AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 2004
REGISTRATION NO. 333-112744
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
GENERAL CABLE CORPORATION
- --------------------------------------------------------------------------------
(and certain subsidiaries identified as co-registrants in the Table of
Co-Registrants)
DELAWARE 3357 06-1398235
- --------------------------------------------------------------------------------------------------------------------
(State or Other Jurisdiction of (Primary Standard Industrial Classification (I.R.S. Employer Identification
Incorporation or Organization) Code Number) Number)
4 TESSENEER DRIVE
HIGHLAND HEIGHTS, KENTUCKY 41076
(859) 572-8000
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
ROBERT J. SIVERD, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
GENERAL CABLE CORPORATION
4 TESSENEER DRIVE
HIGHLAND HEIGHTS, KENTUCKY 41076
(859) 572-8000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
Copy to:
ALAN H. LIEBLICH, ESQ.
KARIM K. SHEHADEH, ESQ.
BLANK ROME LLP
ONE LOGAN SQUARE
PHILADELPHIA, PENNSYLVANIA 19103
(215) 569-5500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. [ ]
THE REGISTRANT AND CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION
STATEMENT ON SUCH DATE AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT AND CO-REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL
THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
TABLE OF CO-REGISTRANTS
The subsidiaries of the Company shown in the table below are
Co-Registrants, and are organized in the state or other jurisdiction indicated
in the column next to their names. Where applicable, the Employer Identification
Numbers issued to the Co-Registrants by the Internal Revenue Service are set
forth in the third column of the table.
EXACT NAME OF CO-REGISTRANT STATE/JURISDICTION I.R.S. EMPLOYER
AS SPECIFIED IN ITS CHARTER OF ORGANIZATION SIC CODE IDENTIFICATION NUMBER
- ----------------------------------------------- ------------------ -------- ---------------------
Diversified Contractors, Inc. Delaware 1799 76-0081448
Genca Corporation Delaware 3542 22-2885883
General Cable Canada, Ltd. Canada 3357 N/A
General Cable Company Canada 3357 98-020868
General Cable Industries, Inc. Delaware 3351 06-1009714
General Cable Industries, LLC Delaware 3357 61-1337429
General Cable de Latinoamerica, S.A. de C.V. Mexico 3661 N/A
General Cable Management LLC Delaware 3357 61-1400257
General Cable de Mexico del Norte, S.A. de C.V. Mexico 3661 N/A
General Cable Overseas Holdings, Inc. Delaware 6719 61-1345453
General Cable Technologies Corporation Delaware 3357 51-0370763
General Cable Texas Operations, L.P. Delaware 3357 61-1400258
GK Technologies, Incorporated New Jersey 3357 13-3064555
Marathon Manufacturing Holdings, Inc. Delaware 6719 75-2198246
Marathon Steel Company Arizona none 86-0117273
MLTC Company Delaware none 75-0866441
THE ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF EACH OF THE CO-REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES IS 4 TESSENEER
DRIVE, HIGHLAND HEIGHTS, KENTUCKY 41076, (859) 572-8000.
THE NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF THE AGENT FOR SERVICE OF PROCESS OF EACH OF THE CO-REGISTRANTS IS
ROBERT J. SIVERD, ESQ., C/O GENERAL CABLE CORPORATION, 4 TESSENEER DRIVE,
HIGHLAND HEIGHTS, KENTUCKY 41076.
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES NOR DOES IT SEEK AN OFFER TO
BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED , 2004
$285,000,000
[GENERAL CABLE LOGO]
GENERAL CABLE CORPORATION
OFFER TO EXCHANGE ALL OUTSTANDING
OLD 9.5% SENIOR NOTES DUE 2010
FOR
NEW 9.5% SENIOR NOTES DUE 2010, SERIES B
We are offering to exchange up to $285,000,000 of our 9.5% Senior Notes
due 2010, which are not registered under the Securities Act of 1933, as amended
(the Securities Act), for up to $285,000,000 of our 9.5% Senior Notes due 2010,
Series B, which will be registered under the Securities Act. We are offering to
issue the new notes to satisfy our obligations contained in the Registration
Rights Agreement we entered into when we sold the old notes in an exempt
transaction under the Securities Act.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON , 2004, UNLESS EXTENDED.
- If you decide to participate in this exchange offer, the new notes
you receive will be substantially the same as your old notes, except
that, unlike your old notes, you will be able to offer and sell the
new notes freely to any potential buyer in the United States.
- No public market currently exists for the notes. We do not intend to
list the new notes on any securities exchange, and, therefore, no
active public market is anticipated.
- If you fail to tender your old notes, you will continue to hold
unregistered securities and your ability to transfer them could be
adversely affected.
- We will not receive any proceeds from the exchange offer.
- Each broker-dealer that receives new notes for its own account under
this exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of the new notes.
AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 17 OF THIS PROSPECTUS AND
ANY OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO PURCHASE THE NOTES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR STATE SECURITIES
REGULATORS HAVE APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS IS DATED , 2004
TABLE OF CONTENTS
Page
----
Incorporation Of Certain Documents By Reference................................................................. 2
Where You Can Find More Information............................................................................. 3
Principal Executive Office...................................................................................... 3
Forward-Looking Statements...................................................................................... 3
Prospectus Summary.............................................................................................. 4
Risk Factors.................................................................................................... 17
Use Of Proceeds................................................................................................. 27
Capitalization.................................................................................................. 28
Selected Historical Financial Information....................................................................... 28
Management's Discussion And Analysis Of Financial Condition And Results Of Operations........................... 31
Business........................................................................................................ 49
Management...................................................................................................... 66
Ownership Of Capital Stock...................................................................................... 69
The Exchange Offer.............................................................................................. 72
Description Of Senior Credit Facility And Preferred Stock....................................................... 79
Description Of The New Notes.................................................................................... 82
Book-Entry; Delivery And Form................................................................................... 118
Plan Of Distribution............................................................................................ 120
Material U.S. Federal Income Tax Consequences................................................................... 121
Legal Matters................................................................................................... 121
Experts......................................................................................................... 121
Index To Financial Statements................................................................................... F-1
This prospectus includes trademarks, service marks and trade names
owned by us or other companies. All trademarks, service marks and trade names
included in this prospectus are the property of their respective owners.
1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC's rules allow us to "incorporate by reference" information into
this prospectus. This means that we can disclose important business and
financial information to you by referring you to another document. Any
information referred to in this way is considered part of this prospectus from
the date we file that document. Any reports filed by us with the SEC after the
date of the initial filing of the registration statement of which this
prospectus forms a part and prior to the effectiveness of such registration
statement, as well as any reports filed by us with the SEC after the date of
this prospectus and before the date that the offering of the securities is
terminated, will automatically update and, where applicable, supersede any
information contained in this prospectus or incorporated by reference in this
prospectus.
We incorporate by reference the documents listed below and any future
filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, until the exchange offer is
completed:
- The portion of our definitive Proxy Statement for the 2004 Annual
Meeting of Shareholders, filed March 29, 2004, specifically
incorporated by reference into Items 10 (Directors and Officers), 11
(Executive Compensation) and 13 (Certain Relationships and Related
Transactions) of our Annual Report on Form 10-K for the year ended
December 31, 2003, filed on March 12, 2004.
- All documents filed by us under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 (excluding all information and
related exhibits furnished in a Current Report on Form 8-K pursuant to
Item 9 or Item 12) after the date of this prospectus and before the
termination of this offering.
We will provide without charge to each person to whom this prospectus
is delivered, upon his or her written or oral request, a copy of the filed
documents referred to above, excluding exhibits, unless they are specifically
incorporated by reference into those documents. You can request those documents
from our Director of Investor Relations, 4 Tesseneer Drive, Highland Heights,
Kentucky 41076, telephone (859) 572-8000. YOUR REQUEST MUST BE MADE NOT LATER
THAN 5 BUSINESS DAYS BEFORE THE DATE ON WHICH YOU ARE REQUIRED TO RETURN THE
LETTER OF TRANSMITTAL PROVIDED HEREIN.
2
WHERE YOU CAN FIND MORE INFORMATION
We are required to file annual, quarterly and special reports, proxy
statements, any amendments to those reports and other information with the SEC.
You may read and copy any documents filed by us with the SEC at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference room.
Reports, proxy statements and information statements, any amendments to those
reports and other information filed electronically by us with the SEC are
available to the public at the SEC's website at http://www.sec.gov.
We have filed a registration statement on Form S-4 with the SEC
relating to the securities covered by this prospectus. This prospectus is a part
of the registration statement and does not contain all of the information in the
registration statement. Whenever a reference is made in this prospectus to a
contract or other document of General Cable, please be aware that the reference
is only a summary and that you should refer to the exhibits that are a part of
the registration statement for a copy of the contract or other document. You may
review a copy of the registration statement at the SEC's public reference room
in Washington, D.C., as well as through the SEC's website.
PRINCIPAL EXECUTIVE OFFICE
Our principal executive offices are located at 4 Tesseneer Drive,
Highland Heights, Kentucky 41076, and our telephone number at that address is
(859) 572-8000.
FORWARD-LOOKING STATEMENTS
Certain of the matters we discuss in this prospectus, any prospectus
supplement and other documents we file with the SEC may constitute
forward-looking statements. You can identify a forward-looking statement because
it contains words such as "believes," "expects," "may," "will," "should,"
"seeks," "approximately," "intends," "plans," "estimates," or "anticipates" or
similar expressions which concern strategy, plans or intentions. All statements
we make relating to estimated and projected earnings, margins, costs,
expenditures, cash flows, growth rates and financial results are forward-looking
statements. In addition, we, through our senior management, from time to time
make forward-looking public statements concerning our expected future operations
and performance and other developments. These statements are necessarily
estimates reflecting our judgment based upon current information and involve a
number of risks and uncertainties. We cannot assure you that other factors will
not affect the accuracy of these forward-looking statements or that our actual
results will not differ materially from the results we anticipate in the
forward-looking statements. While it is impossible for us to identify all the
factors which could cause our actual results to differ materially from those we
estimated, we describe some of these factors under the heading "Risk Factors."
We do not undertake to update any forward-looking statement, whether written or
oral, that may be made from time to time by or on behalf of us.
3
PROSPECTUS SUMMARY
This prospectus summary may not contain all of the information that may
be important to you. You should read the entire prospectus, including the
financial data and related notes, before making an investment decision. This
summary contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause or
contribute to such differences include those discussed in "Risk Factors,"
"Forward-looking Statements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
OUR COMPANY
We are a FORTUNE 1000 company that is a leading global developer and
manufacturer in the wire and cable industry, an industry which is estimated to
have had $61 billion in sales in 2003. We have leading market positions in the
segments in which we compete due to our product, geographic and customer
diversity and our ability to operate as a low cost provider. We sell over 11,500
copper, aluminum and fiber optic wire and cable products, which we believe
represent the most diversified product line of any U.S. manufacturer. As a
result, we are able to offer our customers a single source for most of their
wire and cable requirements. We manufacture our product lines in 27 facilities
and sell our products worldwide through our operations in North America, Europe
and Oceania. Major customers for our products include leading utility companies
such as Consolidated Edison and Arizona Public Service; leading distributors
such as Graybar and Anixter; leading retailers such as The Home Depot and
AutoZone; leading original equipment manufacturers, or OEMs, such as GE Medical
Systems; and leading telecommunications companies such as Qwest Communications,
Verizon Communications and SBC/Ameritech. Technical expertise and implementation
of Lean Six Sigma strategies have allowed us to maintain our position as a low
cost provider.
