wirekraft in 1992. These claims are for a non-wire product in the appliance industry that the Company has not manufactured since 1992. The Company's policy is to record the probable and reasonably estimable loss related to product liability claims. In 1996, the claims significantly increased as a result of the receipt of claims accumulated by insurance companies related to prior periods. Accordingly, the Company revised its estimated liability outstanding on actual claims reported and its estimate of claims incurred but not reported. In developing its estimated liability outstanding on actual claims reported, the Company considered historical settlement rates. The Company has estimated its liability outstanding on actual claims reported to be $1,500. In determining its estimate of claims incurred but not reported, the Company considered historical claim levels and amounts relative to total product shipped. Additionally, the Company considered historical settlement rates to develop its estimate for incurred but not reported claims of $2,701. Due to the uncertainties associated with these product claims, the future cost of final settlement of these claims may differ from the liability currently accrued. However, in the Company's opinion, the impact of final settlement of these claims on future operations, financial position and cash flows will not be material. 11. RETIREMENT BENEFITS AND STOCK OPTION PLANS The Company sponsors a number of defined contribution retirement plans which provide retirement benefits for eligible employees. Company contribution expense related to these retirement plans for the year ended December 31, 1996 and seven months ended December 31, 1995 amounted to approximately $1,208 and $902, respectively. Holding's Qualified and Non-qualified Stock Option Plan (the "Option Plan") provides for the granting of up to 4,795,322 shares of common stock to officers and key employees of Holding and the Company. Under the plan, options granted approximate market value of the common stock at the date of grant. Such options vest ratably over 28 30 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) a five year period commencing on the first anniversary date after the date of grant, and vested options are exercisable at the discretion of the committee appointed to administer the Option Plan. Generally, an option may be exercised only if the holder is an officer or employee of Holding or the Company at the time of exercise. Options granted under the Option Plan are not transferable, except by will and the laws of descent and distribution. Holding and the Company have also granted Performance Options ("the Performance Options") to certain key executives. The Performance Options are excercisable only on the occurrence of certain events. The exercise price for the Performance Options is initially equal to $1.00 per share and, effective each anniversary of the grant date, the per share exercise price for the Performance Options is equal to the per share exercise price for the prior year multiplied by 1.09. The Performance Options terminate on the tenth anniversary date of the date of grant. In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation", the Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations in accounting for the Option Plan. Accordingly, no compensation cost has been recognized for the Option Plan and the Performance Options. There may be compensation expense in future periods when the Performance Options became exercisable to the extent that the fair value of the stock exceeds the exercise price of the Performance Options. Had compensation cost for the Option Plan and the Performance Options been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS No. 123, the Company's net loss would approximate the following:
SEVEN MONTHS YEAR ENDED ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ----------------- ----------------- As reported........................................ $(89,482) $(3,291) Pro forma.......................................... $(89,759) $(3,329)
The minimum value of each option grant is estimated on the date of grant with the following assumptions in 1996 and 1995, respectively: (i) risk-free interest rates of 5.9% in 1995 and ranging from 5.9% to 6.5% in 1996 and (ii) expected life of 10 years. The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts. Additional awards in future years are anticipated. Changes in the status of the Option Plan are summarized below:
Weighted Average Exercise Price Options Options Per Share Granted Vested -------------- ---------- ---------- June 1, 1995 ........................ -- -- -- Granted ........................... $1.00 3,400,000 -- Vested ............................ -- -- -- ----- ---------- ---------- December 31, 1995 .................... $1.00 3,400,000 -- Granted ........................... $1.02 1,865,249 Vested ............................ $1.00 -- 495,249 Forfeiture ........................ $1.00 (1,250,000) -- ----- ---------- ---------- December 31, 1996 .................... $1.01 4,015,249 495,249 ===== ========== ==========
Changes in the status of the Performance Options are summarized below: June 1, 1995 ......................... -- -- -- Granted ........................... $1.00 2,966,178 -- ----- ---------- ---------- December 31, 1995 .................... $1.00 2,966,178 -- Granted ........................... $1.00 1,236,566 -- ----- ---------- ---------- December 31, 1996 .................... $1.06 4,202,744 -- ===== ========== ==========
The weighted average grant-date fair value of options granted during 1996 and 1995 was $0.48 and $0.44 per share, respectively. Of the options outstanding under the Option Plan at December 31, 1996, 4,350,000 and 65,249 have exercise prices of $1.00 and $1.625 respectively, and have weighted average remaining contractual lives of between 9 and 10 years. The weighted average exercise price of options vested at December 31, 1996 is $1.00 per share. 29 31 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Of the Performance Options outstanding at December 31, 1996, 2,966,178 and 1,235,566 have exercise prices of $1.09 and $1.00 respectively, and have weighted average remaining contractual lives of between 9 and 10 years. 12. COMMITMENTS AND CONTINGENCIES The Company leases certain property, transportation vehicles and other equipment. Total rental expense under operating leases was $2,237 and $1,420 for the year ended December 31, 1996 and seven months ended December 31, 1995. Future minimum lease payments under capital and operating leases for years ending are:
Capital Operating ------- --------- 1997 ...................................................... $ 1,416 $ 2,706 1998 ...................................................... 1,416 2,401 1999 ...................................................... 1,416 1,453 2000 ...................................................... 1,376 1,128 2001 ...................................................... 970 927 Thereafter ................................................ 3,010 437 ------- ------- Total minimum lease payments ............................ 9,604 $ 9,052 ======= Less amount representing interest ....................... (2,705) ------- Present value of net minimum lease payments ............. $ 6,899 =======
The Company is subject to legal proceedings and claims which arise in the normal course of business. In the opinion of management, the ultimate liabilities with respect to these actions will not have a material adverse effect on the Company's financial condition, results of operations or cash flows. The Company has agreed in principal to participate in an international expansion project with one of the Wire segment's largest customers. The Company estimates its financial commitment for property, plant and equipment to be approximately $13,000. 13. BUSINESS SEGMENT INFORMATION Certain information concerning the Company's operating segments for the year ended December 31, 1996 and the seven months ended December 31, 1995 is presented below. Total revenue by segment includes both sales to customers and intersegment sales, which are accounted for at prices charged to customers and eliminated in consolidation.
