UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee[No Fee Required]
For the fiscal year ended December 31, 19951997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
___________ ___________
Commission file number 1-74181-10211
_______
ESSEX GROUP, INC.
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(Exact name of registrant as specified in its charter)
MICHIGAN 35-1313928
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1601 WALL STREET, FORT WAYNE, INDIANA 46802
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 461-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
10% Senior Notes due 2003 Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)- --------------------------------- -------------------------
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 the 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]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
[X ][X] Yes
[ ] No
No voting stock is held by non-affiliates of the registrant.
As of February 29, 1996January 31, 1998 the registrant had outstanding 100 shares of $.01
Par Value Common Stock.
The registrant does not have a class of equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
DOCUMENTS INCORPORATED BY REFERENCE
- NonePortions of the Proxy Statement prepared for the 1998 Annual Meeting of
Shareholders of Essex International Inc. are incorporated by reference
into Part III of this report.
Portions of the Essex International Annual Report on Form 10-K are
incorporated by reference into Part III of this report.
PART I
ITEM 1. BUSINESS
GENERAL
Essex Group, Inc. (the "Company") is a wholly owned subsidiary of
Essex International Inc. ("Essex International") (formerly known as
BCP/Essex Holdings Inc.). The principal asset of Essex International is
all of the outstanding common stock of the Company.
In October 1992, Essex International was acquired by Bessemer
Holdings, L.P. ("BHLP") (an affiliate and successor in interest to
Bessemer Capital Partners, L.P.), certain present and former employees of
Essex and other investors.
On May 1, 1997, Essex International completed its initial public
offering (the "Offering") of 6,546,700 shares of common stock, including
3,546,700 shares sold by certain existing shareholders. In connection
with the Offering, BCP/Essex Holdings Inc.'s name was changed to Essex
International Inc.
The Company, founded in Detroit, Michigan in
1930, to manufacture automobile electrical wire harnesses, currently
develops, manufacturesis a leading North American developer,
manufacturer and markets a broad linedistributor of electrical wire and cable and electrical insulation
products.products serving over 11,000 customers worldwide in a wide range of
industrial markets from its 28 manufacturing facilities and 38 service
centers located throughout the United States and Canada. Among the
Company's products are building wire for commercial and residential
and commercialconstruction applications; magnet wire and insulation materials for
electromechanical devices such as motors, transformers and electrical
controls; copper voice and data communicationdatacom wire; industrial wire for applications
in construction, appliances, recreational vehicles and industrial
facilities; and automotive wire and specialty wiring assemblies for
automobiles and trucks; industrial wires for
applications in appliances, construction and recreational vehicles and
insulation products including mica paper and mica-based composites. The
Company's operations at December 31, 1995 included 24 domestic
manufacturing facilities and employed approximately 4,102 persons. The
Company's principal executive offices are located at 1601 Wall Street,
Fort Wayne, Indiana.
On February 29, 1988, MS/Essex Holdings Inc. ("Predecessor" or
"Holdings"), acquired the Company from United Technologies Corporation
("UTC") (the "1988 Acquisition"). The outstanding common stock of
Holdings was beneficially owned by The Morgan Stanley Leveraged Equity
Fund II, L.P., certain directors and members of management of Holdings and
the Company, and others.
On October 9, 1992, Holdings was acquired (the "Acquisition") by
merger (the "Merger") of B E Acquisition Corporation ("BE") with and into
Holdings with Holdings surviving under the name BCP/Essex Holdings Inc.
("Successor" or "Holdings"). BE was a newly organized Delaware
corporation formed for the purpose of effecting the Acquisition.
Shareholders of BE included Bessemer Holdings, L.P. (an affiliate and
successor in interest to Bessemer Capital Partners, L.P. ["BCP"])
("BHLP"), affiliates of Goldman, Sachs & Co. ("Goldman Sachs"), affiliates
of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Chemical
Equity Associates, A California Limited Partnership ("CEA") and members of
management and other employees of the Company. As a result of the Merger,
the stockholders of BE became stockholders of Holdings. See note 2 to the
table included herein setting forth information regarding beneficial
ownership of Holdings common stock under the caption "Item 12. Security
Ownership of Certain Beneficial Owners and Management" for information
regarding BHLP.trucks.
PRODUCT LINES
The following table sets forth for each of the three years in the three
year
period ended December 31, 19951997 the dollar amounts and percentages of sales
of each of the Company's major product lines:
1
Sales(a) Percentage of Sales
------------------------------ --------------------------------------------------------------------
1995 1994 1993 1995 1994 1993
------ ------ ------ ------ ------ ------1996 1997
---- ---- ----
(In millions)
Building wire $406.1 $390.0 $332.2 34% 39% 38%406.1 $487.1 $761.7
Magnet wire 388.2 306.9 240.9 32 30 28388.8 412.1
Communication wire 177.5 119.3 135.9 15 12 16166.8 187.9
Industrial wire 63.4 71.0 121.6
Automotive wire 97.3 82.8 59.1 7 7 791.2 93.9
Other 132.6 111.1 100.7 12 12 11
-------(a) 69.2 127.1 124.1
------ ------ ----- ----- -----------
Total $1,201.7 $1,010.1 $868.8 100%$1,332.0 $1,701.3
======== ======== ========
Percentage of Sales
---------------------------------------------
1995 1996 1997
---- ---- ----
(In millions)
Building wire 34% 37% 45%
Magnet wire 32 29 24
Communication wire 15 13 11
Industrial wire 5 5 7
Automotive wire 8 7 6
Other (a) 6 9 7
--- --- ---
Total 100% 100% ======== ======== ====== ===== ===== =====100%
(a) Due toIncludes sales of third-party manufactured products, including
electrical insulating products, electric motors, motor repair parts
and pump seals sold through the third quarter 1995 reorganization as set forth below,
certain 1994 and 1993 product line sales have been reclassified.
SECTOR OPERATIONS
During the third quarter 1995, the Company reorganized its major
product lines and related business units to operate under two broad
sectors the Wire and Cable Sector ("WCS") and the Magnet Wire and
Insulation Sector ("MWIS"). This reorganization was undertaken to
increase the focus onCompany's distribution business.
An overview of each of the Company's major product lines. A
business overview of each sector and the product lines contained therein is set forth
below.
WIRE AND CABLE SECTOR
BUILDING WIRE
Products.Building Wire
Industry. The Company estimates that domestic building wire industry
sales have grown approximately 20% from 1993 to 1997. Sales growth in the
building wire industry has resulted primarily from renovation activity, as
well as new nonresidential and residential construction. For 1997,
approximately two-thirds of industry sales volume was attributable to
renovation activity and one-third to new construction. Both new
construction and renovation growth are also being affected by the
increased number of circuits and amperage handling capacity needed to
support the increasing demand for electrical services.
The building wire business unit,industry has experienced significant consolidation
in recent years, declining from approximately 28 manufacturers in 1980 to
seven primary manufacturers in 1997. The Company believes this
consolidation is due primarily to cost efficiencies achieved by the larger
building wire producers as they capitalize on the benefits of vertical
integration and of manufacturing, purchasing and distribution economies of
scale. The Company believes that it is one of the two leading domestic
manufacturers of building wire.
Products. The Company, which began manufacturing building wire in
1933, develops, manufactures and marketsdistributes a complete line of building
wire products. These products include a wide variety of thermoplastic and
related wire products. Specific examples includethermoset insulated wires for the commercial and industrial construction
markets and service entrance cable, underground feeder wire and
nonmetallic jacketed wire and cable for the residential market and a variety of insulated wires
for the nonresidential commercialconstruction
market.
Sales and Marketing.Distribution. The market forCompany sells its building wire products
nationally through an internal sales force and manufacturers
representatives. The customer base is large and diverse, consisting
primarily of electrical distributors hardware
wholesalers and consumer product retailers. The
Company maintains a number of strategically located stocking locations
across the United States and Canada to meet customers' "just-in-time"
inventory needs. The ultimate end users of the Company's building wire
products are electrical contractors and "do-it-yourself" consumers.
Magnet Wire
Industry. The independent North American supply of magnet wire has
experienced continued growth since 1990 and was, by Company estimates,
approximately 900 million copper equivalent pounds sold in 1997. Sales
growth in the magnet wire industry is driven by increasing demand for
electrical devices containing motors for the home and automobile, along
with continuing consumer and government pressure for higher energy
efficiency from these devices (energy efficient motors utilize materially
more magnet wire per unit than their traditional counterparts). Strong
consumer demand for greater numbers of electrical convenience items in
homes, offices and vehicles has resulted in increased sales of household
appliances and increased use of electric motors in vehicles.
Due to the substantial capital costs associated with magnet wire
production, the importance of quality to original equipment manufacturers,
stringent technological requirements and the cost efficiencies achieved by
larger magnet wire producers, significant industry consolidation has
occurred during the past ten years. In addition, the percentage of
domestic magnet wire produced by independent magnet wire manufacturers,
such as the Company, has grown as the manufacturing capacity of captive
magnet wire producers (electrical equipment manufacturers who internally
produce their own magnet wire) has declined as a result of outsourcing
over the last several years. Consequently, through the Company's efforts
to improve its manufacturing capabilities, product development and cost
efficiencies, the Company has successfully capitalized on the market
opportunities presented and positioned itself as one of the two leading
independent domestic producers of magnet wire.
Products. The Company offers a comprehensive product line, including
over 500 types of magnet wire used in a wide variety of electromagnetic
devices, such as motors, transformers, control devices, relays, generators
and solenoids. Such electromagnetic devices are found in industrial,
household and automotive applications.
Sales and Distribution. The Company's magnet wire products are sold
to original equipment manufacturers, motor repair shops, coil
manufacturers and independent distributors. Products are marketed
nationally through manufacturers representativesan internal sales force and athe Company's Essex
Brownell distribution business. In 1997, approximately three-fourths of
the company's magnet wire sales were to end users and one-fourth to
distributors.
Communication Wire
Industry. The Company focuses on two segments of the copper
communication wire market: (i) outside plant ("OSP") wire and cable for
voice communication in the local loop segment of telephone networks; and
(ii) datacom premise wire and cable within homes and offices for local
area computer networks ("LANs"), Internet connectivity, and other
applications. OSP and datacom wire and cable industry sales force. Distribution facilitieshave grown at
compound annual growth rates of 6% and 12%, respectively, from 1993 to
1997.
The local loop segment of the telecommunication network connects
homes and offices to the nearest telephone company switch or central
office. Although other transmission media, such as fiber optic cable, are
maintained throughoutextensively used for long distance or trunk lines, copper wire and cable,
with its lower installation cost, improved electronics and ease of repair,
is the most widely used medium for transmission in the local loop, which
comprises approximately 160 million residential and business access lines
across the United States,States. As a result of consolidation in the OSP copper
wire industry, total industry capacity has declined and onethe number of
manufacturers has been reduced.
Datacom wire and cable is used within buildings to connect
telecommunication devices (telephones, facsimile machines and computer
modems) to the telecommunications network and to establish LANs. Rapid
technological advances in Canada. Historically, approximately 67%communication and computer systems have created
increasing demand for greater bandwidth capabilities in data transmission
cable products. The Company expects demand for enhanced datacom wire
products to increase significantly in the future, particularly as office
buildings are upgraded to accommodate advanced network requirements. In
addition, the Company believes that demand for multiple residential access
lines will increase as more households install additional lines for
facsimile machines, access to the internet and for home offices.
Significant capital investments are required by manufacturers in order to
keep pace with the demand for product quality and the rapid pace of
technological change.
Products. Although the Company maintains a strong presence in the
OSP market, it continues to shift its focus to the datacom wire and cable
market which provides potentially greater long-term growth opportunities.
Sales volumes of the buildingCompany's datacom wire products have grown at a
compound annual growth rate of 40% since 1992. Additionally, the Company
recently developed a broad band "extra terrestrial" cable to support new
technologies within the OSP market segment, and an enhanced category five
wire for high-speed LAN applications within the datacom market.
Sales and Distribution. While a significant amount of OSP has
historically been sold directly to domestic telephone companies, the
Company has recently focused its sales of both OSP and datacom wire to
domestic and international distributors and representatives who in turn
resell to contractors, international and domestic telephone companies and
private overseas contractors for installation in the industrial,
commercial and residential markets.
Industrial Wire
Industry. Significant factors influencing industrial wire sales
growth include the construction and expansion of manufacturing plants,
mine expansion and consumer spending for hard goods. Due to the diversity
of product offerings within this industry, the Company's competition is
attributable to remodelingfragmented across the product lines and repair activity
while the remaining 33% is attributable to new residential and
nonresidential construction.
2
COMMUNICATION WIREmarkets served.
Products. The communication business unitCompany develops, manufactures and markets a broad
line of plastic insulated and jacketed voice and data
communication wire products.
Sales and Marketing. Communication wire products are marketed
primarily in the United States for local area networks and telephone
network applications, with some sales to overseas markets. Voice and data
communication wire products are sold principally to communications systems
contractors and domestic telephone companies and to telephone companies
and private contractors overseas.
AUTOMOTIVE WIRE
Products. The automotive wire business unit develops, manufactures
and markets automotive primary wire, ignition wire, battery cable and
specialty wiring assemblies, including heavy truck electrical wire
harnesses. New product design and materials development activities for
the sector are supported by this unit's product development and materials
engineering laboratory.
Sales and Marketing. Automotive wire products are sold primarily to
suppliers of automotive original equipment manufacturers. Historically,
there has been one principal customer for the unit's automotive products,
although the importance of this customer has declined in relative terms
due to the expansion of the unit's overall customer base. This principal
customer accounted for approximately 54%, 60% and 79% of the Company's
automotive wire revenues in 1995, 1994 and 1993, respectively, although in
absolute terms, sales to this principal customer have remained steady
during the period. Diversification of the automotive wire sales base has
been achieved, in part, as a result of the retention of an independent
sales organization to provide the means necessary to attract and service
new automotive customers. The principal automotive customer continues to
be serviced by a dedicated sales representative who is a Company employee.
Sales representatives from MWIS also service some of the other automotive
wire customers.
INDUSTRIAL WIRE
Products. The industrial wire business unit develops, manufactures
and markets a line of industrial wire and cable consisting ofproducts including appliance wire, motor
lead wire, submersible pump cable, power cable, bulk flexible cord, power
supply cord sets, welding cable and recreational vehicle wire.
Sales and Marketing. IndustrialDistribution. The Company sells industrial wire and cable
products are sold primarily to appliance and power tool manufacturers, suppliers of
electrical and electronic original equipment manufacturers, electrical
distributors and to welding products distributors. Industrial wire and
cablecables are marketed nationally through a combination of a Company sales
are included in
"Other" sales withinforce and manufacturers representatives.
Automotive Wire
Industry. The automotive primary wire market has experienced strong
growth over the "Product Lines" sales table under this caption.
MAGNET WIRElast decade due to higher production levels of new
vehicles and INSULATION SECTOR
Products. MWIS develops and manufactures magnet wire and insulation
products for the electrical equipment and electronics industriesa significant increase in the United States. MWIS offersinstallation of electrical
options in vehicles, which deliver increased safety, convenience and
engine performance to the consumer. These electrical options include
power windows, supplemental restraint systems, digital displays, keyless
entry, traction control, electronic suspension and anti-lock brakes.
The increasing demand for copper wire content in vehicles has created
strong demand for thinner-gauge wire, which in turn requires significant
manufacturing sophistication. The Company and its major competitors also
face stringent demands by automotive manufacturers to increase cost
efficiency, thereby increasing the required levels of capital investment
to remain competitive in this industry.
Products. The Company's automotive wire products include primary
wire for use in engine and body harnesses, ignition wire, battery cable
and specialty wiring assemblies. Through a comprehensive linejoint venture with Raychem
Corp., the Company has begun to develop a high-temperature resistant,
thinner-gauge automotive wire designed to meet future specialized needs of
magnet wire and
insulation products, including over 500 types of magnet wire used in a
3
wide variety of motors, coils, relays, generators, solenoids and
transformers.the automotive industry.
Sales and Marketing. Magnet WireDistribution. The Company sells automotive wire products
are sold principallyprimarily to original equipment manufacturers and to distributors. MWIS also
distributestier-one motor vehicle manufacturer suppliers. The Company
has diversified its electrical insulating materials and certain appliance and
magnetcustomer base for automotive wire products through
its national distribution business unit which
providessteadily improving product quality and increased productivity achieved
through continuous process improvements. Automotive wire products are
marketed through a channel of distribution to small original equipment
manufacturersCompany sales force and motor repair markets. On September 29, 1995, the
Company acquired certain assets of Avnet, Inc.'s distribution operations,
which became part of MWIS' national distribution business unit upon
consummation of the asset purchase. Products sold through MWIS
distribution operations include magnet wire, electrical motors, electrical
insulation, motor repair parts and pump seals. Sales of electrical
insulating products, electric motors, motor repair parts and pump seals
are included in "Other" sales within the "Product Lines" sales table under
this caption.
BUSINESS DEVELOPMENT
The Company plans to increase sales across many of its product lines
by expanding product offerings within compatible markets, targeting new
global markets for existing products and expanding penetration in those
overseas markets where a presence has already been established. To
accomplish this objective, the Company expects to make business
acquisitions and capital investments in new plants and equipment as
necessary in the United States and intends to pursue select investments in
strategic partners and participate in joint ventures off-shore. A senior
executive directs corporate development.
MANUFACTURING STRATEGYmanufacturers' representatives.
Manufacturing Strategy
The Company's manufacturing strategy is primarily focused on
maximizing product quality and production efficiencies while maintaining a
high level of vertical integration through internal production of its
principal raw materials: copper rod, magnet wire enamels and extrudable
polymeric compounds. The Company believes one of its primary cost and
quality advantages in the magnet wire business is the ability to produce
most of its enamel and copper rod requirements internally. Similarly, the
Company believes its ability to develop and produce PVC and rubber
compounds, which are used as insulation and jacketing materials for many
of its building wire, communication wire, automotive and industrial wire
products, provides competitive advantages because greater control over the
cost and quality of essential components used in production can be
achieved. These operations are supported by the Company's metallurgical,
chemical and polymer development laboratories.
See "Metals Operations" under this
caption for a discussion of the Company's copper procurement and
manufacturing operations.
To further optimize production efficiencies, the Company invests in
new plants and equipment, pursues plant rationalizations and participates
in joint venture opportunities. During the period 1992 through 1995, the
Company invested an average $28.5 million per year on capital projects.
The major projects during this period entailed primarily productivity
improvements and upgrading of equipment. In 1995, approximately $8.9
million was invested in magnet wire ovens to improve quality and increase
manufacturing productivity while approximately $4.9 million was invested
4
in the industrial wire business unit for quality and productivity
improvements and, to a lesser degree, capacity expansion.
MANUFACTURING PROCESS
Copper rod is the base component for most of the Company's wire
products. The Company buys copper cathode from a variety of producers and
dealers and also reclaims and reprocesses high grade scrap copper from its
own operations and other copper wire producers. After the rod is
manufactured at the Company's rod mills, it is shipped to other Company
manufacturing facilities where it is processed into the wire and cable
products produced and sold by the Company. See "Metals Operations" under
this caption for a discussion of the Company's copper rod production.
The manufacturing processes for all of the Company's wire and cable
products require that the copper rod be drawn and insulated. Certain
products also require that the wire be "bunched" or "cabled".
Wire Drawing. Wire drawing is the process of reducing the metal
conductor diameter by pulling it through a converging die until the
specified product size is attained. Since the reduction is limited by the
breaking strength of the metal conductor, this operation is repeated
several times internally within the machine. As the wire becomes smaller,
less pulling force is required. Therefore, machines operating in specific
size ranges are required. Take-up containers or spools are generally
large, allowing one person to operate several machines.
Bunching. Bunching is the process of twisting together single wire
strands to form a concentric construction ranging from seven to over 200
strands. The major purpose of bunching is to provide improved flexibility
while maintaining current carrying capacity.
Insulating. The magnet wire insulating materials (enamels)
manufactured by the Company's chemical processing facility are polymeric
materials produced by one of two methods. One method involves the
blending of commercial resins which are dissolved in various solvents and
then modified with catalysts, pigments, cross-linking agents and dyes.
The other method involves building polymer resins to desired molecular
weights in reactor systems.
The enamelling process used in the manufacture of some magnet wire
involves applying several thin coats of liquid enamel and evaporating the
solvent in baking chambers. Some enamels require a specific chemical
reaction in the baking chamber to fully cure the film. Enamels are
generally applied to the wires in excess, which is then metered off with
dies or rollers; however, some applications apply only the required amount
of liquid enamel.
Most other wire products are insulated with thermoplastic, thermoset
or rubber compounds through an extrusion process. Extrusion involves the
feeding, melting and pumping of a compound through a die to shape it into
final form as it is applied to the wire. The Company has the capability
to manufacture all three types of jacketing and insulating compounds.
Once the wire is fabricated, it is packaged and shipped to regional
service centers, stocking agents or directly to customers.
5
METALS OPERATIONSMetals Operations
Copper is the primary component of the Company's overall cost
structure, comprising approximately 60%56% of the Company's 19951997 total
production cost
of sales.goods sold. Due to the critical nature of copper to its business, the
Company has centrally organized its metal operations. Through
centralization, the Company carefully manages its copper procurement,
internal distribution, manufacturing and scrap recycling processes.
The Company's metalmetals operations are vertically integrated in the
production of copper rod, and therod. The Company believes that only a few of its
competitors are able to match this capability. The Company manufactures
most of its copper rod requirements and purchases the remainder from
various suppliers.
COPPER PROCUREMENT
The Company's copper procurement activities are centralized.Copper Procurement. In 1995,1997, the Company purchased approximately
230,000365,000 tons of copper, entirely from North American copper producers and
metals merchants. Under producer contracts,To ensure a steady supply of copper, the Company
commits to take a specified
tonnage per month.contracts with copper producers and metals merchants. Most producer contracts have
a one-year term. Pricing provisions vary, but they are based on the New York Commodity Exchange,
Inc. ("COMEX") price plus a premium. Under merchant contracts, prices are
alsonormally based on the
COMEX price, plus a premium. Payment terms are
negotiated.premium to cover transportation and payment terms.
Additionally, the Company utilizes forwardCOMEX fixed price and futures contracts to
manage its commodity price risk on this principal raw
material.risk. The companyCompany does not hold or issue thesesuch
contracts for trading purposes.
Historically, the Company has had adequate supplies of copper
available to it from producers and merchants, both foreign and domestic.
Competition from other users of copper has not affected the Company's
ability to meet its copper procurement requirements. However, no
assurance can be given that the Company will be able to procure adequate
supplies of copper to meet its future needs.
COPPER ROD PRODUCTIONCopper Rod Production. The production of copper rod is an essential
part of the Company's manufacturing process and strategy. By
manufacturing its own rod, the Company is able to maintain greater control
over the cost and quality of this critical raw material.
Copper rod is manufactured by way of a continuous casting process
where high quality copper cathodes are melted in a shaft furnace. The
resultant molten copper is transferred to a holding furnace and
transferred directly onto a casting wheel where it is cooled and
subsequently rolled into copper rod. The rod is subjected to numerous
quality control tests to assure that it meets the high quality standards
of the Company's products. Finally, the rod is packaged for shipment via
an automatic in-line coiling and packaging device.
The Company's rod production facilities are strategically located
near its major wire producing plants to minimize freight costs. From its
five continuous casting units, the Company has the capability to produce
6
approximately 85% of its rod requirements, while purchasing the balance
from external sources. External rod purchases are used to cover rod
requirements at manufacturing locations where shipping Company-produced
rod is not cost effective and when the Company's rod requirements exceed
its production capacity.
COPPER SCRAP RECLAMATIONCopper Scrap Reclamation. The Company's Metals Processing Center
receives clean, high quality copper scrap from the Company's magnet wire
plants. Copper scrap is processed in rotary furnaces, which also have
refining capability to remove impurities. A casting process is employed to manufacture copper
rod from scrap material. ThisThe Company uses a continuous
casting process is unique in the
industry in the conversion ofto convert scrap material directly into copper rod.
Manufacturing cost economies, particularly in the form of energy savings,
result from the
Company'sthis direct consumptionconversion technique. Additionally, management
believes that internal reclamation of scrap copper provides greater
control over the cost to recover the Company's principal manufacturing by-product.by-
product. The Company also, from time to time, obtains magnet wire scrap
from other copper wire producers and processes it along with the internalits
internally generated scrap.
EXPORTSExports
Sales of exported goods approximated $55.5 million, $52.7$85.8 million and
$70.6$107.9 million for the years ended December 31, 1995, 19941996 and 1993,1997,
respectively. CommunicationBuilding wire, magnet wire and communication cables are
Essex' primary exports; Canada and Mexico are the Company's primary products
exported.
BACKLOGlargest export markets.
Backlog; Returns
The Company has no significant order backlog in thatbecause it follows the
industry practice of producing its products on an ongoing basis to meet
customer demand without significant delay. The Company believes that the
ability to supply orders in a timely fashion is a competitive factor in
the markets in which it operates. COMPETITIONHistorically, returns have had no
material adverse effect on the Company's results of operations.
Competition
In each of the Company's operating sectors,businesses, the Company experiences
competition from at least one major competitor.company. However, due to the
diversity of the Company's product lines as a whole, no single competitorcompany
competes with the Companyit across the entire spectrum of the Company's product
lines. Thus, the Company's diversity of products and diversity of end
users insulate it from adverse conditions in any one business unit or any
one product line. Many of the Company's competitors do not have such
diversity.
Many of the Company's products are made to industry specifications,
and are therefore essentially fungible with those of competitors.
Accordingly, in these markets the Company is subject in many markets to competition on the
basis of price, delivery time, customer service and its ability to meet
specialty needs. The Company believes it enjoys strong customer relations
resulting from its long participation in the industry, its emphasis placed on
customer service, its commitment to quality control, reliability and its
substantial production resources. The Company's distribution networks
enable it to compete effectively with respect to delivery time. From time
to time, the Company has experienced reduced margins in certain markets
due to price cutting by competitors.
ENVIRONMENTAL COMPLIANCE
Managementunfavorable market conditions.
Environmental Compliance
The Company does not believe that compliance with environmental laws
and regulations will have a material effect on the level of capital
7expenditures of the Company or its business, financial condition, cash
flows or results of operations. The Company does not currently anticipate
material capital expenditures for environmental control facilities. No
material expenditures relating to these matters were made in 1995, 19941996 or
1993.1997. In connection with the February 1988 Acquisitionacquisition of Essex from
United Technologies Corporation ("UTC") by the Company's previous
stockholders (the "1988 Acquisition"), and associated Stock Purchase
Agreement with UTC dated January 15, 1988 (the "1988 Acquisition
Agreement"), UTC indemnified the Company with respect to certain
environmental liabilities. See "Item 3. Legal Proceedings" for further
discussion of the Company's environmental liabilities and the UTC
indemnity.
EMPLOYEESEmployees
As of December 31, 1995 the Company1997 Essex employed approximately 1,4781,700 salaried
and 2,6243,400 hourly employees in 3335 states. Labor unions represent
approximately 48%50% of the Company's work force. Collective bargaining
agreements expire at various times between 19961998 and 1998. Contracts2001 with contracts
covering approximately 32%34% of the Company's unionized work force willdue to
expire at various times during 1996.in 1998. The Company believes that it will be
able to renegotiate itsthese contracts covering such unionized employees on
terms that will not be materially adverse to it, however,it. However, no assurance
can be given to that effect. The Company believes that its relations with
both unionized and nonunionized employees have been good.satisfactory.