Our operations are divided into three main segments: energy, industrial
& specialty and communications. Our energy cable products include low-, medium-
and high-voltage power distribution and power transmission products for overhead
and buried applications. Our industrial & specialty wire and cable products
conduct electrical current for industrial, OEM, commercial and residential power
and control applications. Our communications wire and cable products transmit
low-voltage signals for voice, data, video and control applications. We believe
we are the number one supplier of energy and industrial & specialty cable
products and the number three supplier of communications products in North
America and a top three supplier in the majority of the segments in which we
compete in Oceania. We believe we are the largest supplier in the Iberian region
and a strong regional wire and cable manufacturer in the rest of Europe. For the
year ended December 31, 2003, we had net sales of $1.5 billion and a net loss
applicable to common shareholders of $(5.4) million.
PRODUCTS AND MARKETS
The net sales generated by each of our three main segments (as a
percentage of our total company results) over the twelve-month period ended
December 31, 2003 are summarized below:
[Pie Chart Omitted]
Products and Markets Percentage
- ---------------------- ----------
Energy 37%
Industrial & Specialty 35%
Communications 28%
4
The principal products, markets, distribution channels and end-users of
each of our product categories are summarized below:
PRODUCT CATEGORY PRINCIPAL PRODUCTS PRINCIPAL MARKETS PRINCIPAL END-USERS
- ----------------------- --------------------------- ------------------------- -------------------------
ENERGY
Utility Low-Voltage, Power Utility Investor-Owned Utility
Medium-Voltage Companies; State and
Distribution; Bare Local Public Power
Overhead Conductor; Companies; Rural
High-Voltage Electric Associations;
Transmission Cable Contractors
INDUSTRIAL & SPECIALTY
Instrumentation, Power, Rubber and Plastic- Industrial Power and Industrial Consumers;
Control and Specialty Jacketed Wire and Cable; Control; Utility/Marine/ Contractors; OEMs;
Power and Industrial Cable; Transit; Military; Military Customers;
Instrumentation and Mining; Oil and Gas Telecommunications
Control Cable Industrial; Power System Operators
Generation;
Infrastructure;
Residential Construction
Automotive Ignition Wire Sets; Automotive Aftermarket Consumers; OEMs
Booster Cables
COMMUNICATIONS
Outside Voice and Data Outside Plant Telecom Local Loop Telecommunications
(Telecommunications) Telecommunications Systems Operators
Exchange Cable; Outside
Service Wire
Data Communications Multi-Conductor/Multi-Pair; Computer Networking Contractors; OEMs;
Fiber Optic; Shipboard; and Multimedia Systems Integrators;
Military Fiber Cable Applications Systems Operators;
Military Customers
Electronics Multi-Conductor; Building Management; Contractors; Consumers;
Coaxial; Sound, Entertainment; Equipment Industrial
Security/Fire Alarm Cable Control
Assemblies Cable Harnesses; Telecommunications; Communications and
Connector Cable Industrial Equipment; Industrial Equipment
Medical Equipment Manufacturers
We operate our business globally, with 69% of net sales in 2003
generated from North America, 25% from Europe and 6% from Oceania. We estimate
that we sold our products and services to customers in more than 70 countries in
2003.
5
STRATEGIC INITIATIVES
Due to a decrease in net sales resulting from the global economic
downturn in 2001 and 2002 and its impact particularly in the telecommunications
markets globally and the industrial & specialty market in North America, we have
implemented various management initiatives to improve productivity and maximize
cash flow. These initiatives include the following:
- Consolidating our North American manufacturing and distribution
facilities, including closing three of seven plants that manufacture
communications products, one plant that manufactures industrial
products and four of six distribution centers.
- Reducing head count by 1,700 persons, or 22% of our work force
employed in our continuing operations since September 30, 2000.
- Reducing outstanding aggregate indebtedness, and borrowings under an
off-balance sheet facility, by approximately 42%, or $347.8 million,
from June 30, 2000 (our historical peak borrowing level) to
September 30, 2003. As a result of the refinancing transactions, we
further reduced our outstanding aggregate indebtedness. Our
outstanding indebtedness at December 31, 2003 was $340.4 million.
- Reducing inventory levels related to continuing operations from
$296.4 million at September 30, 2000 to $256.7 million at December
31, 2003, a 13% decrease; this decrease is net of a $23.1 million
impact from foreign exchange rate fluctuations on our reported
international inventory levels. On a consistent foreign exchange
basis, the decrease in inventory levels was $62.8 million, or 21%.
- Reducing capital expenditures from continuing operations from $35.8
million in 2000 to $19.1 million in 2003.
- Exiting less profitable, non-core businesses, such as building wire
and consumer cordsets.
- Focusing on non-capital based productivity, such as Lean Six Sigma
and reduction of manufacturing cycle time.
In addition, in connection with reinforcing our position as a low-cost
provider, we have initiated a study at one of our North American industrial &
specialty manufacturing facilities to determine the feasibility of continuing
manufacturing operations at that location.
We believe that many of our markets have begun to stabilize as end
users begin to increase their spending on infrastructure maintenance and new
construction. Furthermore, the 2003 power outages in the U.S., Canada and Europe
emphasize the need to upgrade the power transmission infrastructure used by
electric utilities, which may over time cause an increase in demand for our
products. As a result of our strategic initiatives and adequate manufacturing
capacity in all our businesses, we believe that we are well positioned to
capitalize on any upturn in our markets without significant additional capital
expenditures.
COMPETITIVE STRENGTHS
We have adopted a "One Company" approach for our dealings with
customers and vendors. This approach is becoming increasingly important as the
electrical, industrial, data communications and electronic distribution
industries continue to consolidate into a smaller number of larger regional and
national participants with broader product lines. As part of our One Company
approach, we have established cross-functional business teams, which seek
opportunities to increase sales to existing customers and to new customers
inside and outside of traditional market channels. Our One Company approach
better integrates us with our major customers, thereby allowing us to become
their leading source for wire and cable products. We believe this approach also
provides us with purchasing leverage as we coordinate our North American
sourcing requirements. Our competitive strengths include:
Leading Market Positions. We have achieved leading market positions in
many of our business segments. For example, we believe that in 2003:
6
- In the energy segment, we were the number one producer in North
America, the number three producer in Oceania and a strong regional
producer in Europe;
- In the industrial & specialty segment, we were the number one
producer in North America and the number three producer in Oceania;
and
- In the communications segment, we were the number three producer in
North America and Oceania.
Product, Geographic and Customer Diversity. We sell over 11,500
products under well-established brand names, including General Cable(R),
Anaconda(R), BICC(R) and Carol(R), which we believe represent the most
diversified product line of any U.S. wire and cable manufacturer. The breadth of
our product line has enhanced our market share and operating performance by
enabling us to offer a diversified product line to customers who previously
purchased wire and cable from multiple vendors but prefer to deal with a smaller
number of broader-based suppliers. We believe that the breadth of our products
gives us the opportunity to expand our product offerings to existing customers.
We distribute our products to over 3,000 customers through our operations in
North America, Europe and Oceania. Our customers include utility companies,
telecommunications systems operators, contractors, OEMs, system integrators,
military customers, consumers and municipalities. The following summarizes sales
as a percentage of our 2003 domestic net sales by each category of customers:
[Pie Chart Omitted]
2003 Domestic Net Sales by
Each Category of Customers Percentage
- ----------------------------------------- ----------
Electric Utility 33%
OEMs & Electrical/Industrial Distributors 21%
Telco Utility 17%
Communication Distributors 14%
Automotive Retail 8%
Electrical Retail 5%
Other 2%
We strive to develop supply relationships with leading customers who
have a favorable combination of volume, product mix, business strategy and
industry position. Our customers are some of the largest consumers of wire and
cable products in their respective markets and include the following companies:
Consolidated Edison, an electric utility company serving the New York City
metropolitan area; Arizona Public Service, Arizona's largest electricity
utility; Graybar, one of the largest electrical and communications distributors
in the United States; Anixter, one of the largest domestic distributors of wire,
cable and communications connectivity products; The Home Depot, a leading home
center retail chain; AutoZone, the largest retailer of automotive aftermarket
parts in the United States; GE Medical Systems, a global leader in medical
imaging, interventional procedures, healthcare services and information
technology; Verizon Communications, a leading provider of communications
services in the Northeastern United States; and Qwest Communications and
SBC/Ameritech, former regional bell operating companies.
Our top 20 customers in 2003 accounted for 39% of our net sales, and no
one customer accounted for more than 5% of our net sales. We believe that our
diversity mitigates the risks associated with an excess concentration of sales
in any one market or geographic region or to any one customer.
Low Cost Provider. We are a low cost provider primarily because of our
focus on lean manufacturing, centralized sourcing and distribution and
logistics. We continuously focus on maintaining and optimizing our manufacturing
infrastructure by promoting an organization-wide "lean" mentality in order to
improve efficiencies. This enables us to maintain a low manufacturing cost
structure, reduce waste, inventory levels and cycle time, as well as retain a
high level of customer service. We have made a significant investment in Lean
Six Sigma training and have established a formal training program for employees
supporting this. We also facilitate the sharing of manufacturing techniques
through the exchange of best practices among design and manufacturing engineers
across
7
our global business units. We believe that these initiatives have enabled us to
achieve a high degree of non-capital based productivity which will allow us to
achieve further productivity improvements.
Experienced and Proven Management Team. Our senior management team has,
on average, over 15 years of experience in the wire and cable industry and 11
years with our company, and has successfully created a corporate-wide culture
that focuses on our One Company approach and continuous improvement in all
aspects of our operations. In addition, our senior management team has
successfully reduced overhead and operating costs, improved productivity and
increased working capital efficiency. For example, our SG&A expenses excluding
corporate items in 2000 have declined from $226.6 million, or 10.5% of net
sales, in 2000 to $127.7 million, or 8.3% of net sales, in 2003. We believe that
the level of our SG&A expenses as a percentage of our net sales is one of the
lowest in the wire and cable industry. Additionally, our senior management team
has restructured our business portfolio to eliminate less profitable, non-core
businesses and capitalize on market opportunities by anticipating market trends
and risks.
BUSINESS STRATEGY
We seek to distinguish ourselves from other wire and cable
manufacturers through the following business strategies:
Improving Operating Efficiency and Productivity. Our operations benefit
from management's ongoing evaluations of operating efficiency. These evaluations
have resulted in cost-saving initiatives designed to improve our profitability
and productivity across all areas of our operations. Recent initiatives include
rationalization of manufacturing facilities and product lines, consolidation of
distribution locations, product redesign, improvement in materials procurement
and usage, product quality and waste elimination and other non-capital based
productivity initiatives. We also expect that continued successful execution of
our One Company approach will provide more efficient purchasing, manufacturing,
marketing and distribution for our products.
Focus on Establishing and Expanding Long-Term Customer
Relationships. Each of our top 20 customers has been our customer for at least
five years. Our customer relationship strategy is focused on being the "wire
provider of choice" for the most demanding customers by providing a diverse
product line coupled with a high level of service. We place great emphasis on
customer service and provide technical resources to solve customer problems and
maintain inventory levels of critical products that are sufficient to meet
fluctuating demands for such products.
