UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A NO. 110-K
(Mark One)
[X ][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, 19941997
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 1-7418
______file number 1-10211
_______
ESSEX GROUP, INC.
______________________________________________________----------------------------------------------------
(Exact name of registrant as specified in its charter)
MICHIGAN 35-1313928
__________________________________________________________________________- --------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1601 WALL STREET, FORT WAYNE, INDIANA 46802
__________________________________________________________________________- --------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: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
__________________________________________________________________________
(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 28, 1995January 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 1930, is a leading North American developer,
manufacturer and distributor of electrical wire and 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. Among the
Company's products are building wire for commercial and residential
construction applications; magnet wire and insulation materials for
electromechanical devices such as motors, transformers and electrical
controls; copper voice and datacom wire; industrial wire for applications
in construction, appliances, recreational vehicles and industrial
facilities; and automotive wire and specialty wiring assemblies for
automobiles and trucks.
PRODUCT LINES
The following table sets forth for each of the three years in the
period ended December 31, 1997 the dollar amounts and percentages of sales
of each of the Company's major product lines:
Sales
---------------------------------------------
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
======== ======== ========
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) 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.
An overview of each of the Company's product lines is set forth
below.
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 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 distributes a complete line of building
wire products. These products include a wide variety of thermoplastic and
thermoset 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 construction
market.
Sales and Distribution. The Company 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 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 an internal sales force and the 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 have 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
extensively 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. As a result of consolidation in the OSP copper
wire industry, total industry capacity has declined and the 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 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 Company'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
fragmented across the product lines and markets served.
Products. The Company develops, manufactures and markets a broad
line of industrial wire and cable products 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 Distribution. The Company sells industrial wire and cable
products primarily to appliance and power tool manufacturers, suppliers of
electrical and electronic original equipment manufacturers, electrical
distributors and welding products distributors. Industrial wire and
cables are marketed nationally through a combination of a Company sales
force and manufacturers representatives.
Automotive Wire
Industry. The automotive primary wire market has experienced strong
growth over the last decade due to higher production levels of new
vehicles and a significant increase in the installation 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 joint 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
the automotive industry.
Sales and Distribution. The Company sells automotive wire products
primarily to tier-one motor vehicle manufacturer suppliers. The Company
has diversified its customer base for automotive wire products through
steadily improving product quality and increased productivity achieved
through continuous process improvements. Automotive wire products are
marketed through a Company sales force and manufacturers' 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.
Metals Operations
Copper is the primary component of the Company's overall cost
structure, comprising approximately 56% of the Company's 1997 total cost
of 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 metals operations are vertically integrated in the
production of copper rod. 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. In 1997, the Company purchased approximately
365,000 tons of copper, entirely from North American copper producers and
metals merchants. To ensure a steady supply of copper, the Company
contracts with copper producers and metals merchants. Most contracts have
a one-year term. Pricing provisions vary, but are normally based on the
COMEX price, plus a premium to cover transportation and payment terms.
Additionally, the Company utilizes COMEX fixed price futures contracts to
manage its commodity price risk. The Company does not hold or issue such
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 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.
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
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 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. The Company uses a continuous
casting process to convert scrap material directly into copper rod.
Manufacturing cost economies, particularly in the form of energy savings,
result from this direct conversion 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. The Company also, from time to time, obtains magnet wire scrap
from other copper wire producers and processes it along with its
internally generated scrap.
Exports
Sales of exported goods approximated $55.5 million, $85.8 million and
$107.9 million for the years ended December 31, 1995, 1996 and 1997,
respectively. Building wire, magnet wire and communication cables are
Essex' primary exports; Canada and Mexico are the largest export markets.
Backlog; Returns
The Company has no significant order backlog because 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. Historically, returns have had no
material adverse effect on the Company's results of operations.
Competition
In each of the Company's businesses, the Company experiences
competition from at least one major company. However, due to the
diversity of the Company's product lines as a whole, no single company
competes with it 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 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, emphasis placed on
customer service, commitment to quality control, reliability and
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 unfavorable 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
expenditures 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, 1996 or
1997. In connection with the February 1988 acquisition 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.
Employees
As of December 31, 1997 Essex employed approximately 1,700 salaried
and 3,400 hourly employees in 35 states. Labor unions represent
approximately 50% of the Company's work force. Collective bargaining
agreements expire at various times between 1998 and 2001 with contracts
covering approximately 34% of the Company's unionized work force due to
expire at various times in 1998. The Company believes that it will be
able to renegotiate these contracts covering such unionized employees on
terms that will not be materially adverse to it. However, no assurance
can be given to that effect. The Company believes that its relations with
both unionized and nonunionized employees have been satisfactory.
ITEM 2. PROPERTIES
At December 31, 1997 the Company operated 28 manufacturing facilities
in 16 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 Essex at December 31, 1997:
Square
Operation Location Feet
--------- -------- ------
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
Magnet Wire Charlotte, NC 26,000 (Leased)
Fort Wayne, IN 181,000
Franklin, IN 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) 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 38 service centers throughout the United States and
Canada 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. The extent of current
utilization 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 underutilized. Most plants operate on 24 hour-a-day
schedules, on either a five day or seven day per week basis. During 1997,
the Company's facilities operated at approximately 90% 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 singlyindividually 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 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 and, in certain
instances, sanctions.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 by the Company, in volume
and type, of Company waste at the site. TheMost of the sites for which the Company
believesis currently named as a PRP are covered by an indemnity (the "general
indemnity") from UTC that subjectwas granted in connection with the 1988
Acquisition. Pursuant to the $4.0 million "basket" described below and five other identified sites, it
will not bear the cost of investigation and cleanup at any of these sites
because, pursuant to the Stock Purchase Agreement dated January 15, 1988
(the "1988 Acquisition Agreement") covering the 1988 Acquisition,general indemnity, UTC agreed to indemnify
the Company against all losses as defined in the 1988
Acquisition Agreement, 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. Except for
certain matters relatingIn order to permit compliance,be
covered by the Company believes that
it is fully indemnified with respect to conditions, eventsgeneral indemnity, the condition, event, and circumstancescircumstance
must have been known to UTC prior to February 29, 1988, (i.e., matters
referred to in documents which were in UTC's possession, custody or
control prior to the 1988 Acquisition or matters identified to UTC through
the due diligence of Holdings.) Further, the Company is indemnified,
subject to a $4.0 million "basket" (the "Basket"), for losses related to
any environmental events, conditions, or circumstances identified prior to
February 28, 1993 to the extent such losses were not caused by activities
of the Company after February 29, 1988. None of the foregoing was
affectedThe sites covered
by the change in control of Holdings on October 9, 1992.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 whichthat are owing under the UTC indemnity. There are
currently nogeneral
indemnity or any disputes between the Company and UTC concerning matters
that
are covered by the indemnification butgeneral indemnity.
UTC also provided an additional environmental indemnity, referred to
as the "basket indemnity." This indemnity relates to liabilities arising
from environmental events, conditions or circumstances existing at or
prior to February 29, 1988, that only became known to UTC in the five-year
period commencing February 29, 1988. As to such liabilities, the Company
is responsible for the first $4.0 million incurred. Thereafter, UTC has
agreed to indemnify the Company fully for any liabilities in excess of
$4.0 million. The Company is currently named as a PRP at three sites
which meet the criteria for the basket indemnity. Those sites are Fisher
Calo Chemical and Solvents Corporation, Kingsbury, 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. At Fisher Calo, the Company entered into a consent decree that
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, are discussing
application ofas the
Basket to certain post-February 28, 1993 claims. Therebasket has not been exhausted under the basket indemnity.