ITEM 2. PROPERTIES
At December 31, 19951997 the Company operated 2428 manufacturing facilities
in 1216 states. Except as indicated below, all of the facilities are owned
by the Company, subject to certain liens granted to the lenders pursuant
to the Essex Revolving Credit Agreement (as defined herein) or its
subsidiaries. The Company believes that its facilities and equipment are
reasonably suited to its needs and are properly maintained and adequately
insured.
The following table sets forth certain information with respect to
the manufacturing facilities of the CompanyEssex at December 31, 1995:
81997:
Square
Operation Location Feet
--------- -------- ------
Automotive . . . . . . . . . Kosciusko, MS 90,000(a)
Marion, IN 50,000
Orleans, IN 425,000
Building Wire . . . . . . . Anaheim, CA 174,000
Columbia City, IN 400,000
Lithonia, GA 144,000
Pauline, KS 501,000
Sikeston, MO 189,000
Tiffin, OH 260,000
Communication . . . . . . . Chester, SC 218,000
Hoisington, KS 239,000
Industrial . . . . . . . . . Lafayette, IN 350,000
Pana, IL 110,000
Insulation . . . . . . . . . Newmarket, NH 132,000
(2 facilities)
Rutland, VT 61,000
Magnet Wire . . . . . . . . Charlotte, NC 26,000 (Leased)
Fort Wayne, IN 181,000
Franklin, IN 35,000(b)35,000(a)
Franklin, TN 289,000 (Leased)
Kendallville, IN 88,000
Rockford, IL 319,000
Vincennes, IN 267,000
Communication Wire Chester, SC 218,000
Hoisington, KS 239,000
Industrial Wire Florence, AL 129,000
Lafayette, IN 350,000
Pana, IL 110,000
Pawtucket, RI 412,000
Phoenix, AZ 34,000
Automotive Wire Kosciusko, MS 90,000(b)
Marion, IN 50,000
Orleans, IN 425,000
Insulation Newmarket, NH 132,000
(2 facilities)
Rutland, VT 61,000
Metals Processing . . . . . Columbia City, IN 75,000
Jonesboro, IN 56,000
(a) Approximately 30,000 square feet is leased.
(b) The total square footage of the Franklin, IN facility is
approximately 70,000 of which 35,000 square feet is leased to
Femco as described in the third succeeding paragraph below.
(b) Approximately 30,000 square feet is leased.
In addition to the facilities described in the table above, the
Company owns or leases 44 warehouses38 service centers throughout the United States plus
one each inand
Canada and the Philippines to facilitate the sale and distribution of its products. The
Company owns and maintains executive and administrative offices in Fort
Wayne, Indiana.
The Company believes that its plants are generally adequate to
service the requirements of its customers. Overall, the Company's plants are utilized
to a substantial, but not full degree. The extent of current
utilization
9 is generally consistent with historical patterns, and, in the
view of management, is satisfactory. The Company does not view any of its
plants as being substantially underutilized, except for Lafayette, IN, which is
currently undergoing a capital expenditure program to make it the focus
plant for industrial wire products.underutilized. Most plants operate on 24 hour-a-day
schedules, of
no less than three eight hour shifts,on either a five days a week.day or seven day per week basis. During 1995,1997,
the Company's facilities operated overall at approximately 90% of capacity,
with MWIS at 99% and WCS at 85% of capacity.
The property in Franklin, Indiana is a magnet wire manufacturing
facility occupied by both the Company and a joint venture between the
Company and the Furukawa Electric Company, LTD., Tokyo, Japan ("Femco").
Half of the Franklin, Indiana building is leased to Femco which
manufactures and markets magnet wire with special emphasis on products
required by Japanese manufacturers with production facilities in the
United States.
ITEM 3. LEGAL PROCEEDINGS
LEGAL AND ENVIRONMENTAL MATTERS
The Company is engaged in certain routine litigation arising in the
ordinary course of business. TheWhile the outcome of litigation can never be
predicted with certainty the Company does not believe that the
adverse determinationany of any pendingits
existing litigation, either individually or in the aggregate, wouldwill have a
material adverse effect upon its business, financial condition, cash flows
or results of operations.
PotentialThe Company's operations are subject to environmental liabilitylaws and
regulations in each of the jurisdictions in which it operates governing,
among other things, emissions into the air, discharges to waters, the Company arises from both
on-site contamination by,use,
handling and off-site disposal of hazardous substances.substances and the investigation and
remediation of soil and groundwater contamination both on-site at Company
facilities and at off-site disposal locations. On-site contamination at
certain Company facilities is the result of historic disposal activities,
including activities attributable to the
Company operations and those
occurring prior to the use of a facility site
by the Company. Off-site
liability would include cleanupincludes clean-up responsibilities at various sites, to be
remedied under federal or state statutes, for which the Company has been
identified by the United States Environmental Protection Agency (the
"EPA") (or the equivalent state agency) as a Potentially Responsible Party
("PRP"). The Company hasCertain environmental laws have been named in government proceedings which involve
environmental matters with potentialconstrued to impose
liability for the entire cost of remediation costs.upon a PRP at a site without
regard to fault or the lawfulness of the disposal activity.
Once the Company has been named as a PRP, it estimates the extent of
its potential liability based upon its past experience with similar sites
and a number of factors, including, among other things, the number and
financial viability of other identified PRPs, the total anticipated cost
of the remediation and the relative contribution ofby the Company, in volume
and type, of waste at the site. Most of the sites for which the Company
is currently named in as a PRP are covered by an indemnity (the "general
indemnity") from UTC which is part ofthat was granted in connection with the 1988
Acquisition Agreement. In
that agreement,Acquisition. Pursuant to the general indemnity, UTC agreed to indemnify
the Company against losses incurred under any environmental protection and
pollution control laws or resulting from or in connection with damage or
pollution to the environment and arising from events, operations or activities
of the Company prior to February 29, 1988, or from conditions or
circumstances existing at or prior to February 29, 1988. In addition, in order to be
covered by thisthe general indemnity, the condition, event, and circumstance
must have been known to UTC prior to February 29, 1988. The sites covered
by thisthe general indemnity are handled directly by UTC, and all payments
required to be made are paid directly by UTC. These sites are all mature
sites where allocations have been settled and remediation is well underway
or has been completed. The Company is not aware of any inability or
refusal on the part of UTC to pay amounts that are owing under the indemnity. There are
10
nogeneral
indemnity or any disputes between the Company and UTC concerning these matters that are
covered by the indemnification.general indemnity.
UTC also provided a secondan additional environmental indemnity, referred to
as the "basket indemnity." ItThis indemnity relates to liabilities related toarising
from environmental events, conditions or circumstances existing at or
prior to February 29, 1988, whichthat only became known to UTC in the five yearfive-year
period commencing February 29, 1988. As to any such liabilities, the Company
is responsible for the first $4.0 million incurred. Thereafter, UTC has
agreed to fully indemnify the Company fully for any liabilities in excess of the
$4.0 million. The Company is currently named as a PRP inat three sites
which meet the criteria for the basket indemnity. Those sites are Fisher
Calo Chemical and Solvents Corporation, Kingsbury, IN;IN ("Fisher Calo");
Organic Chemicals, Inc., Grandville, MI; and USS Lead Refinery Inc., East
Chicago, IL. Based on records showing very small quantities of material
shipped to Organic Chemicals Inc. and USS Lead Refinery Inc., the Company
has determined that its liability, if any, for these sites will be de
minimis, although activities at those sites
have not advanced sufficiently in order for the Company to make an
accrual.minimis. At Fisher Calo, the Company entered into a consent decree whichthat
defined its share as 0.25% and established an expected liability of $0.1
million, which has been accrued. Expenses at these three sites, up to
$4.0 million, will be incurred by the Company rather than UTC, as the
basket has not been exhausted under the basket indemnity.
In addition, there are five sites where the Company is either named
as a PRP or a defendant in a civil lawsuit which are not covered by the
general indemnity or the basket indemnity. They are Ascon Landfill,
Huntington Beach, CA; A-1 Disposal Corp., Allegan County, MI; Angola Soya Co.,
Angola, IN; Milford
Mill, Beaver County, UT; and Uniontown Landfill, Uniontown, IN.IN; and Daley
Drum, Rockford, IL. Ascon Landfill was an oil percolation refining
center. The Company received a request for information from the
California Department of Toxic Substance Control in 1994 and replied that
it has no records linking the Company to the site. A-1 Disposal Corp.
stored and treated hazardous waste. The Company was one of a number of
PRPs who entered into a consent decree with the Michigan Department of
Natural Resources to clean the site. The Company has paid its assessment
for the remediationremediation. Although the shares and expects no further payments. Angola Soya was a solvent
reclamation facility insources of funding for five-
year monitoring expenses have not been established, the 1950 s and 1960 s. The Company is cooperating
with the Indiana Department of Environmental Management to conduct a
limited removal of certain drums of spent solvents.believes
that its share will be minimal. The Milford Mill site was a copper mill
used by the Company for a few years in the early 1970 s.1970s. The Company is one of thefour PRPs
identifiednotified by the EPA. The EPA has
conducted a removal action at the site and
incurred $0.4$0.2 million in costs, for which it seeksis currently seeking
reimbursement from the PRPs. The Uniontown Landfill is the subject of a
civil lawsuit wherein which the Company is one of several defendants sued by
the owner of the landfill to recover alleged site investigation and
groundwater remediation costs. The Company does not believe that it is
responsible for any material taken todisposal at this site and is vigorously defending
itself. In May 1997 the Company responded to a request for information
from the EPA regarding Daley Drum, a drum disposal and reconditioning site
in operation from 1971 to 1988. The Company responded that it had no
records showing use of the site but that a few employees at the Company's
Rockford, IL plant recall sending empty drums to the site for
reconditioning. The extent of the EPA's inquiry and the scope of any
potential remediation at the site is unknown at this time. The Company
has provided a reserve in the amount of $0.6$0.9 million to cover
contingencies associated with these five sites. Theenvironmental contingencies. This accrual is based on management smanagement's best
estimate of The Company sthe Company's exposure in light of relevant available
information, including the allocations and remedies set forth in
applicable consent decrees, third party estimates of remediation costs,
actual remediation costs incurred, the estimated
inabilityprobable ability of other PRPs to
pay their proportionate share of remediation costs, the nature ofconditions at each
site and the number of participating parties. The Company currently does
not believe that any of the environmental proceedings in which it is
involved and for which it may be liable will individually or 11in the
aggregate have a material adverse effect upon its business, financial
condition, cash flows or results of operations and noneoperations. There can be no assurance
that future developments will not alter this conclusion. None of the
cases described above involves sanctions.sanctions, fines or administrative
penalties against the Company.
Since aboutapproximately 1990, the Company has been named as a defendant
in a
limited number of product liability lawsuits brought by electricians and
other skilled tradesmen claiming injury from exposure to asbestos found in
electrical wire products produced a number of years ago. During 1995,At December 31,
1997, the number of cases filedpending against the Company increased significantly relative
to its historic average with the number of pending cases increasing from
about 25 to 60.was 101, involving
approximately 308 claims. The Company's strategy is to defend these cases
vigorously. The Company believes that its liability, if any, in these
matters and the related defense costs will not have a material adverse
effect either individually or in the aggregate upon its business,
financial condition, cash flows or financial condition.results of operations. There can be no
assurance, however, that future developments will not alter this
conclusion.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of 1995.None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company is a wholly owned subsidiary of Essex International.
There is no established public trading market for the Company's common
stock of
the Company or of its parent, Holdings. The common stock of the Company
and its parent has not been traded or sold publicly and accordingly no
information with respect to sales prices or quotations is available.
12stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth (i)presents summary selected historical consolidated
financial data of the Company prior to the Acquisition ("Predecessor") as of and for the nine month period ended September 30, 1992 and for the year
ended December 31, 1991, (ii) selected historical consolidated financial
dataeach of the Company after the Acquisition ("Successor") as of and for thefive years ended
December 31, 1995, 1994 and 1993 and the three month period
ended December 31, 1992, and, (iii) combined historical consolidated
financial data of Successor for the three month period ended December 31,
1992 and Predecessor for the nine month period ended September 30, 1992.
This data should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Results of Operations and Financial Condition"
and the consolidated financial statements and related notes included
elsewhere herein. The selected historical consolidated financial data
presented below as of and for the three month period ended December 31,
1992 and the nine month period ended September 30, 1992 and as of and for
the year ended December 31, 1991, were derived from the audited
consolidated financial statements of Successor and Predecessor (not
presented herein). The selected historical consolidated financial data
presented below, as of and for the years ended December 31, 1995, 1994 and
1993, were derived from the consolidated financial statements of
Successor, which were audited by Ernst & Young LLP, independent auditors,
whose report with respect thereto, together with such financial
statements, appears elsewhere herein.
131997.
SUCCESSOR COM- PREDECESSOR
BINED(a)
---------------------------------------- -------- -----------------
Three Twelve Nine Year
Month Month MonthYears Ended
Period Period Period December
Year Ended Ended Ended Ended 31,
In Thousands of December 31,
December December September
Dollars --------------------------- 31, 31, 30,------------------------
1993 1994 1995 1994 1993 1992 1992 1992 1991
------------------- ------ ------ ------ ------ ------ ------ ------1996 1997
---- ---- ---- ---- ----
(In millions, except share and per share
amounts and copper prices)
StatementResults of Operations Data:Operations:
Net sales $1,201,650 $1,010,075 $868,846 $209,354 $909,351 $699,997 $885,492
Other income/(expense)
-net (1,032) (910) 188 145 1,237 1,092 522
--------- ---------- -------- -------- -------- -------- --------
1,200,618 1,009,165 869,034 209,499 910,588 701,089 886,014
--------- ---------- -------- -------- -------- -------- --------
Cost of goods sold 1,030,511 846,611 745,875 186,026 780,148 594,122 753,077
Selling and
administrative 93,250 85,129 75,489 22,349 81,958 59,609 80,227
Interest expense(b) 34,683 24,554 25,241 8,086 22,591 14,505 24,969
Unusual items(c) - - - - 18,139 18,139 -
--------- ---------- -------- -------- -------- -------- --------
Total costs and
expenses 1,158,444 956,294 846,605 216,461 902,836 686,375 858,273
--------- ------- ------- ------- ------- ------- -------$868.8 $1,010.1 $1,201.7 $1,332.0 $1,701.3
Income (loss) before
income taxes and
extraordinary charge 42,174 52,871 22,429 (6,962) 7,752 14,714 27,741
Provision (benefit)
for income taxes(d) 19,680 22,700 13,052 (1,900) 7,378 9,278 13,241
--------- ------- ------- ------- ------- ------- -------from operations $47.7 $77.4 $76.9 $106.6 $177.5
Income (loss) before
extraordinary charge 22,494 30,171 9,377 (5,062) 374 5,436 14,500$ 9.3 $30.2 $22.5 $37.6 $84.1
Extraordinary charge net of
income tax benefit(e) 2,971benefit (a) 3.3 - 3,3673.0 1.2 -
122 122 1,471
--------- ------- ------- ------- ------- ------- ------------- -------- -------- -------- --------
Net Incomeincome (loss) $19,523 $30,171 $ 6,010 $(5,062)6.0 $ 25230.2 $ 5,314 $13,029
========= ======= ======= ======= ======= ======= =======
14
SUCCESSOR COM- PREDECESSOR
BINED(a)
---------------------------------------- -------- -----------------
Three Twelve Nine Year
Month Month Month Ended
Period Period Period December
Year Ended Ended Ended Ended 31,
In Thousands of December 31, December December September
Dollars --------------------------- 31, 31, 30,
1995 1994 1993 1992 1992 1992 1991
------------------- ------ ------ ------ ------ ------ ------ ------
Balance Sheet Data19.5 $ 36.4 $ 84.1
====== ======== ======== ======== ========
Financial Position (at end
of period)year):
Working capital $167,921 $191,062 $155,136 $123,935 $162,661 $124,485
Total assets 744,468 750,300 706,997 703,147 447,874 413,648
Long-term$707.0 $750.3 $744.5 $841.2 $862.7
Total debt (including current
portion) 412,750 200,000 200,000 221,289 189,890 193,580
Stockholder's$200.0 $200.0 $424.5 $463.8 $353.5
Stockholders' equity 114,678 333,903 303,732 297,722 132,257 120,354
Other Data:
Additions to
property, plant$303.7 $333.9 $114.7 $151.1 $235.2
Additional Information:
Capital expenditures $26.2 $30.1 $28.6 $25.6 $42.1
Copper equivalent pounds
shipped (b) 517.6 553.2 551.4 643.8 800.2
Average COMEX price per
copper pound $0.85 $1.07 $1.35 $1.06 $1.04
Depreciation and equipment $28,555 $30,109 $26,167 $14,705 $31,180 $16,475 $13,242
Ratio of earnings to
fixed charges(f) 1.6 3.0 1.7 - 1.9 2.0
Deficiency of
earnings to fixed
charges(f) - - - $7,078 - -
Amortization $29.9 $31.4 $34.2 $33.9 $34.3
(Footnotes on following page)
15
(a) Represents a combination of Successor's three month period ended
December 31, 1992 and Predecessor's nine month period ended September
30, 1992. Such combined results are not directly comparable to the
consolidated results of operations of the Predecessor for the year
ended December 31, 1991, nor are they necessarily indicative of the
results for the full year due to the effects of the Acquisition and
Merger and related refinancings and the concurrent adoption of
Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes." Financial data of the Company as of October 1, 1992
and thereafter reflect the Acquisition using the purchase method of
accounting, and accordingly, the purchase price was allocated to
assets and liabilities based upon their estimated fair values.
However, to the extent that Holdings management had a continuing
investment interest in Holdings' common stock, such fair values (and
contributed stockholders' equity) were reduced proportionately to
reflect the continuing interest (approximately 10%) at the prior
historical cost basis.
(b) In connection with the Acquisition and Merger, debt issuance costs of
$1.5 million and $1.8 million associated with debt retired were
included in interest expense for the year ended December 31, 1993 and
the three month period ended December 31, 1992, respectively.
(c) In connection with the Acquisition and Merger, the Predecessor
recorded certain merger related expenses of $18.1 million consisting
primarily of bonus and option payments to certain employees and
certain merger fees and expenses, which were charged to the
Predecessor's operations in the nine month period ended September 30,
1992.
(d) Holdings and the Company file a consolidated U.S. federal income tax
return. The Company operates under a tax sharing agreement with
Holdings whereby the Company's aggregate income tax liability is
calculated as if it filed a separate tax return with its
subsidiaries.
(e) During 1995, Successor recognized an extraordinary charge of $3.0
million, net of applicable tax benefit, representing the write-off of
unamortized debt issuance costs associated with the termination of
the Company's former credit agreement. During 1993, Successorthe Company recognized extraordinary charges of $3.1
million, net of applicable tax benefit, representing the write-off
of unamortized debt issuance costs associated with the termination
of the Company's term credit facility under its former credit
agreement, and $0.3 million, net of applicable tax benefit,
representing the net loss resulting from the redemption of the
Company's 12 3/8% Senior Subordinated Debentures due 2000
(the "Debenture Repurchases").2000. During
19921995 and 1991 Predecessor made
Debenture Repurchases which had a carrying value1996, the Company recognized extraordinary charges of $13.8$3.0
million and $42.0$1.2 million, respectively. Therespectively, net loss resulting from these
repurchases, which includesof applicable tax
benefit, representing the write-off of a portionwrite-offs of unamortized debt issuance
costs was reflected as an extraordinary charge of $0.1
million and $1.5 million, net of applicable income tax benefit for
Predecessor during 1992 and 1991, respectively.
(f) For purposes of this computation, earnings consist of income before
income taxes plus fixed charges (excluding capitalized interest).
Fixed charges consist of interest on indebtedness (including
capitalized interest and amortization of deferred financing fees)
16
plus that portion of lease rental expense representativeassociated with the termination of the interest factor (deemedCompany's former credit
agreements.
(b) Copper equivalent pounds include aluminum pounds which have been
converted to be one-third of lease rental expense).
Earnings of the Successor were insufficient to cover fixed charges by
the amount of $7.1 million for the three month period ended December
31, 1992.a copper pound equivalent basis.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
INTRODUCTION
The CompanyOverview
Essex, founded in 1930, is engaged in one principal line of business, the
development, productiona leading North American developer,
manufacturer and marketingdistributor of electrical wire and cable.cable and insulation
products serving over 11,000 customers worldwide in a wide range of
industrial markets from its 28 manufacturing facilities and 38 service
centers located throughout the United States and Canada. The Company's
principal products are:include building wire for thecommercial and residential construction
industry;applications; magnet wire and insulation materials for electromechanical
devices such as motors, transformers and electrical controls; copper voice
and data communicationdatacom wire; industrial wire for automotiveapplications in construction,
appliances, recreational vehicles and appliance applications; industrial facilities; and
automotive wire and cable
products;specialty wiring assemblies for automobiles and
insulation products for the electrical industry. See "Item
1. Business Product Lines" for total sales by each major product line for
the years ended 1995, 1994 and 1993.trucks.
RESULTS OF OPERATIONS
1995 COMPARED WITH 1994The following table sets forth for each of the three years in the
period ended December 31, 1997 the dollar amounts of sales of each of the
Company's major product lines:
Years Ended December 31,
---------------------------------------------
1995 1996 1997
---- ---- ----
(In millions)
Building wire 406.1 $487.1 $761.7
Magnet wire 388.2 388.8 412.1
Communication wire 177.5 166.8 187.9
Industrial wire 63.4 71.0 121.6
Automotive wire 97.3 91.2 93.9
Other (a) 69.2 127.1 124.1
------ ------ ------
Total $1,201.7 $1,332.0 $1,701.3
======== ======== ========
- ----------
(a) Includes sales of third-party manufactured products, including
electrical insulating products, electric motors, motor repair parts
and pump seals sold through the Company's distribution business.
The following table sets forth the percentage relationship of net
sales to certain income statement items:
Years Ended December 31,
------------------------------------------------
1995 1996 1997
---- ---- ----
(In millions)
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 85.8 82.8 80.5
Selling and administrative
expense 7.8 9.1 9.1
Other expense, net 0.1 0.1 -
----- ----- -----
Income from operations 6.3 8.0 10.4
Interest expense 2.8 3.0 2.2
Income before income taxes
and extraordinary charge 3.5 5.0 8.2
Provision for income taxes 1.6 2.2 3.3
--- --- ---
Income before extraordinary
charge 1.9 2.8 4.9
Extraordinary charge - debt
retirement, net of income
tax benefit 0.3 0.1 -
Net income 1.6% 2.7% 4.9%
==== ==== ====
1997 Compared with 1996
Net sales for 19951997 were $1,201.7$1,701.3 million or 19.0%27.7% higher than 1994,
reflecting primarily a marked increase in
1996, resulting from improved sales volume and better product prices and higher sales
from the Company's distribution business as it relates to the acquired
distribution operations. See "Item 1. Business Sector Operations Magnet
Wire and Insulation Sector" and "Liquidity, Capital Resources and
Financial Condition" under this caption. Sales volumes in 1995
approximated those experienced in 1994. Higher product prices were
essentially the result of a significant increase inpricing,
partially offset by lower copper costs the
Company's principal raw material. Averageprices. The 1997 daily average COMEX
copper prices in 1995
rose approximately 25% from 1994 and, notwithstanding the magnitude of the
price increase, were generally passed on to customers through product
pricing, as is customary in the Company's business. For a discussion of
the Company's practices with respect to the purchase, internal
distribution and processing of copper, see "Item 1. Business Metals
Operations." Also see "General Economic Conditions and Inflation" under
this caption.
Sales for the Magnet Wire and Insulation Sector increased
approximately 33% over 1994, driven by higher copper prices, increased
distribution sales attributable to the acquired distribution operations in
the amount of approximately $24.0 million, improved pricing and growth in
sales volumes. Magnet wire sales volumes and product pricing improved
during 1995 due to increased demand for its magnet wire products by
distributors and original equipment manufacturers. Communication voice
and data wire sales in 1995 also improved approximately 49% over 1994 due
to higher copper prices and domestic sales volumes and to strengthening
product prices. Export sales were essentially flat between 1995 and 1994.
The Company believes that communication wire pricing has strengthened due
to sharply higher demand for copper communication wire products coupled
with a recent decline in industry manufacturing capacity. The Company
cannot, however, provide assurances that such favorable communication
market conditions will continuewas 1.9% lower than in 1996. The Company's automotive wire1997 sales volume in 1995 was also up over 1994at a
record level, exceeding 1996 by approximately 8%, although
17
North American new car and light truck sales volume increased just over 2%
in 1995.24.3%. This improvementgrowth in sales volume was
attributable to increased product demand across most of the Company's
served markets and the full year benefit of the October 1996 acquisition
of Triangle Wire & Cable, Inc. ("Triangle"). The Company's gross margin,
expressed as a percentage of net sales, improved significantly during 1997
to 19.5% from 17.2% in 1996. Gross margins improved as a result of a marked
increasebetter
conditions in sales to other automotive accounts and, to a lesser degree,
improved sales to the Company's principal automotivebuilding wire customer, United
Technologies Automotive Group ("UTA"). See "Item 1. Business Sector
Operations."markets, economies of scale
derived from higher sales volume and lower per unit manufacturing costs
attributable to continued productivity improvements.
Building wire sales in 19951997 increased approximately 4% over
1994 reflecting a combination of higher copper prices, lower56.4% from 1996 due primarily
to improved sales volumesvolume and a steep decline in product pricing. Building wire product pricing (without regard to copper
costs) declined materially,. A substantial portion of the increased sales volume was
attributable to Triangle while the remaining improvement was the result of
increased demand within the served markets. Building wire demand
exhibited continued strength during 1997 resulting from new non-
residential construction and a sustained expansion of the replacement and
upgrade segment of the market. Additionally, both new construction and
renovation activity are being affected by the increased number of circuits
and amperage handling capacity needed to a lesser
extent sales volumes,support increasing demand for
electrical services. Building wire gross margins during 1997 improved
significantly over the comparable period in 1996 due to very competitive market conditions causedthe
above-mentioned strength of product demand, improved product pricing and
enhanced productivity as a result of the integration of Triangle.
Sales of magnet wire during 1997 improved 6.0% from 1996 due
primarily by excess industry capacity. It isto higher sales volume. Sales volume improvements were
attributable to increased demand for magnet wire in most served markets,
particularly the transformer and generator markets. The Company
s belief that
althoughattributes the overall building wire market is expectedincrease in demand to experience
continued growth in the near term, there can be no assurancedomestic economy,
strong consumer demand for additional electrical convenience items in
homes, offices and vehicles and greater use of magnet wire for more energy
efficient electric motors. Higher energy efficient electric motors
require materially more magnet wire. Magnet wire gross margins improved
during 1997 as compared to 1996 primarily due to lower production costs
associated with higher sales volume.
Communication wire sales for 1997 were 12.6% above 1996 due to higher
OSP and datacom wire sales volume. OSP sales in 1997 were 10.4% higher
than in 1996 which is attributable to improved business conditions within
the competitive marketrepair and replacement segment of the copper communication cable
market. Datacom wire sales for 1997 increased 13.3% compared to 1996,
reflecting increased product demand for expanding applications such as
LANs, facsimile machines, Internet connectivity and other premise uses
within homes, offices and commercial and industrial places of business.