We have implemented a number of service and support programs, including
Electronic Data Interchange ("EDI") transactions, web-based product catalogues,
ordering and order tracking capabilities and Vendor Managed Inventory ("VMI")
systems. VMI is an inventory management system integrated into certain of our
customers' internal systems which tracks inventory turnover and places orders
with us for wire and cable on an automated basis. These technologies create high
supplier integration with these customers and position us to be their leading
source for wire and cable products.
Actively Pursue Strategic Initiatives. We believe that our management
has the ability to identify key trends in the industry, which allows us to
migrate our business to capitalize on expanding markets and new niche markets
and exit declining or non-strategic markets in order to achieve better returns.
For example, we exited the North American building wire business in late 2001.
This business had historically been highly cyclical, very price competitive and
had low barriers to entry. We also set aggressive performance targets for our
businesses and intend to refocus, turn around or divest those activities that
fail to meet our targets or do not fit our long-term strategies.
We regularly consider selective acquisitions and joint ventures to
strengthen our existing business lines. We believe there are strategic
opportunities in many international markets, including South America and Asia,
as countries in these markets continue to look to upgrade their power
transmission and generation infrastructure and invest in new communications
networks in order to participate in high speed, global communications. We are
seeing increased opportunities in the European Union for our European
manufacturing operations. For more details, see "Risk Factors -- Other Risks
Relating to Our Business -- We may not be able to successfully identify, finance
or integrate acquisitions."
8
Reduce Leverage. We intend to reduce our leverage in the near to
intermediate term. As a result of our well-diversified business portfolio and
recent operating initiatives, we believe we can improve our existing operating
margin, which will allow us to generate increased cash flows. In order to
achieve this goal of debt reduction, we currently expect to use a substantial
portion of cash flow from operations and the net proceeds from any sale of
non-strategic assets to strengthen our balance sheet. In pursuit of this
strategy, we have reduced outstanding aggregate indebtedness, and borrowings
under an off-balance sheet facility, by $347.8 million, or 42%, from June 30,
2000 to September 30, 2003 through a combination of cash flow from operations
and strategic divestitures. Our outstanding indebtedness at December 31, 2003
was $340.4 million. We have adequate manufacturing capacity in all of our
businesses and are well positioned to capitalize on any upturns in our markets
without significant additional capital expenditures.
THE REFINANCING
On November 24, 2003, we issued $285 million aggregate principal amount
of the old notes. The old notes bear interest at a rate 9.5% per annum, payable
semi-annually on May 15 and November 15 of each year, beginning May 15, 2004,
and will mature on November 15, 2010. The offering of the old notes was part of
our comprehensive plan to improve our capital structure and provide us with
increased financial and operating flexibility to execute our business plan by
reducing leverage and extending debt maturities. This plan consisted of the
following transactions which we refer to as the "refinancing transactions,"
which were consummated concurrently: (i) a $240 million senior secured revolving
credit facility, (ii) the private offering of the old notes, (iii) a private
offering of $103.5 million of Series A redeemable convertible preferred stock
and (iv) a public offering of approximately $47.6 million of common stock
(including the exercise of an over-allotment option on December 2, 2003). We
applied the net proceeds from these refinancing transactions to repay all
borrowings outstanding under our then existing senior secured revolving credit
facility, then existing senior secured term loans and outstanding amounts under
our then existing accounts receivable asset-backed securitization facility and
to pay approximately $22 million in related fees and expenses.
9
THE EXCHANGE OFFER
Securities to be
Exchanged............... On November 24, 2003, we issued $285,000,000 aggregate
principal amount of our 9.5% Senior Notes due 2010 to
the initial purchasers in the offering of the old notes
in a transaction exempt from the registration
requirements of the Securities Act. The terms of the
old notes and the new notes will be substantially the
same, except that, unlike the old notes, you will be
able to offer and sell the new notes freely to any
potential buyer in the United States. For more details,
see "Description of the New Notes."
The Exchange Offer...... We are offering to issue $1,000 principal amount of new
notes in exchange for each $1,000 principal amount of
old notes. The terms of the new notes and the old notes
are substantially identical.
Registration Rights
Agreement .............. We sold the old notes to the initial purchasers in a
transaction exempt from the registration requirements
under the Securities Act. The old notes were
immediately resold by the initial purchasers in
reliance on exemptions under the Securities Act. In
connection with the sale, we, and those of our
subsidiaries that are guarantors of the old and new
notes, entered into a registration rights agreement
with the initial purchasers requiring us to make an
exchange offer. For more details, see "The Exchange
Offer -- Purpose and Effect."
Ability to Resell
New Notes............... Based on interpretations by the staff of the SEC set
forth in published no-action letters, we believe that
you may offer for resale, resell or otherwise freely
transfer the new notes you receive in exchange for old
notes without further registration under the Securities
Act and without delivery of a prospectus to prospective
purchasers if:
- you acquire the new notes in the ordinary course
of your business;
- you are not participating, do not intend to
participate in and have no arrangement or
understanding with any person to participate in
the distribution of the new notes; and
- you are not related to us.
However, the SEC has not considered this exchange offer
in the context of a no-action letter and we cannot be
sure that the staff of the SEC would make the same
determination with respect to the exchange offer as in
other circumstances. Furthermore, you must, unless you
are a broker-dealer, acknowledge that you are not
engaged in, and do not intend to engage in, a
distribution of your new notes and have no arrangement
or understanding to participate in a distribution of
new notes. If you are a broker-dealer that receives new
notes for your own account pursuant to the exchange
offer you must acknowledge that you will comply with
the prospectus delivery requirements of the Securities
Act in connection with any resale of your new notes. If
you are a broker-dealer who acquired old notes directly
from us and not as a result of market-making activities
or other trading activities, you may not rely on the
SEC staff's interpretations discussed above or
participate in the exchange offer and must comply with
the prospectus delivery requirements of the Securities
Act in order to resell the new notes.
10
The exchange offer is not being made to:
- holders of old notes in any jurisdiction in which
the exchange offer or its acceptance would not
comply with the securities or blue sky laws of
that jurisdiction; and
- holders of old notes who we control.
Expiration Date......... The exchange offer will expire at 5:00 p.m., New York
City time, on, 2004, unless it is extended.
Withdrawal.............. Unless we extend the date, you may withdraw your
tendered old notes at any time before 5:00 p.m., New
York City time, on the expiration date of the exchange
offer.
Interest on the
New Notes............... Interest on the new notes will accrue from the date of
the original issuance of the old notes or from the date
of the last semi-annual payment of interest on the old
notes, whichever is later.
Conditions to the
Exchange Offer.......... The exchange offer is subject to conditions, some of
which we may waive. For more information, see "The
Exchange Offer -- Conditions to the Exchange Offer."
Procedures for
Exchanging Your
Old Notes............... If you wish to exchange your old notes for new notes
you must transmit to U.S. Bank National Association,
our exchange agent, on or before the expiration date
either:
- a properly completed and executed letter of
transmittal, which we have provided to you with
this prospectus, or a facsimile of the letter of
transmittal, together with your old notes and any
other documentation requested by the letter of
transmittal;
- a computer generated message, in which you
acknowledge and agree to be bound by the terms of
the letter of transmittal, transmitted by means of
the Depository Trust Company's Automated Tender
Offer Program system; or
- a notice of guaranteed delivery, in accordance
with the procedures described under the heading
"The Exchange Offer -- Guaranteed Delivery
Procedures."
By agreeing to be bound by the terms of the letter of
transmittal, you will be deemed to have made the
representations described on page 72 under the heading
"The Exchange Offer -- Purpose and Effect."
Shelf Registration
Requirement............. Pursuant to the registration rights agreement for the
old notes, we are required to file a "shelf"
registration statement for a continuous offering
pursuant to Rule 415 under the Securities Act in
respect of the old notes if:
- because of any change in law or applicable
interpretations of the staff of the SEC, we are
not permitted to effect the exchange offer;
11
- for any other reason the exchange offer is not
consummated by June 21, 2004;
- upon the request of any of the initial purchasers;
- any holder notifies us within 20 business days
after the commencement of the exchange offer that
(i) due to a change in applicable law or SEC
policy it is not entitled to participate in the
exchange offer, or it may not resell the new notes
to the public without delivering a prospectus and
the prospectus that forms part of the registration
statement is not appropriate or available for such
resales or (ii) it is a broker-dealer and owns old
notes acquired directly from us or an affiliate of
ours; or
- any holder of old notes participates in the
exchange offer and does not receive freely
transferable new notes in exchange for old notes.
United States Federal
Income Tax Consequences. The exchange of the old notes for the new notes in the
exchange offer should not constitute a sale or exchange
for federal income tax purposes. See "Material U.S.
Federal Income Tax Consequences."
Effect of Not Tendering. If you fail to tender your old notes, you will continue
to hold unregistered securities and your ability to
transfer them could be adversely affected.
Please review the information under the heading "The Exchange Offer"
for more detailed information concerning the exchange offer.
TERMS OF THE NEW NOTES
Issuer ................. General Cable Corporation.
Securities Offered...... $285,000,000 in aggregate principal amount of our new
9.5% Senior Notes due 2010, Series B.
Maturity................ The new notes will mature on November 15, 2010.
Interest Payment Dates.. Interest on the new notes will be payable semi-annually
on May 15 and . November 15 of each year, beginning on
May 15, 2004.
Optional Redemption..... We may redeem the new notes, in whole or in part, at
any time on or after November 15, 2007 at the
redemption prices set forth in this prospectus.
In addition, before November 15, 2006, we may redeem up
to 35% of the aggregate principal amount of the new
notes with the net proceeds of certain equity offerings
at 109.5% of the principal amount thereof, plus accrued
interest to the redemption date. For more details, see
"Description of the New Notes -- Optional Redemption."
Change of Control....... Upon certain change of control events, each holder of
new notes may require us to purchase all or a portion
of such holder's new notes at a purchase price equal to
101% of the principal amount thereof, plus
12
accrued interest to the purchase date. For more
details, see "Description of the New Notes --
Repurchase at the Option of the Holders -- Change of
Control."
Guarantees.............. Each of our existing and future restricted subsidiaries
that is a guarantor or borrower under any U.S. senior
secured revolving credit facility will fully and
unconditionally guarantee the new notes on a senior
basis. Future subsidiaries also may be required to
guarantee the new notes on a senior basis. See
"Description of the New Notes -- The Guarantees."
Ranking................. The new notes will be unsecured senior obligations and
will rank equally in right of payment with all of our
existing and future unsubordinated indebtedness and
senior to any future indebtedness that is expressly
subordinated to the new notes. The new notes will be
effectively subordinated to our secured indebtedness,
including obligations under our senior secured
revolving credit facility, to the extent of the value
of the assets securing such indebtedness and
effectively subordinated to the indebtedness and other
liabilities (including trade payables) of our
non-guarantor subsidiaries. The guarantees will be
unsecured senior obligations of the guarantors and will
rank equal in right of payment with the guarantors'
existing and future unsubordinated indebtedness and
senior to any future indebtedness that is expressly
subordinated to the guarantees. The guarantees will be
effectively subordinated to the guarantors' secured
indebtedness, including their guarantees of our senior
secured revolving credit facility, to the extent of the
value of the assets securing such indebtedness.