Year Ended December 31, 1996 Wire Harness Consolidated - ---------------------------- --------- --------- ------------ Total revenue ........................... $ 406,026 $ 161,354 Intersegment sales ...................... 20,399 -- --------- --------- Sales to customers ...................... $ 385,627 $ 161,354 $ 546,981 Operating loss .......................... $ (29,443) $ (12,375) $ (41,818) Identifiable assets ..................... $ 437,524 $ 93,496 $ 531,020 Depreciation and amortization ........... $ 24,880 $ 6,461 $ 31,341 Capital expenditures, net ............... $ 13,060 $ 2,789 $ 15,849
30 32 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Seven Months Ended December 31, 1995 Wire Harness Consolidated - ------------------------------------ --------- --------- ------------ Total revenue .............................. $ 167,082 $ 84,288 Intersegment sales ......................... 5,341 446 --------- --------- Sales to customers ......................... $ 161,741 $ 83,842 $ 245,583 Operating income ........................... $ 10,937 $ 9,526 $ 20,463 Identifiable assets ........................ $ 295,671 $ 132,249 $ 427,920 Depreciation and amortization .............. $ 7,442 $ 3,578 $ 11,020 Capital expenditures, net .................. $ 4,991 $ 760 $ 5,751
14. GUARANTOR SUBSIDIARIES The Senior Notes are fully and unconditionally (as well as jointly and severally) guaranteed on an unsecured, senior subordinated basis by each subsidiary of the Company (the "Guarantor Subsidiaries") other that Electro Componentes de Mexico, S.A. de C.V. and Wirekraft Industries de Mexico, S.A. de C.V. (the "Non-Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries and Non-Guarantor Subsidiaries is wholly owned by the Company. The following condensed, consolidating financial statements of the Company include the accounts of the Company, the combined accounts of the Guarantor Subsidiaries and the combined accounts of the Non-Guarantor Subsidiaries. Given the size of the Non-Guarantor Subsidiaries relative to the Company on a consolidated basis, separate financial statements of the respective Guarantor Subsidiaries are not presented because management has determined that such information is not material in assessing the Guarantor Subsidiaries. 31 33 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TOTAL TOTAL COMPANY GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL --------- --------- ------------- ------------ --------- BALANCE SHEET As of December 31, 1996: ASSETS Cash........................... $ -- $ (138) $ 138 $ -- $ -- Accounts receivable............ -- 70,010 1,902 (731) 71,181 Inventory...................... -- 59,648 714 -- 60,362 Other assets................... 5,375 4,314 112 -- 9,801 --------- --------- ------- --------- --------- Total current assets... 5,375 133,834 2,866 (731) 141,344 Property plant and equipment, net......................... -- 109,774 8,777 -- 118,551 Intangible assets, net......... 19,722 246,155 -- -- 265,877 Investment in subsidiaries..... 534,857 -- -- (534,857) -- Other assets................... -- 4,368 880 -- 5,248 --------- --------- ------- --------- --------- Total assets........... $ 559,954 $ 494,131 $12,523 $(535,588) $ 531,020 ========= ========= ======= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities............ $ 24,620 $ 85,866 $ 2,856 $ (731) $ 112,611 Long term obligations, less current maturities.......... 420,422 6,297 -- -- 426,719 Other long-term liabilities.... 6,081 20,790 10 -- 26,881 Intercompany (receivable) payable..................... 76,260 (85,366) 9,106 -- -- --------- --------- ------- --------- --------- Total liabilities...... 527,383 27,587 11,972 (731) 566,211 Stockholders' equity Common stock................ -- -- -- -- -- Preferred stock............. 4 -- -- -- 4 Contributed capital......... 125,340 572,012 18 (572,030) 125,340 Predecessor carryover....... -- (67,762) -- -- (67,762) Retained earnings........... (92,773) (37,706) 533 37,173 (92,773) --------- --------- ------- --------- --------- Total stockholders' equity (deficit)..... 32,571 466,544 551 (534,857) (35,191) --------- --------- ------- --------- --------- Total liabilities and stockholders' equity (deficit)............ $ 559,954 $ 494,131 $12,523 $(535,588) $ 531,020 ========= ========= ======= ========= =========
32 34 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TOTAL TOTAL COMPANY GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL --------- --------- ------------- ------------ --------- STATEMENT OF OPERATIONS For the year ended December 31, 1996: Net sales........................ $ -- $ 546,981 $34,757 $ (34,757) $ 546,981 Operating expenses Cost of goods sold............. -- 435,164 20,416 (34,757) 420,823 Selling, general and administration.............. -- 33,384 10,501 -- 43,885 Depreciation and amortization................ -- 29,688 1,653 -- 31,341 Impairment, unusual and plant closing charges............. -- 84,250 -- -- 84,250 Inventory valuation adjustment.................. -- 8,500 -- -- 8,500 --------- --------- ------- --------- --------- Operating income (loss).......... -- (44,005) 2,187 -- (41,818) Other income (expense) Interest expense............... (41,187) (1,410) (416) -- (43,013) Amortization of deferred financing fees.............. (3,701) -- -- -- (3,701) Equity in net loss of subsidiaries................ (46,794) -- -- 46,794 -- Other.......................... -- 243 69 -- 312 --------- --------- ------- --------- --------- Income (loss) before income tax provision...................... (91,682) (45,172) 1,840 46,794 (88,220) Income tax provision............. (2,200) 3,197 265 -- 1,262 --------- --------- ------- --------- --------- Net income (loss)................ $ (89,482) $ (48,369) $ 1,575 $ 46,794 $ (89,482) ========= ========= ======= ========= ========= STATEMENT OF CASH FLOWS For the year ended December 31, 1996: Net cash from operating activities..................... $ 16,189 $ 12,881 $ 2,910 $ -- $ 31,980 --------- --------- ------- --------- --------- Cash flows provided by (used in) investing activities: Acquisition, net of cash....... (160,259) -- -- -- (160,259) Capital expenditures, net...... -- (13,048) (2,801) -- (15,849) --------- --------- ------- --------- --------- Net cash used in investing activities..................... (160,259) (13,048) (2,801) -- (176,108) --------- --------- ------- --------- --------- Cash flows provided by (used in) financing activities: Equity proceeds................ 44,289 750 -- -- 45,039 Proceeds from issuance of long-term obligations....... 128,200 -- -- -- 128,200 Repayment of long-term obligations................. (20,619) (692) -- -- (21,311) Financing fees and other....... (7,800) -- -- -- (7,800) --------- --------- ------- --------- --------- Net cash from financing activities..................... 144,070 58 -- -- 144,128 --------- --------- ------- --------- --------- Net change in cash............... $ -- $ (109) $ 109 $ -- $ -- ========= ========= ======= ========= =========
33 35 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TOTAL TOTAL COMPANY GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL --------- --------- ------------- ------------ --------- BALANCE SHEET As of December 31, 1995: ASSETS Cash............................ $ -- $ (29) $ 29 $ -- $ -- Accounts receivable............. -- 46,945 1,012 (777) 47,180 Inventory....................... -- 57,777 -- -- 57,777 Other assets.................... -- 2,858 -- -- 2,858 --------- -------- ------- --------- --------- Total current assets.... -- 107,551 1,041 (777) 107,815 Property plant and equipment, net.......................... -- 74,630 7,629 -- 82,259 Intangible assets, net.......... 16,688 215,400 -- -- 232,088 Investment in subsidiaries...... 416,212 -- -- (416,212) -- Other assets.................... -- 5,565 193 -- 5,758 --------- -------- ------- --------- --------- Total assets............ $ 432,900 $403,146 $ 8,863 $(416,989) $ 427,920 ========= ======== ======= ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities............. $ 15,815 $ 62,537 $ 1,241 $ (777) $ 78,816 Long term obligations, less current maturities........... 321,001 5,014 -- -- 326,015 Other long-term liabilities..... (3,615) 16,706 -- -- 13,091 Intercompany (receivable) payable...................... 21,939 (30,585) 8,646 -- -- --------- -------- ------- --------- --------- Total liabilities....... 355,140 53,672 9,887 (777) 417,922 Stockholder's equity Common stock................. -- -- -- -- -- Contributed capital.......... 81,051 406,573 18 (406,591) 81,051 Predecessor carryover........ -- (67,762) -- -- (67,762) Retained earnings............ (3,291) 10,663 (1,042) (9,621) (3,291) --------- -------- ------- --------- --------- Total stockholder's equity................ 77,760 349,474 (1,024) (416,212) 9,998 --------- -------- ------- --------- --------- Total liabilities and stockholder's equity................ $ 432,900 $403,146 $ 8,863 $(416,989) $ 427,920 ========= ======== ======= ========= =========
34 36 INTERNATIONAL WIRE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TOTAL TOTAL COMPANY GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL --------- --------- ------------- ------------ --------- STATEMENT OF OPERATIONS For the seven months ended December 31, 1995: Net sales......................... $ -- $245,583 $ 8,240 $ (8,240) $ 245,583 Operating expenses Cost of goods sold.............. -- 198,958 4,503 (8,240) 195,221 Selling, general and administration............... -- 13,259 3,870 -- 17,129 Depreciation and amortization... -- 10,927 93 -- 11,020 Impairment, unusual and plant closing charges.............. -- 1,750 -- -- 1,750 Inventory valuation adjustment................... -- -- -- -- -- --------- -------- ------- --------- --------- Operating income (loss)........... -- 20,689 (226) -- 20,463 Other income (expense) Interest expense................ (18,960) (815) (156) -- (19,931) Amortization of deferred financing fees............... (1,468) -- -- -- (1,468) Equity in net loss of subsidiaries................. 9,621 -- -- (9,621) -- Other........................... -- (158) -- -- (158) --------- -------- ------- --------- --------- Income (loss) before income tax provision....................... (10,807) 19,716 (382) (9,621) (1,094) Income tax provision.............. (7,516) 9,053 660 -- 2,197 --------- -------- ------- --------- --------- Net income (loss)................. $ (3,291) $ 10,663 $(1,042) $ (9,621) $ (3,291) ========= ======== ======= ========= ========= STATEMENT OF CASH FLOWS For the seven months ended December 31, 1995: Net cash from operating activities...................... $ 108 $ 7,945 $ 5,281 $ -- $ 13,334 --------- -------- ------- --------- --------- Cash flows provided by (used in) investing activities: Acquisition, net of cash........ (341,046) -- -- -- (341,046) Capital expenditures, net....... -- (5,482) (269) -- (5,751) --------- -------- ------- --------- --------- Net cash used in investing activities...................... (341,046) (5,482) (269) -- (346,797) --------- -------- ------- --------- --------- Cash flows provided (used in) financing activities: Equity proceeds 15,048 -- -- -- 15,048 Proceeds from issuance of long-term obligations........ 337,500 -- -- -- 337,500 Repayment of long-term obligations.................. -- (450) (4,635) -- (5,085) Financing fees and other........ (14,000) -- -- -- (14,000) --------- -------- ------- --------- --------- Net cash from financing activities...................... 338,548 (450) (4,635) -- 333,463 --------- -------- ------- --------- --------- Net change in cash................ $ (2,390) $ 2,013 $ 377 $ -- $ -- ========= ======== ======= ========= =========