In addition, there are five identified 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 asbasket indemnity. They are Ascon Landfill,
Huntington Beach, CA; A-1 Disposal Corp., Allegan County, MI; Milford
Mill, Beaver County, UT; Uniontown Landfill, Uniontown, 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 remediation. Although the shares and sources of funding for five-
year monitoring expenses have not been appliedestablished, the Company believes
that its share will be minimal. The Milford Mill site was a copper mill
used by the Company in the early 1970s. The Company is one of four PRPs
notified by the EPA. The EPA conducted a removal action at the site and
incurred $0.2 million in costs, for which it is currently seeking
reimbursement from the PRPs. The Uniontown Landfill is the subject of a
civil lawsuit in which the Company is one of several defendants sued by
the owner of the landfill to date.recover alleged site investigation and
groundwater remediation costs. The Company does not believe that it is
responsible for any disposal 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 $0.9 million to cover
contingencies associated with fourenvironmental contingencies. This accrual is based on management's best
estimate of these sites.the 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 probable ability of other PRPs to
pay their proportionate share of remediation costs, the conditions at each
site and the number of participating parties. The Company currently does
not believe that in light of the UTC indemnity, any of the environmental
3 proceedings in which it is
involved for four of those sites and for which it may be liable under the Basket or otherwise will individually or in 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, for amounts
of $0.1 millionfines or more. With respect to three ofadministrative
penalties against the four sites,Company.
Since approximately 1990, the Company has been named as a PRPdefendant
in a 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,
financial condition, cash flows or 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.
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.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents summary selected historical consolidated
financial data of the Company as of and for each of the five years ended
December 31, 1997.
Years Ended December 31,
------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(In millions, except share and per share
amounts and copper prices)
Results of Operations:
Net sales $868.8 $1,010.1 $1,201.7 $1,332.0 $1,701.3
Income from operations $47.7 $77.4 $76.9 $106.6 $177.5
Income (loss) before
extraordinary charge $ 9.3 $30.2 $22.5 $37.6 $84.1
Extraordinary charge net of
income tax benefit (a) 3.3 - 3.0 1.2 -
------ -------- -------- -------- --------
Net income (loss) $ 6.0 $ 30.2 $ 19.5 $ 36.4 $ 84.1
====== ======== ======== ======== ========
Financial Position (at end
of year):
Total assets $707.0 $750.3 $744.5 $841.2 $862.7
Total debt (including current
portion) $200.0 $200.0 $424.5 $463.8 $353.5
Stockholders' equity $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 Amortization $29.9 $31.4 $34.2 $33.9 $34.3
(Footnotes on following page)
(a) During 1993, the 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. During
1995 and 1996, the Company recognized extraordinary charges of $3.0
million and $1.2 million, respectively, net of applicable tax
benefit, representing the write-offs of unamortized debt issuance
costs associated with the termination of the Company's former credit
agreements.
(b) Copper equivalent pounds include aluminum pounds which have been
converted to a copper pound equivalent basis.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Overview
Essex, founded in 1930, is a leading North American developer,
manufacturer and distributor of electrical wire and 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
products include building wire for commercial and residential construction
applications; magnet wire and insulation materials for electromechanical
devices such as motors, transformers and electrical controls; copper voice
and datacom wire; industrial wire for applications in construction,
appliances, recreational vehicles and industrial facilities; and
automotive wire and specialty wiring assemblies for automobiles and
trucks.
RESULTS OF OPERATIONS
The 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 1997 were $1,701.3 million or 27.7% higher than in
1996, resulting from improved sales volume and better product pricing,
partially offset by lower copper prices. The 1997 daily average COMEX
copper price was 1.9% lower than in 1996. 1997 sales volume was at a
record level, exceeding 1996 by 24.3%. This growth 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 better
conditions in the Company's building wire markets, economies of scale
derived from higher sales volume and lower per unit manufacturing costs
attributable to continued productivity improvements.
Building wire sales in 1997 increased 56.4% from 1996 due primarily
to improved sales volume and product pricing (without regard to copper
costs). 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 support increasing demand for
electrical services. Building wire gross margins during 1997 improved
significantly over the comparable period in 1996 due to the
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 to 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
attributes the increase in demand to growth in the domestic 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 repair 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 which necessitated fewer replacement motors and repair parts
for motors, transformers and pumps.
Cost of goods sold for 1997 was 24.3% higher than in 1996 due
primarily to higher sales volume. The Company's cost of goods sold as a
percentage of net sales was 82.8% and 80.5% in 1996 and 1997,
respectively. The cost of goods sold percentage decrease resulted
primarily from the impact of improved building wire product pricing as
well as lower per unit manufacturing costs attributable to continued
productivity programs, including capital investments. Also, the
operations of Triangle have been effectively integrated, thereby driving
substantial improvements in productivity.
Selling and administrative expenses in 1997 were 27.5% above 1996 due
primarily to incremental commission, selling and warehouse expenses
associated with Triangle. However, selling and administrative expenses,
as a percentage of sales, were 9.1% in 1997 which is consistent with 1996.
Interest expense in 1997 was 5.8% lower than in 1996. Notwithstanding
incremental borrowings to finance the acquisition of Triangle, the
Company's outstanding 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 facility due to lower LIBOR rates (as defined herein) and an
improved leverage ratio resulting in a reduced interest "spread" over
LIBOR. The Company's average rate of interest on its long-term debt in
1997 declined 30 basis points from 1996.
Income tax expense was 39.8% of pretax income in 1997 compared with
43.6% in 1996 due to the increase in pretax income reducing the impact of
the amortization of excess cost over net assets acquired, which is not
deductible for income tax purposes.
The Company recorded net income of $84.1 million for 1997 compared to
net income of $36.4 million in 1996. The 1996 results include
extraordinary charges of $1.2 million ($2.0 million before applicable tax
benefit) for the write-off of unamortized deferred debt expense associated
with the Company's former revolving credit agreement. In 1996, a former
revolving credit agreement was terminated in connection with the Triangle
acquisition.
1996 Compared with 1995
Net sales for 1996 were $1,332.0 million or 10.8% greater than in
1995 resulting primarily from improved sales volume and increased sales
attributable to the Brownell acquisition in September 1995 and the
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 volume for 1996 exceeded 1995 by 16.9%. Improved sales volume
resulted primarily from increased demand for the Company's magnet wire,
building 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 the Triangle
acquisition, partially offset by a decline in copper prices. Building
wire market demand exhibited continued growth during 1996 on the strength
of new 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 prices.
Sales volume improvements were attributable to increased demand for magnet
wire in the electric motor and transformer markets due in part to the
increased use of magnet wire for increased energy efficiency. Sales
increases were also a result of increased sales to distributors.
Communication wire sales for 1996 were below those in 1995 due to the
decrease in copper prices partially offset by increased sales of datacom
products. Datacom sales were up 21.2% as compared to 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 to the
decrease in copper prices partially offset by improved sales volume as
North American new car and light truck sales volume increased just over
1.0% in 1996. Industrial wire sales in 1996 were above those in 1995 by
12.0% due to an increase in sales volume partially offset by the decline
in 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 for 1996 was 7.0% higher than in 1995 due
primarily to higher sales volume and increased sales attributable to the
Brownell and Triangle acquisitions, partially offset by lower copper
prices. Essex' cost of goods sold as a percentage of net sales was 85.8%
and 82.8% in 1995 and 1996, respectively. Cost of goods sold as a
percentage of net sales decreased compared to 1995 due primarily to the
marked decline in copper costs, improved building wire product pricing
(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 volume leading to increased
manufacturing efficiency.
Selling and administrative expenses for 1996 were 29.6% above 1995,
due primarily to increased selling, distribution and administrative
expenses attributable to the Brownell and Triangle acquisitions and
increased distribution and commission expenses due to higher sales volume
experienced during 1996.
Interest expense in 1996 was $5.3 million higher than in 1995 due
primarily to additional borrowings under the Company's new credit
facilities to effect the May 1995 redemption (the "Redemption") of all of
Essex International's outstanding Senior Discount Debentures due 2004 (the
"Debentures"). The Company's average interest rate decreased from 9.4% in
1995 to 8.6% in 1996 due to the Redemption.
Income tax expense was 43.6% of pretax income in 1996 compared with
46.7% for 1995. The effective income tax rate of Essex is higher than the
approximate statutory rate of 40.0% due to the effect of the amortization
of excess of cost over net assets, which is not deductible for income tax
purposes.