Communication wire gross margins in 1997 improved from 1996 due to higher
sales volume and better datacom pricing occurring in the last six months
of 1997.
Industrial wire sales in 1997 increased 71.3% over 1996 due to an
increase in sales volume, primarily mining cable, welding cable, power
supply cord sets and bulk flexible cord, of which a substantial portion
was attributable to Triangle. Industrial wire gross margins for 1997
improved from 1996 due primarily to higher sales volume.
Automotive wire sales in 1997 increased 3.0% over 1996. United
States and Canadian light vehicle production for 1997 were at high levels
approximating 1996 production. This business unit has had considerable
success expanding its customer sales base of automotive wire harness
manufacturers. Gross margins in 1997 approximated 1996 levels.
Other sales in 1997 decreased from 1996. Distribution business unit
sales of third-party manufactured products, primarily within the motor
repair segment, declined due, in part, to unusually mild seasonal weather
conditions currently present will not continue in 1996.which necessitated fewer replacement motors and repair parts
for motors, transformers and pumps.
Cost of goods sold increased 21.7%for 1997 was 24.3% higher than in 1995 compared with 19941996 due
primarily to increased copper and other material costs and increased
distribution cost ofhigher sales attributable to the acquired distribution
operations.volume. The Company's cost of goods sold as a
percentage of net sales was 85.8%82.8% and 83.8%80.5% in 19951996 and 1994,1997,
respectively. The cost of goods sold percentage in 1995 was unfavorable compared to 1994 duedecrease resulted
primarily to
substantially higher copper prices and decliningfrom the impact of improved building wire product pricing partially offset byas
well as lower per unit manufacturing costs resulting fromattributable to continued
productivity programs, including capital investments and higher manufacturing volumesinvestments. Also, the
operations of Triangle have been effectively integrated, thereby driving
substantial improvements in the
communication and automotive business units.productivity.
Selling and administrative expenses in 19951997 were 9.5% higher than
199427.5% above 1996 due
primarily to increased overheadincremental commission, selling and warehouse expenses attributable to the
acquired distribution operations in the amount of approximately $5.1
million and to increased sales commissions
associated with higher sales.Triangle. However, selling and administrative expenses,
as a percentage of sales, were 9.1% in 1997 which is consistent with 1996.
Interest expense in 19951997 was 41.8% higher5.8% lower than in 1994 due primarily1996. Notwithstanding
incremental borrowings to additional borrowings underfinance the acquisition of Triangle, the
Company's newoutstanding debt was reduced substantially through the
application of the proceeds received from the Offering and a portion of
the strong cash flows provided by operating activities. Interest expense
was further reduced by lower rates of interest on the Company's revolving
credit facilitiesfacility due to effect the redemption (the "Redemption") on May 15, 1995 of all of
Holdings' outstanding Senior Discount Debentures due 2004 (the
"Debentures"). See "Liquidity, Capital Resourceslower LIBOR rates (as defined herein) and Financial
Condition"under this caption.an
improved leverage ratio resulting in a reduced interest "spread" over
LIBOR. The Company's average rate of interest rate
decreasedon its long-term debt in
1997 declined 30 basis points from 10.4% in 1994 to 9.4% in 1995 due to the Redemption.
Other expense consists primarily of write-offs related to fixed asset
disposals occurring in the normal course of business.1996.
Income tax expense was 46.7%39.8% of pretax income in 19951997 compared with
42.9%43.6% in 1994. The effective income tax rate of the Company is higher
than the approximate statutory rate of 40%1996 due to the effectincrease in pretax income reducing the impact of
the amortization of excess of cost over net assets acquired, which is not
deductible for income tax purposes.
The Company recorded net income of $19.5 and $30.2$84.1 million for 1997 compared to
net income of $36.4 million in 1995
and 1994, respectively.1996. The 19951996 results include
an extraordinary chargecharges of $3.0$1.2 million ($5.02.0 million before applicable tax
benefit) for the write-off of unamortized deferred debt issuance costsexpense associated
with the Company sCompany's former revolving credit agreement. 1994 COMPARED WITH 1993In 1996, a former
revolving credit agreement was terminated in connection with the Triangle
acquisition.
1996 Compared with 1995
Net sales for 19941996 were $1,010.1$1,332.0 million or 16.3% higher10.8% greater than 1993,
reflecting product price increases, higherin
1995 resulting primarily from improved sales volumesvolume and increased sales
attributable to the Brownell acquisition in September 1995 and the
18
inclusion of Interstate Industries' sales.Triangle acquisition in October 1996, partially offset by lower copper
prices. The 1996 average COMEX copper price was 21.5% lower than in 1995.
Sales volumes in 1994 were at
record levelsvolume for the third straight year, exceeding the 19931996 exceeded 1995 by 16.9%. Improved sales volumes by approximately 6.9%. The Company believes the improved sales
volumesvolume
resulted primarily from increased demand for the Company's magnet wire,
products within the served
markets which was partiallybuilding wire, and industrial wire products.
Building wire sales for 1996 increased as compared to 1995 due
primarily to an increase in sales volume, product pricing (without regard
to copper costs) and incremental sales attributable to a growing economy and to
increased usage of the Company's wire in end products, especially as these
factors affected the markets served by the Magnet Wire and Insulation
Sector. Higher product prices reflected a marked increase in copper costs
and improved product pricing. Copper is the Company's principal raw
material. The 1994 average COMEX copper price rose 23.9% from 1993 and,
notwithstanding the magnitude of the price increase, copper costs were
generally passed on to customers through product pricing, as is customary
in the Company's business. For a discussion of the Company's practices
with respect to the purchase, internal distribution and processing of
copper, see "Item 1. Business Metals Operations." Also see "General
Economic Conditions and Inflation" under this caption.
Sales for the Magnet Wire and Insulation Sector increased 24.1% over
1993, driven by a 21.8% growth in sales volumes and higher copper prices,Triangle
acquisition, partially offset by a higher proportiondecline in copper prices. Building
wire market demand exhibited continued growth during 1996 on the strength
of customer-ownednew non-residential construction and sustained expansion of the
renovation segment of the market. The Company believes this growth in
demand was the leading cause for the improvement in market prices during
the second half of 1996 over the depressed market conditions of 1995 and
the first half of 1996.
Sales of magnet wire in 1996 were essentially equal to those in 1995
reflecting increased sales volume offset by declining copper in the
division's sales mix. Customer-owned copper refers to instances where
certain customers provide their own purchased copper for use in the
Company's wire production; the Company s sales to these customers include
only a value-added component. Improved sales volumesprices.
Sales volume improvements were attributable to increased demand for magnet
wire products in the automotive, electric motor and transformer markets as well asdue in part to the
increased use of magnet wire for increased energy efficiency. Sales
increases were also a result of increased sales to distributors.
BuildingCommunication wire sales for 1996 were below those in 1995 due to the
decrease in copper prices partially offset by increased 17.4%sales of datacom
products. Datacom sales were up 21.2% as compared to 1993,1995, reflecting
continued strong growth in this segment of the communication wire market.
OSP sales were 14.3% lower than 1995, reflecting, in part, a decline in
export sales, as the Company focused on strong domestic markets.
Automotive wire sales in 1996 were below those in 1995 due principally to higherthe
decrease in copper prices andpartially offset by improved product pricing. Increased demand
within the building wire market contributed to reduced competitive pricing
pressures which had adversely impacted this market in 1993. Building wire
sales volumes were comparable to 1993. Automotive wire volumes increased
approximately 12.9% from 1993 due to a strengthening automotive market
(newvolume as
North American new car and light truck sales volumesvolume increased just over
1.0% in the United States was
approximately 10% higher in 1994 than 1993), and the addition of several
new customers. Interstate Industries provided approximately $14.0 million
of additional1996. Industrial wire sales in 1994. Communication wire1996 were above those in 1995 by
12.0% due to an increase in sales volumes decreased
19.1% from 1993 resulting from a 46.6% decline in export sales, due
primarily to increased pricing pressures from foreign competitors,volume partially offset by an 8.8% improvementthe decline
in domestic communication wire
sales.copper prices. The increase in sales volume was partially due to
incremental sales attributable to the Triangle acquisition. Other sales
in 1996 increased significantly over 1995 due to the effect of inclusion
of full-year sales from the Brownell acquisition.
Cost of goods sold increased 13.5%for 1996 was 7.0% higher than in 1994 compared with 19931995 due
primarily to increased copper and other material costs (essentially
resins), higher sales volumesvolume and inclusion of Interstate Industries,increased sales attributable to the
Brownell and Triangle acquisitions, partially offset by a change in product mix. The Company'slower copper
prices. Essex' cost of goods sold as a percentage of net sales was 83.8%85.8%
and 85.8%82.8% in 19941995 and 1993,1996, respectively. The costCost of goods sold as a
percentage in 1994 was favorableof net sales decreased compared to 19931995 due primarily to the
marked decline in copper costs, improved building wire product pricing
and lower manufacturing
costs resulting from continued capital investments(without regard to copper costs), a change in product mix associated with
the Brownell acquisition, which tended to distribute more value-added
products, and higher manufacturing volumes.volume leading to increased
manufacturing efficiency.
Selling and administrative expenses in 1994for 1996 were 12.8% higher than
199329.6% above 1995,
due primarily to increased sales commissionsselling, distribution and administrative
expenses attributable to the Brownell and Triangle acquisitions and
increased distribution and commission expenses due to higher sales inclusion of Interstate Industries and higher incentive
compensation accruals related to improved 1994 operating results. These
expenses were partially offset, however, by lower amortization charges in
1994 due to the expiration in February 1993 of a non-compete agreement
19
with UTC. Amortization charges, in the amount of $1.1 million, were
recorded in 1993 in connection with this non-compete agreement.volume
experienced during 1996.
Interest expense in 19941996 was 2.7% below 1993$5.3 million higher than in 1995 due
primarily to lower
deferred debt amortization charges and a reduction in weighted average
debtadditional borrowings under the Company's new credit
facilities to effect the May 1995 redemption (the "Redemption") of all of
Essex International's outstanding partially offset by an increase in theSenior Discount Debentures due 2004 (the
"Debentures"). The Company's average interest rate from 9.7% to 10.4%. Deferred debt amortization charges
decreased from 19939.4% in
1995 to 8.6% in 1996 due primarily to the repayment in May 1993 of the term
loans (the "Term Credit") under the credit agreement entered into in
September 1992 (the "Credit Agreement") and the redemption in June 1993 of
the 12 3/8% Senior Subordinated Debentures due 2000 (the "Debentures"),
partially offset by the May 1993 issuance of the 10% Senior Notes due 2003
(the "Senior Notes"). The decrease in weighted average debt outstanding
resulted primarily from reduced usage of the Company's revolving credit
facility during 1994 compared to 1993. The increase in average interest
rate reflected the higher rate of interest payable on the Senior Notes
compared with the rate of interest on the Term Credit, which was repaid
from the sale of the Senior Notes, partially offset by the rate of
interest on the Debentures, which were also redeemed.
Other expense consists primarily of write-offs related to fixed asset
disposals occurring in the normal course of business.Redemption.
Income tax expense was 42.9%43.6% of pretax income in 19941996 compared with
58.2% in 1993.46.7% for 1995. The effective income tax rate of the CompanyEssex is higher than the
approximate statutory rate of 40%40.0% due to the effect of the amortization
of excess of cost over net assets, acquired which is not deductible for income tax
purposes.
With respect to the Omnibus Budget
Reconciliation Act of 1993 ("OBRA 1993"), the Company's 1993 tax balances
were adjusted to reflect the new federal statutory tax rate of 35%. The
adjustment increased income tax expense by approximately $2.3 million in
1993 or 10.0% of pretax income.
The Company recorded net income of $30.2$36.4 million in 1994 asfor 1996 compared to
net income of $6.0$19.5 million in 1993.1995. The 19931996 and 1995 results include
extraordinary charges of $3.4$1.2 million and $3.0 million, respectively ($5.52.0
million and $5.0 million, respectively, before applicable tax benefits)benefit),
for the write-off of unamortized deferred debt expense associated with the
repayment ofCompany's former revolving credit agreements. In 1996, the Term Credit and redemptionformer
revolving credit agreement was terminated in connection with the Triangle
acquisition. In 1995, the former revolving credit agreement was
terminated in connection with the Redemption of the Debentures.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
The Company's financial position at December 31, 1995 was highly
leveraged.Liquidity, Capital Resources and Financial Condition
General
The Company's aggregate notes payable to banks plusand long-term debt at
December 31, 1997 was $424.5$353.5 million, and its stockholder'sstockholders' equity was
$114.7$235.2 million. The resulting ratio of debt to stockholder's equity of approximately 3.7total capitalization
improved to 1 compares to a ratio of 0.6 to 160% from 75% at December 31, 1994 reflecting
additional1997. As of December 31, 1997,
the Company was in compliance with all covenants under the agreements
governing its outstanding indebtedness.
Credit Facilities and Lines of Credit
The Company maintains the following credit facilities: (i) a $370.0
million revolving credit agreement amended and restated effective April
23, 1997, by and among the Company, Essex International Inc., the Lenders
named therein, and The Chase Manhattan Bank, as administrative agent (the
"Revolving Credit Agreement"); (ii) a $25.0 million agreement and lease
dated as of April 12, 1995 by and between the Company and Mellon Leasing
Corporation (the "Sale and Leaseback Agreement"); (iii) a $15.0 million
(U.S. dollar) credit agreement by and between a subsidiary of the Company
and the Bank of Montreal (the "Canadian Credit Agreement"); and (iv) bank
lines of credit with various lending banks which provide for unsecured
borrowings for working capital of up to $50.0 million.
The Revolving Credit Agreement, which terminates October 31, 2001,
provides for up to $370.0 million in revolving loans, subject to specified
percentages of eligible assets and reduced by outstanding borrowings under
the Canadian Credit Agreement and unsecured bank lines of credit. The
Revolving Credit Agreement loans bear floating rates of interest, at the
Company's new credit facilitiesoption, at bank prime plus 0.50% or a reserve adjusted
Eurodollar rate ("LIBOR") plus 1.50%. The spreads over the prime and
LIBOR rates can be reduced to effect0% and .375%, respectively, if a specified
leverage ratio is achieved. Based upon the Redemptionspecified leverage ratio at
December 31, 1997, the Company's floating rate of interest for borrowings
under the Revolving Credit Agreement is LIBOR plus 0.375%. The average
commitment fees during the revolving loan period are between 0.125% to
0.375% of the Debenturesaverage daily unused portion of the available credit based
upon certain financial ratios. Indebtedness under the Revolving Credit
Agreement is secured by a pledge of the capital stock of Essex and its
subsidiaries and by a first lien on substantially all assets of the
Company and its subsidiaries. The Company's ability to borrow under the
Revolving Credit Agreement is restricted by the financial covenants
contained therein as well as by certain debt limitation covenants
contained in the indenture under which the 10% Senior Notes due 2003 (the
"Senior Notes") were issued (the "Senior Note Indenture"). As of December
31, 1997, the Company had $130.3 million of undrawn capacity based upon a
borrowing base of $265.0 million, reduced by outstanding borrowings under:
(i) the Essex Revolving Credit Agreement ($100.0 million), (ii) unsecured
bank lines of credit ($28.1 million) and (iii) the Canadian Credit
Agreement ($6.6 million).
The Revolving Credit Agreement contains various covenants which
include, among other things: (a) the maintenance of certain financial
ratios and compliance with certain financial tests and limitations; (b)
limitations on investments and capital expenditures; (c) limitations on
cash dividends paid; and (d) limitations on leases and the sale of assets.
Through December 31, 1997, the Company fully complied with all of the
financial ratios and covenants contained in the Revolving Credit
Agreement.
The Sale and Leaseback Agreement provides $25.0 million for the sale
and leaseback of certain of the Company's fixed assets. The lease
obligation has a seven-year term expiring in May 2002. The principal
component of the rental is paid quarterly, with the amount of each of the
first 27 payments equal to 2.5% of lessor's cost of the equipment, and the
balance due at the final payment. The interest component is paid on the
unpaid principal balance and is calculated by lessor at LIBOR plus 2.5%.
The effective interest rate can be reduced by 0.25% to 1.125% if certain
specified financial conditions are achieved.
As of December 31, 1997, $6.6 million was outstanding under the
Canadian Credit Agreement and included as notes payable to banks in the
Company's Consolidated Balance Sheets. Borrowings are secured by the
subsidiary's accounts receivable. Interest rates for borrowings under the
Canadian Credit Agreement are based upon Canadian market rates for
banker's acceptances with spreads similar to the Revolving Credit
Agreement. The Canadian Credit Agreement terminates on May 15, 1995 as discussed below.30, 1998,
although it may be extended for successive one-year periods upon the
mutual consent of the subsidiary and the Bank of Montreal.
The Company had $28.1 million outstanding of unsecured bank lines of
credit at December 31, 1997. Such amount is included in notes payable to
banks in the Company's Consolidated Balance Sheets. These lines of credit
bear interest at rates subject to agreement between the Company and the
lending banks.
Cash Flow and Working Capital
In general, the Company requires liquidity for working capital,
capital expenditures, debt repayments, interest and taxes. Of particular
significance to the Company is its working capital requirements which
increase whenever it experiences strong incremental demand in its business
and/or a significant rise in copper prices. Historically, the Company has
satisfied its liquidity requirements through a combination of funds
generated from operating activities together with funds available under
its credit facilities. Based upon historical experience and the
availability of funds under its credit facilities, the Company expects
20that its usual sources of liquidity will be sufficient to enable it to
meet its cash requirements for working capital, capital expenditures, debt
repayments, interest and taxes for 1996. As of December 31, 1995, the
Company was in compliance with all covenants under the agreements
governing their outstanding indebtedness and was servicing their cash debt
obligations out of operating cash flow.
In April 1995, in connection with the Redemption of all of Holdings'
outstanding Debentures at their principal amount of $272.9 million, the
Company terminated its previous credit agreement (the "Former Credit
Agreement") and entered into three new facilities: (i) a $260.0 million
revolving credit agreement, dated as of April 12, 1995 by and among the
Company, Holdings, the lenders named therein and Chemical Bank, as agent
(the "Revolving Credit Agreement"); (ii) a $60.0 million senior unsecured
note agreement, dated as of April 12, 1995 by and among the Company,
Holdings, as guarantor, the lenders named therein and Chemical Bank, as
administrative agent (the "Term Loan", together with the Revolving Credit
Agreement, the "Credit Facilities"); and (iii) a $25.0 million agreement
and lease dated as of April 12, 1995 by and between the Company and Mellon
Financial Services Corporation #3 (the "Sale and Leaseback Agreement" and
together with the Credit Facilities the "New Company Facilities"). The
Company recognized an extraordinary charge of approximately $3.0 million,
net of applicable tax benefit, in the second quarter 1995 for the write-
off of unamortized deferred debt expense in connection with the
termination of the Former Credit Agreement. Holdings is a party to each
of the Credit Facilities and has guaranteed the Company's obligations
under the Revolving Credit Agreement. Holdings has secured its
obligations pursuant to the guarantee of the Revolving Credit Agreement by
a pledge of all of the outstanding stock of the Company to the lending
banks.
On May 12, 1995 the Company borrowed the full amounts available under
the Term Loan and Sale and Leaseback Agreement. These funds, together
with available cash and borrowings under the Revolving Credit Agreement,
were paid to Holdings in the form of a cash dividend ($238.8 million) and
repayment of a portion of an intercompany liability ($34.1 million)
totaling $272.9 million. Holdings applied such funds to effect the
redemption of its Debentures, at 100% of their principal amount of $272.9
million, on May 15, 1995.
The Revolving Credit Agreement provides for up to $260.0 million in
revolving loans, subject to specified percentages of eligible assets and
also provides a $25.0 million letter of credit subfacility. The Company's
ability to borrow under the Revolving Credit Agreement is restricted by
the financial covenants contained therein as well as those contained in
the Term Loan and certain debt limitation covenants contained in the
indenture under which the 10% Senior Notes due 2003 (the "Senior Notes")
were issued (the "Senior Note Indenture"). The Revolving Credit Agreement
terminates five years from its effective date of April 12, 1995. The
Revolving Credit Agreement loans bear floating rates of interest, at the
Company's option, at bank prime plus 1.25% or a reserve adjusted
Eurodollar rate (LIBOR) plus 2.25%. The effective interest rate can be
reduced by 0.25% to 1.25% if certain specified financial conditions are
achieved. Commitment fees during the revolving loan period are .375% or
0.5% of the average daily unused portion of the available credit based
upon certain specified financial conditions.
21
The Term Loan provides an aggregate $60.0 million in term loans, and
is to be repaid in 20 equal quarterly installments, subject to the loan's
excess cash provision, beginning August 15, 1995 and ending May 15, 2000.
The Term Loan bears floating rates of interest at bank prime plus 2.75% or
a reserve adjusted Eurodollar rate (LIBOR) plus 3.75%. The Term Loan
requires 50% of excess cash, as defined, to be applied against the
outstanding term loan balance. The excess cash calculation for the year
ended December 31, 1995, requires the Company to repay $12.4 million of
the term loan on or before April 15, 1996. After the 1996 excess cash
repayment, the remaining principal payments will be made in 17 equal
quarterly installments of $2.3 million. Amounts repaid with respect to
the excess cash provision may not be reborrowed.
The Sale and Leaseback Agreement provides $25.0 million for the sale
and leaseback of certain of the Company's fixed assets. The lease
obligation has a seven-year term expiring in May 2002. The principal
component of the rental is paid quarterly, with the amount of each of the
first 27 payments equal to 2.5% of Lessor's cost of the equipment, and the
balance due at the final payment. The interest component is paid on the
unpaid principal balance and is calculated by Lessor at LIBOR plus 2.5%.
The effective interest rate can be reduced by 0.25% to 1.125% if certain
specified financial conditions are achieved.
The Revolving Credit Agreement restricts incurrence of indebtedness,
liens, guarantees, mergers, sales of assets, lease obligations, payment of
dividends, capital expenditures and investments and, with certain
exceptions, limits prepayment of indebtedness, including the Senior Notes,
and early redemption of Holdings' outstanding Series B Preferred Stock.
Transactions with affiliates are also restricted subject to certain
exceptions. The Term Loan and the Senior Note Indenture prohibit, with
certain exceptions, the incurrence by the Company of any secured
indebtedness unless such indebtedness is equally and ratably secured. The
failure by Holdings or the Company to comply with any of the foregoing
covenants, if such failure is not timely cured or waived, could lead to
acceleration of the indebtedness covered by the applicable agreement and
to cross-defaults and cross-acceleration of other indebtedness of the
Company.
The Company also has uncommitted bank lines of credit which provide
unsecured borrowings for working capital of up to $25.0 million of which
$11.8 million was outstanding at December 31, 1995 and denoted as notes
payable to banks in the Consolidated Balance Sheets. These lines of
credit bear interest at rates subject to agreement between the Company and
the lending banks. At December 31, 1995, such rates of interest averaged
6.7%.
The Company has purchased interest rate cap protection through May
15, 1997 with respect to $150.0 million of debt with a strike rate of
10.0% (three month LIBOR).1998.
Operating Activities. Net cash provided by operating activities in
19951997 was $55.7$103.9 million, compared to $37.1$67.5 million during the same period in 1994.1996. The increase
in cash provided by operating activities was primarily attributable to
reduced growth in accounts receivable, athe result of
higher level of accounts payable
and a reduction in other assetsnet income, partially offset by the reduction of an
intercompany liability with Holdings. Holdings used the repayment of the
intercompany liabilityhigher accounts receivable related
to fund part of its Debenture Redemption as
discussed above. Accounts payable increased during 1995 due to a more
22
active working capital management program while other assets declined due
to the collection in 1995 of a 1994 miscellaneous receivable.strong fourth quarter 1997 sales.
Investing Activities. Capital expenditures of $28.6$42.1 million in 19951997
were $1.6$16.6 million lessmore than in 1994.1996. In 1995,1997, approximately $8.9$7.4 million
was invested in magnet wire ovens to improve product quality and increase
manufacturing productivity and approximately $4.9 million was invested in the industrial
wire business unit for new equipment to improve quality and productivity
and, to a lesser degree, expand capacity.productivity. Capital expenditures in 19961998 are expected to
be approximately 20%-25% below 1995at or above 1997 levels and will be used to complete modernization projects, expand capacity, enhanceimprove manufacturing
efficiency and ensure continued compliance with regulatory requirements.expand capacity. At December 31, 1995,1997, approximately $4.6$5.0
million was committed to outside vendors for capital expenditures. The
Company sold an idle plant during 1997 realizing $2.7 million in net
proceeds. The Revolving Credit Facilities imposeAgreement imposes limitations on capital
expenditures, business acquisitions and investments.
On September 29,Financing Activities. The net proceeds of the Offering, after
underwriting commissions and other associated expenses, were approximately
$46.2 million, of which $29.5 million was used to repay the senior
unsecured note agreement dated as of April 17, 1995, by and among the
Company, acquiredEssex International, as guarantor, the lenders named therein and
The Chase Manhattan Bank, as administrative agent. The remaining proceeds
were applied to the Company's Revolving Credit Agreement. The net
proceeds were received from Avnet, Inc. certainEssex International in the form of an
intercompany transfer.
Considerations Relating to Essex International's Cash Obligations
Essex International is a holding company with no operations and
virtually no assets ofother than its distribution operations, which became part of MWIS' national distribution
business unit upon consummationownership of the asset purchase. The acquisition
consisted primarilyoutstanding common
stock of inventory and some fixed assets which totalled
approximately $24.9 million, subjectthe Company. All of such stock is pledged, however, to final inventory adjustments, and
was financed from proceeds receivedthe
lenders under the Revolving Credit Agreement. FutureAccordingly, Essex
International's ability to meet its cash requirementsobligations is dependent on the
Company's ability to pay dividends, to loan, or otherwise advance or
transfer funds to Essex International in amounts sufficient to service
Essex International's cash obligations.
Essex International expects that it may receive certain cash payments
from the Company from time to time to the extent cash is available and to
the extent it is permitted under the terms of this operationthe Revolving Credit
Agreement and the Senior Note Indenture. Such payments may include (i) an
amount necessary under the tax sharing agreement between Essex
International and the Company to enable Essex International to pay the
Company's taxes as if computed on an unconsolidated basis; (ii) an annual
management fee to an affiliate of BHLP of up to $1.0 million; and
(iii) certain other amounts to meet ongoing expenses of Essex
International (such amounts are expectedconsidered to be satisfiedimmaterial both
individually and in the aggregate, however, because Essex International
has no operations, other than those conducted through the Company's traditionalCompany, or
employees thereof). To the extent the Company makes any such payments, it
will do so out of operating cash flow, borrowings under the Revolving
Credit Agreement or other sources of liquidity as previously
discussed.
Regarding long-term liquidity issues, capital expenditures are
anticipatedfunds it may obtain in the future
subject to be at or below historical levels while the terms of the Revolving Credit Agreement and the Senior Note
Indenture.