35 37 15. SUBSEQUENT EVENTS FOOTNOTE On February 4, 1997, the Board of Directors approved the exchange of the Preferred Stock for Exchange Notes, and voted to pay all dividends in arrears related to the Preferred Stock. On February 12, 1997, the Company completed the purchase of the stock and business activities of Camden Wire Co. for approximately $65,000, including fees and expenses, subject to certain purchase price adjustments (the "Camden Acquisition"). The Camden Acquisition and related transaction fees and expenses were funded with $65,000 of senior debt under the Amended Credit Agreement pursuant to an amendment dated February 12, 1997 (the "Amended and Restated Credit Agreement"). 36 38 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of International Wire Group, Inc.: Our report on the consolidated financial statements of International Wire Group, Inc. and subsidiaries is included on page 19 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index on page 17 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. St. Louis, Missouri February 28, 1997 37 39 INTERNATIONAL WIRE GROUP, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
ALLOWANCE FOR DOUBTFUL COLLECTION OF ACCOUNTS - DEDUCTED FROM BALANCE AT PREVIOUSLY BALANCE AT FROM RECEIVABLES IN THE BEGINNING WRITTEN OFF END OF BALANCE SHEET OF PERIOD PROVISION WRITEOFFS ACCOUNTS ACQUISITIONS PERIOD - ------------------------ --------- --------- --------- -------- ------------ ------ Seven months ended December 31, 1995 ....... $845 $ 33 $(53) $35 $ -- $ 860 Year ended December 31, 1996 ....... $860 $337 $(71) $12 $225 $1,363
38 40 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Wirekraft Holdings Corp.: We have audited the accompanying consolidated statements of operations, stockholders' equity, and cash flows of Wirekraft Holdings Corp. and subsidiaries (formerly WB Holdings, Inc.) for the six months ended May 31, 1995 and the year ended November 30, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Wirekraft Holdings Corp. and subsidiaries for the six months ended May 31, 1995 and the year ended November 30, 1994, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. St. Louis, Missouri January 27, 1996 39 41 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
SIX MONTHS ENDED YEAR ENDED MAY 31, 1995 NOVEMBER 30, 1994 ---------------- ----------------- Net sales................................................... $168,053 $240,972 Operating expenses: Cost of goods sold........................................ 138,851 201,602 Selling, general and administrative....................... 13,301 14,319 Depreciation and amortization............................. 6,474 6,435 Compensation expense...................................... 895 -- Expenses related to sale.................................. 501 -- Expenses related to plant closings........................ 2,000 -- -------- -------- Operating income............................................ 6,031 18,616 Other income (expense): Interest expense.......................................... (8,020) (10,565) Amortization of deferred financing costs.................. (1,657) (1,995) -------- -------- Income (loss) before income tax provision and extraordinary item...................................................... (3,646) 6,056 Income tax provision (benefit).............................. (2,114) 3,023 -------- -------- Income (loss) before extraordinary item..................... (1,532) 3,033 Extraordinary item -- loss due to early extinguishment of debt, net of income tax of $4,930......................... (7,835) -- -------- -------- Net income (loss)........................................... $ (9,367) $ 3,033 ======== ========
See accompanying notes to the consolidated financial statements 40 42 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED MAY 31, 1995 AND THE YEAR ENDED NOVEMBER 30, 1994 (IN THOUSANDS)
CLASS A ADDITIONAL RETAINED PREFERRED COMMON COMMON PAID-IN EARNINGS STOCK STOCK STOCK CAPITAL (DEFICIT) TOTAL --------- ------ ------- ---------- --------- ------- Balance November 30, 1993....... $-- $200 $24 $22,576 $ 2,541 $25,341 Net income...................... -- -- -- -- 3,033 3,033 --- ---- --- ------- ------- ------- Balance November 30, 1994....... -- 200 24 22,576 5,574 28,374 Issuance of preferred stock..... 10 -- -- 24,990 -- 25,000 Issuance of common stock........ -- 3 -- 747 -- 750 Issuance costs.................. -- -- -- (300) -- (300) Net loss........................ -- -- -- -- (9,367) (9,367) --- ---- --- ------- ------- ------- Balance May 31, 1995............ $10 $203 $24 $48,013 $(3,793) $44,457 === ==== === ======= ======= =======
See accompanying notes to the consolidated financial statements 41 43 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED YEAR ENDED MAY 31, 1995 NOVEMBER 30, 1994 ---------------- ----------------- Cash flows provided by (used in) operating activities: Net income (loss)......................................... $ (9,367) $ 3,033 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Extraordinary item.......................................... 12,765 -- Depreciation and amortization............................... 6,474 6,435 Amortization of deferred financing costs.................... 1,493 1,667 Accretion of debt discount.................................. 164 328 Deferred income taxes....................................... (4,282) (325) Change in assets and liabilities, net of acquisitions: Accounts receivable....................................... (9,863) (7,928) Inventories............................................... (824) (6,622) Prepaid expenses and other................................ (166) (2,951) Accounts payable.......................................... (617) 8,231 Accrued and other liabilities............................. 2,628 (281) Accrued interest.......................................... 1,276 (1,217) Income taxes payable/refundable........................... (3,366) 2,443 Other long-term liabilities............................... (236) (495) -------- -------- Net cash from operating activities................ (3,921) 2,318 -------- -------- Cash flows provided by (used in) financing activities: Acquisitions, net of cash................................. (44,973) (11,754) Capital expenditures, net................................. (2,914) (6,248) -------- -------- Net cash from investing activities................ (47,887) (18,002) -------- -------- Cash flows provided by (used in) financing activities: Proceeds from issuance of long-term obligations........... 24,000 12,674 Equity proceeds........................................... 25,750 -- Borrowings of long-term obligations....................... 19,639 22,995 Repayment of long-term obligations........................ (14,226) (17,481) Financing fees and other.................................. (3,500) (691) -------- -------- Net cash from financing activities................ 51,663 17,497 -------- -------- Net change in cash and cash equivalents..................... (145) 1,813 Cash and cash equivalents at beginning of the period........ 2,053 240 -------- -------- Cash and cash equivalents at end of the period.............. $ 1,908 $ 2,053 ======== ========
See accompanying notes to the consolidated financial statements 42 44 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED MAY 31, 1995, AND THE YEAR ENDED NOVEMBER 30, 1994 (IN THOUSANDS, EXCEPT SHARE DATA) 1. THE COMPANY WB Holdings Inc. ("Holdings"), a Delaware corporation, was formed to participate in the December 21, 1992 Acquisition (defined below). Holdings had no operations prior to December 21, 1992. On December 2, 1994, Holdings, through a series of mergers, became a wholly-owned subsidiary of Wirekraft Holdings Corp. ("New Holdings" together with Holdings, the "Company"). Pursuant to the mergers, the existing stockholders of Holdings exchanged their Holdings securities for New Holdings securities that have terms identical to the exchanged Holdings securities. New Holdings, a Delaware corporation, was formed to participate in the acquisition of Electro Componentes de Mexico S.A. de C.V. ("ECM") as discussed in Note 2. New Holdings had no operations prior to December 2, 1994. Holdings and New Holdings have a fiscal year-end of November 30. On December 21, 1992, Holdings, through a series of acquisitions and mergers, acquired all of the issued and outstanding common stock of Bristol Holding Corporation and Burcliff Holdings Corporation, the parent companies of the general partners of Kirtland Indiana, Limited Partnership for a total consideration of $116,997 (the "Acquisition"). Through a related series of mergers after the Acquisition, Bristol Holding Corporation became the surviving entity. Bristol Holding Corporation was later renamed Wirekraft Industries, Inc. ("Wirekraft") (together with Holdings, the "Company"). Wirekraft through its two segments, the Wire segment and the Harness segment, is engaged in the manufacture, design and distribution of insulated wire and wire harnesses used primarily in the appliance and automobile markets. The Company markets and distributes its products through a combination of internal sales representatives and independent sales representatives, selling primarily to original equipment manufacturers. The total cost of the Acquisition consisted of $57,967 for issued and outstanding common stock, $42,877 for the retirement of existing indebtedness, $1,175 for outstanding warrants and $14,978 for fees and expenses. The Acquisition was accounted for using the purchase method of accounting whereby the total acquisition cost was allocated to the acquired net assets based on their respective fair values. The total acquisition cost was allocated to the acquired net assets as follows: Current assets............................................ $ 29,461 Property, plant and equipment............................. 19,980 Goodwill.................................................. 80,319 Fees and costs............................................ 9,580 Other non-current assets.................................. 386 Current liabilities....................................... (16,365) Other liabilities......................................... (6,364) -------- $116,997 ========
2. ECM ACQUISITION On December 2, 1994, through a series of acquisitions and transfers from New Holdings, Wirekraft acquired the stock of ECM and certain assets from General Electric Company. The purchase price, including fees and expenses, was approximately $49,550. The purchase price consisted of $20,000 in cash, 1,000,000 shares of Series A Senior Preferred Stock, par value $.01 per share, $25 liquidation preference and 275,758 shares of common stock on New Holdings. 43 45 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The acquisition of ECM was accounted for using the purchase method of accounting whereby the total acquisition cost was allocated to the acquired net assets based on their respective fair values. The total acquisition cost was allocated to the acquired net assets as follows: Current assets............................................. $ 8,211 Property, plant and equipment.............................. 8,288 Intangibles................................................ 37,958 Fees and costs............................................. 3,500 Current liabilities and other reserves..................... (8,407) ------- $49,550 =======