Certain Covenants....... The indenture governing the new notes contains
covenants that, among other things, limits our ability
and the ability of certain of our subsidiaries to:
- pay dividends on, redeem or repurchase our capital
stock;
- incur additional indebtedness;
- make investments;
- create liens;
- sell assets;
- engage in transactions with affiliates;
- create or designate unrestricted subsidiaries; and
- consolidate, merge or transfer all or
substantially all assets.
These covenants are subject to important exceptions and
qualifications, which are described under the heading
"Description of the New Notes" in this prospectus.
Use of Proceeds......... We will not receive any cash proceeds from the issuance
of the new notes in connection with the exchange offer.
13
SUMMARY FINANCIAL INFORMATION
The summary historical financial data for the years ended and as of
December 31, 2001, 2002 and 2003 were derived from our audited consolidated
financial statements. The following summary financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and related
notes thereto. Certain reclassifications have been made to conform to the
current year's presentation.
In March 2001, we sold our Pyrotenax business unit to Raychem HTS
Canada, Inc. The results of operations of this business are included in the
financial data presented below for the periods prior to the closing date.
In September 2001, we announced our decision to exit the consumer
cordsets business. In October 2001, we sold substantially all of the
manufacturing assets and inventory of our building wire business to Southwire
Company. The results of operations of these businesses are included in the
financial data presented below for the periods prior to the closing date.
Beginning in the third quarter of 2001, we have reported the building wire and
cordsets segment as discontinued operations for financial reporting purposes.
Administrative expenses formerly allocated to this segment are now reported in
the continuing operations segments. Prior periods reflect this change.
14
YEAR ENDED DECEMBER 31,
----------------------------------------------
2001(1) 2002 2003
------------ ------------ ------------
(IN MILLIONS)
STATEMENT OF OPERATIONS DATA:
Net sales:
Energy .................................. $ 521.8 $ 516.0 $ 560.2
Industrial & specialty .................. 537.6 499.4 542.4
Communications .......................... 592.0 438.5 435.8
------------ ------------ ------------
Total net sales ............................ 1,651.4 1,453.9 1,538.4
Cost of sales .............................. 1,410.7 1,287.3 1,365.0
------------ ------------ ------------
Gross profit ............................... 240.7 166.6 173.4
Selling, general and administrative expenses 136.4 150.9 127.7
------------ ------------ ------------
Operating income ........................... 104.3 15.7 45.7
Other income ............................... 8.1 -- 1.5
Interest expense, net ...................... (43.9) (42.6) (43.1)
Other financial costs ...................... (10.4) (1.1) (6.0)
------------ ------------ ------------
Income (loss) before taxes ................. 58.1 (28.0) (1.9)
Income tax benefit (provision) ............. (20.6) 9.9 (2.9)
------------ ------------ ------------
Income (loss) from continuing operations . 37.5 (18.1) (4.8)
Loss from discontinued operations .......... (6.8) -- --
Loss on disposal of discontinued operations (32.7) (5.9) --
------------ ------------ ------------
Net loss ................................... (2.0) (24.0) (4.8)
Less: preferred stock dividends ............ -- -- (0.6)
------------ ------------ ------------
Net loss applicable to common shareholders . $ (2.0) $ (24.0) $ (5.4)
============ ============ ============
DECEMBER 31,
----------------------------------------
2001 2002 2003
---------- -------- ----------
BALANCE SHEET DATA:
Cash and cash equivalents ........ $ 16.6 $ 29.1 $ 25.1
Working capital(2) ............... 169.9 150.8 236.6
Property, plant and equipment, net 320.9 323.3 333.3
Total assets ..................... 1,005.3 973.3 1,049.5
Total debt(3) .................... 460.4 451.9 340.4
Net debt(3)(4) ................... 443.8 422.8 315.3
Shareholders' equity ............. 104.9 60.9 240.1
15
YEAR ENDED DECEMBER 31,
---------------------------------------
2001(1) 2002 2003
--------- -------- --------
(IN MILLIONS, EXCEPT RATIO AND METAL PRICE DATA)
OTHER DATA:
Cash flows of operating activities .................. $ 83.2 $ 57.3 $ (14.5)
Cash flows of investing activities .................. 91.9 (28.6) (16.7)
Cash flows of financing activities .................. (179.7) (16.2) 27.2
Ratio of earnings to fixed charges(5) ............... 2.1x -- --
Average daily COMEX price per pound of copper cathode $ 0.73 $ 0.72 $ 0.81
Average daily selling price per pound of aluminum rod $ 0.69 $ 0.65 $ 0.69
(1) As of January 1, 2001, we changed our accounting method for non-North
American metal inventories from the first-in first-out ("FIFO") method to
the last-in first-out ("LIFO") method. The impact of the change was an
increase in operating income of $4.1 million, or $0.08 of earnings per
share, on both a basic and a diluted basis during 2001.
(2) Working capital means current assets less current liabilities.
(3) Excludes off-balance sheet borrowings of $67.8 million and $48.5 million as
of December 31, 2001 and 2002 under our accounts receivable asset-backed
securitization facility which was terminated as part of the refinancing.
(4) Net debt means our total debt less cash and cash equivalents.
(5) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income taxes
and fixed charges. Fixed charges include: (i) interest expense, whether
expensed or capitalized; (ii) amortization of debt issuance cost; (iii) the
portion of rental expense representative of the interest factor; and (iv)
the amount of pretax earnings required to cover preferred stock dividends
and any accretion in the carrying value of the preferred stock. For the
years ended December 31, 2002 and 2003, earnings were insufficient to cover
fixed charges by $27.6 million and $2.1 million, respectively. Our
historical ratio of earnings to fixed charges and preferred stock dividends
is the same as our historical ratio of earnings to fixed charges because we
did not pay or accrue any preferred stock dividends during the periods
presented.
16
RISK FACTORS
You should carefully consider the following risk factors and other
information contained herein before exchanging your old notes for the new notes.
RISKS RELATED TO OUR BUSINESS
RISKS RELATING TO OUR MARKETS
OUR NET SALES, NET INCOME AND GROWTH DEPEND LARGELY ON THE ECONOMIES IN THE
GEOGRAPHIC MARKETS THAT WE SERVE AND IF THESE MARKETS DO NOT IMPROVE OR BECOME
WEAKER WE COULD SUFFER DECREASED SALES AND NET INCOME.
Many of our customers use our products as components in their own
products or in projects undertaken for their customers. Our ability to sell our
products is largely dependent on general economic conditions, including how much
our customers and end-users spend on information technology, new construction
and building, maintaining or reconfiguring their communications network,
industrial manufacturing assets and power transmission and distribution
infrastructures. Over the past few years many companies have significantly
reduced their capital equipment and information technology budgets, and
construction activity that necessitates the building or modification of
communication networks and power transmission and distribution infrastructures
has slowed considerably as a result of a weakening of the U.S. and foreign
economies. As a result, our net sales and financial results have declined
significantly. In the event that these markets do not improve, or if they were
to become weaker, we could suffer further decreased sales and net income and we
could be required to enact further restructurings.
THE MARKET FOR OUR PRODUCTS IS HIGHLY COMPETITIVE AND IF WE FAIL TO INVEST IN
PRODUCT DEVELOPMENT, PRODUCTIVITY IMPROVEMENTS AND CUSTOMER SERVICE AND SUPPORT
THE SALE OF OUR PRODUCTS COULD BE ADVERSELY AFFECTED.
The markets for copper, aluminum and fiber optic wire and cable
products are highly competitive, and some of our competitors may have greater
financial resources than we do. We compete with at least one major competitor
with respect to each of our business segments, although no single competitor
competes with us across the entire spectrum of our product lines. Many of our
products are made to common specifications and therefore may be fungible with
competitors' products. Accordingly, we are subject to competition in many
markets on the basis of price, delivery time, customer service and our ability
to meet specific customer needs.
We believe our competitors will continue to improve the design and
performance of their products and to introduce new products with competitive
price and performance characteristics. We expect that we will be required to
continue to invest in product development, productivity improvements and
customer service and support in order to compete in our markets. Furthermore, an
increase in imports of products competitive with our products could adversely
affect our sales.
OUR BUSINESS IS SUBJECT TO THE ECONOMIC AND POLITICAL RISKS OF MAINTAINING
FACILITIES AND SELLING PRODUCTS IN FOREIGN COUNTRIES.
During 2003, approximately 31% of our sales and approximately 33% of
our assets were in markets outside North America. Our financial results may be
adversely affected by significant fluctuations in the value of the U.S. dollar
against foreign currencies or by the enactment of exchange controls or foreign
governmental or regulatory restrictions on the transfer of funds. In addition,
negative tax consequences relating to repatriating certain foreign currencies,
particularly cash generated by our operations in Spain, may adversely affect our
cash flows. During 2003, our operations outside North America generated
approximately $25.8 million of our cash flows from operations while the North
American operations used $40.3 million of cash flows from operations.
Furthermore, our foreign operations are subject to risks inherent in maintaining
operations abroad, such as economic and political destabilization, international
conflicts, restrictive actions by foreign governments, nationalizations, changes
in regulatory requirements, the difficulty of effectively managing diverse
global operations and adverse foreign tax laws.
17
CHANGES IN INDUSTRY STANDARDS AND REGULATORY REQUIREMENTS MAY ADVERSELY AFFECT
OUR BUSINESS.
As a manufacturer and distributor of wire and cable products we are
subject to a number of industry standard-setting authorities, such as
Underwriters Laboratories, the Telecommunications Industry Association, the
Electronics Industries Association and the Canadian Standards Association. In
addition, many of our products are subject to the requirements of federal, state
and local or foreign regulatory authorities. Changes in the standards and
requirements imposed by such authorities could have an adverse effect on us. In
the event we are unable to meet any such standards when adopted our business
could be adversely affected. In addition, changes in the legislative environment
could affect the growth and other aspects of important markets served by us.
While certain legislative bills and regulatory rulings are pending in the energy
and telecommunications sectors which could improve our markets, any delay or
failure to pass such legislation and regulatory rulings could adversely affect
our opportunities and anticipated prospects may not arise. It is not possible at
this time to predict the impact that any such legislation or regulation or
failure to enact any such legislation or regulation, or other changes in laws or
industry standards that may be adopted in the future, could have on our
financial results, cash flows or financial position.
ADVANCING TECHNOLOGIES, SUCH AS FIBER OPTIC AND WIRELESS TECHNOLOGIES, MAY MAKE
SOME OF OUR PRODUCTS LESS COMPETITIVE.
Technological developments could have a material adverse effect on our
business. For example, a significant decrease in the cost and complexity of
installation of fiber optic systems or increase in the cost of copper-based
systems could make fiber optic systems superior on a price performance basis to
copper systems and may have a material adverse effect on our business. Also,
advancing wireless technologies, as they relate to network and communication
systems, may represent some threat to both copper and fiber optic cable based
systems by reducing the need for premise wiring. While we sell some fiber optic
cable and components and cable that is used in certain wireless applications, if
fiber optic systems or wireless technology were to significantly erode the
markets for copper-based systems, our sales of fiber optic cable and products
for wireless applications may not be sufficient to offset any decrease in sales
or profitability of our other products that may occur.
RISKS RELATING TO OUR OPERATIONS
VOLATILITY IN THE PRICE OF COPPER AND OTHER RAW MATERIALS, AS WELL AS FUEL AND
ENERGY, COULD ADVERSELY AFFECT OUR BUSINESSES.