The Company recorded net income of $36.4 million for 1996 compared to
net income of $19.5 million in 1995. The 1996 and 1995 results include
extraordinary charges of $1.2 million and $3.0 million, respectively ($2.0
million and $5.0 million, respectively, before applicable tax benefit),
for the write-off of unamortized deferred debt expense associated with the
Company's former revolving credit agreements. In 1996, the former
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
General
The Company's aggregate notes payable to banks and long-term debt at
December 31, 1997 was $353.5 million, and its stockholders' equity was
$235.2 million. The resulting ratio of debt to total capitalization
improved to 60% from 75% at December 31, 1997. 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 option, 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 0% and .375%, respectively, if a specified
leverage ratio is achieved. Based upon the specified 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 average 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 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
that 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 in 1998.
Operating Activities. Net cash provided by operating activities in
1997 was $103.9 million, compared to $67.5 million in 1996. The increase
in cash provided by operating activities was primarily the result of
higher net income, partially offset by higher accounts receivable related
to strong fourth quarter 1997 sales.
Investing Activities. Capital expenditures of $42.1 million in 1997
were $16.6 million more than in 1996. In 1997, approximately $7.4 million
was invested in magnet wire ovens to improve quality and increase
manufacturing productivity. Capital expenditures in 1998 are expected to
be at or above 1997 levels and will be used to improve manufacturing
efficiency and expand capacity. At December 31, 1997, approximately $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 Agreement imposes limitations on capital
expenditures, business acquisitions and investments.
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, Essex 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 Essex 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 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, Essex
International's ability to meet its cash obligations 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 the 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 considered to be immaterial both
individually and in the aggregate, however, because Essex International
has no operations, other than those conducted through the Company, 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 funds it may obtain in the future
subject to the terms of the Revolving Credit Agreement and the Senior Note
Indenture.
Long-Term Liquidity Considerations
The Senior Notes mature in 2003 and at 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 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 the
Sale and Leaseback Agreement.
The Company's operations involve the use, disposal and cleanup of
certain substances regulated under environmental protection laws. The
Company has accrued $0.9 million for environmental remediation and
restoration costs. The accrual 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-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.
Derivative 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 on 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 with respect to the fourth site,underlying
contracts.
Impact of Year 2000
The Company is currently working to determine the impact of the year
2000 issue on the processing of date-sensitive information by the
Company's computerized information systems. The year 2000 problem is the
result of computer programs being written using two digits (rather than
four) to define 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 miscalculations 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 Company'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, the
Company's major raw material, the Company's profitability is generally not
affected by changes in copper prices because the Company is one of several defendants in a civil lawsuit to recover alleged
site investigation and groundwater remediation costs by the owner of the
site. With respect to the fifth site, the Companygenerally has
been notifiedable to pass on its cost of copper to its customers. The Company
attempts to match its copper purchases with its production requirements
and thereby minimize copper cathode and rod inventories. The Company
cannot predict future copper prices or the effect of fluctuations in the
cost of copper on the Company's future operating results.
The Company believes that it is only affected by inflation 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.
In 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 several PRPsthese 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
isforward-looking statements included herein are fluctuations in the
processeconomy, acquisition and consolidation activity in the Company's
businesses, the willingness of investigatingcustomers to accept more distant
distribution channels, demand for the related factsCompany's products, the impact of
price competition and circumstances. Pendingfluctuations in the outcomeprice of such
investigation,copper.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors F-1
Consolidated Balance Sheets:
A of December 31, 1997 and 1996 F-2
Consolidated Statements of Operations:
For each of the three years in the period
ended December 31, 1997 F-3
Consolidated Statements of Cash Flows:
For each of the three years in the period
ended December 31, 1997 F-4
Notes to Consolidated Financial Statements F-5
INDEX TO FINANCIAL STATEMENT SCHEDULES
II. Valuation and Qualifying Accounts S-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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
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 directors
and executive officers of the Company:
Name Age Position
- ---- ---- ---------
Steven R. Abbott 50 President and Chief Executive
Officer; Director (Chairman)
Robert J. Faucher 53 Executive Vice President; Director
Dominic A. Lucenta 44 Senior Vice President
Charles W. McGregor 56 Executive Vice President
Debra F. Minott 42 Senior Vice President, General
Counsel and Secretary
Curtis A. Norton 52 Senior Vice President
David A. Owen 51 Executive Vice President and Chief
Financial Officer; Director
Gregory R. Schriefer 45 Executive Vice President
Mr. Abbott has insufficient knowledge upon which to base
an estimatebeen a director since 1988. Messrs. Owen and Faucher
became directors in 1993. Directors of its potential liability.
In 1967, following an investigation regarding the alleged violation
of United States antitrust laws, the Company agreed thatare 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.
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 director of 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 and Vice President, Operations in the
future it
would refrainIndustrial Products Division of Essex from tyingJune 1988 to January 1992. Mr.
Faucher joined the saleCompany in 1985 as Vice President, Planning.
Dominic A. Lucenta was appointed Senior Vice President in charge of
magnet wireHuman Resources in April 1994. From October 1992 to April 1994 he was
Vice President of Human Resources and from 1990 to 1992 he was Director of
Human Resources for various divisions of the purchaseCompany. He was director of
other
products.
4Risk Management from 1988 to 1990. He joined the Company in 1979.
Charles W. McGregor was appointed Executive Vice President in October
1996. He was President of the Magnet Wire and Insulation Sector of Essex
from September 1995 to October 1996. He was President of the Magnet Wire
and Insulation Division of Essex from September 1993 to September 1995 and
prior to that was Director of Manufacturing for the Division from 1987 to
1993. Mr. McGregor has been employed by the Company since 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 in March 1994. He had been appointed Vice President-
Finance and Chief Financial Officer in March 1993, and Treasurer in April
1992. Prior to that time, Mr. Owen was Director, Treasury and Financial
Services for Essex. Mr. Owen has been employed by the Company since 1976.
Gregory R. Schriefer was appointed Executive Vice President in
October 1996. He was Vice President and General Manager of Building Wire
Products from September 1995 to October 1996 and was Vice President,
Manufacturing of the Wire and Cable Division from April 1994 to September
1995. Mr. Schriefer has been employed in various positions with the
Company since 1981.
SIGNATUREPART 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) Reports on Form 8-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)
June 6, 1995March , 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 , 1998 /s/ Steven R. Abbott
- -------------- -------------------------------------
Steven R. Abbott
President and Chief Executive Officer;
Director
(Principal Executive Officer)
March , 1998 /s/ David A. Owen
- -------------- --------------------------------------
David A. Owen
Executive Vice President,
Chief Financial Officer; Director
(Principal Financial Officer)
March , 1998 /s/ Robert J. Faucher
- -------------- --------------------------------------
Robert J. Faucher
Director
March , 1998 /s/ James D. Rice
---------------------- -------------- --------------------------------------
James D. Rice
Senior Vice President,
Corporate Controller
(Principal Accounting Officer)
5
ESSEX GROUP, INC.
INDEX OF EXHIBITS
(Item 14(a)(3))
Exhibit
No. Description
- --------------------------------------------------------------------------
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
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 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 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. Successor as of December 31, 19941997 and 19931996 and the related consolidated
statements of operationsincome and cash flows of Essex
Group, Inc. Successor for the years ended December 31, 1994 and 1993 andeach of the three monthyears in the
period ended December 31, 1992, and the consolidated
statements of operations and cash flows of Essex Group, Inc. Predecessor
for the nine month period ended September 30, 1992.1997. 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 schedules 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. Successor at December 31, 19941997 and 19931996 and the consolidated
results of their operations and their cash flows of Essex Group,
Inc. Successor for the years ended December 31, 1994 and 1993, andeach of the three
monthyears in the period ended December 31, 1992, and of Essex Group,
Inc. Predecessor for the nine month period ended September 30, 1992,1997, 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.