Unaudited pro forma data, which show condensed results of operations for the year ended November 30, 1994 as though the acquisition and related financing of ECM had occurred at the beginning of the period is as follows: Net sales................................................. $319,486 Net income................................................ $ 5,758
3. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements for the year ended November 30, 1994 include the accounts of Holdings and its wholly-owned subsidiary, Wirekraft. The consolidated financial statements for the six months ended May 31, 1995 include the accounts of New Holdings and its wholly-owned subsidiary, Holdings. All material intercompany balances and transactions have been eliminated in consolidation. Revenue Recognition Sales and related costs of goods sold are included in income when goods are shipped to customers. Inventories Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out ("LIFO") method. Property, Plant and Equipment Property, plant and equipment is stated at cost. Depreciation is calculated using the straight-line method. The average estimated lives utilized in calculating depreciation are as follows: building and improvements -- 25 years; machinery and equipment -- 7 years; and furniture and fixtures -- 5 years. Leasehold improvements are amortized over the shorter of the term of the respective lease or life of the respective improvement. Intangible Assets Intangible assets, which consist principally of goodwill arising from the excess of cost over the value of net assets acquired, are amortized using the straight-line method over forty years. Accumulated amortization aggregated $4,040 at November 30, 1994. 44 46 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred Financing Costs Deferred financing costs, which consists of fees and other expenses associated with the debt financing, are amortized over the term of the related debt using the effective interest method and the straight-line method which approximates the effective interest method. Income Taxes Deferred income taxes are determined using the liability method. Statement of Cash Flows For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. Interest paid for the six months ended May 31, 1995 and the year ended November 30, 1994 was approximately $6,744 and $11,803, respectively. Taxes paid for the six months ended May 31, 1995 and the year ended November 30, 1994 were approximately $604 and $905, respectively. In connection with the Acquisition, the Company assumed liabilities aggregating $22,729, which is a non-cash investing activity. During the six months ended May 31, 1995, the Company entered into a capital lease obligation of $4,714 for new equipment. Fair Value of Financial Instruments The fair market values of the financial instruments included in the consolidated financial statements approximate the carrying values of the financial instruments. Concentration of Credit Risk Accounts receivable from companies located throughout the United States in the appliance and automotive industries amounted to approximately $12,397 and $15,684, respectively at November 30, 1994. Sales to the Company's five largest customers represented 61% of net sales for the six months ended May 31, 1995 and 51% and 56% of net sales in 1994 and 1993, respectively. A significant portion of the Company's sales are to three major customers within the Harness Segment. Sales to one of these customers represented 25% of net sales for the six months ended May 31, 1995. The Company has entered into a supply contract with this customer expiring in 2002. Sales to the Company's two other major customers represented 12% and 7% of net sales for the six months ended May 31, 1995, 17% and 11% of net sales in 1994. In 1995, a supply contract with one of the above mentioned customers expired. A supply contract was subsequently renegotiated through December, 1998. 4. FINANCING COSTS AND RELATED PARTY TRANSACTIONS In connection with the Acquisition and ECM acquisition, the Company incurred aggregate fees and costs of $11,900. Costs of $11,100 related to the 12% Senior Subordinated Notes due 2003 and Credit Agreement are included in deferred financing costs and are amortized over the term of the related borrowings. Costs of $800 related to the issuance of Holding's common stock have been deducted from the proceeds to reduce the carrying value of the common stock. In connection with the Acquisition and the related financing, Holdings and Wirekraft entered into a Monitoring and Oversight Agreement ("Agreement") with Hicks, Muse & Co., Incorporated ("Hicks, Muse") (an affiliate of the Company) pursuant to which the Company paid Hicks, Muse a financial advisory fee of $1,725. The fees, which also include $200 paid in connection with the acquisition of Ristance and $750 45 47 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) paid in connection with the acquisition of ECM, have been allocated to the Company's debt and equity securities as deferred financing costs or as a deduction from the cash proceeds received from the sale of stock. The Agreement further provides that the Company shall pay Hicks, Muse an annual fee of $115 (subject to adjustment), for ten years, for monitoring and oversight services. Such Agreement was amended and restated in connection with the acquisition of ECM to increase the annual fee for financial advisory services to $200 (subject to adjustment). The obligation under the Agreement, as amended, and the related deferred financing costs have been recorded in the consolidated balance sheet. 5. STOCKHOLDERS' EQUITY The authorized capital stock of the Company at May 31, 1995 consists of 50,000,000 shares of common stock, 3,000,000 shares of Class A common stock, and 10,000,000 shares of preferred stock. In connection with the financing of the Acquisition, the Company issued 20,000,000 shares of common stock, 2,402,402 shares of Class A common stock and 1,621,622 warrants to purchase common stock. Each warrant represents the right to purchase one share of the Company's common stock for $1.00 per warrant. The warrants expire on December 31, 2002. As of May 31, 1995, no warrants had been exercised. On December 2, 1994, in connection with the acquisition of ECM, the Company issued 1,000,000 shares of Series A Senior Preferred Stock and 275,758 shares of common stock. The Class A common stock may be converted into shares of common stock at the option of the holder at any time. In addition, shares of the Class A common stock (i) may be converted into common stock at the option of the Company effective immediately prior to the occurrence of a Triggering Event (as defined in the Company's Certificate of Incorporation) or (ii) shall automatically be converted on December 31, 2002. Such conversions are based on a formula set forth in the Company's Certificate of Incorporation. Dividends are payable to holders of the common stock and Class A common stock in amounts as and when declared by the Company's board of directors, subject to legally available funds and certain agreements governing the Company's indebtedness. In the event of any liquidation, dissolution or winding up of the Company, before any payment or distribution of the assets of the Company shall be made to the holders of the Class A common stock, each share of common stock shall be entitled to a liquidation preference based on a formula set forth in the Company's Certificate of Incorporation. The common stock and the Class A common stock are entitled to one vote per share on all matters submitted to a vote of stockholders. The Company has adopted a qualified and non-qualified incentive stock option plan (the "Option Plan") for officers and key employees of Holdings. A total of 1,471,000 shares of the Company's common stock has been reserved for issuance under the Option Plan. Under the Option Plan, eligible participants may receive qualified and non-qualified options to purchase shares of the Company's common stock. Options are exercisable at such time and on such terms as the committee appointed to administer the Option Plan (the "Committee") determines. The exercise price for the options granted under the Option Plan may not be less than the fair market value of the underlying share, as determined by the Committee on the date of grant. Generally, an option may be exercised only if the holder is an officer or employee of the Company at the time of exercise. Options granted under the Option Plan are not transferable, except by will and the laws of descent and distribution. During the year ended November 30, 1994, the Company granted options to purchase 75,000 shares of common stock at $2.74 per share and canceled 235,200 options. No options were exercised during the year. During the six months ended May 31, 1995, the Company granted options to purchase 100,000 shares of common stock at $2.74 per share, canceled 188,800 shares and 20,000 options were exercised. At May 31, 1995, there were 764,000 options available for issuance under the Option Plan. 46 48 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. INCOME TAXES The provision (benefit) for income taxes consists of the following:
SIX MONTHS ENDED YEAR ENDED MAY 31, 1995 NOVEMBER 30, 1994 ---------------- ----------------- Current: Federal........................................... $ 1,022 $2,741 State............................................. 892 607 Foreign........................................... 254 -- ------- ------- 2,168 3,348 ------- ------- Deferred: Federal........................................... (3,159) (124) State............................................. (1,123) (201) ------- ------- (4,282) (325) ------- ------- Total..................................... $(2,114) $3,023 ======= =======
Reconciliation between the Federal statutory income tax rate and the effective tax rate is summarized below:
SIX MONTHS ENDED YEAR ENDED MAY 31, 1995 NOVEMBER 30, 1994 ---------------- ----------------- Federal taxes at statutory rate (34%)............... $(1,240) $2,059 State taxes, net of federal effect.................. 210 268 Foreign............................................. (1,468) -- Nondeductible assets................................ 340 680 Other............................................... 44 16 ------- ------- Provision (benefit) for income taxes................ $(2,114) $3,023 ======= =======