Long-Term Liquidity Considerations
The Senior Notes mature in 2003 and are expectedat the option of the Company may
be redeemed commencing in May 1998, in whole or in part, at redemption
prices ranging from 103.75% of principal in 1998 to 100% in 2001. Should
the Senior Notes be replaced by similar financing at
that time.redeemed in May 1998, the redemption premium would
amount to $7.5 million. The terms of the Sale and Leaseback Agreement
include a balloon payment of $8.1 million in 2002. The Company expects
that its traditional sources of liquidity will enable it to meet its
long-term cash requirements for working capital, capital expenditures,
interest and taxes, as well as its debt repayment obligations under both the Term Loan
and the
Sale and Leaseback Agreement.
The Company's operations involve the use, disposal and clean-upcleanup of
certain substances regulated under environmental protection laws. The
Company has accrued $0.7$0.9 million for expected environmental site remediation and
restoration costs. The accruals wereaccrual is based upon management's best estimate
of the Company's exposure in light of relevant available information
including the allocations and remedies set forth in applicable consent
decrees, third partythird-party estimates of remediation costs, the estimated ability
of other potentially responsible parties to pay their proportionate share
of remediation costs, the nature of each site and the number of
participating parties. Subject to the difficulty in estimating future
environmental costs, the Company expects that any sum it may have to pay
in connection with environmental matters in excess of the amounts recorded
or disclosed will not have a material adverse effect on its financial
position, results of operations or cash flows.
See "Item 3.
Legal Proceedings" for further discussion of the Company's environmental
liabilities.
CONSIDERATIONS RELATING TO HOLDINGS' CASH OBLIGATIONS
Holdings is a holding company with no operations and has virtually no
assets other than its ownership of the outstanding common stock of the
Company. All of such stock is pledged, however, to the lenders under the
Revolving Credit Agreement. Accordingly, Holdings' ability to meet its
23
obligations when due under the terms of its indebtedness will be dependent
on the Company's ability to pay dividends, to loan, or otherwise advance
or transfer funds to Holdings in amounts sufficient to service Holdings'
obligations.
The Company expects that it may make certain cash payments to
Holdings from time to time to the extent cash is available and to the
extent it is permitted under the terms of the Credit Facilities and the
Senior Note Indenture. Such payments may include (i) an amount necessary
under the tax sharing agreement between the Company and Holdings to enable
Holdings to pay the Company's taxes as if computed on an unconsolidated
basis; (ii) an annual management fee to an affiliate of BHLP of up to $1.0
million; (iii) amounts necessary to repurchase management stockholders'
shares of Holdings' common stock under certain specified conditions; and
(iv) other amounts to meet ongoing expenses of Holdings (such amounts are
considered to be immaterial both individually and in the aggregate,
however, because Holdings has no operations, other than those conducted
through the Company, or employees). To the extent the Company makes any
such payments, it will do so out of operating cash flow, borrowings under
the Revolving Credit Agreement or other sources of funds it may obtain in
the future and only to the extent such payments are permitted under the
terms of the Credit Facilities and the Senior Note Indenture.
At December 31, 1995, Holdings had outstanding 2,033,782 shares of
15% Series B Cumulative Redeemable Exchangeable Preferred Stock,
Liquidation Preference $25 Per Share, (the "Series B Preferred Stock").
The aggregate liquidation preference of the Series B Preferred Stock was
$50.8 million at December 31, 1995. The Series B Preferred Stock is
subject to mandatory redemption on September 30, 2004. At the option of
Holdings, the Series B Preferred Stock may be redeemed at a percentage of
liquidation preference declining from 107.5% beginning September 30, 1995
to 100% beginning September 30, 1998, plus accumulated and unpaid
dividends. The Revolving Credit Agreement permits the optional redemption
of the Series B Preferred Stock only out of proceeds of a Holdings primary
offering (public or private) of common stock, or in exchange for
debentures with terms similar to those of the Series B Preferred Stock or
in exchange for other preferred stock on terms no more onerous than those
presently existing. In order to redeem the Series B Preferred Stock under
the terms of the Senior Note Indenture, Holdings would be required, among
other things, to seek the consent of the holders of the Senior Notes,
refinance the Senior Notes after they become redeemable in May, 1998, or
obtain funds through the sale of equity securities.
Dividends on the Series B Preferred Stock are payable quarterly at a
rate of 15.0% per annum. Dividends accruing on or before September 30,
1998 may, at the option of Holdings, be paid in cash, paid in additional
shares of Series B Preferred Stock or in any combination thereof.
Dividends on the Series B Preferred Stock accruing after September 30,
1998 must be paid in cash. Holdings does not expect to pay cash dividends
on or prior to September 30, 1998. Each of the Credit Facilities and the
Senior Note Indenture restricts the payment of cash to Holdings. In order
to make cash dividend payments on the Series B Preferred Stock under the
terms of the Senior Note indenture, Holdings would be required, among
other things, to seek the consent of the holders of the Senior Notes,
refinance the Senior Notes after they become redeemable in May, 1998, or
obtain funds through the sale of equity securities.
24
In October 1995, Holdings filed with the Securities and Exchange
Commission a registration statement for an offer to exchange an equal
number of Series B Cumulative Redeemable Exchangeable Preferred Stock for
all outstanding shares of Series A Cumulative Redeemable Exchangeable
Preferred Stock due 2004 (the "Series A Preferred Stock"). The terms of
the Series A Preferred Stock and the Series B Preferred Stock are
identical in all material respects, except for certain transfer
restrictions relating to the Series A Preferred Stock. The exchange was
concluded in December 1995 for all outstanding shares of Series A
Preferred Stock.
DERIVATIVE FINANCIAL INSTRUMENTSDerivative Financial Instruments
The Company, to a limited extent, uses forward fixed price contracts
and derivative financial instruments to manage foreign currency exchange
and commodity price risks. To protect the Company's anticipated cash
flows from the risk of adverse foreign currency exchange fluctuations for
firm sales and purchase commitments, the Company enters into foreign
currency forward exchange contracts. Copper, the Company's principal raw
material, experiences marked fluctuations in market prices, thereby
subjecting the Company to copper price risk with respect to copper
purchases and firm and anticipatedon fixed customer sales contracts. Derivative financial
instruments in the form of copper futures contracts are utilized by the
Company to reduce those risks. The Company does not hold or issue
financial instruments for investment or trading purposes. The Company is
exposed to credit risk in the event of nonperformance by counterparties
for foreign exchange forward contracts, metal forward price contracts and
metals futures contracts but the Company does not anticipate
nonperformance by any of these counterparties. The amount of such
exposure is generally the unrealized gains withinwith respect to the underlying
contracts.
GENERAL ECONOMIC CONDITIONS AND INFLATIONImpact of Year 2000
The Company faces various economic risks ranging from an economic
downturn adversely impactingis currently working to determine the impact of the year
2000 issue on the processing of date-sensitive information by the
Company's primary marketscomputerized information systems. The year 2000 problem is the
result of computer programs being written using two digits (rather than
four) to marked
fluctuationsdefine the applicable year. Any of the Company's programs that
have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000, which could result in copper prices. Inmiscalculations or
system failures. Based on information available at this time, costs of
addressing potential problems are not currently expected to have a
material adverse impact on the short-term, pronounced changesCompany's financial position, results of
operations or cash flows in future periods. The Company is currently
engaged in identifying and resolving all significant year 2000 issues in a
timely manner.
General Economic Conditions and Inflation
Although net sales are heavily influenced by the price of copper, tend to affect gross profits within the
building wire
product line because such changes affectCompany's major raw material, costs more quickly
than thosethe Company's profitability is generally not
affected by changes can be reflected in the pricing of building wire
products. In the long-term, however, copper price changes have not had a
material adverse effect on gross profitsprices because cost changes generally
have been passed through to customers over time. In addition, the Company believes thatgenerally has
been able to pass on its sensitivity to downturns in its primary markets is less
significant than it might otherwise be duecost of copper to its diverse customer base
and its strategy of attemptingcustomers. The Company
attempts to match its copper purchases with its needs.production requirements
and thereby minimize copper cathode and rod inventories. The Company
cannot predict eitherfuture copper prices or the continuationeffect of current
economic conditions orfluctuations in the
cost of copper on the Company's future results of its operations in light thereof.operating results.
The Company believes that it is not particularlyonly affected by inflation except to the
extent that the economy in general is thereby affected. Should
inflationary pressures drive costs higher, the Company believes that
general industry competitive price increases would sustain operating
results, although there can be no assurance that this will be the case.
25In addition, the Company believes that its sensitivity to downturns in its
primary markets is less significant than it might otherwise be due to its
diverse customer base, broad product line and its strategy of attempting
to match its copper purchases with its needs.
Information Regarding Forward-Looking Statements
This document contains various forward-looking statements and
information that are based on management's belief, as well as assumptions
made by and information currently available to management. Any statements
made that are not historical in nature, including statements preceded by
the words "intend", "expect", "would", and similar expressions are
forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable,
it can give no assurance that such expectations will prove to have been
correct. Such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual
results may vary materially from those expected. Among the key factors
that may have a direct bearing on the Company's operating results and
forward-looking statements included herein are fluctuations in the
economy, acquisition and consolidation activity in the Company's
businesses, the willingness of customers to accept more distant
distribution channels, demand for the Company's products, the impact of
price competition and fluctuations in the price of copper.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets:
AsA of December 31, 19951997 and 1994 . . . . . . . . . . .1996 F-2
Consolidated Statements of Operations:
For each of the three years in the period
ended December 31, 1995 . . . . . . . . . . . . . . . .1997 F-3
Consolidated Statements of Cash Flows:
For each of the three years in the period
ended December 31, 1995 . . . . . . . . . . . . . . . .1997 F-4
Notes to Consolidated Financial Statements . . . . . . . . F-5
INDEX TO FINANCIAL STATEMENT SCHEDULES
II. Valuation and Qualifying Accounts . . . . . . . . . . . . . S-1
All other schedules have been omitted because they are not
applicable or not required or because the required information is included
in the consolidated financial statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
26
PART III
ITEMS 10, 11, 12 and 13.
As described below, certain information appearing in the Essex
International's Proxy Statement to be furnished to shareholders in
connection with the 1998 Annual Meeting, is incorporated by reference in
this Form 10-K Annual Report.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTDirectors and Executive Officers
Information regarding Essex International's directors is
incorporated by reference to the "Directors" section of
Essex International's Proxy Statement to be furnished to
shareholders in connection with the 1998 Annual Meeting.
Information regarding Essex International's executive
officers is incorporated by reference to the Executive
Officer section of Item 10 of Essex International's
Annual Report on Form 10-K. Information regarding the
Company's directors and executive officers is included
below.
ITEM 11. Executive Compensation
This information is incorporated by reference to the
"Executive Compensation" section of Essex International's
Proxy Statement to be furnished to shareholders in
connection with the 1998 Annual Meeting.
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management
This information is incorporated by reference to the
"Security Ownership of Certain Beneficial Owners and
Management" section of Essex International's Proxy
Statement to be furnished to shareholders in
connection with the 1998 Annual Meeting.
ITEM 13. Certain Relationships and Related Transactions
This information is incorporated by reference to the "Certain
Transactions" section of Essex International's Proxy
Statement to be furnished to shareholders in connection with
the 1998 Annual Meeting.
Directors and Executive Officers of the Company
The following table sets forth information concerning the Directorsdirectors
and Executive Officersexecutive officers of the Company:
Name Age Position
- ---- ------- ---------
Steven R. Abbott 4850 President and Chief Executive
Officer; Director (Chairman)
Robert J. Faucher 5153 Executive Vice President; Director
Robert D. Lindsay 41 DirectorDominic A. Lucenta 44 Senior Vice President
Charles W. McGregor 5456 Executive Vice President
- Magnet WireDebra F. Minott 42 Senior Vice President, General
Counsel and Insulation Sector;
DirectorSecretary
Curtis A. Norton 52 Senior Vice President
David A. Owen 5051 Executive Vice President and Chief
Financial Officer; Director
Ward W. Woods 53 DirectorGregory R. Schriefer 45 Executive Vice President
Mr. Abbott has been a director since 1988. Messrs. Lindsay and Woods
became directors of the Company in 1992. Messrs. Owen and Faucher
became directors in 1993 and Mr. McGregor was elected as a director in April
1994.1993. Directors of the Company are elected annually
to serve until the next annual meeting of stockholders of the Company or
until their successors have been elected or appointed and qualified.
Executive officers are appointed by, and serve at the discretion of, the
Board of Directors of the Company.
Mr.Steven R. Abbott was appointed President and Chief Executive Officer
of the Company and Essex International on February 26, 1996. He was the
President of the Wire and Cable Sector from September 1995 to February
1996 and President of the Wire and Cable Division from September 1993 to
September 1995. He was President of the Magnet Wire and Insulation
Division from 1987 to 1993. Mr. Abbott has been employed by the Company
since 1967. Mr. Abbott is also a Directordirector of Holdings.
Mr.Essex International.
Robert J. Faucher was appointed Executive Vice President in September
1995. He was President of the Engineered Products Division of Essex from
January 1992 to September 1995. He was1995 and Vice President, Operations in the
Industrial Products Division of Essex from June 1988 to January 1992. HeMr.
Faucher joined the Company in 1985 as Vice President, Planning.
Mr. Lindsay is the sole shareholderDominic A. Lucenta was appointed Senior Vice President in charge of
Human Resources in April 1994. From October 1992 to April 1994 he was
Vice President of Human Resources and presidentfrom 1990 to 1992 he was Director of
a corporation
which is a manager of a limited liability company that is the general
partner of BHLP. Mr. Lindsay is the sole shareholder of a corporation
that is the general partnerHuman Resources for various divisions of the partnership which is the general
partnerCompany. He was director of
BCP.Risk Management from 1988 to 1990. He is also the sole shareholder of corporations which are
the general partners of the two partnerships affiliated with BHLP and BCP
to whichjoined the Company and Holdings paid the fees described under Item 13
below. Mr. Lindsay was Managing Director of Bessemer Securities
Corporation ("BSC"), the principal limited partner of BHLP and BCP, from
January 1991 to June 1993. Prior to joining BSC, Mr. Lindsay was a
Managing Director in the Merchant Banking Division of Morgan Stanley &
Co., Incorporated. He is the Chairman of Metropolitan International,
27
Inc., and a director of Stant Corporation and several private companies.
Mr. Lindsay is also a Director of Holdings.
Mr.1979.
Charles W. McGregor was appointed Executive Vice President in October
1996. He was President of the Magnet Wire and Insulation Sector inof Essex
from September 1995.1995 to October 1996. He was President of the Magnet Wire
and Insulation Division of Essex from September 1993 to September 1995. He1995 and
prior to that was Director of Manufacturing for the Division from 1987 to
1993. Mr. McGregor has been employed by the Company since January 1970.
Debra F. Minott was appointed Senior Vice President and General
Counsel in October 1994 and was appointed Secretary in April 1995. She
has been employed by the Company since October 1994. From September 1983
to October 1994, Ms. Minott held various legal positions at Eli Lilly &
Company.
Curtis A. Norton was appointed Senior Vice President in charge of
Corporate Support Operations in April 1996. He was Vice President of
Corporate Support Operations from September 1995 to April 1996. He was
Vice President of Purchasing from April 1994 to September 1995 and
Director of Purchasing from 1989 to 1994. Mr. Norton has been employed by
the Company since 1981.
David A. Owen was appointed Executive Vice President and Chief
Financial Officer of the Company in March 1994. He had been appointed Vice PresidentPresident-
Finance and Chief Financial Officer of the Company in March 1993, and Treasurer of the Company in April
1992. Prior to that time, Mr. Owen was Director, Treasury and Financial
Services for the Company.Essex. Mr. Owen has been employed by the Company since 1976.
Mr. Woods is the sole shareholderGregory R. Schriefer was appointed Executive Vice President in
October 1996. He was Vice President and presidentGeneral Manager of a corporation
which is the principal manager of a limited liability company that is the
general partner of BHLP. Mr. Woods is the sole shareholder of a
corporation that is the managing general partnerBuilding Wire
Products from September 1995 to October 1996 and was Vice President,
Manufacturing of the partnership which
is the general partner of BCP. He is also the sole shareholder of
corporations which are the managing general partners of the two
partnerships affiliatedWire and Cable Division from April 1994 to September
1995. Mr. Schriefer has been employed in various positions with BHLP and BCP to which the
Company and
Holdings paid the fees described under Item 13 below. Mr. Woods is
President and Chief Executive Officer of BSC, the principal limited
partner of BHLP and BCP. Mr. Woods joined BSC in 1989. For ten years
prior to joining BSC, Mr. Woods was a senior partner of Lazard Freres &
Co., an investment banking firm. He is chairman of Overhead Door
Corporation and Stant Corporation. He is a director of Boise Cascade
Corporation, Freeport-McMoran Inc., McMoran Oil & Gas Co., Freeport-
McMoran Copper & Gold, Inc., Graphic Controls Corporation, Kelly Oil & Gas
Corporation and several private companies. Mr. Woods is also Chairman of
the Board of Directors of Holdings.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The directors of the Company receive no compensation for their
service as directors except for reimbursement of expenses incidental to
attendance at meetings of the Board of Directors.
The following table sets forth the cash and non-cash compensation
paid by or incurred on behalf of the Company to its Chief Executive
Officer and four other most highly compensated executive officers for each
of the three years ended December 31, 1995.
28
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation
Compensation Awards
----------------- ------------
Number of
Securities
Underlying
Options/ All Other
Salary Bonus SARs Compensation
Name and Principal Position Year ($) ($) (#) (1) ($) (2)
--------------------------- ---- ------- ------- ------------ ------------
Stanley C. Craft 1995 310,004 450,000 100,000 27,905
President and 1994 293,763 400,000 150,000 22,174
Chief Executive 1993 278,754 130,000 40,000 12,534
Officer (CEO) (3)
Steven R. Abbott 1995 193,757 250,000 75,000 12,999
President - Wire 1994 182,502 200,000 120,000 8,306
and Cable Division 1993 172,500 72,000 25,000 8,599
Charles W. McGregor 1995 157,503 210,000 65,000 9,684
President - Magnet Wire 1994 132,504 165,000 100,000 7,787
and Insulation Division 1993 103,215 50,000 25,000 8,547
David A. Owen 1995 157,503 185,000 50,000 8,120
Executive Vice President 1994 145,257 165,000 100,000 6,894
and Chief Financial 1993 132,682 53,000 25,000 6,312
Officer (CFO)
Robert J. Faucher 1995 157,503 175,000 50,000 11,356
President - Engineered 1994 149,379 145,000 100,000 8,568
Products Division 1993 141,876 55,000 25,000 6,916
(1) All awards are for options to purchase the number of shares of common
stock of Holdings indicated, provided, however, that the number of
shares for which all options are exercisable and the exercise price
therefor may be reduced by the Board of Directors of Holdings in
accordance with a specified formula. (See "Item 12. Security
Ownership of Certain Beneficial Owners and Management.")
(2) All Other Compensation in 1995 consists of Company contributions to
the defined contribution and deferred compensation plans on behalf of
the executive officer and imputed income on excess Company-paid life
insurance premiums. The following table identifies and quantifies
these amounts for the named executive officers:
29
S.C. Craft S.R. AbbottC.W. McGregor D.A. Owen R.J. Faucher
---------- ------------------------ ---------- ------------
Company matching under the
defined contribution and
deferred compensation plans $22,800 $11,831 $8,089 $7,202 $9,837
Imputed income on excess
life insurance premiums 5,105 1,168 1,595 918 1,519
-------- -------- -------- -------- --------
Total $27,905 $12,999 $9,684 $8,120 $11,356
======== ======== ======== ======== =======
(3) Mr. Craft served as President and Chief Executive Officer of the
Company from October 1992 until February 26, 1996.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term (2)
------------------------------------------------------------------------ ---------------------
Number of
Securities % of Total
Underlying Options/SARs
Options/SARs Granted to Exercise or
Granted Employees in Base Price Expiration
Name (#) (1) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
------------------- ------------- ------------- ------------ ---------- ---------- ----------
Stanley C. Craft 100,000 13.3 2.86 1/01/06 179,711 455,423
Steven R. Abbott 75,000 10.0 2.86 1/01/06 134,783 341,567
Charles W. McGregor 65,000 8.7 2.86 1/01/06 116,812 296,025
David A. Owen 50,000 6.7 2.86 1/01/06 89,856 227,712
Robert J. Faucher 50,000 6.7 2.86 1/01/06 89,856 227,712
(1) In January 1996 options to purchase 750,000 shares of Holdings'
common stock were granted in respect of performance for the year
ended December 31, 1995. All such options become exercisable on
January 1, 1999.
30
(2) The potential realizable value assumes a per-share market price at
the time of the grant to be approximately $2.86 with an assumed rate
of appreciation of 5% and 10%, respectively, compounded annually for
10 years.
The following table details the December 31, 1995 year end estimated
value of each named executive officer's unexercised stock options. All
unexercised options are to purchase the number of shares of common stock
of Holdings indicated, provided, however, that the Board of Directors of
Holdings may require that, in lieu of the exercise of any options, such
options be surrendered without payment of the exercise price, in which
case the number of shares issuable upon exercise of such options shall be
reduced by the quotient of (i) the aggregate exercise price that would
have been otherwise payable divided by (ii) the amount paid for each share
of Holdings' common stock in the Merger (approximately $2.86 per share).
See "Item 12. Security Ownership of Certain Beneficial Owners and
Management."
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
YEAR-END OPTION/SAR VALUES
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-Money
Options/SARs at Options/SARs at
Year-End (#) Year-End ($)
Exercisable(E)/ Exercisable(E)/
Shares Acquired Value Realized Unexercisable Unexercisable
Name on Exercise (#) ($) (U)(1) (U)(2)
------------------- --------------- -------------- --------------- ----------------
Stanley C. Craft - - 583,000(E) 1,078,464(E)
290,000(U) - (U)
Steven R. Abbott - - 273,000(E) 503,367(E)
220,000(U) - (U)
Charles W. McGregor - - 45,500(E) 82,519(E)
190,000(U) - (U)
David A. Owen - - 52,000(E) 93,844(E)
175,000(U) - (U)
Robert J. Faucher - - 145,000(E) 260,598(E)
175,000(U) - (U)
(1) The options to purchase Holdings' common stock granted in 1996, 1995
and 1994 become exercisable three years from the date of grant. All
other options granted prior to those issued in 1994 are currently
exercisable.
31
(2) The estimated value of unexercised in-the-money stock options held at
the end of 1995 assumes a per-share fair market value of
approximately $2.86 and per-share exercise prices of $1.00 and $1.25
as applicable.
Pension Plans. The Company provides benefits under a defined benefit
pension plan (the "Pension Plan") and a supplemental executive retirement
plan (the "SERP"). The following table illustrates the estimated annual
normal retirement benefits at age 65 that will be payable under the
Pension Plan and SERP.
PENSION PLAN TABLE
Years of Service
-----------------------------------------------------------
Remuneration 15 20 25 30 35
------------ -- -- -- -- --
125,000 $ 28,125 $ 37,500 $ 46,875 $ 56,250 $ 65,625
150,000 33,750 45,000 56,250 67,500 78,750
175,000 39,375 52,500 65,625 78,750 91,875
200,000 45,000 60,000 75,000 90,000 105,000
225,000 50,625 67,500 84,375 101,250 118,125
250,000 56,250 75,000 93,750 112,500 131,250
300,000 67,500 90,000 112,500 135,000 157,500
400,000 90,000 120,000 150,000 180,000 210,000
450,000 101,250 135,000 168,750 202,500 236,250
500,000 112,500 150,000 187,500 225,000 262,500
The remuneration utilized in calculating the benefits payable under
the plans is the compensation reported in the Summary Compensation Table
under the captions Salary and Bonus. The formula utilizes the
remuneration for the five consecutive plan years within the ten completed
calendar years preceding the participant's retirement date that produces
the highest final average earnings.
As of December 31, 1995, the years of credited service under the
Pension Plan for each of the executive officers named in the Summary
Compensation Table were as follows: Mr. Craft, twenty-six years and nine
months; Mr. Abbott, twenty-six years and seven months; Mr. Owen, nineteen
years and eight months; Mr. McGregor, twenty-five years and eleven months;
and Mr. Faucher, twenty-three years and six months.
The benefits listed in the Pension Plan Table are based on the
formula in the Pension Plan using a straight-life annuity and are subject
to an offset of 50% of the participant's annual unreduced Primary
Insurance Amount under Social Security. In addition, benefits for
32
credited service for years prior to 1974 are calculated using the formula
in effect at that time and would reflect a lesser benefit than outlined in
the Pension Plan Table for those years. Benefits under the Pension Plan
are also offset by benefits to which the participant is entitled under any
defined benefit plan of UTC (other than accrued benefits transferred to
the Pension Plan).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Abbott, Woods and Lindsay constitute the Compensation
Committee of the Board of Directors of the Company. See footnote (2)
under the caption "Item 12. Security Ownership of Certain Beneficial
Owners and Management" for a description of the relationship between
Messrs. Lindsay and Woods and BHLP and the information set forth under the
caption "Item 13. Certain Relationships and Related Transactions" for a
description of certain transactions between the Company and BCP or BHLP
and between Holdings and BCP or BHLP.
Mr. Lindsay and Mr. Woods are also members of the Compensation
Committee of the Holdings Board of Directors. The other member of such
committee is Mr. Gleberman. Mr. Gleberman is a Partner of Goldman Sachs
The Holdings Compensation Committee fixes the compensation paid to the
Company's executive officers, based in part on the recommendation of Mr.
Abbott. See the information set forth under the caption "Item 13. Certain
Relationships and Related Transactions" for a description of certain
transactions between the Company and DLJ and Goldman Sachs and their
respective affiliates. The Holdings Compensation Committee considers
compensation of executive officers of the Company to the extent it is paid
by or affects Holdings, as is the case when options to purchase Holdings
stock are granted to executive officers of Holdings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the issued and outstanding common stock of the Company is
owned beneficially and of record by Holdings. Holdings has pledged such
stock to the lenders under the Revolving Credit Agreement in support of
its guarantee of the Company's obligations thereunder. In the event of a
default by Holdings of its obligations under such guarantee, the lenders
under the Revolving Credit Agreement could exercise their powers under
such pledge and thereby obtain control of the Company.
The following table sets forth certain information regarding the
beneficial ownership of the common stock of Holdings as of February 29,
1996 by (i) each beneficial owner of more than 5% of the outstanding
common stock of Holdings, (ii) each director of Holdings, (iii) each of
the named executive officers, (iv) all directors and executive officers of
Holdings as a group, and (v) all directors and executive officers of the
Company as a group. Certain beneficial owners of the common stock of
Holdings are parties to an Investors Shareholder Agreement, which provides
restrictions on the transferability of Holdings' common stock and other
matters. The terms of the agreement are summarized in "Investors
Shareholders Agreement" under this caption.