The costs of copper and aluminum, the most significant raw materials we
use, have been subject to considerable volatility over the years. Volatility in
the price of copper, aluminum, polyethylene and other raw materials, as well as
fuel, natural gas and energy, will in turn lead to significant fluctuations in
our cost of sales. Additionally, sharp increases in the price of copper can also
reduce demand if customers decide to defer their purchases of copper wire and
cable products or seek to purchase substitute products. Moreover, we do not
engage in activities to hedge the underlying value of our copper and aluminum
inventory. Although we attempt to reflect copper and other raw material price
changes in the sale price of our products, there is no assurance that we can do
so.
INTERRUPTIONS OF SUPPLIES FROM OUR COPPER ROD MILL PLANT OR OUR KEY SUPPLIERS
MAY AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL PERFORMANCE.
Interruptions of supplies from our copper rod mill plant or our key
suppliers could disrupt production or impact our ability to increase production
and sales. During 2003, our copper rod mill plant produced approximately 62% of
the copper rod used in our North American operations and two suppliers provided
an aggregate of approximately 68% of our North American copper purchases. Any
unanticipated problems or work stoppages at our copper rod mill facility could
have a material adverse effect on our business. Additionally, we use a limited
number of sources for most of the other raw materials that we do not produce. We
do not have long-term or volume purchase agreements with most of our suppliers,
and may have limited options in the short-term for alternative supply if these
suppliers fail, for any reason, including their business failure or financial
difficulties, to continue the supply of materials or components. Moreover,
identifying and accessing alternative sources may increase our costs.
18
FAILURE TO NEGOTIATE EXTENSIONS OF OUR LABOR AGREEMENTS AS THEY EXPIRE MAY
RESULT IN A DISRUPTION OF OUR OPERATIONS.
Approximately 60% of our employees are represented by various labor
unions. During the last five years, we have experienced only one strike, which
was settled on satisfactory terms. Labor agreements expire at six facilities in
2004 and three in 2005. We cannot predict what issues may be raised by the
collective bargaining units representing our employees and, if raised, whether
negotiations concerning such issues will be successfully concluded. A protracted
work stoppage could result in a disruption of our operations which could
adversely affect our ability to deliver certain products and our financial
results.
OUR INABILITY TO CONTINUE TO ACHIEVE PRODUCTIVITY IMPROVEMENTS MAY RESULT IN
INCREASED COSTS.
Part of our business strategy is to increase our profitability by
lowering costs through improving our processes and productivity. In the event we
are unable to continue to implement measures improving our manufacturing
techniques and processes, we may not achieve desired efficiency or productivity
levels and our manufacturing costs may increase. In addition, productivity
increases are related in part to factory utilization rates. Our decreased
utilization rates over the past few years have adversely impacted productivity.
WE ARE SUBSTANTIALLY DEPENDENT UPON DISTRIBUTORS AND RETAILERS FOR NON-EXCLUSIVE
SALES OF OUR PRODUCTS AND THEY COULD CEASE PURCHASING OUR PRODUCTS AT ANY TIME.
During 2003, approximately 35% of our domestic net sales were to
independent distributors and four of our ten largest customers were
distributors. Distributors accounted for a substantial portion of sales of our
communications products and industrial & specialty products. During 2003,
approximately 13% of our domestic net sales were to retailers and the two
largest retailers, AutoZone and The Home Depot, accounted for approximately 2.5%
and 2.9%, respectively, of our net sales.
These distributors and retailers are not contractually obligated to
carry our product lines exclusively or for any period of time. Therefore, these
distributors and retailers may purchase products that compete with our products
or cease purchasing our products at any time. The loss of one or more large
distributors or retailers could have a material adverse effect on our ability to
bring our products to end users and on our results of operations. Moreover, a
downturn in the business of one or more large distributors or retailers could
adversely affect our sales and could create significant credit exposure.
WE FACE PRICING PRESSURES IN EACH OF OUR MARKETS THAT COULD ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS AND FINANCIAL PERFORMANCE.
We face pricing pressures in each of our markets as a result of
significant competition or over-capacity, and price levels for most of our
products have declined over the past few years. While we will work toward
reducing our costs to respond to the pricing pressures that may continue, we may
not be able to achieve proportionate reductions in costs. As a result of
over-capacity and the current economic and industry downturn in the
communications and industrial markets in particular, pricing pressures increased
in 2002 and 2003. Pricing pressures are expected to continue into 2004 and for
the foreseeable future. Further declines in prices, without offsetting
cost-reductions, would adversely affect our financial results.
OTHER RISKS RELATING TO OUR BUSINESS
OUR SUBSTANTIAL DEBT COULD ADVERSELY AFFECT OUR BUSINESS.
We have a significant amount of debt. As of December 31, 2003, after
our refinancing transactions had occurred, we had $340.4 million of debt
outstanding, $55.4 million of which is secured indebtedness and none of which is
subordinated to the notes, and had $147.6 million of additional borrowing
capacity available under our senior secured revolving credit facility. In
addition, subject to the terms of the indenture governing the notes, we may also
incur additional indebtedness, including secured debt, in the future.
The degree to which we are leveraged could have important adverse
consequences to us. For example, it could:
19
- make it difficult for us to make payments on or otherwise satisfy
our obligations with respect to our indebtedness;
- limit our ability to borrow additional amounts for working capital,
capital expenditures, potential acquisition opportunities and other
purposes;
- limit our ability to withstand competitive pressures and reduce our
flexibility in responding to changing business, regulatory and
economic conditions in our industry;
- place us at a competitive disadvantage against our less leveraged
competitors;
- subject us to increased costs, to the extent of the portion of our
indebtedness that is subject to floating interest rates; and
- cause us to fail to comply with applicable debt covenants and could
result in an event of default that could result in all of our
indebtedness being immediately due and payable.
In addition, our ability to generate cash flow from operations
sufficient to make scheduled payments on our debts as they become due will
depend on our future performance, our ability to successfully implement our
business strategy and our ability to obtain other financing.
IF EITHER OF OUR UNCOMMITTED ACCOUNTS PAYABLE OR ACCOUNTS RECEIVABLE FINANCING
ARRANGEMENTS FOR OUR EUROPEAN OPERATIONS IS CANCELLED BY OUR LENDERS, OUR
LIQUIDITY WILL BE NEGATIVELY IMPACTED.
Our European operation participates in arrangements with several
European financial institutions which provide extended accounts payable terms to
us. In general, the arrangements provide for accounts payable terms of up to 180
days. At December 31, 2003, the arrangements had a maximum availability limit of
the equivalent of approximately $101.7 million of which approximately $70.7
million was drawn. We do not have firm commitments from these European financial
institutions requiring them to continue to extend credit and they may decline to
advance additional funding. We also have an approximate $25 million uncommitted
facility in Europe, which allows us to sell at a discount, with limited
recourse, a portion of our accounts receivable to a financial institution. At
December 31, 2003, this facility was not drawn upon. We do not have a firm
commitment from this institution to purchase our accounts receivable. Should the
availability under these arrangements be reduced or terminated, we would be
required to negotiate longer payment terms with our suppliers or repay the
outstanding obligations with our suppliers under these arrangements over 180
days and/or seek alternative financing arrangements which could increase our
interest expense. We cannot assure you that such longer payment terms or
alternate financing will be available on favorable terms or at all. Failure to
obtain alternative financing arrangements in such case would negatively impact
our liquidity.
In addition, in order to avoid an event of default under our senior
secured credit facility, we must maintain foreign credit lines of at least the
equivalent of $80.0 million during those periods when our average excess
available funds under our senior secured credit facility is less than $100.0
million for a period of three consecutive months.
WE WILL BE REQUIRED TO TAKE ADDITIONAL CHARGES IN CONNECTION WITH A PLANT
CLOSURE AND THE RATIONALIZATION OF ANOTHER PLANT AND WE MAY BE REQUIRED TO TAKE
CERTAIN CHARGES TO OUR EARNINGS IN FUTURE PERIODS IN CONNECTION WITH A POTENTIAL
PLANT CLOSURE AND OUR INVENTORY ACCOUNTING PRACTICES.
We have closed one of our manufacturing facilities and are also in the
process of significantly reducing operations at another facility which resulted
in a $7.6 million charge in the fourth quarter of 2003, of which approximately
$1.3 million were cash payments. Additional charges (currently estimated to be
$14 million, of which approximately $8 million will be cash payments) will be
incurred during 2004 as the operations are wound down. In addition, we are
currently evaluating the closure of one additional facility. We plan to announce
the result of our evaluation in 2004. The cost to rationalize this facility
could approximate $5 million, with cash costs of approximately $2 million. The
costs to be incurred as a result of the above actions will be reported over the
period the operations are wound down.
20
As a result of volatile copper prices, the historic LIFO cost of our
copper inventory exceeded its replacement cost by approximately $16 million at
December 31, 2002 while at December 31, 2003, the replacement cost of our copper
inventory exceeded the historic LIFO cost by approximately $13 million. If we
were not able to recover the LIFO value of our inventory at a profit in some
future period when replacement costs were lower than the LIFO value of the
inventory, we would be required to take a charge to recognize in our income
statement all or a portion of the higher LIFO value of the inventory. During
2002 and 2003, we recorded a $2.5 million and a $0.5 million charge,
respectively, for the liquidation of LIFO inventory in North America as we
significantly reduced our inventory levels. If LIFO inventory quantities are
reduced in a future period when replacement costs are lower than the LIFO value
of the inventory, we would experience a decline in reported earnings.
Conversely, if LIFO inventory quantities are reduced in a future period when
replacement costs exceed the LIFO value of the inventory, we would experience an
increase in reported earnings.
WE ARE SUBJECT TO CERTAIN ASBESTOS LITIGATION AND UNEXPECTED JUDGMENTS OR
SETTLEMENTS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL RESULTS.
There are approximately 15,000 pending non-maritime asbestos cases
involving our subsidiaries. The majority of these cases involve plaintiffs
alleging exposure to asbestos-containing cable manufactured by our predecessors.
In addition to our subsidiaries, numerous other wire and cable manufacturers
have been named as defendants in these cases. Our subsidiaries have also been
named, along with numerous other product manufacturers, as defendants in
approximately 33,000 suits in which plaintiffs alleged that they suffered an
asbestos-related injury while working in the maritime industry. These cases are
referred to as MARDOC cases and are currently managed under the supervision of
the U.S. District Court for the Eastern District of Pennsylvania. On May 1,
1996, the District Court ordered that all pending MARDOC cases be
administratively dismissed without prejudice and the cases cannot be reinstated,
except in certain circumstances involving specific proof of injury. We cannot
assure you that any judgments or settlements of the pending non-maritime and/or
MARDOC asbestos cases or any cases which may be filed in the future will not
have a material adverse effect on our financial results, cash flows or financial
position. Moreover, certain of our insurers may be financially unstable and in
the event one or more of these insurers enter into insurance liquidation
proceedings, we will be required to pay a larger portion of the costs incurred
in connection with these cases.
ENVIRONMENTAL LIABILITIES COULD POTENTIALLY ADVERSELY IMPACT US AND OUR
AFFILIATES.
We are subject to federal, state, local and foreign environmental
protection laws and regulations governing our operations and use, handling,
disposal and remediation of hazardous substances currently or formerly used by
us and our affiliates. A risk of environmental liability is inherent in our and
our affiliates' current and former manufacturing activities in the event of a
release or discharge of a hazardous substance generated by us or our affiliates.