7. PLANT CLOSING EXPENSE In May 1995, the Company recorded a pre-tax charge to operations of $2,000 to provide for plant closing costs. The Company's decision to shut-down certain harness segment plants was the result of a customer transitioning certain wire harness purchases to its own captive operations in Mexico and other third party suppliers. The plant closing costs include provisions for shut-down costs from the period of the plant closure to the date of disposal, commitment costs for leased equipment and severance related costs. 8. RETIREMENT BENEFITS Employees of Wire division, who are eligible under Section 414(q) of the Internal Revenue Code, may participate in the profit sharing plan sponsored by the Company. The plan qualifies under the Internal Revenue Code section 401(k), and the Company may at its discretion make contributions on a matching or non-matching basis. Employees of the Wire Division with approximately one year of service may also participate in a money purchase pension plan sponsored by the Company. The Company is required to make contributions to the money purchase pension plan equal to 3% of an employee's eligible compensation as defined in the plan document. Expense under these two plans amounted to approximately $363 and $451 for the six months ended May 31, 1995 and the year ended November 30, 1994, respectively. 47 49 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. LEASES The Company leases certain of its manufacturing facilities and equipment under long-term lease agreements with lease terms expiring through February 2004. Rent expense applicable to the noncancelable operating leases aggregated $505, $436 and $431 for the six months ended May 31, 1995 and for the year ended November 30, 1994. The schedule of future minimum lease payments by calendar year under operating leases at November 30, 1994 is as follows: 1995........................................................ $1,645 1996........................................................ 1,607 1997........................................................ 1,567 1998........................................................ 1,324 1999........................................................ 1,234 Thereafter.................................................. 1,723
10. CONTINGENCIES The Company is subject to various lawsuits and claims with respect to such matters as patents, product liabilities, government regulations, and other actions arising in the normal course of business. In the opinion of management, the ultimate liabilities resulting from such lawsuits and claims will not have a material adverse effect on the Company's consolidated financial conditions and results of operations. 11. OTHER ACQUISITIONS On December 10, 1993, Wirekraft acquired certain assets and related liabilities of the wire business of the Ristance division of Echlin Corporation ("Ristance"). The purchase price, including fees and expenses, paid in cash, was approximately $11,800 which was funded through additional borrowings under the Credit Agreement. The acquisition of Ristance was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to assets and liabilities acquired based upon their fair value at the date of the acquisition. 48 50 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. BUSINESS SEGMENT INFORMATION Certain information concerning the Company's operating segments for the six months ended May 31, 1995 and the year ended November 30, 1994 is presented below. Total revenue by segment includes both sales to customers and intersegment sales, which are accounted for at prices charged to customers and eliminated in consolidation.
WIRE HARNESS CONSOLIDATED -------- -------- ------------ Six Months Ended May 31, 1995 Total revenue........................................... $ 88,488 $ 88,620 Intersegment sales...................................... 7,807 1,248 -------- -------- Sales to customers...................................... $ 80,681 $ 87,372 $168,053 ======== ======== Operating income........................................ 1,320 4,711 6,031 Depreciation and amortization........................... 2,534 3,940 6,474 Capital expenditures, net............................... 1,636 1,278 2,914 Year Ended November 30, 1994 Total revenue........................................... $153,014 $101,167 Intersegment sales...................................... 13,209 -- -------- -------- Sales to customers...................................... $139,805 $101,167 $240,972 ======== ======== Operating income........................................ 9,433 9,183 18,616 Depreciation and amortization........................... 4,451 1,984 6,435 Capital expenditures, net............................... 5,819 429 6,248
13. SUBSEQUENT EVENT On June 12, 1995, International Wire Holding Company, through a series of mergers and acquisitions acquired all of the outstanding common stock of New Holdings (the "Transaction"). The Company has designated June 1, 1995, as the effective date of the Transaction for financial reporting purposes. In connection with the Transaction, the majority of the Company's long-term debt was repaid, the common stock of New Holdings was redeemed at $51,751, the Series A Senior Preferred Stock issued as part of the ECM acquisition (see Note 2) was redeemed at a liquidation value of $26,250 plus accrued dividends of $71 and the warrants and equity rights were retired at $10,133. As a result of the early repayment of certain long-term debt, $7,909 of deferred financing costs and $2,456 of OID were charged off and included as an extraordinary item in the accompanying Statements of Operations for the six months ended May 31, 1995. In addition, the Company paid a prepayment penalty of $2,400 to holders of subordinated notes. This amount has also been included in the accompanying statements of operations as an extraordinary item. The stock options granted pursuant to the Company's stock option plan were canceled for payment to the option holders who received cash. This amount totaled approximately $895 and has been included in the Statements of Operations as compensation expense for the six months ended May 31, 1995. In connection with the sale, the Company incurred expenses of $501 which has been recorded in the Statements of Operations as expenses related to sale. 14. RESTATEMENT OF FINANCIAL INFORMATION The Company has restated its previously issued financial statements for the six months ended May 31, 1995 to reflect certain adjustments. These adjustments relate primarily to corrections of certain depreciation and interest expenses and recognition of certain costs associated with plant closings. Additionally, adjustments were made to correct for the effective tax rate and tax benefit obtained as a result of the extraordinary item. 49 51 WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The impact of these adjustments on the Company's financial results as originally reported is summarized below:
FOR THE SIX MONTHS ENDING MAY 31, 1995 ---------------------------- AS REPORTED AS RESTATED ----------- ----------- (AMOUNTS IN THOUSANDS) Income (loss) before income taxes and extraordinary item.............................................. $ (1,099) $(3,646) Net income (loss)................................... $(14,491) $(9,367) Retained earnings (deficit)......................... $ (8,917) $(3,793)
These adjustments are reflected in the Company's accompanying consolidated statements of operations. 50 52 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Omega Wire Corp.: We have audited the accompanying consolidated statements of operations, stockholders' equity, and cash flows of Omega Wire Corp. and subsidiaries for the two months ended May 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Omega Wire Corp. and subsidiaries for the two months ended May 31, 1995, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. St. Louis, Missouri January 27, 1996 51 53 OMEGA WIRE CORP. CONSOLIDATED STATEMENT OF OPERATIONS TWO MONTHS ENDED MAY 31, 1995 (IN THOUSANDS) Net sales................................................... $23,295 Operating expenses: Cost of goods sold........................................ 17,512 Selling, general and administrative....................... 1,639 Depreciation and amortization............................. 1,233 ------- Operating income............................................ 2,911 Other income (expense): Interest expense.......................................... (1,797) Amortization of deferred financing costs.................. (238) ------- Income before income tax provision and extraordinary item... 876 Income tax provision........................................ 171 ------- Income before extraordinary item............................ 705 Extraordinary item -- loss due to early extinguishment of debt net of income tax of $2,082.......................... (4,044) ------- Net loss.................................................... $(3,339) =======
See accompanying notes to the consolidated financial statements 52 54 OMEGA WIRE CORP. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY TWO MONTHS ENDED MAY 31, 1995 (IN THOUSANDS)
CLASS A CARRYOVER OF COMMON COMMON PAID-IN PREDECESSOR ACCUMULATED STOCK STOCK CAPITAL BASIS DEFICIT TOTAL ------ ------- ------- ------------ ----------- -------- Issuance of common stock... $420 $-- $41,580 $ -- $ -- $ 42,000 Issuance of Class A common stock.................... -- 63 -- -- -- 63 Issuance costs............. -- -- (675) -- -- (675) Carryover of predecessor basis.................... -- -- -- (20,000) -- (20,000) Net loss................... -- -- -- -- (3,339) (3,339) ---- --- ------- -------- ------- -------- Balance May 31, 1995....... $420 $63 $40,905 $(20,000) $(3,339) $ 18,049 ==== === ======= ======== ======= ========
See accompanying notes to the consolidated financial statements 53 55 OMEGA WIRE CORP. CONSOLIDATED STATEMENT OF CASH FLOWS TWO MONTHS ENDED MAY 31, 1995 (IN THOUSANDS) Cash flows provided by (used in) operating activities: Net loss.................................................. $ (3,339) Adjustment to reconcile net loss to net cash provided by (used in) operating activities: Extraordinary item........................................ 6,126 Depreciation and amortization............................. 1,233 Amortization of deferred financing costs.................. 238 Deferred income taxes..................................... 120 Change in assets and liabilities, net of acquisitions: Accounts receivable.................................... 1,528 Inventories............................................ (510) Prepaid expenses and other............................. (231) Accounts payable....................................... 919 Accrued and other liabilities.......................... 10 Accrued interest....................................... 952 Income taxes payable/refundable........................ (2,033) Other long-term liabilities............................ (26) --------- Net cash from operating activities................ 4,987 --------- Cash flows provided by (used in) investing activities: Acquisition, net of cash.................................. (159,080) Capital expenditures, net................................. (581) --------- Net cash from investing activities................ (159,661) --------- Cash flows provided by (used in) financing activities: Proceeds from issuance of long-term obligations........... 135,000 Contributed capital....................................... 34,653 Repayment of long-term obligations........................ (7,979) Financing fees and other.................................. (7,000) --------- Net cash from financing activities................ 154,674 --------- Net change in cash.......................................... -- Cash at beginning of the period............................. -- --------- Cash at end of the period................................... $ -- =========