ERNST & YOUNG LLP
Indianapolis, Indiana
January 27, 1995, except for Note 14 as to
which the date is March 21, 1995 and the
first paragraph of Note 12 as to which the
date is May 22, 1995
F-11998
ESSEX GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
December 31,
---------------------------
In Thousands of Dollars, Except Per Share Data 1994 1993
--------------------------------------------------------------------------------------------------------------
1996 1997
-------- --------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . $16,894 $10,346$ 2,899 $ 2,832
Accounts receivable (net of
allowance of $3,537$5,239 and $2,811 . . . . . . . . . . . . . . . . . . 144,595 116,733$5,583) 189,717 191,737
Inventories . . . . . . . . . . . . . . . . . . . . . 145,706 139,357217,643 233,020
Other current assets . . . . . . . . . . . . . . . . . 20,496 9,738
-------- --------12,147 14,077
------- -------
Total current assets . . . . . . . . . . . . . 327,691 276,174422,406 441,666
Property, plant and equipment, net . . . . . . . . . . . 276,134 273,084280,489 287,832
Excess of cost over net assets
acquired (net of accumulated
amortization of $9,145$17,388 and
$5,081) . . . . . 133,100 137,164$21,610) 126,619 123,222
Other intangible assets and deferred
costs (net of accumulated
amortization of $5,146$4,501 and $2,986) . . . . . . . . . . . . . . . . . . . . . . 11,563 13,921$4,103) 7,417 5,478
Other assets . . . . . . . . . . . . . . . . . . . . . . 1,812 6,654
-------- --------
$750,300 $706,997
======== ========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 1994 1993
--------------------------------------------------------------------------------------Data)
December 31,
------------------------
1996 1997
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 30,913 $ 34,752
Current portion of long-term debt 11,576 2,500
Accounts payable . . . . . . . . . . . . . . . . . . . $47,421 $45,53571,243 63,845
Accrued liabilities . . . . . . . . . . . . . . . . . 45,821 42,86363,313 69,271
Deferred income taxes . . . . . . . . . . . . . . . . 10,408 14,27715,151 15,796
Due to Holdings . . . . . . . . . . . . . . . . . . . 32,979 18,363
-------- --------Essex International 5,153 8,759
------- -------
Total current liabilities . . . . . . . . . . . 136,629 121,038198,349 194,923
Long-term debt . . . . . . . . . . . . . . . . . . . . . 200,000 200,000421,340 316,250
Due to Essex International - 46,241
Deferred income taxes . . . . . . . . . . . . . . . . . . 72,771 77,79458,043 54,438
Other long-term liabilities . . . . . . . . . . . . . . . 6,997 4,433
Stockholders'12,427 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 . . . . . . . . . . . . . 302,784 302,784104,036 104,036
Retained earnings . . . . . . . . . . . . . . . . . . 31,119 948
-------- --------47,030 131,128
------- -------
Total stockholders'stockholder's equity . . . . . . . . . . 333,903 303,732
-------- --------
$750,300 $706,997
======== ========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)
SUCCESSOR PREDECESSOR
-------------------------------------- ------------
Three Month Nine Month
Year Ended Year Ended Period Ended PeriodYears Ended
December 31,
December 31, December 31, September 30,
In Thousands of Dollars 1994 1993 1992 1992
---------------------------------------------------------------------------------------------------------------------------
1995 1996 1997
-------- -------- --------
REVENUES:
Net sales $1,010,075 $868,846 $209,354 $699,997
Interest income 246 265 88 73
Other income 1,553 1,724 87 921
--------- -------- -------- --------
1,011,874 870,835 209,529 700,991
-------- -------- --------
---------
COSTS AND EXPENSES:$1,201,650 $1,332,049 $1,701,329
Cost of goods sold 846,611 745,875 186,026 594,1221,030,511 1,102,460 1,370,232
Selling and administrative
85,129 75,489 22,349 59,609expenses 93,250 120,885 154,103
Other expense (income), net 1,032 2,151 (515)
--------- --------- ---------
Income from operations 76,857 106,553 177,509
Interest expense 24,554 25,241 8,086 14,505
Other expense (income) 2,709 1,801 30 (98)
Merger related expenses - - - 18,139
-------- -------- -------- --------
959,003 848,406 216,491 686,277
-------- -------- -------- --------34,683 39,994 37,711
--------- --------- ---------
Income (loss) before income
taxes and extraordinary charge 52,871 22,429 (6,962) 14,71442,174 66,559 139,798
Provision (benefit) for income taxes 22,700 13,052 (1,900) 9,278
-------- -------- -------- --------19,680 28,988 55,700
--------- --------- ---------
Income (loss) before
extraordinary charge 30,171 9,377 (5,062) 5,43622,494 37,571 84,098
Extraordinary charge - debt
retirement, net of income
tax benefit 2,971 1,183 -
3,367 - 122
-------- -------- -------- ----------------- --------- ---------
Net income (loss) $30,171 $ 6,01019,523 $ (5,062)36,388 $ 5,314
======== ======== ======== ========
84,098
========= ========= =========
See Notes to Consolidated Financial Statements
F-4
ESSEX GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
SUCCESSOR PREDECESSOR
-------------------------------------- ------------
Three Month Nine Month
Year Ended Year Ended Period Ended PeriodYears Ended
December 31,
December 31, December 31, September 30,
In Thousands of Dollars 1994 1993 1992 1992
-----------------------------------------------------------------------------------------------------------------------------
1995 1996 1997
-------- -------- ---------
OPERATING ACTIVITIES
Net income (loss) $30,171 $6,010 $(5,062) $5,314$ 19,523 $ 36,388 $ 84,098
Adjustments to reconcile
net income (loss) to cash provided
by operating activities:
Depreciation and
amortization 31,420 29,879 8,743 16,91334,205 33,944 34,275
Non cash interest
expense 2,630 4,968 3,251 1,4601,990 1,935 1,789
Non cash pension
expense 2,328 2,124 591 2,8521,947 3,021 2,834
Provision (credit) for losses
on accounts receivable 1,332 850 75 (1,848)
Provision (benefit)676 1,175 1,037
Benefit for deferred
income taxes (8,964) (622) (1,581) 1,267
(Gain) loss(1,025) (7,417) (2,960)
Loss on disposal of
property, plant and
equipment 1,354 436 (44) (389)2,610 1,679 1,710
Loss on repurchase of debt 4,951 1,971 - 5,519 - 200
Changes in operating
assets and liabilities:
(Increase) decrease
in accounts receivable (27,160) (5,314) 18,275 (24,426)
Increase(10,665) 6,288 (3,057)
(Increase) decrease
in inventories (4,515) (5,659) (863) (5,130)3,762 (16,109) (15,377)
Increase (decrease)
in accounts payable
and accrued liabilities 4,575 (720) 1,750 10,90118,901 6,164 (3,600)
Net (increase) decrease
in other assets
and liabilities (10,725) 4,908 (2,347) (2,589)11,378 (6,319) (452)
Increase (decrease) in
due to Holdings 14,616 18,288 (12,017) 18,128
--------Essex International (32,595) 4,769 3,606
-------- -------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 37,062 60,667 10,771 22,653
-------- -------- -------- --------55,658 67,489 103,903
======= ======== ========
See Notes to Consolidated Financial Statements
F-5
ESSEX GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS SUCCESSOR PREDECESSOR
--------------------------------------- ------------
Three Month Nine Month
Year Ended Year Ended Period Ended Period- Continued
(In Thousands of Dollars, Except Per Share Data)
Years Ended
December 31,
December 31, December 31, September 30,
In Thousands of Dollars 1994 1993 1992 1992
---------------------------------------------------------------------------------------------------------------------------
1995 1996 1997
-------- -------- --------
INVESTING ACTIVITIES
Additions to property,
plant and equipment (30,109) (26,167) (14,705) (16,475)(28,555) (25,569) (42,141)
Proceeds from disposal
of property, plant and
equipment 227 352 45 2,179
Investment2,419 533 3,619
Acquisitions (24,934) (79,395) -
Other investments (459) (285) (1,362)
Issuance of equity
interest in a subsidiary and
joint venture (236) (4,970)1,063 - (1,220)
---------
-------- -------- --------
NET CASH USED FOR
INVESTING ACTIVITIES (30,118) (30,785) (14,660) (15,516)
--------(50,466) (104,716) (39,884)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from senior notes - 200,000 - -long-term debt 428,390 493,900 348,600
Repayment of long-term debt (215,640) (473,734) (462,766)
Proceeds from term loannotes payable
to banks 160,030 537,550 765,846
Repayment of notes payable
to banks (148,270) (518,397) (762,007)
Dividends paid to Essex
International (238,748) - - 130,000 -
Retire prior indebtedness - - (94,000) -
Net increase (decrease) in
revolving loan - (11,000) 11,000 33,000
Net payments of other
long-term debt (396) (120,500) (9,500) (34,540)
Repurchase of 12 3/8% senior
subordinated debentures - (89,983) (11,692) (2,291)
Cash dividends paid - - (7,500) -
Debt issuance costs (4,691) (2,350) -
(7,086) (17,232) (653)
--------Intercompany transfer from
Essex International - - 46,241
-------- -------- --------
NET CASH PROVIDED BY
(USED FOR) FINANCING
ACTIVITIES (396) (28,569) 1,076 (4,484)(18,929) 36,969 (64,086)
-------- -------- -------- ---------------
NET INCREASE (DECREASE)DECREASE IN CASH AND
CASH EQUIVALENTS 6,548 1,313 (2,813) 2,653(13,737) (258) (67)
Cash and cash equivalents
at beginning of period 10,346 9,033 11,846 9,193
--------year 16,894 3,157 2,899
-------- -------- --------
Cash and cash equivalents
at end of period $16,894 $10,346 $9,033 $11,846
========year $ 3,157 $ 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 ORGANIZATION AND ACQUISITION
ACQUISITION OF THE COMPANY
OnSIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
In February 29, 1988, BCP/Essex Holdings Inc. (successor in interest to
MS/Essex Holdings Inc. ("Holdings"Essex International"), acquired Essex Group, Inc.