33
Number of Shares Percentage Ownership
of Common Stock of Common Stock(1)
------------------------------------- -------------------------
Sole Shared Sole Shared
Voting Voting Voting Voting Com-
Name and Address Power Power Combined Power Power bined
---------------- --------- ----------- ---------- ------ ------ -----
Bessemer Holdings, 24,496,331 6,384,848(3) 30,881,179 69.4% 16.3%(3) 79.0%
L.P.(2)
630 Fifth Avenue
New York, NY 10111
GS Capital Partners, 6,615,448 - 6,615,448 17.6 - 17.6
L.P.(4)
85 Broad Street
New York, NY 10004
DLJ International 5,487,925 - 5,487,925 14.2 - 14.2
Partners, C.V.(5)
140 Broadway
New York, NY 10005
Steven R. Abbott(6) - 543,000 543,000 - 1.5 1.5
1601 Wall Street
Fort Wayne, IN 46802
Robert J. Faucher(7) - 307,977 307,977 - 0.9 0.9
1601 Wall Street
Fort Wayne, IN 46802
David A. Owen(8) - 106,828 106,828 - 0.3 0.3
1601 Wall Street
Fort Wayne, IN 46802
Charles W. McGregor(9) - 62,246 62,246 - 0.2 0.2
1601 Wall Street
Fort Wayne, IN 46802
All directors and - 30,881,179 30,881,179 - 79.0 79.0
officers of Holdings
as a group
(6 persons)(10)
All directors and - 30,881,179 30,881,179 - 79.0 79.0
officers of the
Company as a group
(6 persons)(11)
(1) Percentages have been calculated assuming, in the case of each person
or group listed, the exercise of all warrants and options owned
(which are exercisable within sixty days following February 29, 1996)
by each such person or group, respectively, but not the exercise of
any warrants or options owned by any other person or group listed.
34
(2) BHLP is a limited partnership the only activity of which is to make
private structured investments. The primary limited partner of BHLP
is BSC, a corporation owned by trusts whose beneficiaries are
descendants of Henry Phipps and charitable trusts established by such
descendants. Each of Messrs. Woods and Lindsay, directors of
Holdings, and Mr. Michael B. Rothfeld, is a sole shareholder of a
corporation which is a manager of the limited liability company which
is the sole general partner of BHLP. In addition, each of Messrs.
Woods, Lindsay and Rothfeld are the sole shareholders of corporations
which are the general partners of each of the partnerships affiliated
with BHLP and BCP, respectively, to which the Company and Holdings
paid the fees described under Item 13 below. Mr. Woods is the
President and Chief Executive Officer of BSC. Each of Messrs. Woods,
Lindsay and Rothfeld disclaim beneficial ownership of the shares of
common stock of Holdings owned or controlled by BHLP.
(3) Consists of (a) all shares of common stock owned by executive
officers, employees, former employees and retirees of the Company and
its subsidiaries, or their respective estates (a total of 2,635,498
shares), which shares are subject to a proxy held by BHLP which
provides that BHLP may vote such shares on all matters presented to
stockholders other than (i) the sale or merger of Holdings or the
Company; (ii) any amendment to the certificate of incorporation of
Holdings which would adversely affect the terms of the common stock
and (iii) the election of directors in the event that BHLP does not
include at least one member of management of the Company in its
nominees for directors of Holdings and (b) all shares of common stock
issuable upon exercise of options held by executive officers,
employees and retirees of the Company and its subsidiaries, or their
respective estates (a total of 3,749,350 shares). Pursuant to the
terms of the applicable options agreements, the aggregate number of
shares issuable upon exercise of such options can be reduced. All
shares issuable upon exercise of the foregoing options are subject to
the proxy held by BHLP.
(4) Held by GS Capital Partners, L.P. (an affiliate of Goldman Sachs) and
certain of its affiliates, and includes 2,241,103 shares issuable
upon exercise of warrants.
(5) Includes 3,425,635 shares issuable upon exercise of warrants held by
affiliates and employees of DLJ.
(6) Includes 273,000 shares issuable upon exercise of options held by Mr.
Abbott which, pursuant to the applicable option agreement, may be
reduced to 176,152 shares. All shares owned by Mr. Abbott and all
shares issuable to Mr. Abbott upon exercise of options are subject to
the proxy described in footnote (3) above.
(7) Includes 145,000 shares issuable upon exercise of options held by Mr.
Faucher which, pursuant to the applicable option agreement, may be
reduced to 91,196 shares. All shares owned by Mr. Faucher and all
shares issuable to Mr. Faucher upon exercise of options are subject
to the proxy described in footnote (3) above.
35
(8) Includes 52,000 shares issuable upon exercise of options held by Mr.
Owen which, pursuant to the applicable option agreement, may be
reduced to 32,840 shares. All shares owned by Mr. Owen and all
shares issuable to Mr. Owen upon exercise of options are subject to
the proxy described in footnote (3) above.
(9) Includes 45,500 shares issuable upon exercise of options held by Mr.
McGregor which, pursuant to the applicable option agreement, may be
reduced to 28,877 shares. All shares owned by Mr. McGregor and all
shares issuable to Mr. McGregor upon exercise of options are subject
to the proxy described in footnote (3) above.
(10) Consists of (a) the 24,496,331 shares of common stock owned by BHLP,
which, together with the shares described in (b), (c) and (d) below,
may be deemed to be beneficially owned by Messrs. Woods and Lindsay
(which beneficial ownership is disclaimed by Messrs. Woods and
Lindsay see footnote (2) above), (b) 324,828 shares of common stock
owned by the executive officers of Holdings included in this group,
(c) 325,000 shares issuable to the executive officers of Holdings
included in this group upon exercise of options which, pursuant to
the applicable option agreements, may be reduced and (d) 2,310,670
shares of common stock and 3,424,350 shares of common stock issuable
upon exercise of options (also subject to reduction) owned by other
employees, former employees and retirees of the Company and its
subsidiaries, or their respective estates. All shares described in
(b), (c) and (d) are subject to the proxy described in footnote (3)
above.
(11) Consists of (a) 24,496,331 shares of common stock owned by BHLP,
which, together with the shares described in (b), (c) and (d) below,
may be deemed to be beneficially owned by Messrs. Woods and Lindsay
(which beneficial ownership is disclaimed by Messrs. Woods and
Lindsay see footnote (2) above), (b) 504,551 shares of common stock
owned by the other directors and executive officers of the Company
included in this group, (c) 515,500 shares issuable to the other
directors and executive officers of the Company included in this
group upon exercise of options which, pursuant to the applicable
option agreements, may be reduced and (d) 2,130,947 shares of common
stock and 3,233,850 shares of common stock issuable upon exercise of
options (also subject to reduction) owned by other employees, former
employees and retirees of the Company and its subsidiaries, or their
respective estates. All shares described in (b), (c) and (d) are
subject to the proxy described in footnote (3) above.
MANAGEMENT STOCKHOLDER AGREEMENTS
The members of the Company's management who are stockholders of
Holdings (each a "Management Stockholder") are parties to various
agreements pertaining to their ownership of Holdings' common stock and
options therefor. Set forth below is a summary of certain provisions of
these agreements, each of which is filed as an exhibit to this Annual
Report. Capitalized terms set forth below and not otherwise defined have
the meanings assigned thereto in the relevant agreements.
Management Stockholders and Registration Rights Agreement. The
Management Stockholders and Registration Rights Agreements generally
prohibit Management Stockholders from transferring shares of common stock
of Holdings owned by them before the earlier of (i) an initial public
36
offering by Holdings (or any successor thereto) (an "IPO") and (ii)
October 9, 1996. Thereafter, if any Management Stockholder receives a
bona fide offer to purchase any of his common stock, such Management
Stockholder may transfer such common stock only after offering such common
stock first to Holdings and then, if not accepted by Holdings, to BHLP, in
each case on the same terms and conditions as such bona fide offer.
Any Management Stockholder who retires from the Company, dies or
becomes disabled prior to the earlier of (i) an IPO and (ii) October 9,
1996, will have a "put right" for 90 days (180 days in case of death) by
which he, or his estate may require Holdings to repurchase all his shares
of common stock of Holdings at a price equal, at the option of Holdings,
to (i) the higher of (x) the last price paid by BHLP, Holdings or a
Management Stockholder for shares of common stock of Holdings and (y)
approximately $2.86 per share or (ii) the fair market value of the shares
of common stock of Holdings as determined by an independent appraiser or
investment banking firm selected by the Board of Directors of Holdings
(the value determined pursuant to clause (i) or (ii) being the "Fair
Market Value"). Holdings will be required to repurchase such shares at
such price, unless such repurchase would violate any applicable law or
regulation or any agreement pursuant to which Holdings incurred any debt,
in which case Holdings may defer such repurchase until such repurchase
would no longer result in any such violation. Holdings will have a "call
right" for 365 days by which it can repurchase, at Fair Market Value, any
or all of the shares of common stock of Holdings belonging to the
Management Stockholder or his estate if, prior to the earlier of (i) an
IPO and (ii) October 9, 1996, the Management Stockholder's employment is
terminated for any reason, whether due to his retirement, resignation,
death, disability or otherwise. Under certain circumstances, Holdings may
pay the purchase price of any common stock of Holdings repurchased from a
Management Stockholder pursuant to the put rights and call rights
described above by delivery of a subordinated note.
Management Stockholders also have certain "piggyback" registration
rights in the event that Holdings registers shares of its common stock for
sale under the Securities Act of 1933.
Stock Option Plan. Grants of options to purchase common stock of
Holdings have been made to management and employees of the Company
pursuant to, and are subject to the provisions of, an Amended and Restated
Stock Option Plan and individual stock option agreements. According to
the terms of the foregoing plan and form of agreement, any options granted
in the future thereunder will become exercisable upon the occurrence of:
(i) the passage of 3 years; (ii) the death, retirement or disability of
the optionee; (iii) a Company Sale (which shall be deemed to have occurred
if any person becomes the beneficial owner of 50% or more of the combined
voting power of Holdings' securities or acquires substantially all the
assets of Holdings or the Company), in proportion to the percentage of
Holdings' common stock sold; or(iv) the sale by BHLP (as successor in
interest to BCP) of 25% or more of the then outstanding common stock of
Holdings, in each case in proportion to the percentage of Holdings stock
sold by BHLP. Such options are generally not transferable. Options owned
by Management Stockholders are subject to the same put rights and call
rights applicable to shares of common stock owned by Management
Stockholders.
Holdings may require that an option be surrendered and cancelled
without payment of the exercise price. In this event, the optionee is
37
entitled to receive a number of shares of Holdings' common stock equal to
the number specified in the grant, reduced by the quotient of the
aggregate exercise price otherwise payable and the fair market value per
share as of October 9, 1992.
INVESTORS SHAREHOLDERS AGREEMENT
Set forth below is a summary of certain terms of the Investors
Shareholders Agreement among Holdings, BHLP (as successor in interest to
BCP), affiliates of DLJ, affiliates of Goldman Sachs and CEA. Capitalized
terms used below and not otherwise defined have the meaning assigned
thereto in the Investors Shareholders Agreement.
Holdings, BHLP, certain affiliates of DLJ, certain affiliates of
Goldman Sachs and CEA (collectively, the "Investor Shareholders") are
parties to an Investors Shareholders Agreement that provides restrictions
on the transferability of Holdings' common stock and other matters,
certain of which are summarized below.
Board of Directors. The Investors Shareholders Agreement provides
that the Board of Directors of Holdings shall consist of seven directors.
BHLP has the right to nominate five directors, at least one of whom will
be a member of all committees of the Board of Directors of Holdings and at
least one of whom will be a member of the management of the Company. The
Board of Directors of Holdings currently includes four BHLP nominees,
including Mr. Steven R. Abbott, Chief Executive Officer of the Company and
Holdings. Similarly, so long as affiliates of DLJ and affiliates of
Goldman Sachs hold at least a specified minimum percentage of the shares
of common stock of Holdings and Series A Preferred Stock originally
purchased by them (and under certain other limited circumstances), the
affiliates of DLJ have the right to nominate one director and the
affiliates of Goldman Sachs have the right to nominate one director, each
of whom will be a member of all of Holdings' Board Committees. However,
following the consummation of a private placement of the Series A
Preferred Stock on June 5, 1995, DLJ no longer holds the minimum number of
shares specified by the Investors Shareholders Agreement and is no longer
entitled to nominate a director.
Each of the Investor Shareholders is required to vote all of its
voting shares in favor of the directors so nominated. If any vacancy is
created on the Board of Directors of Holdings, it will be filled in
accordance with the foregoing nomination procedures.
Significant Business Decisions. The Investors Shareholders Agreement
provides that certain specified significant transactions require approval
of the Holdings Board of Directors. In addition, amendments to Holdings'
Certificate of Incorporation and By-laws that adversely affect the terms
of the common stock, amendments to the Investors Shareholders Agreement,
certain significant acquisitions, dispositions, the incurrence of debt
beyond specified amounts and certain transactions with affiliates require,
in addition to the approval of a majority of the Board of Directors of
Holdings, the approval of at least one BHLP-nominated director and, so
long as the affiliates of DLJ or the affiliates of Goldman Sachs hold at
least a specified minimum investment in Holdings, one director nominated
by the affiliates of DLJ or by the affiliates of Goldman Sachs. DLJ no
longer holds the specified minimum investment in Holdings.
38
Other Rights. The Investors Shareholders Agreement also includes
various rights of first offer, tag-along and pre-emptive rights among the
Investor Shareholders. Holdings and the Investor Shareholders are also
parties to registration rights agreements relating to Holdings' common
stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incurred advisory fees of approximately $1.0 million for
each year during the three year period ending December 31, 1995, payable
to affiliates of BHLP and BCP. Pursuant to an advisory services agreement
among Holdings, the Company and an affiliate of BHLP, the Company agreed
to pay such affiliate an annual advisory fee of $1.0 million. See
footnote (2) under "Item 12. Security Ownership of Certain Beneficial
Owners and Management" for a description of the relationship of Messrs.
Woods and Lindsay, directors of both Holdings and the Company, with such
BHLP affiliate.
Pursuant to an engagement letter dated July 22, 1992 among BCP, BE
and DLJ, as amended by a letter agreement dated October 9, 1992 among BCP,
BE, DLJ and Goldman Sachs (collectively, the "Engagement Letter"), DLJ and
Goldman Sachs were given the right, but not the obligation, subject to
certain conditions, to act as financial advisor to the Company and
Holdings until the fifth anniversary of the Acquisition on a co-exclusive
basis in connection with all acquisition, divestiture and other financial
advisory assignments relating to Holdings or the Company and to act as co-
exclusive managing placement agents or co-exclusive managing underwriters
in connection with any debt or equity financing which is either privately
placed or publicly offered (excluding commercial bank debt or other senior
debt which is privately placed other than any private placement which
contemplates a registration of, registered exchange offer for, or similar
registration with respect to such securities). In connection with any
other senior debt financing which is privately placed (excluding any
private placement of senior debt which contemplates a registration,
registered exchange offer for, or similar registration with respect to
such securities), DLJ has the right, but not the obligation, to act as co-
managing placement agent or co-managing underwriter, together only with
Chemical Bank. Holdings has retained the right to designate DLJ or
Chemical Bank as lead placement agent or lead managing underwriter.
However, DLJ no longer has the right to act as financial advisor to the
Company and Holdings under the engagement letter because it no longer
holds a specified minimum investment in Holdings.
Pursuant to such engagement, DLJ and Goldman Sachs acted as
underwriters in the offerings of the Senior Notes, and in such capacity
received aggregate underwriting discounts and commissions of $5.3 million.
For any further services performed by DLJ or Goldman Sachs pursuant to the
Engagement Letter, DLJ and Goldman Sachs are entitled to fees competitive
with those customarily charged by DLJ, Goldman Sachs and other major
investment banks in similar transactions and to customary out of pocket
fee and expense reimbursement and indemnification and contribution
agreements.
39since 1981.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements listed under Item 8 are filed
as a part of this report.
2. Financial Statement Schedules
The financial statement schedules listed under Item 8
are filed as a part of this report.
3. Exhibits
The exhibits listed on the accompanying Index to
Exhibits are filed as a part of this report.
(b) No reportsReports on Form 8-K were filed by the Company during the
fourth quarter of 1995.
408-K:
None.
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.
ESSEX GROUP, INC.
Date (Registrant)
March 8, 1996, 1998 By /s/ David A. Owen
------------- --------------------------------------- -------------- ------------------------------------
David A. Owen
Executive Vice President and
Chief Financial Officer; Director
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Date
March 8, 1996, 1998 /s/ Steven R. Abbott
- -------------- ---------------------------------------------------------------------------
Steven R. Abbott
President and Chief Executive Officer;
Director
(Principal Executive Officer)
March 8, 1996, 1998 /s/ David A. Owen
- -------------- --------------------------------------
David A. Owen
Executive Vice President,
Chief Financial Officer; Director
(Principal Financial Officer)
March 8, 1996, 1998 /s/ Robert J. Faucher
- -------------- --------------------------------------
Robert J. Faucher
Director
March 8, 1996 /s/ Charles W. McGregor
-------------- --------------------------------------
Charles W. McGregor
Director
March 8, 1996 /s/ Robert D. Lindsay
-------------- ---------------------------------------
Robert D. Lindsay
Director
March 8, 1996 /s/ Ward W. Woods, Jr.
-------------- --------------------------------------
Ward W. Woods, Jr.
Director
41
March 8, 1996, 1998 /s/ James D. Rice
- -------------- --------------------------------------
James D. Rice
Senior Vice President,
Corporate Controller
(Principal Accounting Officer)
42
ESSEX GROUP, INC.
INDEX OF EXHIBITS
(Item 14(a)(3))
Exhibit
No. Description
- --------------------------------------------------------------------------
2.012.01- Agreement and Plan of Merger, dated as of July 24, 1992, (the
"Merger Agreement"), between
B E Acquisition Corporation and BCP/Essex Holdings Inc.the Registrant (then known as
MS/Essex Holdings Inc.), incorporated by reference to Exhibit 2.1
to BCP/Essex Holdings
Inc.'s (then known as MS/Essex Holdings Inc.)the Registrant's Current Report on Form 8-K, filed with the
Securities and Exchange Commission (the "Commission") on August 10,
1992 (Commission File No. 1-10211).
2.02
2.02- Amendment dated as of October 1, 1992, to the Agreement and Plan of
Merger between B E Acquisition Corporation and BCP/Essex
Holdings Inc. (then known as MS/Essex Holdings Inc.),the Registrant,
incorporated by reference to Exhibit 2.2 to BCP/Essex Holdings Inc.'sthe Registrant's
Current Report on Form 8-K, filed with the Securities and Exchange
Commission on October
26, 1992 (Commission File No. 1-10211).
3.01
3.01- Certificate of Incorporation of the registrantRegistrant (Incorporated by
reference to Exhibit 3.01 to the Company'sRegistrant's Registration
Statement on Form S-1, File No. 33-20825).
3.02
3.02- By-Laws of the registrant,Registrant, as amended. (Incorporated by reference
to Exhibit 3.02 to the Company'sRegistrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991).
4.01
4.01- Indenture dated as of May 7, 1993, among Essex Group, Inc. and NBD
Bank, National Association, as Trustee, under which the 10% Senior
Notes Due 2003 are outstanding, incorporated by reference to
Exhibit 4.1 to the Company'sEssex Registration Statement on Pre-Effective
Amendment No. 1 to Form S-2 (Commission File No. 33-59488).
9.01 Investors Shareholders
4.02- Credit Agreement dated as of October 9, 1992,
among B E Acquisition Corporation, Bessemer Capital Partners,
L.P., certain affiliates of Donaldson, Lufkin & Jenrette,31, 1996, between BCP/Essex
Holdings Inc., certain affiliates of Goldman, Sachs & Co.,the Registrant, the lenders named therein and Chemical Equity
Associates, a California Limited Partnership,The
Chase Manhattan Bank, as administrative agent, incorporated by
reference to Exhibit 28.110.1 to BCP/Essex Holdings Inc.'s Currentthe Registrant's Quarterly Report on
Form 8-K,10-Q, filed with the Securities and Exchange
Commission on October 26, 1992November 13, 1996
(Commission File No. 1-10211).
9.021-7418)
4.03- Amended and Restated Credit Agreement, dated as of October 31,
1996, among Essex International, the Registrant, the lenders named
therein and The Chase Manhattan Bank, as administrative agent,
incorporated by reference to Exhibit 4.5 to Amendment No. 2 of
Essex International's Registration Statement on Form S-1, filed
with the Commission on April 10, 1997 (Commission File No.
333-22043)
4.04- Agreement and Lease dated as of April 12, 1995, between Mellon
Leasing Corporation and the Registrant, incorporated by reference
to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q,
filed with the Commission on May 12, 1995
ESSEX GROUP, INC.
INDEX OF EXHIBITS
(Item 14(a)(3))
Exhibit
No. Description
- --------------------------------------------------------------------------
4.05- Amendment No. 1 dated as of June 1, 1997 to the Agreement and Lease
dated as of April 12, 1995, between Mellon Leasing Corporation and
the Registrant, incorporated by reference to Exhibit 4.9 to the
Registrant's Quarterly Report on Form 10-Q, filed with the
Commission on November 7, 1997 (Commission File No. 1-7418)
4.06- Amendment No. 2 dated as of September 2, 1997 to the Agreement and
Lease dated as of April 12, 1995, between Mellon Leasing
Corporation and the Registrant, incorporated by reference to
Exhibit 4.10 to the Registrant's Quarterly Report on Form 10-Q,
filed with the Commission on November 7, 1997 (Commission File
No. 1-7418)
9.01- Management Stockholders and Registration Rights Agreement dated as
of October 9, 1992, among B E Acquisition Corporation, Bessemer
Capital Partners, L.P. and certain employees of the registrantRegistrant and
its subsidiaries, incorporated by reference to Exhibit 28.3 to
BCP/Essex Holdings Inc.'s Current Report on Form 8-K, filed with
the Securities and Exchange Commission on October 26, 1992 (Commission File No. 1-10211).
9.03 Form of Irrevocable Proxy dated as of October 9, 1992, granted to
Bessemer Capital Partners, L.P. by certain employees of the
registrant and its subsidiaries, incorporated by reference to
Exhibit 28.4 to BCP/Essex Holdings Inc.'s Current Report on Form
8-K, filed with the Securities and Exchange Commission on October
26, 1992 (Commission File No. 1-10211).
10.01 Engagement Letter dated July 22, 1992 among Bessemer Capital
Partners, L.P., B E Acquisition Corporation, and Donaldson, Lufkin
& Jenrette, Inc., incorporated by reference to Exhibit 10.10 to
registrant's Annual Report on Form 10-K for the year ended
December 31, 1992 (Commission File No. 1-7418).
43
10.02 Amendment dated October 9, 1992 among Bessemer Capital Partners,
L.P., B E Acquisition Corporation, Donaldson, Lufkin & Jenrette,
Inc. and Goldman, Sachs and Co., to Engagement Letter dated July
22, 1992 among Bessemer Capital Partners, L.P., B E Acquisition
Corporation and Donaldson, Lufkin & Jenrette, Inc., incorporated
by reference to Exhibit 10.11 to registrant's Annual Report on
Form 10-K for the year ended December 31, 1992 (Commission File
No. 1-7418).
10.03
10.01- Advisory Services Agreement dated as of December 15, 1992, among
Bessemer Capital Partners, L.P., BCP/Essex Holdings Inc. and the
registrant and Essex Group,
Inc.Registrant incorporated by reference to Exhibit 10.15 to the
registrant'sBCP/Essex
Holdings Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 (Commission File No. 1-7418).
10.04 Credit Agreement dated as of April 12, 1995, among the registrant,
Essex, the lenders named therein and Chemical Bank, as agent,
incorporated by reference to Exhibit 10.1 to the registrant's
Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on May 12, 1995.
10.05 Senior Unsecured Note Agreement dated as of April 12, 1995, among
the registrant, as guarantor, Essex, the lenders named therein and
Chemical Bank, as administrative agent, incorporated by reference
to Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q,
filed with the Securities and Exchange Commission on May 12, 1995.
10.06 Agreement and Lease dated as of April 12, 1995, between Mellon
Financial Services Corporation #3 and Essex, incorporated by
reference to Exhibit 10.3 to the registrant's Quarterly Report on
Form 10-Q, filed with the Securities and Exchange Commission on
May 12, 1995.
10.07 First Amendment dated May 16, 1995 among the registrant, Essex,
the lenders named therein and Chemical Bank, as agent, to the
Credit Agreement dated April 12, 1995, among the registrant,
Essex, the lenders named therein and Chemical Bank, as agent
(Commission File No. 33-93232).
10.08 Form of Indenture for 15% Junior Subordinated Exchange Debentures
due September 30, 2004 (Commission File No. 33-93232).
12.01 Computation of Ratio of Earnings to Fixed Charges.
21.01 Subsidiaries of the registrant.
99.01 Registration Rights Agreement dated as of October 9, 1992, among
B E Acquisition Corporation, certain affiliates of Donaldson,
Lufkin & Jenrette, Inc., certain affiliates of Goldman, Sachs &
Co., and Chemical Equity Associates, A California Limited
Partnership, incorporated by reference to Exhibit 28.2 to
BCP/Essex Holdings Inc.'s Current Report on Form 8-K, filed with
the Securities and Exchange Commission on October 26, 1992
(Commission File No. 1-10211).
99.02
10.02- Amended and Restated Stock Option Plan ("Stock Option Plan"), of
BCP/Essex Holdings Inc., incorporated by reference to Exhibit 4.7
to BCP/Essex Holdings Inc.'s Current Report on Form 8-K, filed with
the Securities and
Exchange Commission on October 26, 1992 (Commission File No. 1-
10211).
99.031-10211)
10.03- Amendment No. 1 dated as of June 5, 1995 to the 1992 Registration
Rights AgreementStock Option Plan, incorporated by reference
to Exhibit 99.04 to BCP/Essex Holdings Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1996, filed with the
Commission on February 19, 1997 (Commission File No. 33-93232).
99.041-10211)
10.04- Amendment No. 2 to the Stock Option Plan, incorporated by reference
to Exhibit 10.10 to Essex International Inc.'s Registration
Rights Agreement betweenStatement on Form S-1, filed with the Company and Donaldson,
Lufkin & Jenrette Securities Corporation and Goldman, Sachs & Co.
dated as of June 5, 1995Commission on August 14, 1997
(Commission File No. 33-93232).
44333-33591)
21.01- Subsidiaries of the Registrant
27.01- Financial Data Statement - December 31, 1997
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Essex Group, Inc.
We have audited the accompanying consolidated balance sheets of Essex
Group, Inc. as of December 31, 19951997 and 19941996 and the related consolidated
statements of operationsincome and cash flows for each of the three years in the
period ended December 31, 1995.1997. Our audits also included the financial
statement scheduleschedules listed in the Index at Item 14 (a)14(a). These financial
statements and scheduleschedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and scheduleschedules 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
Essex Group, Inc. at December 31, 19951997 and 19941996 and the consolidated
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995,1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related
financial statement schedule,schedules, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Indianapolis, Indiana ERNST & YOUNG LLP
Indianapolis, Indiana
January 26, 1996
F-127, 1998
ESSEX GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
December 31,
---------------------------
In Thousands of Dollars, Except Per Share Data 1995 1994
--------------------------------------------------------------------------------------------------------------
1996 1997
-------- --------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . $ 3,157 $16,8942,899 $ 2,832
Accounts receivable (net of
allowance of $3,930$5,239 and $3,537) . . . . . . . . . . . . . . . . . 154,584 144,595$5,583) 189,717 191,737
Inventories . . . . . . . . . . . . . . . . . . . . . 166,076 145,706217,643 233,020
Other current assets . . . . . . . . . . . . . . . . . 8,988 20,496
-------- --------12,147 14,077
------- -------
Total current assets . . . . . . . . . . . . . 332,805 327,691422,406 441,666
Property, plant and equipment, net . . . . . . . . . . . 270,546 276,134280,489 287,832
Excess of cost over net assets
acquired (net of accumulated
amortization of $13,221$17,388 and
$9,145) . . . . 129,943 133,100$21,610) 126,619 123,222
Other intangible assets and deferred
costs (net of accumulated
amortization of $3,102$4,501 and $5,146) . . . . . . . . . . . . . . . . . . . . . . 9,187 11,563$4,103) 7,417 5,478
Other assets . . . . . . . . . . . . . . . . . . . . . . 1,987 1,812
-------- --------
$744,468 $750,300
======== ========4,294 4,468
------- -------
$841,225 $862,666
======= =======
See Notes to Consolidated Financial Statements
F-2
ESSEX GROUP, INC.