See accompanying notes to the consolidated financial statements 54 56 OMEGA WIRE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TWO MONTHS ENDED MAY 31, 1995 (IN THOUSANDS, EXCEPT SHARE DATA) 1. THE COMPANY Omega Wire Corp. ("Omega" or the "Company"), a Delaware corporation, was formed to participate in the Acquisition (defined below). Omega had no operations prior to the Acquisition. On March 31, 1995, Omega acquired all of the issued and outstanding common stock of THL-Omega Holding Corporation ("THL-Omega") for a total consideration $167,300 (the "Acquisition"). Omega, through its subsidiaries, is engaged in the manufacturing and marketing of non-insulated copper wire and cable products. The Company's products are used by a wide variety of customers primarily in the automotive and computer and data communications industries. Omega has a fiscal year-end of December 31. The total purchase price of the Acquisition of approximately $174,300, which included the retirement of existing indebtedness and related fees and costs, is summarized as follows: Cash paid for all issued and outstanding common stock..... $102,762 Cash paid to retire existing indebtedness................. 55,439 Common stock of Omega issued.............................. 7,410 Fees and costs............................................ 8,689 -------- $174,300 ========
The Acquisition was accounted for using the purchase method of accounting whereby the total acquisition cost has been preliminarily allocated to the consolidated assets and liabilities based on their estimated respective fair values. In accordance with EITF 88-16, "Basis in Leveraged Buyout Transactions", a portion of the Acquisition has been accounted for at "predecessor basis". The application of predecessor basis reduced stockholders' equity and goodwill by $20,000. The purchase price allocations are still in process. It is not expected that the final allocation of the purchase cost will result in a materially different allocation than is presented herein. The total acquisition costs have been preliminarily allocated to the acquired net assets as follows: Current assets............................................ $ 40,802 Property, plant and equipment............................. 38,974 Goodwill.................................................. 96,701 Fees and costs............................................ 9,000 Other assets.............................................. 54 Current liabilities....................................... (21,906) Other liabilities......................................... (9,325) Carryover of predecessor basis............................ 20,000 -------- $174,300 ========
2. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of Omega and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Revenue Recognition Sales and related cost of goods sold are included in income when goods are shipped to customers. 55 57 OMEGA WIRE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Inventories Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out ("LIFO") method. Property, Plant and Equipment Property, plant and equipment is stated at cost. Depreciation is calculated using the straight-line method. The average estimated lives utilized in calculating depreciation are as follows: buildings -- 25 to 40 years; building improvements 15 years; machinery and equipment -- 3 to 11 years; and furniture and fixtures -- 5 years. Leasehold improvements are amortized over the shorter of the term of the respective lease or the life of the respective improvement. Intangible Assets Intangible assets consist principally of goodwill arising from the excess of cost over the value of net assets acquired, which is being amortized using the straight-line method over forty years. Amortization of intangible assets amounted to $384 for the two months ended May 31, 1995. Deferred Financing Costs Deferred financing costs, consisting of fees and other expenses associated with the debt financing are amortized over the term of the related debt using the effective interest method and the straight-line method which approximates the effective interest method. Statement of Cash Flows For purposes of the consolidated statement of cash flows, the Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. Interest and taxes paid for the two months ended May 31, 1995 were $845 and $2, respectively. In connection with the Acquisition, certain shares of common stock of THL-Omega were exchanged for common stock of Omega. The total amount of shares exchanged were $7,410, which was a non-cash investing and financing activity. 3. FINANCING COSTS AND RELATED PARTY TRANSACTIONS In connection with the Acquisition, the Company incurred aggregate fees and costs of $7,000. Costs of $6,325 related to the debt financing are being amortized over the terms of the related borrowings. Costs of $675 related to the issuance of Omega's common stock have been deducted from the proceeds to reduce the carrying value of the common stock. In connection with the Acquisition and obtaining the related financing, Omega entered into a Monitoring and Oversight Agreement ("Agreement") with Hicks, Muse & Co. Partners, L.P. ("Hicks, Muse") (an affiliate of the Company) pursuant to which the Company paid Hicks, Muse a cash fee of $2,525 as compensation for financial advisory services. The fees have been allocated to the debt and equity securities issued in connection with the Acquisition as deferred financing costs or as a deduction from the cash proceeds received from the sale of the common stock of Omega. The agreement further provides that the Company shall pay Hicks, Muse an annual fee of $200, for ten years for monitoring and oversight services adjusted annually at the end of each fiscal year to an amount equal to .1% of the consolidated net sales of the Company, but in no event less than $200 annually. 56 58 OMEGA WIRE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. STOCKHOLDERS' EQUITY The authorized capital stock of the Company consists of 100,000,000 shares of common stock, 6,333,333 shares of Class A common stock, and 10,000,000 shares of preferred stock. In connection with the financing of the Acquisition, the Company issued 42,000,000 shares of common stock and 6,333,333 shares of Class A common stock. The Class A common stock may be converted into shares of common stock at the option of the holder at any time. In addition, shares of the Class A common stock (i) may be converted into common stock at the option of the Company effective immediately prior to the occurrence of a Triggering Event (as defined in the Company's Certificate of Incorporation) or (ii) shall automatically be converted on March 31, 2005. Such conversions are based on a formula set forth in the Company's Certificate of Incorporation. Dividends are payable to holders of the common stock and Class A common stock in amounts as and when declared by the Company's board of directors, subject to legally available funds and certain agreements governing the Company's indebtedness. In the event of any liquidation, dissolution or winding up of the Company, before any payment or distribution of the assets of the Company shall be made to the holders of the Class A common stock, each share of common stock shall be entitled to a liquidation preference based on a formula set forth in the Company's Certificate of Incorporation. The common stock and the Class A common stock are entitled to one vote per share on all matters submitted to a vote of stockholders. 5. INCOME TAXES The Company accounts for income taxes in accordance with provisions of SFAS No. 109. The provision for income taxes for the two months ended May 31, 1995 is as follows: Current: Federal................................................... $ 51 ---- Deferred: Federal................................................... 55 State..................................................... 65 ---- 120 ---- $171 ====
Reconciliation between the federal statutory income tax rate and the effective tax rate is summarized below: Federal taxes at statutory rate (34%)....................... $ 297 State taxes, net of federal effect.......................... 43 Other....................................................... (169) ----- Provision for income taxes.................................. $ 171 =====
6. RETIREMENT PLANS The Company has a profit sharing plan covering substantially all employees of Omega Wire Corp. Contributions are made to a trusteed fund to accumulate as a retirement benefit for employees. The profit sharing expense amounted to $113 for the two months ended May 31, 1995. Effective January 1, 1995, the Company implemented a savings plan permitting substantially all employees to contribute up to 15% of their salary on a pre-tax basis to any of the six investment options available. There are no required Company contributions to the plan. 57 59 OMEGA WIRE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. COMMITMENTS The Company leases certain property, transportation vehicles and other equipment under operating leases. Total lease expense for the two months ended May 31, 1995 was approximately $290. Under the terms of the agreements in effect at May 31, 1995, the Company has future minimum lease commitments as follows: 1995....................................................... $ 979 1996....................................................... 1,262 1997....................................................... 1,202 1998....................................................... 1,159 1999....................................................... 1,108 Later years................................................ 9,198 ------- Total minimum lease commitments............................ $14,908 =======
8. CONTINGENCIES The Company is subject to various lawsuits and claims with respect to such matters as patents, product liabilities, government regulations, and other actions arising in the normal course of business. In the opinion of management, the ultimate liabilities resulting from such lawsuits and claims will not have a material adverse effect on the Company's consolidated financial conditions and results of operations. 9. SUBSEQUENT EVENT On June 12, 1995, International Wire Holding Company ("Holdings"), through a series of mergers and acquisitions acquired all of the outstanding common stock of the Company in exchange for certain of its common equity securities (the "Transaction"). In connection with the Transaction the Company has been renamed "International Wire Group, Inc." The Company has designated June 1, 1995, as the effective date of the Transaction for financial reporting purposes. In connection with the Transaction the Company's long-term debt was repaid. As a result of the early repayment of long-term debt, approximately $6,126 of deferred financing costs were charged off and included as an extraordinary item in the accompanying Statement of Operations. 10. RESTATEMENT OF FINANCIAL INFORMATION The Company has restated its previously issued financial statements for the two months ended May 31, 1995 to reflect adjustments principally related to correct for the effective tax rate and tax benefit obtained as a result of the extraordinary items. The impact of these adjustments on the Company's financial results as originally reported is summarized below:
FOR THE TWO MONTHS ENDING MAY 31, 1995 ---------------------------- AS REPORTED AS RESTATED ----------- ----------- (AMOUNTS IN THOUSANDS) Income (loss) before income taxes and extraordinary item............................................... $ 876 $ 876 Net income (loss).................................... $(5,750) $(3,339) Retained earnings (deficit).......................... $(5,750) $(3,339)
These adjustments are reflected in the Company's accompanying consolidated statements of operations. 58 60 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders of THL-Omega Holding Corporation: We have audited the accompanying consolidated statements of operations and retained earnings and cash flows of THL-Omega Holding Corporation and its subsidiaries for the three months ended March 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of THL-Omega Holding Corporation and subsidiaries for the three months ended March 31, 1995, in conformity with generally accepted accounting principles. COOPERS & LYBRAND, L.L.P. St. Louis, Missouri January 27, 1996 59 61 THL-OMEGA HOLDING CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS THREE MONTHS ENDED MARCH 31, 1995 (IN THOUSANDS) Net sales................................................... $38,736 Costs and expenses: Cost of products sold..................................... 30,638 Selling expenses.......................................... 1,430 General and administrative expenses....................... 1,493 Compensation expense...................................... 9,715 Expenses related to sale of Company....................... 1,689 ------- Loss from operations........................................ (6,229) Interest expense............................................ (1,478) Other income................................................ 32 ------- Loss before income taxes and extraordinary item............. (7,675) Provision for income taxes.................................. 484 ------- Loss before extraordinary item.............................. (8,159) Extraordinary item -- loss due to early extinguishment of debt net of income tax of $765............................ (1,148) ------- Net loss.................................................... (9,307) Retained earnings -- beginning of the year.................. 13,284 ------- Retained earnings -- March 31, 1995......................... $ 3,977 =======
See accompanying notes to the consolidated financial statements 60 62 THL-OMEGA HOLDING CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1995 (IN THOUSANDS) Cash flows provided by (used in) operating activities: Net loss.................................................. $(9,307) Adjustment to reconcile net loss to net cash provided by (used in) operating activities: Extraordinary item..................................... 1,913 Compensation expense................................... 9,715 Depreciation and amortization.......................... 1,509 Change in assets and liabilities: Accounts receivable.................................. 1,222 Inventories.......................................... 2,826 Prepaid and other current assets..................... (485) Accounts payable..................................... (3,714) Accrued expenses..................................... (90) Income taxes payable................................. (5) Deferred compensation................................ 20 ------- Net cash from operating activities.......................... 3,604 ------- Cash flows provided by (used) investing activities: Capital expenditures, net................................. (1,597) ------- Net cash from investing activities.......................... (1,597) ------- Cash flows provided by (used in) financing activities: Repayment of long-term debt............................... (1,500) Net borrowing (repayment) under revolving credit facility............................................... (656) Issuance of notes payable, net............................ 678 Redemption of common stock................................ (58) ------- Net cash from financing activities.......................... (1,536) ------- Net increase in cash........................................ 471 Cash at beginning of period................................. 339 ------- Cash at end of period....................................... $ 810 =======
See accompanying notes to the consolidated financial statements 61 63 THL-OMEGA HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1995 (IN THOUSANDS) 1. THE COMPANY THL-Omega Holding Corporation and its subsidiaries ("THL-Omega" or the "Company") are engaged in the manufacturing and marketing of non-insulated copper wire and cable products. The Company's products are used by a wide variety of customers primarily in the automotive and computer and data communications industries. THL-Omega has a fiscal year-end of December 31. 2. SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation The consolidated financial statements include the accounts of THL-Omega and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Revenue Recognition Sales and related cost of goods sold are included in income when goods are shipped to customers. Inventories Inventories are valued at the lower of cost or market. Cost is determined primarily using the last-in, first-out ("LIFO") method. Property, Plant and Equipment Property, plant and equipment is stated at cost. Depreciation is calculated using the straight-line method. The average estimated lives utilized in calculating depreciation are as follows: buildings -- 25 to 40 years; building improvements -- 15 years; machinery and equipment -- 3 to 11 years; and furniture and fixtures -- 5 years. Leasehold improvements are amortized over the shorter of the term of the respective lease or the life of the respective improvement. Intangible Assets Intangible assets consist principally of goodwill arising from the excess of cost over the value of net assets acquired, which is being amortized using the straight-line method over forty years. Deferred Financing Costs Deferred financing costs, consisting of fees and other expenses associated with the debt financing are amortized over the term of the related debt using the effective interest method and the straight-line method which approximates the effective interest method. Statement of Cash Flows For purposes of the consolidated statement of cash flows, the Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. Interest and taxes paid for the three months ended March 31, 1995 were $1,548 and $33, respectively. 62 64 THL-OMEGA HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. INCOME TAXES The Company accounts for income taxes in accordance with the provisions of SFAS No. 109. The provision for income taxes for the three months ended March 31, 1995 is as follows: Current: Federal................................................... $384 State..................................................... 100 ---- $484 ====
Reconciliation between the statutory income tax rate and effective tax rate for the three months ended March 31, 1995 is summarized below: Statutory U.S. federal tax rate............................ $(2,610) State taxes, net of federal benefit........................ 66 Amortization on non-deductible goodwill and non-deductible expenses................................................. 3,028 ------- $ 484 =======
4. RETIREMENT PLANS The Company has a profit sharing plan covering substantially all employees of THL-Omega. Contributions are made to a trusteed fund to accumulate as a retirement benefit for employees. The profit sharing expense amounted to $249 for the three months ended March 31, 1995. 5. COMMITMENTS AND CONTINGENCIES The Company leases certain property, transportation vehicles and other equipment under operating leases. Rent expense for these operating leases for the three months ended March 31, 1995 was approximately $433. Under the terms of the agreements in effect at March 31, 1995, the Company has future minimum lease commitments as follows: 1995....................................................... $ 979 1996....................................................... 1,262 1997....................................................... 1,202 1998....................................................... 1,159 1999....................................................... 1,108 Later years................................................ 9,198 ------- Total minimum lease commitments.......................... $14,908 =======
The Company is subject to legal proceedings and claims which arise in the normal course of business. In the opinion of management, the ultimate liabilities with respect to these actions will not have a material adverse effect on the Company's financial condition or results of operations. 6. ACQUISITION On March 31, 1995, ownership of the Company transferred pursuant to the terms of a Stock Purchase Agreement. Substantially all of the Company's long-term debt has been repaid. As a result of the early repayment of certain long-term debt, $1,013 of deferred financing costs was charged off and included as an 63 65 THL-OMEGA HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) extraordinary item in the accompanying Statement of Operations and Retained Earnings for the three months ended March 31, 1995. In addition, the Company paid a prepayment penalty of $900 to holders of the subordinated notes. This amount also has been included in the accompanying Statement of Operations and Retained Earnings as an extraordinary item. Immediately prior to the sale of the Company, the Company sold common stock and granted stock options to certain officers and shareholders for consideration less than the fair value of the common stock. The difference between the fair value and the amount paid by the officers and shareholders has been included in the Statement of Operations and Retained Earnings as compensation expense for the three months ended March 31, 1995. In connection with the sale, the Company incurred expenses of $1,689 which has been included in the Statement of Operations and Retained Earnings as expenses related to the sale of the Company. 7. RESTATEMENT OF FINANCIAL INFORMATION The Company has restated its previously issued financial statements for the three months ended March 31, 1995 to reflect adjustments principally related to correct for the effective tax rate and tax benefit obtained as a result of the extraordinary item. The impact of these adjustments on the Company's financial results as originally reported is summarized below:
FOR THE THREE MONTHS ENDING MARCH 31, 1995 ----------------------------- AS REPORTED AS RESTATED ----------- ----------- (AMOUNTS IN THOUSANDS) Income (loss) before income taxes and extraordinary item............................................. $(7,675) $(7,675) Net income (loss).................................. $(7,307) $(9,307) Retained earnings.................................. $ 5,977 $ 3,977