(the "Company"("the Company") from United Technologies Corporation ("UTC") (the "1988
Acquisition") and operated it as a wholly-owned
subsidiary ("Predecessor").
The outstanding common stock of Holdings was
beneficially owned by the Morgan Stanley Leveraged Equity Fund II, L.P.
("MSLEF II"), 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"). BE was a newly organized Delaware corporation formed for
the purpose of effecting the Acquisition. Shareholders of BE include
Bessemer Capital Partners, L.P. ("BCP"), affiliates of Goldman, Sachs &
Co. ("Goldman Sachs"), affiliates of Donaldson, Lufkin & Jenrette, Inc.
("DLJ"), Chemical Equity Associates, A California Limited Partnership and
members of management and other employees of the Company. Pursuant to the
Acquisition and Merger, (i) stockholders of Holdings, prior to the
Acquisition and Merger, became entitled to receive approximately $2.86 for
each outstanding share of common stock of Holdings held by them, (ii)
holders of options to purchase Holdings common stock, other than those
persons entering into an option continuation agreement, became entitled to
receive the difference between approximately $2.86 per share and the per
share exercise price of such options and (iii) the capital stock of BE was
converted into capital stock of Holdings. The Acquisition and Merger
resulted in a change in control of Holdings. Further, the Acquisition and
Merger occurred at the Holdings level and, therefore, did not directly
affect the Company's status as a wholly-owned subsidiary of Holdings. In
December 1993, BCP transferred its ownership interest in Holdings to
Bessemer Holdings, L.P. ("BHLP") an(an affiliate of BCP.
In connection with the Acquisition and Merger,successor in
interest to Bessemer Capital Partners, L.P.), certain present and former
employees of the Company recorded
certain merger related expenses of $18,139 consisting primarily of bonus
and option payments to certain employees, and certain merger fees and
expenses, which were charged to operations as of September 30, 1992.
For financial statement purposes, the Acquisition and Merger was
accounted for by Holdings as a purchase acquisition effective October 1,
1992. Because the Company is a wholly-owned subsidiary of Holdings, theother investors. The effects of the
Acquisition and Merger have been reflected in the Company's
financial statements, resultingresulted in a new basis of accounting reflecting estimated
fair values for the Successor's assets and liabilities at that
date.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 stockholder's equity)stockholders' equity were reduced proportionately
to reflect the continuing interest (approximately 10%) at the prior
historical cost basis.
As a result, the Company's financial statements for the periods
F-7
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
subsequentconnection with Essex International's initial public offering (the
"Offering") on May 1, 1997, Essex International's name was changed from
BCP/Essex Holdings Inc. to September 30, 1992 are presented on the Successor's new
basis of accounting, while the financial statements for September 30, 1992
and prior periods are presented on the Predecessor's historical cost basis
of accounting.
The aggregate purchase price of Holdings and a reconciliation to the
initial capitalization of Successor are as follows:
Purchase price, including related fees:
Purchase price, excluding Seller's expenses . . . . $138,445
Related fees and expenses . . . . . . . . . . . . . 6,168
--------
144,613
Less reduction to reflect proportionate historical
cost basis for management's continuing common stock
interest . . . . . . . . . . . . . . . . . . . . . (15,259)
--------
129,354
Holdings debt ($191,645) and deferred debt
issuance costs, deferred and refundable income
taxes and other minor Holdings amounts not
reflected in Successor financial statements
(See Note 9) . . . . . . . . . . . . . . . . . . . 173,430
--------
Initial capitalization of Successor . . . . . . . . $302,784
========
The allocation of the purchase price to historical assets and
liabilities of the Company was as follows:
Net assets at prior historical cost . . . . . . . . . . . . . . . . . . $132,257
Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . 18,959
Increase in property, plant and equipment . . . . . . . . . . . . . . . 98,131
Deferred debt expense and changes in other assets and liabilities . . . 1,335
Long-term debt premium . . . . . . . . . . . . . . . . . . . . . . . . (5,812)
Adjust deferred income taxes to new basis . . . . . . . . . . . . . . . (84,331)
Excess of cost over net assets acquired . . . . . . . . . . . . . . . . 142,245
--------
$302,784
========
F-8
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
The unaudited pro forma consolidated net loss for the twelve month
period ended December 31, 1992 would have been $6,026 assuming the
Acquisition and Merger had occurred on January 1, 1992 (no effect on
revenues). The primary pro forma effects are revised depreciation and
amortization charges, interest expense and income taxes.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION AND BUSINESS SEGMENTEssex 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 eliminatedeliminated.
Use of Estimates
The consolidated financial statements were prepared in consolidation.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.
Nature of Operations
The Company operates in one industry segment. The Company develops,
manufactures and markets electrical wire and cable and insulation
products. AmongThe Company's principal products in order of revenue are:
building wire for the Company's products areconstruction 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; building wire for the
construction industry; wire for automotive and appliance applications;
voice and data communication wire and cable; industrial wire for
applications in construction, appliances and insulation productsrecreational vehicles; and
automotive wire and specialty wiring assemblies for the electrical industry.automobiles and
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.
INVENTORIESIncome Taxes
Essex International and the Company file a consolidated U.S. federal
income tax return. The Company operates under a tax sharing agreement
with Essex International whereby the Company's aggregate income tax
liability is calculated as if it filed a separate tax return with its
subsidiaries.
Inventories
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.
INCOME TAXES
Effective October 1, 1992, concurrent with the new basisExcess of accounting, the Successor adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," ("FAS 109"). FAS 109
requires recognition of deferred tax liabilities and assets for the
F-9
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
expected future tax consequences of events that have been included in the
financial statements or tax returns. Using this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities. These
deferred taxes are measured by applying current tax laws. Through
September 30, 1992, deferred income taxes were provided by Predecessor for
significant timing differences in the recognition of revenue and expense
for tax and financial statement purposes.
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.
EXCESS OF COST OVER NET ASSETS ACQUIREDCost Over Net Assets Acquired
Excess of cost over net assets acquired primarily represents the
excess of Holdings contribution to capital, based on itsEssex 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. OTHER INTANGIBLE ASSETSEssex 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 connection withThousands of Dollars
- -----------------------
estimating the 1988 Acquisition,future undiscounted cash flows of the businesses for which
the excess of cost 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 covenant not to compete
agreement was entered into whereby, in general, UTC agreed that until
March 1, 1993, it would not engage in or carry on any business directly
competing with any business carried on bydiscounted cash flow basis, of the Company on February 29,
1988. The $34,000 purchase price allocated by the Predecessor to the
covenant not to compete was classified as anexcess of cost over net
assets acquired.
Other Intangible Assets and Deferred Costs
Other intangible assetassets and wasdeferred costs consist primarily of
deferred debt issuance costs and are being amortized over five years through February 1993.