CONSOLIDATED BALANCE SHEETS - continued
December 31,
---------------------------
InContinued
(In Thousands of Dollars, Except Per Share Data 1995 1994
--------------------------------------------------------------------------------------Data)
December 31,
------------------------
1996 1997
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank . . . . . . . . . . . . . . . . $11,760 -banks $ 30,913 $ 34,752
Current portion of long-term debt . . . . . . . . . . 24,734 -11,576 2,500
Accounts payable . . . . . . . . . . . . . . . . . . . $66,797 $47,42171,243 63,845
Accrued liabilities . . . . . . . . . . . . . . . . . 45,864 45,82163,313 69,271
Deferred income taxes . . . . . . . . . . . . . . . . 15,345 10,40815,151 15,796
Due to Holdings . . . . . . . . . . . . . . . . . . . 384 32,979
-------- --------Essex International 5,153 8,759
------- -------
Total current liabilities . . . . . . . . . . . 164,884 136,629198,349 194,923
Long-term debt . . . . . . . . . . . . . . . . . . . . . 388,016 200,000421,340 316,250
Due to Essex International - 46,241
Deferred income taxes . . . . . . . . . . . . . . . . . . 66,809 72,77158,043 54,438
Other long-term liabilities . . . . . . . . . . . . . . . 10,081 6,99712,427 15,650
Stockholder's equity:
Common stock, par value $.01 per
share; 1,000 shares authorized;
100 shares issued and outstanding;
plus additional paid inpaid-in capital . . . . . . . . . . . . . 104,036 302,784104,036
Retained earnings . . . . . . . . . . . . . . . . . . 10,642 31,119
-------- --------47,030 131,128
------- -------
Total stockholder's equity . . . . . . . . . . 114,678 333,903
-------- --------
$744,468 $750,300
======== ========151,066 235,164
------- -------
$841,225 $862,666
======= =======
See Notes to Consolidated Financial Statements
F-3
ESSEX GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONSINCOME
(In Thousands of Dollars)
YearYears Ended
December 31,
---------------------------------------
In Thousands of Dollars-------------------------------------
1995 1994 1993
--------------------------------------------------------------------------------1996 1997
-------- -------- --------
REVENUES:
Net sales $1,201,650 $1,010,075 $868,846
Interest income 409 246 265
Other income 1,531 1,553 1,724
---------- --------- --------
1,203,590 1,011,874 870,835
---------- --------- --------
COSTS AND EXPENSES:$1,332,049 $1,701,329
Cost of goods sold 1,030,511 846,611 745,8751,102,460 1,370,232
Selling and administrative
expenses 93,250 85,129 75,489120,885 154,103
Other expense (income), net 1,032 2,151 (515)
--------- --------- ---------
Income from operations 76,857 106,553 177,509
Interest expense 34,683 24,554 25,241
Other expense 2,972 2,709 1,80139,994 37,711
--------- -------- --------
1,161,416 959,003 848,406
---------- -------- ----------------- ---------
Income before income
taxes and extraordinary charge 42,174 52,871 22,42966,559 139,798
Provision for income taxes 19,680 22,700 13,052
---------- -------- --------28,988 55,700
--------- --------- ---------
Income before
extraordinary charge 22,494 30,171 9,37737,571 84,098
Extraordinary charge - debt
retirement, net of income
tax benefit 2,971 1,183 -
3,367
---------- -------- ----------------- --------- ---------
Net income $19,523 $30,171 $ 6,010
========== ======== ========
19,523 $ 36,388 $ 84,098
========= ========= =========
See Notes to Consolidated Financial Statements
F-4
ESSEX GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
YearYears Ended
December 31,
------------------------------------------
In Thousands of Dollars---------------------------------------
1995 1994 1993
--------------------------------------------------------------------------1996 1997
-------- -------- ---------
OPERATING ACTIVITIES
Net income $19,523 $30,171 $6,010$ 19,523 $ 36,388 $ 84,098
Adjustments to reconcile
net income to cash provided
by operating activities:
Depreciation and
amortization 34,205 31,420 29,87933,944 34,275
Non cash interest
expense 1,990 2,630 4,9681,935 1,789
Non cash pension
expense 1,947 2,328 2,1243,021 2,834
Provision for losses
on accounts receivable 676 1,332 8501,175 1,037
Benefit for deferred
income taxes (1,025) (8,964) (622)(7,417) (2,960)
Loss on disposal of
property, plant and
equipment 2,610 1,354 4361,679 1,710
Loss on repurchase of debt 4,951 1,971 - 5,519
Changes in operating
assets and liabilities:
Increase(Increase) decrease
in accounts receivable (10,665) (27,160) (5,314)6,288 (3,057)
(Increase) decrease
in inventories 3,762 (4,515) (5,659)(16,109) (15,377)
Increase (decrease)
in accounts payable
and accrued liabilities 18,901 4,575 (720)6,164 (3,600)
Net (increase) decrease
in other assets
and liabilities 11,378 (10,725) 4,908(6,319) (452)
Increase (decrease) in
due to HoldingsEssex International (32,595) 14,616 18,2884,769 3,606
-------- -------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 55,658 37,062 60,667
-------- -------- --------67,489 103,903
======= ======== ========
See Notes to Consolidated Financial Statements
F-5
ESSEX GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS Year- Continued
(In Thousands of Dollars, Except Per Share Data)
Years Ended
December 31,
-----------------------------------------
In Thousands of Dollars-------------------------------------
1995 1994 1993
--------------------------------------------------------------------------1996 1997
-------- -------- --------
INVESTING ACTIVITIES
Additions to property,
plant and equipment (28,555) (30,109) (26,167)(25,569) (42,141)
Proceeds from disposal
of property, plant and
equipment 2,419 227 352533 3,619
Acquisitions and other(24,934) (79,395) -
Other investments (25,393) (236) (4,970)(459) (285) (1,362)
Issuance of equity
interest in a subsidiary 1,063 - -
-------- -------- --------
NET CASH USED FOR
INVESTING ACTIVITIES (50,466) (30,118) (30,785)(104,716) (39,884)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from senior notes - - 200,000
Proceeds from long termlong-term debt 428,390 106,000 188,900
Repayments493,900 348,600
Repayment of long termlong-term debt (215,640) (106,396) (320,400)(473,734) (462,766)
Proceeds from notes payable
to banks 160,030 - -
Repayments from537,550 765,846
Repayment of notes payable
to banks (148,270) - -
Repurchase of 12 3/8% senior
subordinated debentures - - (89,983)(518,397) (762,007)
Dividends paid to HoldingsEssex
International (238,748) - -
Debt issuance costs (4,691) (2,350) -
(7,086)Intercompany transfer from
Essex International - - 46,241
-------- -------- --------
NET CASH USED FORPROVIDED BY
(USED FOR) FINANCING
ACTIVITIES (18,929) (396) (28,569)36,969 (64,086)
-------- -------- ---------------
NET INCREASE (DECREASE)DECREASE IN CASH AND
CASH EQUIVALENTS (13,737) 6,548 1,313(258) (67)
Cash and cash equivalents
at beginning of year 16,894 10,346 9,0333,157 2,899
-------- -------- --------
Cash and cash equivalents
at end of year $ 3,157 $16,894 $10,346$ 2,899 $ 2,832
======== ======== ========
See Notes to Consolidated Financial Statements
F-6
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In Thousands of Dollars
- -----------------------
NOTE 1 ACQUISITIONORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ACQUISITION OF THE COMPANY AND HOLDINGS
OnORGANIZATION
In February 29, 1988, BCP/Essex Holdings Inc. (successor in interest to
MS/Essex Holdings Inc. ("Predecessor" or
"Holdings"Essex International"), acquired Essex Group, Inc.
(the "Company"("the Company") from United Technologies Corporation ("UTC") (the "1988
Acquisition").
The
outstanding common stock of Holdings was beneficially owned by the Morgan
Stanley Leveraged Equity Fund II, L.P., certain directors and members of
management of Holdings and the Company, and others.
OnIn October 9, 1992, HoldingsEssex International was acquired (the "Acquisition")
by merger (the "Merger") of B E Acquisition Corporation ("BE") with and into
Holdings with Holdings surviving under the name BCP/Essex Holdings Inc.
("Successor" or "Holdings"). BE was a newly organized Delaware
corporation formed for the purpose of effecting the Acquisition.
Shareholders of BE included Bessemer Holdings, L.P. ("BHLP") (an affiliate and successor in
interest to Bessemer Capital Partners, L.P. ["BCP"])
("BHLP"), affiliates of Goldman, Sachs & Co. ("Goldman Sachs"), affiliates
of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Chemical
Equity Associates, A California Limited Partnershipcertain present and members of
management and otherformer
employees of the Company. As a result of the Merger,
the stockholders of BE became stockholders of Holdings.Company and other investors. The effects of the
Acquisition and Merger resulted in a new basis of accounting reflecting estimated
fair values for assets and liabilities as of October 1, 1992. However, to
the extent that Holdings'Essex International's management had a continuing
investment interest in Holdings'Essex International's common stock, such fair
values (andand contributed stockholders' equity)equity were reduced proportionately
to reflect the continuing interest (approximately 10%) at the prior
historical cost basis.
In connection with Essex International's initial public offering (the
"Offering") on May 1, 1997, Essex International's name was changed from
BCP/Essex Holdings is a holding company with no operations and has virtually no
assets other than its ownership of all the outstanding stock of the
Company.
CONSOLIDATIONInc. to Essex International Inc.
Consolidation
The consolidated financial statements include the accounts of the
Company and all majority-owned subsidiaries. All intercompany accounts
and transactions have been eliminated.
USE OF ESTIMATESUse of Estimates
The consolidated financial statements were prepared in conformity
with generally accepted accounting principles thereby requiring management
to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
F-7
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In ThousandsNature of Dollars
-----------------------
NATURE OF OPERATIONSOperations
The Company operates in one industry segment. The Company develops,
manufactures and markets electrical wire and cable and insulation
products. The Company's principal products in order of revenue are:
building wire for the construction industry; magnet wire for
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
electromechanical devices such as motors, transformers and electrical
controls; voice and data communication wire and cable; industrial wire for
applications in construction, appliances and recreational vehicles; and
automotive wire and appliance applications;specialty wiring assemblies for automobiles and
insulation products for the electrical
industry.trucks. The Company's customers are principally located throughout the
United States, without significant concentration in any one region or any
one customer. The Company performs periodic credit evaluations of its
customers' financial condition and generally does not require collateral.
CASH AND CASH EQUIVALENTSCash and Cash Equivalents
All highly liquid investments with a maturity of three months or less
at the date of purchase are considered to be cash equivalents.
INCOME TAXES
HoldingsIncome Taxes
Essex International and the Company file a consolidated U.S. federal
income tax return. The Company operates under a tax sharing agreement
with HoldingsEssex International whereby the Company's aggregate income tax
liability is calculated as if it filed a separate tax return with its
subsidiaries.
INVENTORIESInventories
Inventories are stated at cost, determined principally on the
last-in, first-out ("LIFO") method, which is not in excess of market.
PROPERTY, PLANT AND EQUIPMENTProperty, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciated
over estimated useful lives using the straight-line method.
INVESTMENT IN JOINT VENTURE
An investmentInvestments in aJoint Ventures
Investments in joint venture isventures are stated at cost adjusted for the
Company's share of undistributed earnings or losses.
EXCESS OF COST OVER NET ASSETS ACQUIREDExcess of Cost Over Net Assets Acquired
Excess of cost over net assets acquired primarily represents the
excess of Holdings'Essex International's purchase price over the fair value of the
net assets acquired in the Acquisition, and is being amortized by the
straight-line method over 35 years. Holdings'Essex International's excess of cost
over net assets acquired is assessed for potential impairment whenever
existing facts and circumstances indicate the carrying value of those
assets may not be recoverable. The assessment process consists of
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
estimating the future undiscounted cash flows of the businesses for which
the excess of cost
F-8
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
----------------------- over net assets acquired relates and comparing the
resultant amount to their carrying value to determine if an impairment has
occurred. If an impairment has occurred, an impairment loss would be
recognized for the excess of the carrying value over the fair value, as
measured on a discounted cash flow basis, of the excess of cost over net
assets acquired.
The adoption of Statement of Financial Accounting Standard No.
121 "Accounting for the Impairment of Long-LivedOther Intangible Assets and for Long-Lived
Assets to Be Disposed Of" in 1995, did not have a material affect on the
Company's financial condition or results of operations.
OTHER TANGIBLE ASSETS AND DEFERRED COSTSDeferred Costs
Other intangible assets and deferred costs consist primarily of
deferred debt issuance costs and are being amortized over the lives of the
applicable debt instruments using the straight line or bonds outstanding
method and charged to operations as additional interest expense.
OTHER LONG-TERM LIABILITIESOther Long-Term Liabilities
Other long-term liabilities consist primarily of pension benefit
obligationsaccrued liabilities
under the Company sponsoredCompany-sponsored defined benefit pension plans for salary and
hourly employees and the supplemental executive retirement plan.
RECOGNITION OF REVENUERecognition of Revenue
Substantially all of the Company's revenue is recognized at the time the product is
shipped.
ACCOUNTING FOR OPTIONS ISSUED TO EMPLOYEES
Holdings periodically grants optionsRecently Issued Accounting Standards
In January 1997, the Financial Accounting Standards Board issued
Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("FAS 131"), which is required to be adopted on
December 31, 1998. At that time, the Company employeeswill be required to purchase
sharesreport
certain information about operating segments in complete financial
statements and in condensed financial statements of Holdings' common stock with an exercise price equal to the fair
value of the shares at the date of grant. Holdings accounts for stock-
based compensationinterim periods issued
to employees understockholders. It also requires reporting of certain information about
products and services, geographic areas in which the provisions of APB Opinion
No. 25 "Accounting for Stock IssuedCompany operates and
major customers.
The Company has not yet completed the analysis required to Employees," and accordingly,
recognizes no compensation expense fordetermine
the stock options granted.
F-9potential impact on its segment disclosure.
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars, Except Per Share Data
- ----------------------------------------------
NOTE 2 ACQUISITION
On October 31, 1996, the Company acquired substantially all of the
assets and certain liabilities of Triangle Wire & Cable, Inc. of Lincoln,
Rhode Island and its Canadian affiliate, FLI Royal Wire & Cable
("Triangle"), related to the sales, marketing, manufacturing and
distribution of electrical wire and cable. The acquisition included four
manufacturing facilities which produce a broad range of building and
industrial wire and cable. The total purchase price for the net assets of
Triangle, including acquisition costs, was $72,410. The acquisition was
financed from proceeds received under the Company's revolving credit
agreement.
The acquisition was recorded under the purchase method of accounting
and accordingly, the results of operations of Triangle for the two months
and year ended December 31, 1996 and December 31, 1997, respectively, are
included in the accompanying consolidated financial statements. The
purchase price was allocated to assets acquired and liabilities assumed
based on their respective fair values at the date of acquisition. The
allocation of the purchase price is summarized as follows:
Current assets $73,574
Property, plant and equipment 14,556
Current liabilities (17,304)
Deferred taxes 1,584
------
$72,410
======
The following unaudited pro forma consolidated financial information
for the Company for 1995 and 1996 are presented assuming the acquisition
had occurred on January 1, 1995:
1995 1996
---- ----
Net sales $1,505,196 $1,561,224
Income before extraordinary charge 21,032 40,112
Net income 18,061 38,929
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
NOTE 23 INVENTORIES
The pro forma consolidated financial information does not purport to
present what the Company's consolidated results of operations would
actually have been if the acquisition had occurred on January 1, 1995 and
is not intended to project future results of operations.
The components of inventories are as follows:
December 31,
-------------------------------
1995 1994
---------- ----------1996 1997
-------- --------
Finished goods . . . . . . . . . . . . . . $146,821 $130,236$171,213 $162,570
Raw materials and work
in process . . . . . 52,366 54,560
-------- --------
199,187 184,79656,840 54,146
------- -------
228,053 216,716
LIFO reserve . . . . . . . . . . . . . . . (33,111) (39,090)
-------- --------
$166,076 $145,706
======== ========(10,410) 16,304
------- -------
$217,643 $233,020
======= =======
Principal elements of cost included in inventories are copper, other
purchased materials, direct labor and manufacturing overhead. Inventories
valued using the LIFO method amounted to $161,449$210,454 and $141,847$222,957 at December
31, 19951996 and 1994,1997, respectively.
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
NOTE 34 PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
December 31,
----------------------------
1995 1994
---------- -----------------------------------------
1996 1997
-------- --------
Land . . . . . . . . . . . . . . . . . . . . $ 8,8779,386 $ 9,3199,342
Buildings and improvements . . . . . . . . . 87,704 87,11395,600 96,551
Machinery and equipment . . . . . . . . . . 240,257 225,343272,621 294,928
Construction in process . . . . . . . . . . 18,049 11,486
-------- --------
354,887 333,26114,990 23,376
------- -------
392,597 424,197
Less accumulated
depreciation . . . . . 84,341 57,127
-------- --------
$270,546 $276,134
======== ========
F-10112,108 136,365
------- -------
$280,489 $287,832
======= =======
/TABLE
ESSEX GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
NOTE 4 ACCRUED LIABILITIES
Accrued liabilities include the following:
December 31,
----------------------------
1995 1994
---------- ----------
Salaries, wages and employee benefits . . . $15,566 $15,417
Amounts due customers . . . . . . . . . . . 5,860 5,352
Other . . . . . . . . . . . . . . . . . . . 24,438 25,052
-------- --------
$45,864 $45,821
======== ========
NOTE 5 LONG-TERM DEBT
Long-term debt consists of the following:
December 31,
----------------------------
1995 1994
---------- ----------
10% Senior notes . . . . . . . . . . . . . . $200,000 $200,000
Revolving loan . . . . . . . . . . . . . . . 135,000 - Term loan . . . . . . . . . . . . . . . . . 54,000Continued
In Thousands of Dollars
- Lease obligation . . . . . . . . . . . . . . 23,750 -
-------- --------
412,750 200,000
Less current portion . . . . . . . . . 24,734 -
388,016 200,000
======= =======
BANK FINANCING
In April 1995, in connection with the redemption (the "Redemption")
of all of Holdings' outstanding 16% Senior Discount Debentures due 2004
(the "Holdings Debentures"), the Company terminated its former credit
agreement and entered into three new facilities: (i) a $260,000 revolving
F-11
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
credit agreement, dated as of April 12, 1995 by and among the Company,
Holdings, the lenders named therein, and Chemical Bank, as agent (the
"Revolving Credit Agreement"); (ii) a $60,000 senior unsecured note
agreement, dated as of April 12, 1995 by and among the Company, Holdings,
as guarantor, the lenders named therein, and Chemical Bank, as
administrative agent (the "Term Loan," together with the Revolving Credit
Agreement, the "Credit Facilities"); and (iii) a $25,000 agreement and
lease, dated as of April 12, 1995 by and between the Company and Mellon
Financial Services Corporation #3 (the "Sale and Leaseback Agreement").
The Company recognized an extraordinary charge of $2,971, net of
applicable tax benefit ($1,980) in the second quarter 1995 for the write-
off-----------------------
NOTE 5 ACCRUED LIABILITIES
Accrued liabilities include the following:
December 31,
-------------------------------
1996 1997
-------- --------
Salaries, wages and
employee benefits $20,271 $27,041
Amounts due customers 11,381 14,142
Other 32,661 28,088
------ ------
$64,313 $69,271
====== ======
NOTE 6 LONG-TERM DEBT
Long-term debt consists of the following:
December 31,
-------------------------------
1996 1997
-------- --------
10% Senior notes $200,000 $200,000
Revolving loan 179,900 100,000
Lease obligation 31,766 18,750
Term loan 21,250 -
------- -------
432,916 318,750
Less current portion 11,576 2,500
------- -------
$421,340 $316,250
======= =======
/TABLE
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
BANK FINANCING
The Company maintains a revolving credit agreement, amended and
restated effective April 23, 1997, by and among the Company, Essex
International, the Lenders named therein, and The Chase Manhattan Bank, as
administrative agent (the "Revolving Credit Agreement"). The Company's
Revolving Credit Agreement expires in 2001 and provides for up to $370,000
in revolving loans, subject to specified percentages of eligible assets,
reduced by outstanding borrowings under the Company's Canadian credit
agreement and unsecured bank lines of credit ($6,632 and $28,120,
respectively, at December 31, 1997), as described below. The Revolving
Credit Agreement also provides a $25,000 letter of credit subfacility.
Revolving Credit Agreement loans bear floating rates of interest, at
the Company's option, at bank prime plus .50% or a reserve adjusted
Eurodollar rate (LIBOR) plus 1.50%. The spreads over the prime and LIBOR
rates can be reduced to 0%, and .375%, respectively, if a specified
leverage ratio is achieved. The average commitment fees during the
revolving loan period are between .125% and .375% of the average daily
unused portion of the available credit based upon certain financial
ratios. At December 31, 1996 and 1997, the rates of interest under the
Revolving Credit Agreement, including applicable margins, averaged 7.1%
and 6.3%, respectively.
Indebtedness under the Revolving Credit Agreement is guaranteed by
the Company and all of the Company's subsidiaries, and is secured by a
pledge of the capital stock of the Company and its subsidiaries and by a
first lien on substantially all assets. The Company's ability to borrow
under the Revolving Credit Agreement is restricted by the financial
covenants contained therein, and by certain debt limitation covenants
contained in the indenture under which the 10% Senior Notes due 2003 (the
"Senior Notes") were issued (the "Senior Note Indenture").
The Revolving Credit Agreement contains various covenants which
include, among other things: (a) the maintenance of certain financial
ratios and compliance with certain financial tests and limitations; (b)
limitations on investments and capital expenditures; (c) limitations on
cash dividends paid; and (d) limitations on leases and the sale of assets.
Through December 31, 1997, the Company fully complied with all of the
financial ratios and covenants contained in the Revolving Credit
Agreement.
The Company and its subsidiaries also maintain two additional credit
facilities consisting of: (i) a $25,000 agreement and lease dated as of
April 12, 1995 by and between the Company and Mellon Leasing Corporation
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
(the "Sale and Leaseback Agreement"); and (ii) a $15,000 credit agreement
by and between a subsidiary of the Company and a Canadian chartered bank
(the "Canadian Credit Agreement").
The Sale and Leaseback Agreement provides $25,000 for the sale and
leaseback of certain of the Company's fixed assets. The Sale and
Leaseback Agreement has a seven-year term expiring in May 2002. The
principal component of the rental is paid quarterly, with the amount of
each of the first 27 payments equal to 2.5% of lessor's cost of the
equipment, and the balance is due at the final payment. The interest
component is paid on the unpaid principal balance and is calculated by the
lessor at LIBOR plus 2.5%. The effective interest rate can be reduced by
0.25% to 1.125% if certain specified financial conditions are achieved.
The fixed assets subject to the Sale and Leaseback Agreement (all of which
are machinery and equipment) are included in property, plant and equipment
in the Consolidated Balance Sheets and have a gross cost of $30,867 and
accumulated amortization of $6,605 at December 31, 1997.
Borrowings under the Canadian Credit Agreement are restricted to
meeting the working capital requirements of the subsidiary and are secured
by the subsidiary's accounts receivable. As of December 31, 1997, $6,632
was outstanding under the Canadian Credit Agreement and denoted as notes
payable to banks in the Consolidated Balance Sheets. The Canadian Credit
Agreement bears interest at rates similar to the Revolving Credit
Agreement and terminates May 30, 1998, although it may be extended for
successive one-year periods upon the mutual consent of the subsidiary and
lending bank.
The Company also has bank lines of credit which provide unsecured
borrowings for working capital of up to $25,000 for 1996 and $50,000 for
1997 of which $25,000 and $28,120 were outstanding at December 31, 1996
and 1997, respectively, and denoted as notes payable to banks in the
Consolidated Balance Sheets. These lines of credit bear interest at rates
subject to agreement between the Company and the lending banks. At
December 31, 1996 and 1997, such rates of interest averaged 7.6% and 7.2%,
respectively.
In connection with the Triangle acquisition, the Company terminated
its former revolving credit agreement and recognized an extraordinary
charge of $1,183 ($1,971 before applicable tax benefit) in 1996 for the
write-off of associated unamortized deferred debt costs. In connection
with the redemption of all of its 16% Senior Discount Debentures due 2004
at their principal amount of $272,850 on May 15, 1995, the Company
terminated its then existing credit agreement and recognized an
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
extraordinary charge of $2,971 ($4,951 before applicable income tax
benefit) in 1995 for the write-off of associated unamortized deferred debt
costs.
On May 1, 1997, Essex International completed the Offering of common
stock. The net proceeds to Essex International, after underwriting
commissions and other associated expenses, were approximately $46,241 of
which $29,497 was used to repay borrowings under the Term Loan and the
remaining proceeds were applied to the Revolving Credit Agreement. The
net proceeds were received from Essex International in the form of an
intercompany transfer, which is non-interest bearing, has no formal
repayment schedule and no expiration date.
Senior Notes
At December 31, 1996 and 1997, $200,000 aggregate principal amount of
the Senior Notes were outstanding. The Senior Notes bear interest at 10%
per annum payable semiannually and are due in May 2003. The Senior Notes
rank pari passu in right of payment with all other senior indebtedness of
the Company. To the extent that any other senior indebtedness of the
Company is secured by liens on the assets of the Company, the holders of
such senior indebtedness will have a claim prior to any claim of the
holders of the Senior Notes as to those assets.
At the option of the Company, the Senior Notes may be redeemed,
commencing May 1998 in whole, or in part, at redemption prices ranging
from 103.75% in 1998 to 100% in 2001. Upon a Change in Control, as
defined in the Senior Note Indenture, each holder of Senior Notes will
have the right to require the Company to repurchase all or any part of
such holder's Senior Notes at a repurchase price equal to 101% of the
principal amount thereof. The Senior Note Indenture contains various
covenants which include, among other things, limitations on debt, on the
sale of assets, and on cash dividends paid. Through December 31, 1997 the
Company fully complied with all of the financial ratios and covenants
contained in the Senior Note Indenture.
Other
The Company capitalized interest costs of $565, $558, and $100 in
1995, 1996, and 1997, respectively, with respect to qualifying assets.
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
Total interest paid was $32,312, $38,284, and $36,618 in 1995, 1996
and 1997, respectively.
Aggregate annual maturities of long-term debt for the next five years
are:
1998 $ 2,500
1999 2,500
2000 2,500
2001 102,500
2002 8,750
The year 2001 includes repayment of the Essex revolving loan in the
amount of $100,000.