Under certain environmental laws, we could be held jointly and severally
responsible for the remediation of any hazardous substance contamination at our
facilities and at third party waste disposal sites and could also be held liable
for any consequences arising out of human exposure to such substances or other
environmental damage. We and our affiliates have been named as potentially
responsible parties in proceedings that involve environmental remediation. There
can be no assurance that the costs of complying with environmental, health and
safety laws and requirements in our current operations or the liabilities
arising from past releases of, or exposure to, hazardous substances, will not
result in future expenditures by us that could materially and adversely affect
our financial results, cash flows or financial condition.
GROWTH THROUGH ACQUISITION HAS BEEN A SIGNIFICANT PART OF OUR STRATEGY AND WE
MAY NOT BE ABLE TO SUCCESSFULLY IDENTIFY, FINANCE OR INTEGRATE ACQUISITIONS.
Growth through acquisition has been, and is expected to continue to be,
a significant part of our strategy. We regularly evaluate possible acquisition
candidates. We cannot assure you that we will be successful in identifying,
financing and closing acquisitions at favorable prices and terms. Potential
acquisitions may require us to issue additional shares of stock or obtain
additional or new financing, and such financing may not be available on terms
acceptable to us, or at all. The issuance of our common or preferred shares may
dilute the value of shares held by our equityholders. Further, we cannot assure
you that we will be successful in integrating any such acquisitions that are
completed. Integration of any such acquisitions may require substantial
management, financial and other resources and may pose risks with respect to
production, customer service and market share of existing operations.
21
In addition, we may acquire businesses that are subject to technological or
competitive risks, and we may not be able to realize the benefits expected from
such acquisitions.
TERRORIST ATTACKS AND OTHER ATTACKS OR ACTS OF WAR MAY ADVERSELY AFFECT THE
MARKETS IN WHICH WE OPERATE, OUR OPERATIONS AND OUR PROFITABILITY.
The attacks of September 11, 2001 and subsequent events, including the
military action in Iraq, has caused and may continue to cause instability in our
markets and have led and may continue to lead to, further armed hostilities or
further acts of terrorism worldwide, which could cause further disruption in our
markets. Acts of terrorism may impact any or all of our facilities and
operations, or those of our customers or suppliers and may further limit or
delay purchasing decisions of our customers. Depending on their magnitude, acts
of terrorism or war could have a material adverse effect on our business,
financial results, cash flows and financial position.
We carry insurance coverage on our facilities of types and in amounts
that we believe are in line with coverage customarily obtained by owners of
similar properties. We continue to monitor the state of the insurance market in
general and the scope and cost of coverage for acts of terrorism in particular,
but we cannot anticipate what coverage will be available on commercially
reasonable terms in future policy years. Currently, we do not carry terrorism
insurance coverage. If we experience a loss that is uninsured or that exceeds
policy limits, we could lose the capital invested in the damaged facilities, as
well as the anticipated future net sales from those facilities. Depending on the
specific circumstances of each affected facility, it is possible that we could
be liable for indebtedness or other obligations related to the facility. Any
such loss could materially and adversely affect our business, financial results,
cash flows and financial position.
IF WE FAIL TO RETAIN OUR KEY EMPLOYEES, OUR BUSINESS MAY BE HARMED.
Our success has been largely dependent on the skills, experience and
efforts of our key employees, and the loss of the services of any of our
executive officers or other key employees could have an adverse effect on us.
The loss of our key employees who have intimate knowledge of our manufacturing
process could lead to increased competition to the extent that those employees
are able to recreate our manufacturing process. Our future success will also
depend in part upon our continuing ability to attract and retain highly
qualified personnel, who are in great demand.
DECLINING RETURNS IN THE INVESTMENT PORTFOLIO OF OUR DEFINED BENEFIT PLANS HAS
INCREASED OUR PENSION EXPENSE AND REQUIRED US TO INCREASE CASH CONTRIBUTIONS TO
THE PLANS.
Pension expense for the defined benefit pension plans sponsored by us
is determined based upon a number of actuarial assumptions, including an
expected long-term rate of return on assets and discount rate. During the fourth
quarter of 2002, as a result of declining returns in the investment portfolio of
our defined benefit pension plans, we were required to record a minimum pension
liability equal to the underfunded status of our plans. As of December 31, 2002,
the defined benefit plans were underfunded by approximately $52 million based on
the actuarial methods and assumptions utilized for purposes of FAS 87. During
2003, investment performance improved and as a result, the defined benefit plans
were underfunded by approximately $40 million at December 31, 2003. We have
experienced an increase in our pension expense and in our cash contributions to
our defined benefit pension plan. Pension expense for our defined benefit plans
increased from $2.0 million in 2002 to $8.4 million in 2003 and our required
cash contributions increased to $6.1 million in 2003 from $3.0 million in 2002.
In 2004 pension expense for our defined benefit plans is expected to decrease
approximately $3.0 million from 2003, primarily due to improved investment
performance during 2003 in the market value of assets held and cash
contributions are expected to increase to $12.6 million. In the event that
actual results differ from the actuarial assumptions, the funded status of our
defined benefit plans may change and any such deficiency could result in
additional charges to equity and an increase in future pension expense and cash
contributions.
AN OWNERSHIP CHANGE COULD RESULT IN A LIMITATION OF THE USE OF OUR NET OPERATING
LOSSES.
As of December 31, 2003, we had net operating loss, or NOL,
carryforwards of approximately $205 million available to reduce taxable income
in future years. Specifically, we generated NOL carryforwards of $55.2 million
in 2000, $68.4 million in 2002 and $27.2 million in 2003, which expire in 2020,
2022 and 2023, respectively. The 2001 NOL, which was reflected as a carryforward
in the 2001 financial statements, was instead carried back to obtain a $37.0
million tax refund in 2002. We also have other NOL carryforwards that are
subject to an annual limitation under section 382 of the Internal Revenue Code
of 1986, as amended, or the Code. These
22
section 382 limited NOL carryforwards expire in varying amounts from 2006 to
2009. The total section 382 limited NOL carryforwards that may be utilized prior
to expiration is estimated at $53.9 million.
Our ability to utilize our NOL carryforwards may be further limited by
section 382 if we undergo an ownership change as a result of the sale of our
stock and/or as a result of subsequent changes in the ownership of our
outstanding stock. We would undergo an ownership change if, among other things,
the stockholders, or group of stockholders, who own or have owned, directly or
indirectly, 5% or more of the value of our stock or are otherwise treated as 5%
stockholders under section 382 and the regulations promulgated thereunder
increase their aggregate percentage ownership of our stock by more than 50% over
the lowest percentage of our stock owned by these stockholders at any time
during the testing period, which is generally the three-year period preceding
the potential ownership change. In the event of an ownership change, section 382
imposes an annual limitation on the amount of post-ownership change taxable
income a corporation may offset with pre-ownership change NOL carryforwards and
certain recognized built-in losses. The limitation imposed by section 382 for
any post-change year would be determined by multiplying the value of our stock
immediately before the ownership change (subject to certain adjustments) by the
applicable long-term tax-exempt rate, which is 4.74% for December 2003. Any
unused annual limitation may be carried over to later years, and the limitation
may under certain circumstances be increased by built-in gains which may be
present in assets held by us at the time of the ownership change that are
recognized in the five-year period after the ownership change.
Based upon our review of the aggregate change in percentage ownership
during the current testing period and subject to any unanticipated increases in
ownership by our "five percent shareholders" (as described above) with respect
to our stock, we do not believe that we will experience a change in ownership as
a result of the sale of our stock. However, such a determination is complex and
there can be no assurance that the Internal Revenue Service could not
successfully challenge our conclusion. In addition, there are circumstances
beyond our control, such as the purchase of our stock by investors who are
existing 5% shareholders or become 5% shareholders as a result of such purchase,
which could result in an ownership change with respect to our stock.
Nevertheless, we expect to use a large portion of our available 50% ownership
shift limitation in connection with the sale of our stock, and we may not be
able to engage in significant transactions that would create a further shift in
ownership within the meaning of section 382 within the subsequent three-year
period without triggering an ownership change. Thus, while it is our general
intention to maximize utilization of our NOL carryforwards by avoiding the
triggering of an ownership change, there can be no assurance that our future
actions or future actions by our stockholders will not result in the occurrence
of an ownership change, which will result in utilization of the NOL and
negatively affect our cash flows.
IF WE ARE REQUIRED TO CLASSIFY THE PREFERRED STOCK AS DEBT IN THE FUTURE, OUR
BALANCE SHEET WILL BE ADVERSELY AFFECTED.
Upon issuance, the preferred stock will be classified as equity on our
balance sheet in accordance with Statement of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity," or SFAS 150, since the preferred stock contains a
substantive conversion feature. Under SFAS 150, the preferred stock will remain
classified as equity until and unless it becomes certain that the conversion
feature will not be exercised by the holders. If it were to become certain that
the holders of the preferred stock will not exercise their conversion rights, we
would be required to reclassify the preferred stock as a liability in our
balance sheet. Additionally, in adopting SFAS 150, the Financial Accounting
Standards Board indicated that it is considering changes to the accounting
treatment for certain instruments with both liability and equity
characteristics. As a result, we cannot assume that the preferred stock will
continue to be classified as equity in future periods. However, any such
reclassification of the preferred stock would not, in any material respect,
affect our compliance with the indenture governing the new notes or our senior
secured credit facility.
RISKS RELATED TO THE NEW NOTES AND THIS OFFERING
THE NEW NOTES ARE UNSECURED AND EFFECTIVELY SUBORDINATED TO OUR SECURED
INDEBTEDNESS.
Our senior credit facilities are secured by substantially all of our
and our guarantors' assets. Secured indebtedness effectively ranks senior to the
new notes to the extent of the value of the assets securing such indebtedness.
If we default on the new notes, become bankrupt, liquidate, restructure or
reorganize, it would result
23
in a default under our senior credit facilities and our secured creditors could
use the collateral to satisfy the secured debt before you will receive any
payment on the new notes. If the value of the collateral is insufficient to pay
all of the secured indebtedness, our secured creditors would share equally in
the value of our other assets, if any, with you and any other creditors.
OUR ABILITY TO PAY PRINCIPAL AND INTEREST ON THE NEW NOTES DEPENDS ON OUR
RECEIPT OF DIVIDENDS OR OTHER INTERCOMPANY TRANSFERS FROM OUR SUBSIDIARIES.
CLAIMS OF CREDITORS OF OUR SUBSIDIARIES THAT DO NOT GUARANTEE THE NEW NOTES WILL
HAVE PRIORITY OVER YOUR CLAIMS WITH RESPECT TO THE ASSETS AND EARNINGS OF THOSE
SUBSIDIARIES.
We are a holding company and substantially all of our properties and
assets are owned by, and all our operations are conducted through, our
subsidiaries. As a result, we are dependent upon cash dividends and
distributions or other transfers from our subsidiaries to meet our debt service
obligations, including payment of the interest on and principal of the new notes
when due, and other obligations. The ability of our subsidiaries to pay
dividends and make other payments to us may be restricted by, among other
things, applicable corporate, tax and other laws and regulations in the U.S. and
abroad and agreements of our subsidiaries. Although the indenture limits the
ability of our restricted subsidiaries to enter into consensual restrictions on
their ability to pay dividends and make other payments to us, these limitations
have a number of significant qualifications and exceptions. For more details,
see "Description of the New Notes -- Certain Covenants -- Limitation on Dividend
and Other Payment Restrictions Affecting Restricted Subsidiaries."