RECOGNITION OF REVENUEthe 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 Liabilities
Other long-term liabilities consist primarily of accrued liabilities
under the Company-sponsored defined benefit pension plans for salary and
hourly employees and the supplemental executive retirement plan.
Recognition of Revenue
Substantially all of the Company's revenue is recognized at the time the product is
shipped.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITSRecently Issued Accounting Standards
In 1993,January 1997, the Company adopted Statement of Financial Accounting Standards Board issued
Statement No. 106 "Employers' Accounting for Postretirement Benefits Other
Than Pensions"131, "Disclosures about Segments of an Enterprise and
Statement of Financial Accounting Standards No. 112
"Employers' Accounting for Postemployment Benefits". The effect of
adopting the new rules was not materialRelated Information" ("FAS 131"), which is required to the Company's 1993 consolidated
results of operations or financial condition.
UNUSUAL ITEMS
Included in Successor's cost of goods sold for the three month period
endedbe adopted on
December 31, 1992 is a charge1998. At that time, the Company will be required to report
certain information about operating segments in complete financial
statements and in condensed financial statements of approximately $2,600interim periods issued
to reflectstockholders. It also requires reporting of certain information about
products and services, geographic areas in which the estimated cost of plant consolidations, primarily costsCompany operates and
major customers.
The Company has not yet completed the analysis required to move equipment
and personnel related expenses. Amounts spent in 1993 and 1994, and
F-10determine
the potential impact on its segment disclosure.
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars, -----------------------
amounts remainingExcept 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 be spent atthe 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, 19941996 and December 31, 1997, respectively, are
not material toincluded in the accompanying consolidated financial statements. InThe
purchase price was allocated to assets acquired and liabilities assumed
based on their respective fair values at the nine month period ended
September 30, 1992, Predecessor recorded a chargedate of approximately $1,500
to sellingacquisition. The
allocation of the purchase price is summarized as follows:
Current assets $73,574
Property, plant and administrative expensesequipment 14,556
Current liabilities (17,304)
Deferred taxes 1,584
------
$72,410
======
The following unaudited pro forma consolidated financial information
for the relocationCompany 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 a business
unit which was completed in 1993.Dollars
- -----------------------
NOTE 3 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,
-------------------------------
1994 1993
---------- ----------1996 1997
-------- --------
Finished goods . . . . . . . . . . . . . . $130,236 $97,332$171,213 $162,570
Raw materials and work
in process . . . . . 54,560 27,927
-------- --------
184,796 125,25956,840 54,146
------- -------
228,053 216,716
LIFO reserve . . . . . . . . . . . . . . . (39,090) 14,098
-------- --------
$145,706 $139,357
======== ========(10,410) 16,304
------- -------
$217,643 $233,020
======= =======
Principal elements of cost included in the Company's inventories are copper, other
purchased materials, direct labor and manufacturing overhead. Inventories
valued using the LIFO method amounted to $141,847$210,454 and $136,980$222,957 at December
31, 19941996 and 1993,1997, respectively.
F-11
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
NOTE 4 PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
December 31,
----------------------------
1994 1993
---------- ----------
Land . . . . . . . . . . . . . . . . . . . . $ 9,319 $ 9,255
Buildings and improvements . . . . . . . . . 87,113 82,664
Machinery and equipment . . . . . . . . . . 225,343 201,871
Construction in process . . . . . . . . . . 11,486 9,667
-------- --------
333,261 303,457
Less: accumulated depreciation . . . . . . . 57,127 30,373
-------- --------
$276,134 $273,084
======== ========
NOTE 5 ACCRUED LIABILITIES
Accrued liabilities include the following:
December 31,
----------------------------
1994 1993
---------- ----------
Salaries, wages and employee benefits . . . $15,418 $12,099
Amounts due customers . . . . . . . . . . . 5,352 4,328
Other . . . . . . . . . . . . . . . . . . . 25,051 26,436
-------- --------
$45,821 $42,863
======== ========
NOTE 6 LONG-TERM DEBT
BANK FINANCING
In connection with the Acquisition and Merger, the Company entered
into a credit agreement dated September 25, 1992, among the Company,
F-12
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
Holdings, the lenders named therein and Chemical Bank, as agent (the
"Credit Agreement"). Under the Credit Agreement, the Company borrowed
$130,000 in term loans (the "Term Credit") of which $94,000 was used to
repay all indebtedness outstanding under the previous credit agreement and
the balance was used to pay a portion of the consideration payable to
Holdings' shareholders and option holders in the Merger and certain fees
and expenses in connection with the Acquisition and Merger and for other
general corporate purposes. In May 1993, the Company applied $111,000 of
the proceeds from the sale of its 10% Senior Notes due 2003 (the "Senior
Notes") to repay the outstanding balance under the Term Credit. See
Senior Notes below. The Company recognized an extraordinary charge of
$3,055, net of applicable tax benefit of $1,953, in the second quarter of
1993 representing the write-off of unamortized debt costs associated with
the outstanding Term Credit.
In May 1993, an amendment and restatement of the Credit Agreement
(the "Restated Credit Agreement") became effective. The Restated Credit
Agreement provides for $175,000 in revolving credit, subject to specified
percentages of eligible assets, reduced by outstanding letters of credit
($12,079 at December 31, 1994) (the "Revolving Credit"). Further, the
amount of Revolving Credit available to the Company is also subject to
certain debt limitation covenants contained in the indenture under which
the Senior Notes were issued. The Revolving Credit expires in 1998.
Revolving Credit loans bear interest at floating rates at bank prime rate
plus 1.25% or a reserve adjusted Eurodollar rate (LIBOR) plus 2.25%. The
effective interest rate can be reduced by 0.25% to 0.75% if certain
specified financial conditions are achieved. Commitment fees during the
revolving loan period are 0.5% of the average daily unused portion of the
available credit. At December 31, 1994 and 1993, the Company's
incremental borrowing rate under the Restated Credit Agreement, including
applicable margins, approximated 9.0% and 7.3%, respectively.
The Restated 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, 1994, the Company fully complied with all of the
financial ratios and covenants contained in the Restated Credit Agreement.
The indebtedness under the Restated 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.
SENIOR NOTES
At December 31, 1994 and 1993 $200,000 aggregate principal amount of
its Senior Notes were outstanding which bear interest at 10% per annum
payable semiannually and are due in May 2003. Net proceeds in May 1993 to
the Company from the sale of the Senior Notes, after underwriting
F-13
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
discounts, commissions and other offering expenses, were $193,450. The
Company applied $111,000 of such proceeds to the repayment of the Term
Credit and in June 1993 applied the balance of such proceeds, together
with new borrowings under the Revolving Credit, to redeem all of its
outstanding 12 3/8% Senior Subordinated Debentures due 2000 (the
"Debentures").
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 secured 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 indenture covering the Senior Notes
(the "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 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, 1994, the Company fully complied with all of
the financial ratios and covenants contained in the Indenture.
DEBENTURES
The Debentures were due in 2000 and bore interest at 12 3/8% per
annum payable semiannually. However, the Restated Credit Agreement
required the Debentures, which were callable at 106% commencing May 15,
1993, to be retired no later than June 30, 1993. Because of the mandatory
retirement, the Debentures were valued by the Successor at the expected
retirement cost, discounted at 11.5%. In June 1993, the Company redeemed
all outstanding Debentures at 106% of their principal amount, resulting in
a net loss of $312, net of applicable tax benefit of $199, which has been
reported as an extraordinary charge.
During 1992 the Company repurchased outstanding Debentures which had
a carrying value of $13,843. The net loss resulting from this repurchase,
which includes the write-off of a portion of unamortized debt costs,
totalled $122, net of applicable income tax benefit of $78, for
Predecessor, which has been reported as an extraordinary charge.
OTHER
The Company capitalized interest costs of $132, $1,599, $116 and $220
for Successor in 1994 and 1993 and Successor and Predecessor in 1992,
respectively, with respect to qualifying assets.
F-14
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
Total interest paid was $20,826, $20,961, $7,344 and $10,076, for
Successor in 1994 and 1993 and Successor and Predecessor in 1992,
respectively.