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
NOTE 7 INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the deferred tax liabilities and assets are:
December 31,
-------------------------------
1996 1997
-------- --------
Deferred tax liabilities:
Property, plant and
equipment $60,519 $60,927
Inventory 30,114 30,155
Other 4,502 3,794
------ ------
Total deferred tax
liabilities 95,135 94,876
Deferred tax assets:
Accrued liabilities 8,252 8,555
Other 13,689 16,087
------ ------
Total deferred tax assets 21,941 24,642
------ ------
Net deferred tax
liabilities $73,194 $70,234
====== ======
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
The components of income tax expense are as follows:
Years Ended December 31,
---------------------------------------
1995 1996 1997
------ ------ ------
Current:
Federal $14,872 $29,572 $48,093
State 5,833 6,833 10,567
Deferred (Credit):
Federal 1,135 (5,805) (2,377)
State (2,160) (1,612) (583)
------ ------ ------
$19,680 $28,988 $55,700
====== ====== ======
Total income taxes paid were $45,839, $32,536 and $56,319 in 1995,
1996 and 1997, respectively.
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
Principal differences between the effective income tax rate and the
statutory federal income tax rate are as follows:
Years Ended December 31,
---------------------------------------
1995 1996 1997
------ ------ ------
Statutory federal
income tax rate 35.0% 35.0% 35.0%
State and local taxes,
net of federal benefit 5.8 5.1 4.6
Excess of cost over
net assets
acquired amortization 3.4 2.1 1.0
Other, net 2.5 1.4 (0.8)
---- ---- ----
Effective income tax rate 46.7% 43.6% 39.8%
==== ==== ====
In connection with the Acquisition of Essex in 1992, the Company
elected not to step up its tax bases in the assets acquired. Accordingly,
the income tax bases in the assets acquired have not been changed from
pre-1988 Acquisition values. Depreciation and amortization of the higher
allocated financial statement bases are not deductible for income tax
purposes, thus increasing the effective income tax rate reflected in the
consolidated financial statements.
NOTE 8 RETIREMENT BENEFITS
The Company sponsors two defined benefit retirement plans for
substantially all salaried and hourly employees. The Company also has a
supplemental executive retirement plan which provides retirement benefits
based on the same formula as in effect under the salaried employees' plan,
but which only takes into account compensation in excess of amounts that
can be recognized under the salaried employees' plan. Salaried plan
retirement benefits are generally based on years of service and the
employee's compensation during the last several years of
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
employment. Hourly plan retirement benefits are based on hours worked and
years of service with a fixed dollar benefit level. The Company's funding
policy is based on an actuarially determined cost method allowable under
Internal Revenue Service regulations, the projected unit credit method.
Pension plan assets consist principally of fixed income and equity
securities and cash and cash equivalents.
The components of net periodic pension cost for the plans are as
follows:
Years Ended December 31,
-------------------------------------
1995 1996 1997
------ ------ ------
Service cost--benefits
earned during the period $ 2,365 $ 3,377 $ 3,521
Interest costs on projected
benefit obligation 3,923 4,715 5,342
Actual return on plan assets (13,597) (5,123) (11,708)
Net amortization and deferral 9,751 268 6,677
------- ------ -------
Net periodic pension cost $ 2,442 $ 3,237 $ 3,832
======= ====== =======
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
The following table summarizes the funded status of these pension
plans and the related amounts that are recognized in the Consolidated
Balance Sheets:
December 31,
-------------------------------
1996 1997
------ ------
Actuarial present value of benefit
obligation:
Vested $ 44,726 $ 54,209
Nonvested 3,804 4,494
------- ------
Accumulated benefit obligation 48,530 58,703
Effect of projected future salary
increases 17,690 23,406
------- ------
Projected benefit obligation 66,220 82,109
Plan assets at fair value 60,131 70,676
------- ------
Projected benefit obligation in excess
of fair value of plan assets (6,089) (11,433)
Unrecognized net gain (5,131) (3,302)
Unrecognized prior service cost (299) (254)
------- -------
Pension liability recognized in
balance sheets $(11,519) $(14,989)
======= =======
Certain actuarial assumptions were revised in 1996 and 1997 resulting
in a decrease of $5,345 and an increase of $6,231, respectively, in the
projected benefit obligation.
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
Following is a summary of significant actuarial assumptions used:
Years Ended December 31,
---------------------------------------
1995 1996 1997
------ ------ ------
Discount rates 7.0% 7.5% 7.0%
Rates of increase in
compensation levels 5.0% 5.0% 5.0%
Expected long-term rate of
return on assets 9.0% 9.0% 9.0%
In addition to the defined benefit retirement plans as detailed
above, the Company also sponsors defined contribution savings plans which
cover substantially all salaried and non-union hourly employees of the
Company and certain other hourly employees, represented by collective
bargaining agreements, who negotiate this benefit into their contract.
The purpose of these savings plans is generally to provide additional
financial security during retirement by providing employees with an
incentive to make regular savings. The Company's contributions to the
defined contribution plans totalled $1,123, $1,194, and $2,055 in 1995,
1996 and 1997, respectively.
The Company also sponsors an unfunded, nonqualified deferred
compensation plan which permits certain key management employees to
annually elect to defer a portion of their compensation and earn a
guaranteed interest rate on the deferred amounts. The total amount of
participant deferrals and accrued interest, which is reflected in other
long-term liabilities, was $1,234 and $2,217 at December 31, 1996 and
1997, respectively.
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
NOTE 9 STOCKHOLDER'S EQUITY
The following is an analysis of stockholder's equity:
Common
Stock Plus Total
Additional Retained Stockholder's
Paid-In Capital Earnings Equity
--------------- -------- -------------
Balance at
December 31, 1994 $ 302,784 $ 31,119 $ 333,903
Net income - 19,523 19,523
Cash dividend paid
to Holdings (198,748) (40,000) (238,748)
-------- ------- --------
Balance at
December 31, 1995 104,036 10,642 114,678
Net income - 36,388 36,388
-------- ------- --------
Balance at
December 31, 1996 104,036 47,030 151,066
Net income - 84,098 84,098
-------- ------- --------
Balance at
December 31, 1997 $ 104,036 $131,128 $235,164
======== ======= =======
/TABLE
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
NOTE 10 RELATED PARTY TRANSACTIONS
Advisory services fees of $1,000 were paid to an affiliate of BHLP
and BCP for 1995, 1996 and 1997, respectively, and it is expected that
such advisory fees will continue to be paid for such services in the
future. Donaldson, Lufkin & Jenrette Securities Corporation and Goldman,
Sachs & Co., having a substantial ownership in Essex International at the
time, acted as two of the underwriters in the Offering, and in such
capacity received aggregate underwriting discounts and commissions of
approximately $4,400 of which Essex International's portion was $2,300.
NOTE 11 DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE INFORMATION
The Company, to a limited extent, uses forward fixed price contracts
and derivative financial instruments to manage foreign currency exchange
and commodity price risks. The Company does not hold or issue financial
instruments for investment or trading purposes. The Company is exposed to
credit risk in the event of nonperformance by counterparties for foreign
exchange forward contracts, metal forward price contracts and metals
futures contracts but the Company does not anticipate nonperformance by
any of these counterparties. The amount of such exposure is generally the
unrealized gains within the underlying contracts.
Foreign exchange risk management
The Company engages in the sale and purchase of goods and services
which periodically require payment or receipt of amounts denominated in
foreign currencies. To protect the Company's related anticipated cash
flows from the risk of adverse foreign currency exchange fluctuations for
firm sales and purchase commitments, the Company enters into foreign
currency forward exchange contracts. At December 31, 1996, the Company
had no forward exchange sales contracts but did have $138 of Deutschemark
purchase contracts whose fair value approximated the contract amount. At
December 31, 1997, the Company had no foreign currency forward exchange
contracts. Foreign currency gains or losses resulting from the Company's
operating and hedging activities are recognized in earnings in the period
in which the hedged currency is collected or paid. The related amounts
due to or from counterparties are included in other liabilities or other
assets.
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
Commodity price risk management
Copper, the Company's principal raw material, experiences marked
fluctuations in market prices, thereby subjecting the Company to copper
price risk with respect to copper purchases and to firm and anticipated
customer sales contracts. Derivative financial instruments in the form of
copper futures contracts are utilized by the Company to reduce those
risks.
Purchase or "long" contracts are utilized by the Company to hedge
firm and anticipated sales contracts while sales or "short" contracts are
employed with respect to "carryover" copper purchases. Copper carryover
purchases represent that portion of the Company's current month's copper
purchase commitments priced at the current month's average New York
Commodity Exchange, Inc. ("COMEX") price, but not delivered until the
following month. Short contracts are utilized to mitigate risk that
copper prices, at the time of copper receipt, are likely to be below the
average COMEX price of the incoming copper carryover.
Purchase or "long" contracts are utilized by the Company to hedge
firm and anticipated sales contracts while sales or "short" contracts are
employed with respect to "carryover" copper purchases. Copper carryover
purchases represent that portion of the Company's current month's copper
purchase commitments priced at the current month's average New York
Commodity Exchange, Inc. ("COMEX") price, but not delivered until the
following month. Short contracts are utilized to mitigate risk that
copper prices, at the time of copper receipt, are likely to be below the
average COMEX price of the incoming copper carryover.
Purchase contracts at December 31, 1996 and 1997 totalled 42.5 and
1.2 million copper pounds, respectively, with contract amounts of $42,000
and $1,000 and estimated fair values of $41,300 and $1,000, respectively.
There were no sales contracts at December 31, 1996. Sales contracts at
December 31, 1997 totalled 25.0 million copper pounds, with a contract
amount of $21,500 and a fair value of $20,800. Deferred and unrealized
gains or losses on these futures contracts ($700 loss and $700 gain at
December 31, 1996 and 1997, respectively) are included within other assets
and will be recognized in earnings in the period in which the hedged
copper is sold to customers and the underlying contracts are liquidated,
when a sale is no longer expected to occur or when the carryover copper is
received.
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
Fair value of financial instruments
The Company's financial instruments, exclusive of certain forward
contracts and futures contracts as discussed above, generally consist of
cash and cash equivalents and long-term debt. The carrying amounts of the
Company's cash and cash equivalents approximated fair value at December
31, 1996 and 1997 while the carrying amount of the Senior Notes was less
than fair value by approximately $8,000 and $9,500 at December 31, 1996
and 1997, respectively. Fair values with respect to the Company's foreign
currency forward exchange contracts and copper futures contracts are
determined based on quoted market prices.
NOTE 12 CONTINGENT LIABILITIES AND COMMITMENTS
There are various claims and pending legal proceedings against the
Company including environmental matters and other matters arising out of
the ordinary course of its business. Pursuant to the 1988 Acquisition,
UTC agreed to indemnify the Company against all losses (as defined)
resulting from or in connection with damage or pollution to the
environment and arising from events, operations, or activities of the
Company prior to February 29, 1988 or from conditions or circumstances
existing at February 29, 1988. Except for certain matters relating to
permit compliance, the Company is fully indemnified with respect to
conditions, events or circumstances known to UTC prior to February 29,
1988. The sites covered by this indemnity are handled directly by UTC and
all payments required to be made are paid directly by UTC. The amounts
related to this environmental contingency are not material to the
Company's consolidated financial statements. UTC also provided a second
environmental indemnity which deals with losses related to environmental
events, conditions or circumstances existing at or prior to February 29,
1988, which only became known in the five year window commencing February
29, 1988. As to any such losses, the Company is responsible for the first
$4,000 incurred. Management and its legal counsel periodically review the
probable outcome of pending proceedings and the costs reasonably expected
to be incurred. The Company accrues for these costs when it is probable
that a liability has been incurred and the amount of the loss can be
reasonably estimated. After consultation with counsel, in the opinion of
management, the ultimate cost to the Company, exceeding amounts provided,
will not materially affect its consolidated financial position, cash flows
or results of operations. There can be no assurance, however, that future
developments will not alter this conclusion.
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
Since about 1990, the Company has been named as a defendant in a
limited number of product liability lawsuits brought by electricians and
other skilled tradesmen claiming injury from exposure to asbestos found in
electrical wire products produced a number of years ago. At December 31,
1997, the number of cases pending against the Company was 101 involving
approximately 308 claims. The Company's strategy is to defend these cases
vigorously. The Company believes that its liability, if any, in these
matters and the related defense costs will not have a material adverse
effect either individually or in the aggregate upon its business or
financial condition, cash flows or results of operations. There can be no
assurance, however, that future developments will not alter this
conclusion.
At December 31, 1997, the Company had purchase commitments for 765.0
million pounds of copper. This is not expected to be either a quantity in
excess of needs or at prices in excess of amounts that can be recovered
upon sale of the related copper products. The commitments are to be
priced based on the COMEX price in the contractual month of shipment
except for 76.5 million pounds of copper that have been priced at fixed
amounts through forward purchase contracts covered by customer sales
agreements at copper prices at least equal to the Company's copper
commitment.
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
At December 31, 1997 the Company had committed $4,997 to outside
vendors for certain capital projects.
The Company occupies space and uses certain equipment under lease
arrangements. Rent expense was $7,478, $8,941 and $12,176 under such
arrangements for 1995, 1996 and 1997, respectively. Rental commitments at
December 31, 1997 under long-term noncancellable operating leases were as
follows:
Real Estate Equipment Total
----------- --------- -----
1998 $ 4,504 $ 4,785 $ 9,289
1999 4,715 3,733 8,448
2000 4,134 2,848 6,982
2001 3,491 957 4,448
2002 2,803 700 3,503
After 2002 7,939 230 8,169
------ ------ ------
$27,586 $13,253 $40,839
====== ====== ======
/TABLE
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars, Except Per Share Data
- ----------------------------------------------
NOTE 13 QUARTERLY FINANCIAL DATA (UNAUDITED)
[CAPTION]
1996 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
- ---------------------- -------- -------- ------- ---------
Net sales $308,410 $337,533 $328,777 $357,329
Gross margin 49,759 52,891 58,964 67,975
Income before
extraordinary charge 6,419 7,654 11,521 11,977
Net income (a) $ 6,419 $ 7,654 $ 11,521 $ 10,794
1997 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
- ---------------------- -------- -------- ------- ---------
Net sales $410,778 $453,331 $445,166 $392,054
Gross margin 79,871 87,710 82,190 81,326
Net income 19,298 23,472 22,045 19,283
- ------------
(a) In the fourth quarter of 1996, the Company recognized an
extraordinary charge of $1,183 ($.05 per share assuming dilution),
net of applicable income tax benefit of $788, representing the
write-off of unamortized deferred debt expense in connection with
the termination of its former credit agreement.
On May 12, 1995 the Company borrowed the full amount available under
the Term Loan and the Sale and Leaseback Agreement. These funds, together
with available cash and borrowings under the Revolving Credit Agreement,
were paid to Holdings in the form of a cash dividend ($238,748) and
repayment of a portion of an intercompany liability ($34,102) totaling
$272,850. Holdings applied such funds to redeem all of its outstanding
Holdings Debentures at 100% of their principal amount of $272,850 on May
15, 1995.
The Revolving Credit Agreement provides for up to $260,000 in
revolving loans, subject to specified percentages of eligible assets and
also provides a $25,000 letter of credit subfacility. The Company's
ability to borrow under the Revolving Credit Agreement is restricted by
the financial covenants contained therein as well as those contained in
the Term Loan and to certain debt limitation covenants contained in the
indenture under which the 10% Senior Notes due 2003 (the "Senior Notes")
were issued (the "Senior Note Indenture"). The Revolving Credit Agreement
expires in 2000. Revolving Credit Agreement loans bear floating rates of
interest, at the Company's option, at bank prime plus 1.25% or a reserve
adjusted Eurodollar rate (LIBOR) plus 2.25%. The effective interest rate
can be reduced by 0.25% to 1.25% if certain specified financial conditions
are achieved. Commitment fees during the revolving loan period are .375%
or .5% of the average daily unused portion of the available credit based
upon the level of certain specified financial conditions. At December 31,
1995 and 1994, the incremental borrowing rate under the Revolving Credit
Agreement and former credit agreement, including applicable margins,
approximated 9.0%. Indebtedness under the Revolving Credit Agreement is
guaranteed by Holdings and all of the Company s subsidiaries, and is
secured by a pledge of the capital stock of the Company and its
subsidiaries and by a first lien on substantially all assets.
The Revolving Credit Agreement contains various covenants which
include, among other things: (a) the maintenance of certain financial
ratios and compliance with certain financial tests and limitations; (b)
limitations on investments and capital expenditures; (c) limitations on
cash dividends paid; and (d) limitations on leases and the sale of assets.
Through December 31, 1995, the Company fully complied with all of the
F-12
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
financial ratios and covenants contained in the Revolving Credit
Agreement.
The Term Loan provides for an aggregate $60,000 in term loans, and
is to be paid in 20 equal quarterly installments, subject to the loan's
excess cash provision, beginning August 15, 1995 and ending May 15, 2000.
The Term Loan bears floating rates of interest at bank prime plus 2.75% or
a reserve adjusted Eurodollar rate (LIBOR) plus 3.75%. The Term Loan
requires 50% of excess cash, as defined, to be applied against the
outstanding term loan balance. The excess cash calculation for the year
ended December 31, 1995 requires the Company to repay $12,427 of the term
loan on or before April 15, 1996. After the 1996 excess cash repayment,
principal payments will be made in 17 equal quarterly installments of
$2,269. Amounts repaid with respect to the excess cash provision may not
be reborrowed.
The Sale and Leaseback Agreement provides $25,000 for the sale and
leaseback of certain of the Company s fixed assets. The Sale and
Leaseback Agreement has a seven-year term expiring in May 2002. The
principal component of the rental is paid quarterly, with the amount of
each of the first 27 payments equal to 2.5% of lessor's cost of the
equipment, and the balance due at the final payment. The interest
component is paid on the unpaid principal balance and is calculated by
lessor at LIBOR plus 2.5%. The effective interest rate can be reduced by
0.25% to 1.125% if certain specified financial conditions are achieved.
The fixed assets subject to the Sale and Leaseback Agreement (all of which
are machinery and equipment) are included in property, plant and equipment
in the Consolidated Balance Sheets and have a gross cost of $30,819 and
accumulated amortization of $1,557 at December 31, 1995.
The Company also has uncommitted bank lines of credit which provide
unsecured borrowings for working capital of up to $25,000 of which $11,760
was outstanding at December 31, 1995 and denoted as notes payable to banks
in the Consolidated Balance Sheets. These lines of credit bear interest
at rates subject to agreement between the Company and the lending banks.
At December 31, 1995 such rates of interest averaged 6.7%.
The Company has purchased interest rate cap protection through May
15, 1997 with respect to $150,000 of debt with a strike rate of 10.0%
(three month LIBOR).
SENIOR NOTES
At December 31, 1995 and 1994, $200,000 aggregate principal amount of
the Senior Notes were outstanding. The Senior Notes bear interest at 10%
per annum payable semiannually and are due in May 2003. The net proceeds
to the Company from the sale of the Senior Notes in May 1993, after
underwriting discounts, commissions and other offering expenses, were
$193,450. The Company applied $111,000 of such proceeds to the repayment
of the term credit facility under its former credit agreement and in June
1993 applied the balance of such proceeds, together with new borrowings
F-13
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
under the former credit agreement, to redeem all of its outstanding 12
3/8% Senior Subordinated Debentures due 2000 (the "Debentures"). The
Company recognized an extraordinary charge of $3,055, net of applicable
tax benefit of $1,953, in 1993 representing the write-off of unamortized
debt costs associated with the repayment of the term credit facility under
the former credit agreement.
The Senior Notes rank pari passu in right of payment with all other
senior indebtedness of the Company. To the extent that any other senior
indebtedness of the Company is secured by liens on the assets of the
Company, the holders of such senior indebtedness will have a claim prior
to any claim of the holders of the Senior Notes as to those assets.
At the option of the Company, the Senior Notes may be redeemed,
commencing in May 1998 in whole, or in part, at redemption prices ranging
from 103.75% in 1998 to 100% in 2001, or at 109% for up to $67,000 with
the proceeds from any public equity offering prior to June 30, 1996. Upon
a Change in Control, as defined in the Senior Note Indenture, each holder
of Senior Notes will have the right to require the Company to repurchase
all or any part of such holder's Senior Notes at a repurchase price equal
to 101% of the principal amount thereof. The Senior Note Indenture
contains various covenants which include, among other things, limitations
on debt, on the sale of assets, and on cash dividends paid. Through
December 31, 1995 the Company fully complied with all of the financial
ratios and covenants contained in the Senior Note Indenture.
DEBENTURES
The Debentures were due in 2000 and bore interest at 12 3/8% per
annum payable semi-annually. In June 1993 the Company redeemed all of
the outstanding Debentures at 106% of their principal amount, resulting
in a loss of $312, net of applicable tax benefit of $199, which has been
reported as an extraordinary charge.
OTHER
The Company capitalized interest costs of $565, $132 and $1,599 in
1995, 1994 and 1993, respectively, with respect to qualifying assets.
Total interest paid was $32,312, $20,826 and $20,961 in 1995, 1994
and 1993, respectively.
F-14
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
Aggregate annual maturities of long-term debt for the next five years
are:
1996 . . . . . . . . . . . . . . . . $ 24,734
1997 . . . . . . . . . . . . . . . . 11,576
1998 . . . . . . . . . . . . . . . . 11,576
1999 . . . . . . . . . . . . . . . . 11,576
2000 . . . . . . . . . . . . . . . . 142,038
The year 2000 includes repayment of the Company's revolving
loan in the amount of $135,000.
NOTE 6 INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the deferred tax liabilities and assets are as
follows:
December 31,
-------------------------
1995 1994
-------- --------
Deferred tax liabilities:
Property, plant and equipment . . . . $68,553 $73,108
Inventory . . . . . . . . . . . . . . 28,485 28,236
Other . . . . . . . . . . . . . . . . 3,844 4,201
-------- --------
Total deferred tax liabilities . . . 100,882 105,545
-------- --------
Deferred tax assets:
Accrued liabilities . . . . . . . . . 6,650 7,671
Alternative minimum tax credit
carryforward . . . . . . . . . . . . 1,384 4,984
Other . . . . . . . . . . . . . . . . 10,694 9,711
-------- --------
Total deferred tax assets . . . . . 18,728 22,366
-------- --------
Net deferred tax liabilities . . . $82,154 $83,179
======== ========
F-15
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
The components of income tax expense are as follows:
Year Ended
December 31,
--------------------------------------
1995 1994 1993
------ ------ ------
Current:
Federal . . . . . . . . $14,872 $27,157 $10,978
State . . . . . . . . . 5,833 4,507 2,696
Deferred (Credit):
Federal . . . . . . . . 1,135 (8,362) 127
State . . . . . . . . . (2,160) (602) (749)
-------- -------- -------
$19,680 $22,700 $13,052
======== ======== =======
In compliance with the Omnibus Budget Reconciliation Act of
1993, the Company's tax balances were adjusted in 1993 to reflect the
increase in the federal statutory tax rate from 34% to 35%. The
adjustment had the effect of increasing income tax expense by $2,250 for
1993.
Total income taxes paid were $45,839, $11,484 and $1,131 in
1995, 1994 and 1993, respectively.
F-16
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
Principal differences between the effective income tax rate and
the statutory federal income tax rate are:
Year Ended
December 31,
----------------------------------------
1995 1994 1993
------------- ------------- ------------
Statutory federal income tax rate . . . 35.0% 35.0% 35.0%
State and local taxes, net of
federal benefit . . . . . . . . . . . 5.8 4.8 5.6
Federal rate increase . . . . . . . . . - - 10.0
Excess of cost over net assets
acquired amortization . . . . . . . . 3.4 2.7 6.3
Other, net . . . . . . . . . . . . . . 2.5 .4 1.3
------ ------ ------
Effective income tax rate . . . . . . . 46.7% 42.9% 58.2%
====== ====== ======
The Company elected not to step up its tax bases in the assets
acquired. Accordingly, the income tax bases in the assets acquired have
not been changed from pre-1988 Acquisition values. Depreciation and
amortization of the higher allocated financial statement bases are not
deductible for income tax purposes, thus increasing the effective income
tax rate reflected in the consolidated financial statements.
NOTE 7 RETIREMENT BENEFITS
The Company sponsors two defined benefit retirement plans for
substantially all salaried and hourly employees. The Company also has a
supplemental executive retirement plan, which provides retirement benefits
based on the same formula as in effect under the salaried employees' plan,
but which only takes into account compensation in excess of amounts that
can be recognized under the salaried employees' plan. Salaried plan
retirement benefits are generally based on years of service and the
employee's compensation during the last several years of employment.
Hourly plan retirement benefits are based on hours worked and years of
service with a fixed dollar benefit level. The Company's funding policy
is based on an actuarially determined cost method allowable under Internal
F-17
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
Revenue Service regulations, the projected unit credit method. Pension
plan assets consist principally of fixed income and equity securities and
cash and cash equivalents.
The components of net periodic pension cost for the plans are
as follows:
Year Ended
December 31,
--------------------------------------
1995 1994 1993
------------ ------------ ------------
Service-cost benefits earned
during the period . . . . . . . . . . $2,365 $2,964 $2,611
Interest costs on projected benefit
obligation . . . . . . . . . . . . . . 3,923 3,643 3,521
Actual return on plan assets . . . . . (13,597) 2,409 (6,078)
Net amortization and deferral . . . . . 9,751 (6,458) 2,573
-------- -------- --------
Net periodic pension cost . . . . . . . $2,442 $2,558 $2,627
======== ======== ========
F-18
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
The following table summarizes the funded status of these pension
plans and the related amounts that are recognized in the Consolidated
Balance Sheets:
December 31,
----------------------------------
1995 1994
---------------- -----------------
Actuarial present value of benefit obligation:
Vested . . . . . . . . . . . . . . . . . . . . $42,052 $29,469
Nonvested . . . . . . . . . . . . . . . . . . 3,656 2,470
-------- --------
Accumulated benefit obligation . . . . . . . . 45,708 31,939
Effect of projected future salary increases . 17,195 9,566
-------- --------
Projected benefit obligation . . . . . . . . . 62,903 41,505
Plan assets at fair value . . . . . . . . . . . . . . 55,447 42,436
-------- --------
Fair value of plan assets in excess of
(less than) projected benefit obligation . . . . . . (7,456) 931
Unrecognized net (gain) loss . . . . . . . . . . . . (1,312) (7,703)
Unrecognized prior service cost . . . . . . . . . . . (326) (353)
-------- --------
Pension liability recognized in balance sheets . . . $ (9,094) $ (7,125)
======== ========
Certain actuarial assumptions were revised in 1995 and 1994
resulting in an increase of $13,262 and a decrease of $13,883,
respectively, in the projected benefit obligation.
F-19
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
Following is a summary of significant actuarial assumptions used:
Year Ended
December 31,
--------------------------------------
1995 1994 1993
------------ ------------ ------------
Discount rates . . . . . . . . 7.0% 8.5% 7.0%
Rates of increase in
compensation levels . . . . . 5.0% 5.0% 5.0%
Expected long-term rate of
return on assets . . . . . . . 9.0% 9.0% 9.0%
In addition to the defined benefit retirement plans as detailed
above, the Company also sponsors defined contribution savings plans which
cover substantially all salaried and non-union hourly employees of the
Company and certain other hourly employees, represented by collective
bargaining agreements, who negotiate this benefit into their contract.
The hourly plans were established in 1995 and 1994. The purpose of these
savings plans is generally to provide additional financial security during
retirement by providing employees with an incentive to make regular
savings. The Company s contributions to the defined contribution plans
are based on employee contributions and totalled $1,123, $1,088 and $1,030
in 1995, 1994 and 1993, respectively.