These adjustments are reflected in the Company's accompanying consolidated statements of operations. 64 66 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders of THL-Omega Holding Corporation: In our opinion, the accompanying consolidated statements of operations and retained earnings and of cash flows for the year ended December 31, 1994 present fairly, in all material respects, the results of operations and cash flows of THL-Omega Holding Corporation and its subsidiaries for the year ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. We have not audited the financial statements of THL-Omega Holding Corporation for any period subsequent to December 31, 1994. PRICE WATERHOUSE LLP Syracuse, New York February 10, 1995 65 67 THL-OMEGA HOLDING CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1994 (IN THOUSANDS) Net sales................................................... $134,457 Costs and expenses: Cost of products sold..................................... 103,100 Selling expenses.......................................... 5,938 General and administrative expenses....................... 5,836 -------- Income from operations...................................... 19,583 Interest expense............................................ (5,932) Other income (expense)...................................... 296 -------- Income before income taxes.................................. 13,947 Provision for income taxes.................................. (5,787) -------- Net income.................................................. 8,160 Retained earnings -- beginning of year...................... 5,124 -------- Retained earnings -- end of year............................ $ 13,284 ========
See accompanying notes to the consolidated financial statements 66 68 THL-OMEGA HOLDING CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1994 (IN THOUSANDS) Cash flows from operating activities: Net income................................................ $ 8,160 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization............................. 6,023 Deferred income taxes..................................... 2,258 Deferred compensation..................................... 81 Effect of changes in current assets and liabilities (Note 1)..................................................... (5,458) ------- Net cash provided by (used in) operating activities......... 11,064 ------- Cash flows from investing activities: Additions to property, plant and equipment, net........... (8,667) ------- Net cash provided by (used in) investing activities......... (8,667) ------- Cash flows from financing activities: Repayment of long-term debt............................... (6,042) Net borrowing (repayment) under revolving credit facility............................................... 206 Issuance of notes payable, net............................ 3,755 ------- Net cash provided by (used in) financing activities......... (2,081) ------- Net increase in cash........................................ 316 Cash at beginning of period................................. 23 ------- Cash at end of period....................................... $ 339 =======
See accompanying notes to the consolidated financial statements 67 69 THL-OMEGA HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1994 (IN THOUSANDS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: THL-Omega Holding Corporation and its subsidiaries (the "Company") are engaged in the manufacturing and marketing on non-insulated copper wire and cable products. Consolidation The consolidated financial statements of THL-Omega Holding Corporation include the accounts of Omega Wire, Inc. and its wholly-owned subsidiaries, Auburn Wire Division, Inc., Auburn Wire, Inc., Continental Cordage Corporation and OWI Corporation. All significant intercompany transactions have been eliminated. Inventories Inventories are carried at the lower of cost or market, cost being determined using the last-in, first-out method, except for Continental Cordage Corporation which uses the first-in, first-out method. Continental Cordage Corporation's cost of products sold represents less than 10% of the Company's aggregate cost of products sold. In 1994, OWI Corporation changed its method of accounting for inventory from the first-in, first-out method of inventory valuation to the last-in, first-out method of inventory valuation. The Company believes the last-in, first-out method will produce a better matching of current costs and current revenues due to the volatility of copper prices. The effect of this change in 1994 was to decrease inventories and to increase cost of products sold by $349. The retroactive adjustment of prior year statements is insignificant for restatement. During 1994, the Company entered into a futures contract providing for the sale of 10,000 pounds of copper in March 1995 at a fixed price. This future contract is accounted for as a hedge of the Company's current inventories. At December 31, 1994, the Company had incurred an approximate $1,052 unrealized loss on this contract, which served to increase inventory. Property, Plant and Equipment Property, plant and equipment are carried at cost, net of accumulated depreciation. Maintenance and repair costs are charged to expense as incurred. Depreciation expense is computed using the straight-line method for financial reporting and accelerated methods for tax purposes. Property, plant and equipment is depreciated over the following estimated useful lives for financial reporting purposes. Buildings................................................... 25 to 40 years Building improvements....................................... 15 years Machinery and equipment..................................... 3 to 11 years
Goodwill and Debt Issue Costs Goodwill is being amortized on a straight-line basis over 40 years. Amortization expense was $673 for the year ended December 31, 1994. Cost related to the issuance of debt amounting to $2,257 at December 31, 1994 has been deferred and amortized on a straight-line basis over the term of the debt. Amortization expense was $262 for the year ended December 31, 1994. Income Tax Accounting The Company accounts for income taxes in accordance with provision of Statement of Financial Accounting Standards No. 109 (FAS 109), Accounting for Income Taxes. 68 70 THL-OMEGA HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Cash Flow Information For purposes of reporting cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The effect on cash flow of changes in current assets and liabilities is as follows for the year ended December 31, 1994:
1994 ------- Accounts receivable......................................... $(7,183) Inventories................................................. (6,450) Prepaid and other current assets............................ 454 Accounts payable............................................ 5,577 Accrued expenses............................................ 1,639 Income taxes payable........................................ (281) Customers' deposits on spools and reels..................... 786 ------- $(5,458) =======
Cash payments for income taxes were $3,808 for the year ended December 31, 1994. Interest paid was $5,873 for the year ended December 31, 1994. 2. INCOME TAXES The components of the provision for income taxes are as follows for the year ended December 31, 1994. Current: Federal..................................................... $2,979 State....................................................... 550 ------ 3,529 Deferred.................................................... 2,258 ------ Total............................................. $5,787 ======
The total income tax provision differed from total tax expense as computed by applying the statutory federal income tax rate to income before taxes. The reasons were: Statutory U.S. federal tax rate............................. 34.0% State taxes, net of federal benefit......................... 2.7 Amortization of non-deductible goodwill..................... 1.5 Other....................................................... 3.3 ---- 41.5% ====
3. RETIREMENT PLANS The Company has a profit sharing plan covering substantially all employees of THL-Omega Holding Corporation. Contributions are made to a trusteed fund to accumulate as a retirement benefit for employees. The profit sharing expense amounted to $996 for the year ended December 31, 1994. Effective January 1, 1995, the Company implemented a savings plan permitting substantially all employees to contribute up to 15% of their salary on a pretax basis to any of the six investment options available. There are no required Company contributions to the plan. 69 71 THL-OMEGA HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. STOCKHOLDERS' EQUITY A leveraged buy out transaction occurred effective January 1, 1989 that resulted in the application of "predecessor basis" accounting as prescribed by the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board. The application of predecessor basis reduced stockholders' equity and goodwill by $5,850. 5. COMMITMENTS AND CONTINGENCIES Operating Lease Agreements The Company leases certain property, transportation vehicles and other equipment under operating leases. Total lease expense for the year ended December 31, 1994 was approximately $1,481. Under the terms of the agreements in effect at December 31, 1994, the Company has future minimum lease commitments as follows: 1995....................................................... $ 1,305 1996....................................................... 1,262 1997....................................................... 1,202 1998....................................................... 1,159 1999....................................................... 1,108 Later years................................................ 9,198 ------- Total minimum lease commitments............................ $15,234 =======
Employment Agreements The Company has consulting and non-competition agreements with two of its former employees which expire in 1995 and 1997, respectively. Compensation under the agreements is payable at annual rates of $65 and $95, respectively. Management Fee Management fees not exceeding $200 are payable to Thomas H. Lee Company annually. Payments were $120 for the year ended December 31, 1994. Joint Venture During 1992, the Company acquired a 20% interest in Changzhou Omega Copper Wire Co., Ltd. (the joint venture), a newly-formed joint venture based in the People's Republic of China, in exchange for certain equipment and technology. Given the uncertainties surrounding the recoverability of this investment, the Company's investment in the joint venture was recorded at no value. During the initial fifteen-year term of the joint venture, the Company has the exclusive authority to sell the products manufactured by the joint venture within its sales territory and has agreed to purchase a specified quantity of product from the joint venture each year. The Company has the option of renewing these purchase provisions for an additional fifteen-year term upon the expiration of the initial term. The Company's purchases from the joint venture amounted to $3,300 in 1994. There were no such purchases in 1993. 6. SUBSEQUENT EVENT In March 1995, ownership of the Company transferred pursuant to the terms of a Stock Purchase Agreement. The majority of the Company's long-term debt, consisting of the Credit Agreement, Subordinated Notes and Term Loans have subsequently been repaid. 70 72 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERNATIONAL WIRE GROUP, INC. Date: November 7, 1997 By /s/ DAVID M. SINDELAR ---------------------------------------- David M. Sindelar, Senior Vice President 71 -----END PRIVACY-ENHANCED MESSAGE-----