There are no maturities of long-term debt within the next five years,
although future amounts outstanding, if any, under the Restated Credit
Agreement would be due in 1998.
SUBSEQUENT EVENT
See Note 14 -- Subsequent Event.
NOTE 7 INCOME TAXES
Effective October 1, 1992, concurrent with the new basis of
accounting, the Successor adopted FAS 109. The Predecessor's statement of
operations for the nine month period ended September 30, 1992 reflects the
historical accounting method for income taxes and has not been restated to
reflect FAS 109. Under FAS 109 assets and liabilities acquired, and the
resulting charges or credits reflected in future statements of operations,
are stated at the gross fair value at the date of acquisition, whereas
under the previous historical method, assets and liabilities and the
resulting charges or credits were recorded at amounts net of the related
tax differences between fair value and the tax basis.
Deferred income taxes at December 31, 1994 and 1993 reflect the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and amounts used
for income tax purposes. Significant components of deferred tax
liabilities and assets are as follows:
F-15
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
December 31,
-------------------------
1994 1993-------------------------------
1996 1997
-------- --------
Deferred tax liabilities:
Property, plantLand $ 9,386 $ 9,342
Buildings and improvements 95,600 96,551
Machinery and equipment . . . . $73,108 $75,923
Inventory . . . . . . . . . . . . . . 28,236 27,935
Other . . . . . . . . . . . . . . . . 4,201 4,274
-------- --------
Total deferred tax liabilities . . . 105,545 108,132
-------- --------
Deferred tax assets:272,621 294,928
Construction in process 14,990 23,376
------- -------
392,597 424,197
Less accumulated
depreciation 112,108 136,365
------- -------
$280,489 $287,832
======= =======
/TABLE
ESSEX GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
- -----------------------
NOTE 5 ACCRUED LIABILITIES
Accrued liabilities . . . . . . . . . 7,671 8,793
Alternative minimum tax ("AMT") credit
carryforward . . . . . . . . . . . . 4,984 -
Other . . . . . . . . . . . . . . . . 9,711 7,268
-------- --------
Total deferred tax assets . . . . . 22,366 16,061
-------- --------
Net deferred tax liabilities . . . $83,179 $92,071
======== ========
The AMT credit carryforward is available to the Company indefinitely to
reduce future years federal income taxes subject to certain limitations.
F-16
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
The components of income tax expense (benefit) are:
SUCCESSOR PREDECESSOR
-------------------------------------- ------------
Three Month Nine Month
Year Ended Year Ended Period Ended Period Ended
December 31, December 31, December 31, September 30,
1994 1993 1992 1992
----------------------------------------------------
Current:
Federal . . . . . . . . $27,157 $10,978 $(431) $6,868
State . . . . . . . . . 4,507 2,696 112 1,143
Deferred:
Federal . . . . . . . . (8,362) 127 (1,297) 1,109
State . . . . . . . . . (602) (749) (284) 158
-------- ------- -------- --------
$22,700 $13,052 $(1,900) $9,278
======== ======= ======== ========
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 $11,484, $1,131, $8,608 and $6,604 for
Successor in 1994 and 1993 and Successor and Predecessor in 1992,
respectively.
The Predecessor's deferred tax provision is attributable to timing
differences in the recognition of revenue and expense for tax and
financial reporting purposes. Sources of these differences were primarily
related to depreciation and accruals deductible in different periods for
tax purposes.
Principal differences between the effective income tax rate and
the statutory federal income tax rate are:
F-17
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
SUCCESSOR PREDECESSOR
--------------------------------------- -------------
Three Month Nine Month
Year Ended Year Ended Period Ended Period Ended
December 31, December 31, December 31, September 30,
1994 1993 1992 1992
------------- ------------ ------------ ------------
Statutory federal income tax rate . . . 35.0% 35.0% (34.0)% 34.0%
State and local taxes, net of
federal benefit . . . . . . . . . . . 4.8 5.6 (1.6) 5.8
Permanent differences from applying
purchase accounting . . . . . . . . . - - - 12.2
Amortization of excess of cost over net
assets acquired . . . . . . . . . . . 2.7 6.3 5.1 -
Federal rate increase . . . . . . . . . - 10.0 - -
Tax sharing agreement limitation . . . - - - 8.2
Other, net . . . . . . . . . . . . . . .4 1.3 3.2 2.9
------ ------ ------ ------
Effective income tax rate . . . . . . . 42.9% 58.2% (27.3)% 63.1%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
====== ======
====== ======
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
NOTE 6 LONG-TERM DEBT
Long-term debt consists of the higher allocated financial statement bases are not
deductible for income tax purposes, thus increasing the effective income
tax rate reflected in the Predecessor's consolidated financial statements.
Under FAS 109, the Successor has recorded deferred income taxes for such
differences.
F-18
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
NOTE 8 RETIREMENT BENEFITS
The Company participates in two defined benefit retirement
plans for substantially all salaried and hourly employees. The Company
also sponsors 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 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:
SUCCESSOR PREDECESSOR
--------------------------------------- -------------
Three Month Nine Month
Year Ended Year Ended Period Ended Period Ended
December 31, December 31, December 31, September 30,
1994 1993 1992 1992
------------ ------------ ------------- -------------
Service cost benefits earned
during the period . . . . . . . . . . $2,964 $2,611 $628 $2,282
Interest costs on projected benefit
obligation . . . . . . . . . . . . . . 3,643 3,521 799 2,479
Actual return on plan assets . . . . . 2,409 (6,078) (841) (1,544)
Net amortization and deferral . . . . . (6,458) 2,573 5 (365)
-------- -------- -------- --------
Net periodic pension cost . . . . . . . $2,558 $2,627 $591 $2,852
======== ======== ======== ========
The following table summarizes the funded status of these pension
plans and the related amounts that are recognized in the consolidated
balance sheets:
F-19following:
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
- -----------------------
December 31,
----------------------------------
1994 1993
---------------- -----------------
Actuarial present value of benefit obligation:
Vested . . . . . . . . . . . . . . . . . . . . $29,469 $32,313
Nonvested . . . . . . . . . . . . . . . . . . 2,470 3,110BANK 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
--------------- -------- --------
Accumulated benefit obligation . . . . . . . . 31,939 35,423
Effect of projected future salary increases . 9,566 15,409
-------- --------
Projected benefit obligation . . . . . . . . . 41,505 50,832
Plan assets at fair value . . . . . . . . . . . . . . 42,436 45,137
-------- --------
Fair value of plan assets in excess of
(less than) projected benefit obligation . . . . . . 931 (5,695)
Unrecognized net (gain) loss . . . . . . . . . . . . (7,703) 614
Unrecognized prior service cost . . . . . . . . . . . (353) -
-------- --------
Pension liability recognized in balance sheets . . . $(7,125) $(5,081)
======== ========
Certain actuarial assumptions were revised in 1994 and 1993
resulting in a decrease of $13,883 and an increase of $3,448,
respectively, in the projected benefit obligation.
F-20
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
Following is a summary of significant actuarial assumptions used:
SUCCESSOR PREDECESSOR
--------------------------------------- -------------
Three Month Nine Month
Year Ended Year Ended Period Ended Period Ended
December 31, December 31, December 31, September 30,
1994 1993 1992 1992
------------ ------------ ------------- ------------
Discount rates . . . . . . . . 8.5% 7.0% 8.0% 7.1%
Rates of increase in
compensation levels . . . . . 5.0% 5.0% 6.0% 7.0%
Expected long-term rate of
return on assets . . . . . . . 9.0% 9.0% 9.0% 7.1%
In addition to the defined benefit retirement plans as detailed
above, the Company also sponsors defined contribution savings plans which
cover substantially all salaried employees of the Company and certain
hourly employees, represented by collective bargaining agreements, who
negotiate this benefit into their contract. The hourly plan was
established in 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 $1,088, $1,030, $276 and $733 for Successor in
1994 and 1993 and Successor and Predecessor in 1992, 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 $101 at December 31, 1994.