During 1994 the Company implemented an unfunded, nonqualified
deferred compensation plan which permits certain key management employees
to annually elect to defer a portion of their compensation and earn a
guaranteed interest rate on the deferred amounts. The total amount of
participant deferrals and accrued interest, which is reflected in other
long-term liabilities, was $609 and $101 at December 31, 1995 and 1994,
respectively.
F-20
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
NOTE 8 STOCKHOLDER'S EQUITY
The following is an analysis of stockholder's equity:
Common
Stock Plus
Additional Total
Paid In Retained Stockholder's
Capital Earnings Equity
---------- ---------- --------------
Balance at December 31, 1992 . . . . . . . . . . . . . $302,784 $(5,062) $297,722
Net income . . . . . . . . . . . . . . . . . . . . . . - 6,010 6,010
-------- -------- --------
Balance at December 31, 1993 . . . . . . . . . . . . . 302,784 948 303,732
Net income . . . . . . . . . . . . . . . . . . . . . . - 30,171 30,171
-------- -------- --------
Balance at December 31, 1994 . . . . . . . . . . . . . 302,784 31,119 333,903
Net Income . . . . . . . . . . . . . . . . . . . . . . - 19,523 19,523
Cash dividends paid to Holdings . . . . . . . . . . . . (198,748) (40,000) (238,748)
--------- -------- ---------
Balance at December 31, 1995 . . . . . . . . . . . . . $104,036 $10,642 $114,678
========= ======== ========
NOTE 9 RELATED PARTY TRANSACTIONS
Advisory services fees of $1,000 were paid to affiliates of BHLP and
BCP for 1995, 1994, and 1993. It is expected that financial advisory fees
to an affiliate of BHLP will continue to be paid for such services in the
future.
At December 31, 1995, Holdings had outstanding 2,033,782 shares of
15% Series B Cumulative Redeemable Exchangeable Preferred Stock,
Liquidation Preference $25 Per Share, (the Series B Preferred Stock ).
The accreted balance of the Series B Preferred Stock was $48,820 at
December 31, 1995. The Series B Preferred Stock is subject to mandatory
redemption on September 30, 2004. At the option of Holdings, the Series B
Preferred Stock may be redeemed at a percentage of liquidation preference
declining from 107.5% beginning September 30, 1995 to 100% beginning
September 30, 1998, plus accumulated and unpaid dividends. The Revolving
Credit Agreement permits the optional redemption of the Series B Preferred
F-21
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
Stock only out of proceeds of a Holdings primary offering (public or
private) of common stock, or in exchange for debentures with terms similar
to those of the Series B Preferred Stock or in exchange for other
preferred stock on terms no more onerous than those presently existing.
In order to redeem the Series B Preferred Stock under the terms of the
Senior Note Indenture, Holdings would be required, among other things, to
seek the consent of the holders of the Senior Notes, refinance the Senior
Notes after they become redeemable in May 1998, or obtain funds through
the sale of equity securities.
Dividends on the Series B Preferred Stock are payable quarterly at a
rate of 15.0% per annum. Dividends accruing on or before September 30,
1998 may, at the option of Holdings, be paid in cash, paid in additional
shares of Series B Preferred Stock or in any combination thereof.
Dividends on the Series B Preferred Stock accruing after September 30,
1998 must be paid in cash. Holdings does not expect to pay cash dividends
on or prior to September 30, 1998. Each of the Credit Facilities and the
Senior Note Indenture restricts the payment of cash to Holdings. In order
to make cash dividend payments on the Series B Preferred Stock under the
terms of the Senior Note indenture, Holdings would be required, among
other things, to seek the consent of the holders of the Senior Notes,
refinance the Senior Notes after they become redeemable in May 1998, or
obtain funds through the sale of equity securities.
In October 1995, Holdings filed with the Securities and Exchange
Commission a registration statement for an offer to exchange an equal
number of Series B Preferred Stock for all of its outstanding shares of
15% Series A Cumulative Redeemable Exchangeable Preferred Stock due 2004
(the "Series A Preferred Stock"). The terms of the Series A Preferred
Stock and the Series B Preferred Stock are identical in all material
respects, except for certain transfer restrictions relating to the Series
A Preferred Stock. The exchange was concluded in December 1995 for all
outstanding shares of the Series A Preferred Stock.
Holdings is a holding company with no operations and has virtually
no assets other than its ownership of the outstanding common stock of the
Company. All of such stock is pledged, however, to the lenders under the
Revolving Credit Agreement. Accordingly, Holdings' ability to meet its
obligations when due under the terms of its indebtedness will be dependent
on the Company's ability to pay dividends, to loan, or otherwise advance
or transfer funds to Holdings in amounts sufficient to service Holdings'
obligations.
NOTE 10 DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE INFORMATION
The Company, to a limited extent, uses forward fixed price contracts
and derivative financial instruments to manage foreign currency exchange
and commodity price risks. The Company does not hold or issue financial
instruments for investment or trading purposes. The Company is exposed to
credit risk in the event of nonperformance by counterparties for foreign
exchange forward contracts, metal forward price contracts and metals
F-22
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
futures contracts but the Company does not anticipate nonperformance by
any of these counterparties. The amount of such exposure is generally the
unrealized gains within the underlying contracts.
FOREIGN EXCHANGE RISK MANAGEMENT
The Company engages in the sale and purchase of goods and services
which periodically require payment or receipt of amounts denominated in
foreign currencies. To protect the Company's related anticipated cash
flows from the risk of adverse foreign currency exchange fluctuations for
firm sales and purchase commitments, the Company enters into foreign
currency forward exchange contracts. At December 31, 1995 and 1994, the
Company had Deutschemark forward exchange sales contracts of $1,145 and
$5,360, respectively, and purchase contracts of $886 and $1,260,
respectively. The fair value of such contracts approximated contract
amount. Foreign currency gains or losses resulting from the Company's
operating and hedging activities are recognized in earnings in the period
in which the hedged currency is collected or paid. The related amounts
due to or from counterparties are included in other liabilities or other
assets.
COMMODITY PRICE RISK MANAGEMENT
Copper, the Company's principal raw material, experiences marked
fluctuations in market prices, thereby subjecting the Company to copper
price risk with respect to copper purchases and to firm and anticipated
customer sales contracts. Derivative financial instruments in the form of
copper futures contracts are utilized by the Company to reduce those
risks.
Purchase or "long" contracts are utilized by the Company to hedge
firm and anticipated sales contracts while sales or "short" contracts are
employed with respect to "carryover" copper purchases. Copper carryover
purchases represent that portion of the Company's current month's copper
purchase commitments priced at the current month's average New York
Commodity Exchange, Inc. ("COMEX") price, but not delivered until the
following month. Short contracts are utilized to mitigate risk that
copper prices, at the time of copper receipt, are likely to be below the
average COMEX price of the incoming copper carryover.
Purchase contracts at December 31, 1995 and 1994 totalled 14.7 and
2.8 million copper pounds, respectively, with contract amounts of $17,100
and $2,400 and estimated fair values of $16,900 and $3,700, respectively.
Sales contracts at December 31, 1995 totalled 13.5 million copper pounds,
with a contract amount of $16,600 and a fair value of $16,300. Deferred
and unrealized gains or losses on these futures contracts ($100 and $1,300
gain at December 31, 1995 and 1994, respectively) are included within
other assets and will be recognized in earnings in the period in which the
hedged copper is sold to customers and the underlying contracts are
liquidated, when a sale is no longer expected to occur or when the
carryover copper is received.
F-23
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, exclusive of certain foreign
currency exchange and futures contracts as discussed above, generally
consist of cash and cash equivalents and long-term debt. The carrying
amounts of the Company's cash and cash equivalents approximated fair value
at December 31, 1995 and 1994 while the carrying amount of the Senior
Notes exceeded fair value by approximately $4,000 and $12,000,
respectively. Fair values with respect to the Company's foreign currency
forward exchange and copper futures contracts are determined based on
quoted market prices.
NOTE 11 CONTINGENT LIABILITIES AND COMMITMENTS
There are various claims and pending legal proceedings against the
Company including environmental matters and other matters arising out of
the ordinary course of its business. Pursuant to the 1988 Acquisition,
UTC agreed to indemnify the Company against all losses (as defined)
resulting from or in connection with damage or pollution to the
environment and arising from events, operations, or activities of the
Company prior to February 29, 1988 or from conditions or circumstances
existing at February 29, 1988. Except for certain matters relating to
permit compliance, the Company is fully indemnified with respect to
conditions, events or circumstances known to UTC prior to February 29,
1988. The sites covered by this indemnity are handled directly by UTC and
all payments required to be made are paid directly by UTC. The amounts
related to this environmental contingency are not material to the
Company's consolidated financial statements. UTC also provided a second
environmental indemnity which deals with losses related to environmental
events, conditions or circumstances existing at or prior to February 29,
1988, which only became known in the five year window commencing February
29, 1988. As to any such losses, the Company is responsible for the first
$4,000 incurred. Management and its legal counsel periodically review the
probable outcome of pending proceedings and the costs reasonably expected
to be incurred. The Company accrues for these costs when it is probable
that a liability has been incurred and the amount of the loss can be
reasonably estimated. After consultation with counsel, in the opinion of
management, the ultimate cost to the Company, exceeding amounts provided,
will not materially affect its consolidated financial position or results
of operations.
At December 31, 1995, the Company had purchase commitments of 514.4
million pounds of copper. This is not expected to be either a quantity in
excess of needs or at prices in excess of amounts that can be recovered
upon sale of the related copper products. The commitments are to be
priced based on the COMEX price in the contractual month of shipment
except for 50.9 million pounds of copper that have been priced at fixed
amounts through forward purchase contracts covered by customer sales
agreements at copper prices at least equal to the Company's copper
commitment.
F-24
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
At December 31, 1995, the Company had committed $4,637 to outside
vendors for certain capital projects.
The Company occupies space and uses certain equipment under lease
arrangements. Rent expense was $7,478, $6,912 and $6,224 under such
arrangements for 1995, 1994 and 1993, respectively. Rental commitments at
December 31, 1995 under long-term noncancellable operating leases were as
follows:
Real Estate Equipment Total
----------- --------- -----
1996 $2,929 $2,821 $5,750
1997 2,132 2,099 4,231
1998 1,682 1,990 3,672
1999 1,791 1,048 2,839
2000 1,589 903 2,492
After 2000 11,341 633 11,974
------- ------ -------
$21,464 $9,494 $30,958
======= ====== =======
NOTE 12 QUARTERLY FINANCIAL DATA (UNAUDITED)
1995 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
----------------------------------- ------------ ------------ ------------ ------------
Net sales . . . . . . . . . . . . . $289,649 $288,534 $308,288 $315,179
Gross margin . . . . . . . . . . . 42,426 37,598 44,765 46,350
Income before extraordinary charge 9,184 4,044 6,117 3,149
Net income (a) . . . . . . . . . . $9,184 $1,073 $6,117 $3,149
F-25
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
1994 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
----------------------------------- ------------ ------------ ------------ ------------
Net sales . . . . . . . . . . . . . $231,832 $246,558 $265,897 $265,788
Gross margin . . . . . . . . . . . 40,184 38,680 42,375 42,225
Net income . . . . . . . . . . . . $7,783 $7,145 $7,998 $7,245
(a) In the second quarter 1995, the Company recognized an extraordinary
charge of $2,971 ($.08 per share), net of applicable income tax
benefit of $1,980, representing the write-off of unamortized debt
expense in connection with the termination of its former credit
agreement (see Note 5).
F-26
SCHEDULE II
ESSEX GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
Year Ended
December 31,
---------------------------------------------
In Thousands of Dollars 1995 1994 1993
----------------------- ---------------------------------------------
Allowance for doubtful
accounts:
Balance at beginning
of year . . . . . . . . $3,537 $2,811 $2,455
Provision . . . . . . . 676 1,332 850
Write-offs . . . . . . (476) (900) (765)
Recoveries . . . . . . 193 294 271
-------- -------- --------
Balance at end of year
$3,930 $3,537 $2,811
======== ======== ========
S-1
EXHIBIT INDEX
Location of Exhibit
Exhibit in Sequential
Number Description of Document Numbering System
--------------------------------------------------------------------------
2.01 Agreement and Plan of Merger, dated as of July 24, 1992 (the
"Merger Agreement"), between B E Acquisition Corporation and
BCP/Essex Holdings Inc. (then known as MS/Essex Holdings Inc.),
incorporated by reference to Exhibit 2.1 to BCP/Essex Holdings
Inc.'s (then known as MS/Essex Holdings Inc.) Current Report on
Form 8-K, filed with the Securities and Exchange Commission on
August 10, 1992 (Commission File No. 1-10211).
2.02 Amendment dated as of October 1, 1992, to the Agreement and Plan
of Merger between B E Acquisition Corporation and BCP/Essex
Holdings Inc. (then known as MS/Essex Holdings Inc.), incorporated
by reference to Exhibit 2.2 to BCP/Essex Holdings Inc.'s Current
Report on Form 8-K, filed with the Securities and Exchange
Commission on October 26, 1992 (Commission File No. 1-10211).
3.01 Certificate of Incorporation of the registrant (Incorporated by
reference to Exhibit 3.01 to the Company's Registration Statement
on Form S-1, File No. 33-20825).
3.02 By-Laws of the registrant, as amended. (Incorporated by reference
to Exhibit 3.02 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991).
4.01 Indenture under which the 10% Senior Notes Due 2003 are
outstanding, incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Pre-Effective Amendment No. 1
to Form S-2 (Commission File No. 33-59488).
9.01 Investors Shareholders Agreement dated as of October 9, 1992,
among B E Acquisition Corporation, Bessemer Capital Partners,
L.P., certain affiliates of Donaldson, Lufkin & Jenrette, Inc.,
certain affiliates of Goldman, Sachs & Co., and Chemical Equity
Associates, a California Limited Partnership, incorporated by
reference to Exhibit 28.1 to BCP/Essex Holdings Inc.'s Current
Report on Form 8-K, filed with the Securities and Exchange
Commission on October 26, 1992 (Commission File No. 1-10211).
9.02 Management Stockholders and Registration Rights Agreement dated as
of October 9, 1992, among B E Acquisition Corporation, Bessemer
Capital Partners, L.P. and certain employees of the registrant and
its subsidiaries, incorporated by reference to Exhibit 28.3 to
BCP/Essex Holdings Inc.'s Current Report on Form 8-K, filed with
the Securities and Exchange Commission on October 26, 1992
(Commission File No. 1-10211).
9.03 Form of Irrevocable Proxy dated as of October 9, 1992, granted to
Bessemer Capital Partners, L.P. by certain employees of the
registrant and its subsidiaries, incorporated by reference to
Exhibit 28.4 to BCP/Essex Holdings Inc.'s Current Report on Form
8-K, filed with the Securities and Exchange Commission on October
26, 1992 (Commission File No. 1-10211).
10.01 Engagement Letter dated July 22, 1992 among Bessemer Capital
Partners, L.P., B E Acquisition Corporation, and Donaldson, Lufkin
& Jenrette, Inc., incorporated by reference to Exhibit 10.10 to
registrant's Annual Report on Form 10-K for the year ended
December 31, 1992 (Commission File No. 1-7418).
Location of Exhibit
Exhibit in Sequential
Number Description of Document Numbering System
--------------------------------------------------------------------------
10.02 Amendment dated October 9, 1992 among Bessemer Capital Partners,
L.P., B E Acquisition Corporation, Donaldson, Lufkin & Jenrette,
Inc. and Goldman, Sachs and Co., to Engagement Letter dated July
22, 1992 among Bessemer Capital Partners, L.P., B E Acquisition
Corporation and Donaldson, Lufkin & Jenrette, Inc., incorporated
by reference to Exhibit 10.11 to registrant's Annual Report on
Form 10-K for the year ended December 31, 1992 (Commission File
No. 1-7418).
10.03 Advisory Services Agreement dated as of December 15, 1992, among
Bessemer Capital Partners, L.P., the registrant and Essex Group,
Inc. incorporated by reference to Exhibit 10.15 to the
registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 (Commission File No. 1-7418).
10.04 Credit Agreement dated as of April 12, 1995, among the registrant,
Essex, the lenders named therein and Chemical Bank, as agent,
incorporated by reference to Exhibit 10.1 to the registrant's
Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on May 12, 1995.
10.05 Senior Unsecured Note Agreement dated as of April 12, 1995, among
the registrant, as guarantor, Essex, the lenders named therein and
Chemical Bank, as administrative agent, incorporated by reference
to Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q,
filed with the Securities and Exchange Commission on May 12, 1995.
10.06 Agreement and Lease dated as of April 12, 1995, between Mellon
Financial Services Corporation #3 and Essex, incorporated by
reference to Exhibit 10.3 to the registrant's Quarterly Report on
Form 10-Q, filed with the Securities and Exchange Commission on
May 12, 1995.
10.07 First Amendment dated May 16, 1995 among the registrant, Essex,
the lenders named therein and Chemical Bank, as agent, to the
Credit Agreement dated April 12, 1995, among the registrant,
Essex, the lenders named therein and Chemical Bank, as agent
(Commission File No. 33-93232).
10.08 Form of Indenture for 15% Junior Subordinated Exchange Debentures
due September 30, 2004 (Commission File No. 33-93232).
12.01 Computation of Ratio of Earnings to Fixed Charges.
21.01 Subsidiaries of the registrant.
99.01 Registration Rights Agreement dated as of October 9, 1992, among
B E Acquisition Corporation, certain affiliates of Donaldson,
Lufkin & Jenrette, Inc., certain affiliates of Goldman, Sachs &
Co., and Chemical Equity Associates, A California Limited
Partnership, incorporated by reference to Exhibit 28.2 to
BCP/Essex Holdings Inc.'s Current Report on Form 8-K, filed with
the Securities and Exchange Commission on October 26, 1992
(Commission File No. 1-10211).
99.02 Amended and Restated Stock Option Plan of BCP/Essex Holdings Inc.,
incorporated by reference to Exhibit 4.7 to BCP/Essex Holdings
Inc.'s Current Report on Form 8-K, filed with the Securities and
Exchange Commission on October 26, 1992 (Commission File No. 1-
10211).
99.03 Amendment No. 1 dated as of June 5, 1995 to the 1992 Registration
Rights Agreement (Commission File No. 33-93232).
99.04 Registration Rights Agreement between the Company and Donaldson,
Lufkin & Jenrette Securities Corporation and Goldman, Sachs & Co.
dated as of June 5, 1995 (Commission File No. 33-93232).
EXHIBIT 12.01
ESSEX GROUP, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
SUCCESSOR
--------------------------------------------
Three Month
Year Ended Period Ended
December 31, December 31,
-------------------------------
In Thousands of Dollars 1995 1994 1993 1992
Income (loss) before
taxes and
extraordinary $22,494 $52,871 $22,429 $(6,962)
charge
Add:
Interest Expense 34,683 24,554 25,241 8,086
Portion of rents
representative of
interest factor 2,490 2,302 2,073 650
Current period
amortization of
interest capitalized
in prior periods 120 95 8 -
------- ------- ------- -------
Income as adjusted $59,787 $79,822 $49,751 $1,774
======= ======= ======= =======
Fixed charges:
Interest incurred:
Amount expensed $34,683 $24,554 $25,241 $8,086
Amount capitalized 565 132 1,599 116
Portion of rents
representative of
interest factor 2,490 2,302 2,073 650
------- ------- ------- -------
Total fixed charges $37,738 $26,988 $28,913 $8,852(In Thousands of Dollars)
Years Ended
December 31,
------------------------------------------
1995 1996 1997
-------- -------- ---------
Allowance for doubtful accounts:
Balance at beginning of year $ 3,537 $ 3,930 $ 5,239
Provision 676 1,782 1,037
Write-offs (476) (738) (1,204)
Recoveries 193 265 511
------ ------ ------
Balance at end of year $ 3,930 $ 5,239 $ 5,583
====== ====== ====== ======= ======= =======
Ratio of earnings to
fixed charges (a) 1.6 3.0 1.7 -
=== === === ===
/TABLE
(a) Earnings of the Successor were insufficient to cover fixed charges
by the amount of $7,078 for the three month period ended December
31, 1992.
PREDECESSOR
----------------------------------
Nine Month
Period Ended Year Ended
September 30, December 31,
In Thousands of Dollars, Except Ratio Data 1992 1991
-----------------------------------------------------------------------------
Income (loss) before
taxes and extraordinary
charge $14,714 $27,741
Add:
Interest expense 14,505 24,969
Portion of rents
representative of
interest factor 1,379 1,876
Current period
amortization of
interest capitalized
in prior periods 48 63
------- -------
Income as adjusted $30,646 $54,649
======= =======
Fixed charges:
Interest incurred:
Amount expensed $14,505 $24,969
Amount capitalized 220 -
Portion of rents
representative of
interest factor 1,379 1,876
------- -------
Total fixed charges $16,104 $26,845
======= =======
Ratio of earnings to
fixed charges (a) 1.9 2.0
=== ===
(a) Earnings of the Successor were insufficient to cover fixed charges
by the amount of $7,078 for the three month period ended December
31, 1992.
EXHIBIT 21.01
ESSEX GROUP, INC. (MICHIGAN)
SUBSIDIARIES OF THE REGISTRANT
Essex Group, Inc. . . . . . . . . . . . . . . . . . . Delaware
Essex International, Inc. . . . . . . . . . . . . . . Delaware
Essex Wire Corporation . . . . . . . . . . . . . . . Michigan
Diamond Wire & Cable Co. . . . . . . . . . . . . . . Illinois
US Samica Corporation . . . . . . . . . . . . . . . . Vermont
Femco Magnet Wire Corporation . . . . . . . . . . . . Indiana
Essex Group Export Inc. . . . . . . . . . . . . . . . U.S. Virgin Islands
Interstate Industries Holdings Inc. . . . . . . . . . Delaware
Interstate Industries, Inc. . . . . . . . . . . . . . Mississippi
Essex Group Mexico Inc. . . . . . . . . . . . . . . . Delaware
Essex Group Mexico, S.A. de C.V. . . . . . . . . . . Mexico
SX Mauritius Holding Inc. . . . . . . . . . . . . . . Mauritius
EXHIBIT 21.01
ESSEX GROUP, INC. (MICHIGAN)
SUBSIDIARIES OF THE REGISTRANT
- ------------------------------------------------------------------------
Essex Group, Inc. Delaware
Essex Canada, Inc. Delaware
Essex Wire Corporation Michigan
Diamond Wire & Cable Co. Illinois
Essex Group Export Inc. U.S. Virgin Islands
Interstate Industries Holdings Inc. Delaware
Interstate Industries, Inc. Mississippi
Essex Group Mexico Inc. Delaware
Essex Group Mexico, S.A. de C.V. Mexico
SX Mauritius Holding Inc. Mauritius
INDEX OF EXHIBITS
Exhibit
No. Description
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2.01- Agreement and Plan of Merger, dated as of July 24, 1992, between
B E Acquisition Corporation and the Registrant (then known as
MS/Essex Holdings Inc.), incorporated by reference to Exhibit 2.1
to the Registrant's Current Report on Form 8-K, filed with the
Securities and Exchange Commission (the "Commission") on August 10,
1992 (Commission File No. 1-10211)
2.02- Amendment dated as of October 1, 1992, to the Agreement and Plan of
Merger between B E Acquisition Corporation and the Registrant,
incorporated by reference to Exhibit 2.2 to the Registrant's
Current Report on Form 8-K, filed with the Commission on October
26, 1992 (Commission File No. 1-10211)
3.01- Certificate of Incorporation of the Registrant (Incorporated by
reference to Exhibit 3.01 to the Registrant's Registration
Statement on Form S-1, File No. 33-20825)
3.02- By-Laws of the Registrant, as amended. (Incorporated by reference
to Exhibit 3.02 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991)
4.01- Indenture dated as of May 7, 1993, among Essex Group, Inc. and NBD
Bank, National Association, as Trustee, under which the 10% Senior
Notes Due 2003 are outstanding, incorporated by reference to
Exhibit 4.1 to the Essex Registration Statement on Pre-Effective
Amendment No. 1 to Form S-2 (Commission File No. 33-59488)
4.02- Credit Agreement dated as of October 31, 1996, between BCP/Essex
Holdings Inc., the Registrant, the lenders named therein and The
Chase Manhattan Bank, as administrative agent, incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q, filed with the Commission on November 13, 1996
(Commission File No. 1-7418)
4.03- Amended and Restated Credit Agreement, dated as of October 31,
1996, among Essex International, the Registrant, the lenders named
therein and The Chase Manhattan Bank, as administrative agent,
incorporated by reference to Exhibit 4.5 to Amendment No. 2 of
Essex International's Registration Statement on Form S-1, filed
with the Commission on April 10, 1997 (Commission File No.
333-22043)
4.04- Agreement and Lease dated as of April 12, 1995, between Mellon
Leasing Corporation and the Registrant, incorporated by reference
to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q,
filed with the Commission on May 12, 1995
INDEX OF EXHIBITS
Exhibit
No. Description
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4.05- Amendment No. 1 dated as of June 1, 1997 to the Agreement and Lease
dated as of April 12, 1995, between Mellon Leasing Corporation and
the Registrant, incorporated by reference to Exhibit 4.9 to the
Registrant's Quarterly Report on Form 10-Q, filed with the
Commission on November 7, 1997 (Commission File No. 1-7418)
4.06- Amendment No. 2 dated as of September 2, 1997 to the Agreement and
Lease dated as of April 12, 1995, between Mellon Leasing
Corporation and the Registrant, incorporated by reference to
Exhibit 4.10 to the Registrant's Quarterly Report on Form 10-Q,
filed with the Commission on November 7, 1997 (Commission File
No. 1-7418)
9.01- Management Stockholders and Registration Rights Agreement dated as
of October 9, 1992, among B E Acquisition Corporation, Bessemer
Capital Partners, L.P. and certain employees of the Registrant and
its subsidiaries, incorporated by reference to Exhibit 28.3 to
BCP/Essex Holdings Inc.'s Current Report on Form 8-K, filed with
the Commission on October 26, 1992 (Commission File No. 1-10211)
10.01- Advisory Services Agreement dated as of December 15, 1992, among
Bessemer Capital Partners, L.P., BCP/Essex Holdings Inc. and the
Registrant incorporated by reference to Exhibit 10.15 to BCP/Essex
Holdings Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 (Commission File No. 1-10211)
10.02- Amended and Restated Stock Option Plan ("Stock Option Plan"), of
BCP/Essex Holdings Inc., incorporated by reference to Exhibit 4.7
to BCP/Essex Holdings Inc.'s Current Report on Form 8-K, filed with
the Commission on October 26, 1992 (Commission File No. 1-10211)
10.03- Amendment No. 1 to the Stock Option Plan, incorporated by reference
to Exhibit 99.04 to BCP/Essex Holdings Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1996, filed with the
Commission on February 19, 1997 (Commission File No. 1-10211)
10.04- Amendment No. 2 to the Stock Option Plan, incorporated by reference
to Exhibit 10.10 to Essex International Inc.'s Registration
Statement on Form S-1, filed with the Commission on August 14, 1997
(Commission File No. 333-33591)
21.01- Subsidiaries of the Registrant
27.01- Financial Data Schedule - December 31, 1997