In addition, claims of creditors, including trade creditors, of our
subsidiaries will generally have priority with respect to the assets and
earnings of such subsidiaries over the claims of our creditors, except to the
extent the claims of our creditors are guaranteed by these subsidiaries. Only
certain of our subsidiaries will be guarantors of the new notes. In the event of
our dissolution, bankruptcy, liquidation or reorganization, the holders of the
new notes will not receive any amounts from our non-guarantor subsidiaries with
respect to the new notes until after the payment in full of the claims of the
creditors of these subsidiaries. Our non-guarantor subsidiaries generated 30% of
our consolidated net sales and 100% of our consolidated operating income during
2003. Our non-guarantor subsidiaries generated $25.8 million of our cash flows
from operating activities while the Company and guarantor subsidiaries used
$40.3 million of cash flows from operating activities during 2003. As of
December 31, 2003, the non-guarantor subsidiaries had outstanding $3.3 million
of indebtedness and $71 million outstanding under our European accounts payable
arrangements.
THE INDENTURE GOVERNING THE NEW NOTES AND OUR SENIOR CREDIT FACILITIES CONTAIN
COVENANTS THAT SIGNIFICANTLY RESTRICT OUR OPERATIONS.
The indenture governing the new notes, our senior credit facilities and
any other future debt agreement will contain numerous covenants imposing
financial and operating restrictions on our business. These restrictions may
affect our ability to operate our business, may limit our ability to take
advantage of potential business opportunities as they arise and may adversely
affect the conduct of our current business. These covenants will place
restrictions on our ability to, among other things:
- pay dividends on, redeem or repurchase our capital stock;
- incur additional indebtedness;
- make investments;
- create liens;
- sell assets;
- engage in transactions with affiliates;
- create or designate unrestricted subsidiaries; and
- consolidate, merge or transfer all or substantially all assets.
24
In addition, our senior credit facilities require us to maintain financial
ratios. Our ability to meet these ratios and tests and to comply with other
provisions governing our indebtedness may be affected by changes in economic or
business conditions or other events beyond our control. Our failure to comply
with our debt-related obligations could result in an event of default which, if
not cured or waived, could result in an acceleration of our indebtedness.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER CERTAIN CIRCUMSTANCES, TO VOID
CERTAIN OBLIGATIONS; AS A RESULT, A COURT COULD VOID OUR SUBSIDIARIES'
GUARANTEES OF THE NEW NOTES UNDER FRAUDULENT TRANSFER LAWS.
Fraudulent conveyance laws permit a court to avoid or nullify the
guarantees of the new notes by our subsidiaries if the court determines that
such guarantees were made by a fraudulent conveyance.
Generally, if a court were to find that
- the debtor incurred the challenged obligation with the actual intent
of hindering, delaying or defrauding present or future creditors; or
- the debtor (1) received less than reasonably equivalent value or
fair consideration for incurring the challenged obligation and (2)
(A) was insolvent or was rendered insolvent by reason of incurring
the challenged obligation, (B) was engaged or about to engage in a
business or transaction for which its assets constituted
unreasonably small capital, or (C) intended to incur, or believed
that it would incur, debts beyond its ability to pay as such debts
matured;
the court could, subject to applicable statutes of limitations, avoid the
challenged obligation in whole or in part. The court could also subordinate
claims with respect to the challenged obligation to all other debts of the
debtor. The court's determination as to whether the above is true at any
relevant time will vary depending upon the factual findings and law applied in
any such proceeding.
Generally, a debtor will be considered insolvent if:
- the sum of its debts was greater than the fair saleable value of all
of its assets at a fair valuation; or
- if the present fair saleable value of its assets is less than the
amount that would be required to pay its probable liability on its
existing debts as they become fixed in amount and nature.
Also, a debtor generally will be considered to have been left with
unreasonably small capital if its remaining capital, including its reasonably
projected cash flow, was reasonably likely to be insufficient for its
foreseeable needs, taking into account its foreseeable business operations and
reasonably foreseeable economic conditions.
A court could void our subsidiaries' guarantees of the new notes under
state fraudulent transfer laws. Although the guarantees provide you with a
direct claim against the assets of our subsidiaries under the federal bankruptcy
law and comparable provisions of state fraudulent transfer laws, the guarantee
could be voided, or claims with respect to a guarantee could be subordinated to
all other debts of that guarantor. In addition, a court could void any payments
by that guarantor pursuant to its guarantee and require that such payments be
returned to the guarantor or to a fund for the benefit of the other creditors of
the guarantor. If a court voided the guarantee of the new notes by a subsidiary
as a result of a fraudulent conveyance, or held the guarantee unenforceable for
any other reason, as a holder of new notes, you would no longer have a claim as
a creditor against the assets of that subsidiary.
Any fraudulent transfer challenges, even if ultimately unsuccessful,
could lead to a disruption of our business and an alteration in the manner in
which that business is managed. As a result, our ability to meet our obligations
under the notes or in connection with our other debt may be adversely affected.
25
WE MAY NOT BE ABLE TO PAY THE PURCHASE PRICE OF THE NEW NOTES UPON A CHANGE OF
CONTROL IF THE HOLDERS EXERCISE THEIR RIGHT TO REQUIRE US TO PURCHASE SUCH
NOTES.
If we undergo a change of control, under certain circumstances, we will
be required to offer to purchase the notes at a purchase price equal to 101% of
the principal amount of the new notes plus accrued and unpaid interest.
The occurrence of certain of the events that would constitute a change
of control would, however, constitute a default under our senior credit
facilities. In addition, future credit agreements and other indebtedness we may
incur could also prohibit certain events that would constitute a change of
control or require such indebtedness to be repaid or repurchased upon such a
change of control. Moreover, the exercise by the holders of the new notes of
their right to require us to purchase their new notes could cause a default
under such indebtedness, even if the change of control itself does not,
including a default due to the financial effect of such purchase on us. Finally,
our ability to pay cash to such holders upon a purchase may be limited by our
then existing financial resources. We cannot assure you that sufficient funds
will be available when necessary to make any required purchases. Our failure to
make or consummate a change of control offer as required by the indenture
governing the new notes or pay the related change of control purchase price when
due would result in an event of default under the indenture.
IF YOU DO NOT EXCHANGE YOUR OLD NOTES FOR NEW NOTES, YOUR ABILITY TO SELL OR
OTHERWISE TRANSFER THE OLD NOTES WILL REMAIN RESTRICTED, WHICH COULD REDUCE
THEIR VALUE.
The old notes were not registered under the Securities Act or under the
securities laws of any state. Therefore, they may not be resold, offered for
resale, or otherwise transferred unless they are subsequently registered or
resold pursuant to an exemption from the registration requirements of the
Securities Act and applicable state securities laws. If you do not exchange your
old notes for new notes pursuant to the exchange offer, you will not be able to
resell, offer to resell, or otherwise transfer the old notes unless they are
registered under the Securities Act or unless you resell them, offer to resell
them or otherwise transfer them under an exemption from the registration
requirements of, or in a transaction not subject to, the Securities Act. In
addition, we will no longer be required under the registration rights agreement
to register the old notes under the Securities Act except under limited
circumstances.
ILLIQUIDITY AND AN ABSENCE OF A PUBLIC MARKET FOR THE NEW NOTES COULD CAUSE
RECIPIENTS OF THE NEW NOTES TO BE UNABLE TO RESELL THE NEW NOTES FOR AN EXTENDED
PERIOD OF TIME.
The new notes constitute a new issue of securities for which there is
no established trading market. An active trading market for the new notes may
not develop or, if such market develops, it could be very illiquid.
Holders of the new notes may experience difficulty in reselling, or an
inability to sell, the new notes. If a market for the new notes develops, any
such market may be discontinued at anytime. If a trading market develops for the
new notes, future trading prices of the new notes will depend on many factors,
including, among other things, prevailing interest rates, our operating results,
liquidity of the issue, the market for similar securities and other factors,
including our financial condition and prospects and the financial condition and
prospects for companies in our industry.
To the extent that old notes are tendered and accepted in the exchange
offer, the trading market for old notes which are not tendered and for
tendered-but-unaccepted old notes could be adversely affected due to the limited
aggregate principal amount of old notes that we expect to remain outstanding
following the completion of the exchange offer. Generally, when there are fewer
outstanding securities of an issue, there is less demand to purchase that
security, which results in a lower price for that security. Conversely, if many
old notes are not tendered, or are tendered but unaccepted, the trading market
for the few new notes issued could be adversely affected.
26
USE OF PROCEEDS
This exchange offer is intended to satisfy certain of our obligations
under the Registration Rights Agreement, dated as of November 24, 2003. We will
not receive any proceeds from the issuance of the new notes and have agreed to
pay the expenses of the exchange offer. In consideration for issuing the new
notes as contemplated in the registration statement of which this prospectus is
a part, we will receive, in exchange, old notes in like principal amount. The
form and terms of the new notes are substantially the same as the form and terms
of the old notes, except as otherwise described herein under "The Exchange Offer
- -- Terms of the Exchange Offer." The old notes surrendered in exchange for the
new notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the new notes will not result in any increase in our outstanding
debt. The net proceeds from the issuance of the old notes were used to repay a
portion of our then existing senior secured revolving credit facility, senior
secured term loans, accounts receivable asset-backed securitization facility and
for other general corporate purposes.
27
CAPITALIZATION
The following table sets forth our capitalization as of December 31,
2003 on an actual basis. This table should be read in conjunction with our
consolidated financial statements and related notes appearing elsewhere in this
prospectus.
AS OF
DECEMBER 31, 2003
-----------------
(IN MILLIONS)
Cash and cash equivalents $ 25.1
========
Debt:
Senior secured revolving credit facility(1) ..... 43.0
9.5% Senior Notes due 2010 ...................... 285.0
Other debt ...................................... 12.4
--------
Total debt ..................................... $ 340.4
========
Shareholders' equity:
Series A redeemable convertible preferred stock $ 103.5
Common stock .................................... 0.4
Additional paid-in capital ...................... 140.8
Treasury stock .................................. (50.4)
Retained earnings ............................... 54.5
Accumulated other comprehensive loss ............ (5.5)
Other shareholders' equity ...................... (3.2)
--------
Total shareholders' equity ..................... 240.1
--------
Total capitalization .......................... $ 580.5
========
- -----------------
(1) Excludes $37.7 million of letters of credit outstanding under our senior
secured revolving credit facility. Our senior secured revolving credit
facility provides for aggregate borrowings of up to $240.0 million,
subject to borrowing base limitations.
28
SELECTED HISTORICAL FINANCIAL INFORMATION
The selected financial data for the years ended and as of December 31,
1999, 2000, 2001, 2002 and 2003 were derived from our audited consolidated
financial statements. The following selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and related
notes thereto for the three years ended December 31, 2003. Certain
reclassifications have been made to conform to the current year's presentation.
During 1999, we acquired the worldwide energy cable and cable systems
businesses of Balfour Beatty plc, formerly known as BICC plc, with operations in
the United States, Canada, Europe, Africa, the Middle East and Asia Pacific.
This acquisition was completed in three phases during 1999. The financial data
presented below include the results of operations of the acquired businesses
after the respective closing dates in 1999.