F-21
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
NOTE 9 STOCKHOLDERS' EQUITY
The following is an analysis of changes to the Company's
stockholders' equity:
Common
Stock Plus
Additional Total
Paid In Retained Stockholder's
Capital Earnings Equity
---------- ---------- --------------
PREDECESSOR
-----------
Balance at January 1, 1992 . . . . . . . . . . . . . . $58,000 $62,354 $120,354
Net income . . . . . . . . . . . . . . . . . . . . . . - 5,314 5,314
Merger related expenses payable by Holdings . . . . . . 14,089 - 14,089
Cash dividends paid to Holdings . . . . . . . . . . . . - (7,500) (7,500)
-------- -------- --------
Balance at September 30, 1992 . . . . . . . . . . . . . $72,089 $60,168 $132,257
======== ======== ========
SUCCESSOR
---------
Initial capitalization at October 1, 1992:
Initial capitalization . . . . . . . . . . . . . $318,043 $ - $318,043
Reduction of equity to reflect proportionate
historical cost basis for management's
continuing common stock interest . . . . . . . (15,259) - (15,259)
-------- -------- --------
302,784 - 302,784
Net loss . . . . . . . . . . . . . . . . . . . . . . . - (5,062) (5,062)
-------- -------- --------
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
======== ======== ========
F-22
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
NOTE 10 RELATED PARTY TRANSACTIONS
Advisory services fees of $1,000, $1,000 and $229 were paid to
affiliates of BHLP and BCP for 1994, 1993 and the three month period ended
December 31, 1992, respectively, and to MSLEF II in the amount of $210
during the nine month period ended September 30, 1992. It is expected
that financial advisory fees to an affiliate of BHLP will continue to be
paid for such services in the future. Also, in connection with the
Acquisition and Merger, an affiliate of BCP received financial advisory
fees of $1,900 associated with the financing plus certain out of pocket
expenses. DLJ and Goldman Sachs acted as underwriters in the Senior Notes
offering, and in such capacity received aggregate underwriting discounts
and commissions of $5,300. In addition, during the nine month period
ended September 30, 1992, management fees to Holdings of $1,875 were
incurred.
In May 1989, Holdings issued $342,000 aggregate principal amount
($135,117 aggregate proceeds amount) of its senior discount debentures due
2004 (the "Holdings Debentures"), the proceeds of which were used to pay a
dividend to Holdings shareholders, cash bonuses to certain members of its
management, and related expenses. During 1992, the Company paid cash
dividends of $7,500 which were used to finance a portion of the
Acquisition. As of December 31, 1994, Holdings had a liability of
$258,960 related to the Holdings Debentures. The Holdings Debentures are
unsecured debt of Holdings and are effectively subordinated to all
outstanding indebtedness of the Company, including the Senior Notes, and
will be effectively subordinated to other indebtedness incurred by direct
and indirect subsidiaries of Holdings if issued. Cash payment of interest
at 16% is required to be made by Holdings semiannually commencing November
15, 1995.
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
Restated 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'
debt obligations.
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 in the impacted contracts.
F-23
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars, Except Per Copper Data
-----------------------------------------------
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, 1994, the Company
had Deutschemark forward exchange sales and purchase contracts of $5,360
and $1,260, respectively. The fair value of such contracts approximated
contract amount. Foreign currency gains or losses resulting from the
Company' 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 is the Company's principal raw material and, as a metal
commodity, experiences marked fluctuations in market prices, thereby
subjecting the Company to copper price risk with respect 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. At December 31, 1994, the Company had outstanding futures
contracts to hedge 2.8 million pounds of copper (approximately $2,400
contract amount; $3,700 fair value amount) for sale in 1995. Deferred and
unrealized gains on these futures contracts are included within other
assets and will be recognized in earnings in the period in which the
hedged copper is sold or at the point in time when a sale is no longer
expected to occur.
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 the Company's long-term debt.
The carrying amounts of the Company's financial instruments approximate
fair value at December 31, 1994, except for the Senior Notes which exceed
fair value by approximately $12,000.
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
F-24
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars, Except Per Copper Data
-----------------------------------------------
conditions, events or circumstances known to UTC prior to February 29,
1988. Further, the Company believes it is indemnified, subject to a
$4,000 "basket" for losses related to any environmental events, conditions
or circumstances identified prior to February 28, 1993, to the extent such
losses were not caused by activities of the Company after February 29,
1988. After consultation with counsel, in the opinion of management, the
ultimate cost to the Company, exceeding amounts provided, will not
materially affect the consolidated financial position or results of
operations. However, in April, 1995 the Company was notified with respect
to an environmental matter that it is one of several potentially
responsible parties and is in the process of investigating the related
facts and circumstances. Pending the outcome of such investigation, the
Company has insufficient knowledge upon which to base an estimate of its
potential liability.
At December 31, 1994, the Company had purchase commitments of 448.8
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 New York Commodity Exchange, Inc. ("COMEX") price in
the contractual month of shipment except for 37.8 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.
At December 31, 1994, the Company had committed $7,959 to outside
vendors for certain capital projects.
The Company occupies space and uses certain equipment under lease
arrangements. Rent expense was $6,912, $6,224, $1,949 and $4,138 under
such arrangements for 1994 and 1993, the three month period ended December
31, 1992 and the nine month period ended September 30, 1992, respectively.
Rental commitments 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
----------- --------- -----
1995 $2,427 $2,316 $4,743
1996 1,838 2,186 4,024
1997 1,401 1,225 2,626
1998 1,232 1,015 2,247
1999 1,037 860 1,897
After 1999 12,665 - 12,665
------- ------ -------
$20,600 $7,602 $28,202
======= ====== =======
F-25
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
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)
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[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
1993 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
----------------------------------- ------------ ------------ ------------ ------------
Net sales . . . . . . . . . . . . . $204,309 $230,465 $220,249 $213,823
Gross margin . . . . . . . . . . . 29,543 30,067 27,547 35,814
Income (loss) before
extraordinary charge (b) . . . . 1,536 2,583 (988) 6,246
Net income (loss) (a)(b) . . . . . $1,536 $(784) $(988) $6,246
(a) In the second quarter 1993, the Company recognized an extraordinary
charge of $3,055 net of applicable income tax benefit of $1,953,
representing the write-off of unamortized debt costs associated with
retirement of the outstanding Term Credit. During 1993 the Company
repurchased outstanding Debentures resulting in extraordinary
charges of $312 net of applicable income tax benefits of $199 (See
Note 6).
NOTE 14 SUBSEQUENT EVENT
Holdings presently intends to effect at least a partial redemption of
the Holdings Debentures at par value plus accrued interest on or about May
15, 1995, when the Holdings Debentures accrete to their full face value.
Holdings expects to finance this redemption through cash received from the
Company by way of repayment of an intercompany account payable and a
dividend. The Company expects to obtain the necessary funds for such cash
payments from borrowings under a new credit agreement and a capital lease
financing facility. To the extent a full redemption of the Holdings
F-26
ESSEX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In Thousands of Dollars
-----------------------
Debentures is effected, additional financing is expected to be obtained by
the Company through an unsecured term loan.
The Company and certain lenders have agreed in principle to a new
credit agreement (the "New Credit Agreement") involving a senior secured
revolving credit facility of up to $260,000 (the "New Revolving Credit")
subject to specified percentages of eligible assets. The New Credit
Agreement is expected to replace the existing Restated Credit Agreement
and its $175,000 revolving credit facility. The New Revolving Credit is
expected to have a five year maturity with interest rates, commitment
fees, collateral and covenants comparable to the existing Restated Credit
Agreement. Additionally, the Company and one of the lending banks have
agreed in principle to a capital lease facility (the "Capital Lease
Facility"), which is expected to generate proceeds of approximately
$25,000, before associated fees and expenses, from the sale and leaseback
of certain of its fixed assets. The Company may have available for its
use an unsecured term loan facility (the "Term Loan Facility") to
refinance a portion of the Holdings Debentures. The applicable terms and
conditions of the New Credit Agreement, the Capital Lease Facility and the
Term Loan Facility have not yet been finalized.
There can be no assurance that Holdings will complete the redemption
and refinancing as described above.
F-27- ------------
(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.
SCHEDULE II
ESSEX GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
(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
====== ====== ======
/TABLE
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
- --------------------------------------------------------------------------
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
- --------------------------------------------------------------------------
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