In August 2000, we sold certain businesses acquired from BICC plc
consisting primarily of the operations in the United Kingdom, Italy and Africa
and a joint venture interest in Malaysia to Pirelli Cavie Sistemi S.p.A. The
financial data presented below contain those operations sold to Pirelli during
2000 up through the date of sale.
In September 2000, we acquired Telmag S.A. de C.V., a Mexico-based
manufacturer of telecommunications cables. The financial data presented below
include the results of operations of this business after the closing date.
In March 2001, we sold our Pyrotenax business unit to Raychem HTS
Canada, Inc. The results of operations of this business are included in the
financial data presented below for the periods prior to the closing date.
In September 2001, we announced our decision to exit the consumer
cordsets business. In October 2001, we sold substantially all of the
manufacturing assets and inventory of our building wire business to Southwire
Company. The results of operations of these businesses are included in the
financial data presented below for the periods prior to the closing date.
Beginning in the third quarter of 2001, we have reported the building wire and
cordsets segment as discontinued operations for financial reporting purposes.
Administrative expenses formerly allocated to this segment are now reported in
the continuing operations segments. Prior periods reflect this change.
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1999 2000(1) 2001(1) 2002 2003
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT RATIO AND METAL PRICE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales:
Energy .............................. $ 505.3 $ 733.6 $ 521.8 $ 516.0 $ 560.2
Industrial & specialty .............. 579.8 796.7 537.6 499.4 542.4
Communications ...................... 520.2 631.8 592.0 438.5 435.8
-------- -------- -------- -------- --------
Total net sales .......................... 1,605.3 2,162.1 1,651.4 1,453.9 1,538.4
Cost of sales ............................ 1,312.8 1,870.4 1,410.7 1,287.3 1,365.0
Asset impairment charge .................. 24.5 -- -- -- --
-------- -------- -------- -------- --------
Gross profit ............................. 268.0 291.7 240.7 166.6 173.4
Selling, general and administrative
expenses ............................ 174.7 257.6 136.4 150.9 127.7
-------- -------- -------- -------- --------
Operating income ......................... 93.3 34.1 104.3 15.7 45.7
Other income ............................. -- -- 8.1 -- 1.5
Interest expense, net .................... (38.0) (59.8) (43.9) (42.6) (43.1)
Other financial costs .................... -- (3.3) (10.4) (1.1) (6.0)
-------- -------- -------- -------- --------
Income (loss) before taxes ............... 55.3 (29.0) 58.1 (28.0) (1.9)
Income tax benefit (provision) ........... (19.6) 10.3 (20.6) 9.9 (2.9)
-------- -------- -------- -------- --------
Income (loss) from continuing operations . 35.7 (18.7) 37.5 (18.1) (4.8)
Income (loss) from discontinued operations (1.5) (7.7) (6.8) -- --
Loss on disposal of discontinued
operations .......................... -- -- (32.7) (5.9) --
-------- -------- -------- -------- --------
Net income (loss) ........................ 34.2 (26.4) (2.0) (24.0) (4.8)
Less: preferred stock dividends .......... -- -- -- -- (0.6)
-------- -------- -------- -------- --------
Net income (loss) applicable to common
shareholders ........................ $ 34.2 $ (26.4) $ (2.0) $ (24.0) $ (5.4)
======== ======== ======== ======== ========
29
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1999 2000(1) 2001(1) 2002 2003
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT RATIO AND METAL PRICE DATA)
OTHER DATA:
Depreciation and amortization .......... $ 32.4 $ 56.0 $ 35.0 $ 30.6 $ 33.4
Capital expenditures ................... (97.6) (56.0) (54.9) (31.4) (19.1)
Ratio of earnings to fixed charges(2) .. 2.3x -- 2.1x -- --
Average daily COMEX price per pound of
copper cathode .................... $ 0.72 $ 0.84 $ 0.73 $ 0.72 $ 0.81
Average daily selling price per pound of
aluminum rod ...................... $ 0.66 $ 0.75 $ 0.69 $ 0.65 $ 0.69
DECEMBER 31,
----------------------------------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
Cash and cash equivalents ........ $ 38.0 $ 21.2 $ 16.6 $ 29.1 $ 25.1
Working capital(3) ............... 468.2 375.3 169.9 150.8 236.6
Property, plant and equipment, net 438.7 379.4 320.9 323.3 333.3
Total assets ..................... 1,568.3 1,319.2 1,005.3 973.3 1,049.5
Total debt(4) .................... 765.2 642.6 460.4 451.9 340.4
Net debt(4)(5) ................... 727.2 621.4 443.8 422.8 315.3
Shareholders' equity ............. 177.3 128.5 104.9 60.9 240.1
- ----------------
(1) As of January 1, 2001, we changed our accounting method for non-North
American metal inventories from the FIFO method to the LIFO method. The
impact of the change was an increase in operating income of $4.1 million,
or $0.08 of earnings per share, on both a basic and a diluted basis during
2001. As of January 1, 2000, we changed our accounting method for our North
American non-metal inventories from the FIFO method to the LIFO method. The
impact of the change was an increase in operating income of $6.4 million,
or $0.12 of earnings per share on both a basic and diluted basis, during
2000.
(2) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income taxes
and fixed charges. Fixed charges include: (i) interest expense, whether
expensed or capitalized; (ii) amortization of debt issuance cost; (iii) the
portion of rental expense representative of the interest factor; and (iv)
the amount of pretax earnings required to cover preferred stock dividends
and any accretion in the carrying value of the preferred stock. For the
years ended December 31, 2000, 2002 and 2003, earnings were insufficient to
cover fixed charges by $28.9 million, $27.6 million and $2.1 million,
respectively. Our historical ratio of earnings to fixed charges and
preferred stock dividends is the same as our historical ratio of earnings
to fixed charges because we did not pay or accrue any preferred stock
dividends during the periods presented.
(3) Working capital means current assets less current liabilities.
(4) Excludes off-balance sheet borrowings of $67.8 million at December 31, 2001
and $48.5 million at December 31, 2002. There were no off-balance sheet
borrowings as of December 31, 1998, 1999, 2000 and 2003.
(5) Net debt means our total debt less cash and cash equivalents.
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
We are a leader in the development, design, manufacture, marketing and
distribution of copper, aluminum and fiber optic wire and cable products for the
energy, industrial & specialty and communications markets. Energy cables include
low-, medium- and high-voltage power distribution and power transmission
products. Industrial & specialty wire and cable products conduct electrical
current for industrial and commercial power and control applications.
Communications wire and cable products transmit low-voltage signals for voice,
data, video and control applications.
We operate our businesses in three main geographic regions: 1) North
America, 2) Europe and 3) Oceania. The following table sets forth net sales and
operating income by geographic region for the periods presented, in millions of
dollars:
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
2001 2002 2003
--------------------- --------------------- ---------------------
AMOUNT % AMOUNT % AMOUNT %
----------- --- ---------- --- ---------- ---
NET SALES:
North America .............. $ 1,267.7 77% $ 1,077.2 74% $ 1,074.2 69%
Europe ..................... 322.2 19% 314.7 22% 377.9 25%
Oceania .................... 61.5 4% 62.0 4% 86.3 6%
---------- --- ---------- --- ---------- ---
Total net sales ........... $ 1,651.4 100% $ 1,453.9 100% $ 1,538.4 100%
========== === ========== === ========== ===
OPERATING INCOME:
North America .............. $ 71.7 66% $ 15.0 31% $ 5.6 10%
Europe ..................... 29.6 27% 27.7 56% 39.5 74%
Oceania .................... 6.8 6% 6.4 13% 8.8 16%
---------- --- ---------- --- ---------- ---
Subtotal .................. 108.1 100% 49.1 100% 53.9 100%
=== === ===
Corporate charges .......... (3.8) (33.4) (8.2)
---------- ---------- ----------
Total operating income .... $ 104.3 $ 15.7 $ 45.7
========== ========== ==========
The following table sets forth net cash provided by (used by) operating
activities by geographic region for the following periods (in millions):
YEAR ENDED DECEMBER 31,
----------------------------------------
2001 2002 2003
----------------------------------------
North America ......... $ 66.6 $ 43.4 $ (40.3)
Europe and Oceania..... 16.6 13.9 25.8
--------- --------- ---------
Total ............. $ 83.2 $ 57.3 $ (14.5)
========= ========= =========
The cash flow used by operating activities in North America during 2003 includes
$80.0 million used for the purchase of trade receivables resulting from the
termination of the Company's accounts receivable asset-backed securitization
financing, which was terminated as part of the Company's refinancing.
Approximately 90% of net sales in Europe and Oceania are derived from
energy and industrial & specialty cable sales. As a result, these businesses
have not been significantly impacted by the global telecommunications spending
downturn and the European business specifically is currently benefiting from
medium voltage energy cable capacity shortage in Europe and a shift towards
environmentally friendly cables.
General Cable's reported net sales are directly influenced by the price
of copper and to a lesser extent aluminum. The price of copper and aluminum has
historically been subject to considerable volatility. However,
31
metals prices have been relatively stable over the last three years with the
daily selling price of copper cathode on the COMEX averaging $0.81 per pound in
2003, $0.72 per pound in 2002 and $0.73 per pound in 2001 and the daily price of
aluminum rod averaging $0.69 per pound in 2003, $0.65 per pound in 2002 and
$0.69 per pound in 2001. General Cable generally passes changes in copper and
aluminum prices along to its customers, although there are timing delays of
varying lengths depending upon the volatility of metals prices, the type of
product, competitive conditions and particular customer arrangements. A
significant portion of the Company's energy and communications business and to a
lesser extent the Company's industrial business has metal escalators written
into customer contracts under a variety of price setting and recovery formulas.
The remainder of the Company's business requires that higher metal prices be
recovered through negotiated price increases. In these instances, the ability to
increase prices may lag the movement in metal prices by a period of time as the
price increases are implemented. As a result of this and a number of other
practices intended to match copper and aluminum purchases with sales,
profitability has historically not been significantly affected by changes in
copper and aluminum prices.
A pound of copper as quoted by COMEX was approximately $1.30 in late
February 2004 which represents an approximate 60% increase over the price quoted
at the end of the third quarter of 2003. Aluminum has increased by 23% over the
same period of time. The Company is currently attempting to increase selling
prices in many of its markets in order to offset the negative effect of
increased metal prices. However, the Company's ability to ultimately realize
these price increases will be influenced by competitive conditions in its
markets, many of which have significant underutilized manufacturing capacity. In
addition, a continuing rise in metal prices, when combined with the normal lag
time between an announced price increase and its effective date in the market,
may result in the Company not fully recovering increased metal costs. If the
Company were not able to adequately increase selling prices in a period of
rising metals costs, the Company would experience a decrease in reported
earnings. General Cable does not engage in speculative metals trading or other
speculative activities. Also, the Company does not engage in activities to hedge
the underlying value of its copper and aluminum inventory.
We generally experience certain seasonal trends in sales and cash flow.
Larger amounts of cash are generally required during the first and second
quarters of the year to build inventories in anticipation of higher demand
during the spring and summer months, when construction activity increases. In
general, receivables related to higher sales activity during the spring and
summer months are collected during the fourth quarter of the year.
CURRENT BUSINESS ENVIRONMENT AND OUTLOOK
We are operating in a difficult business environment in North America.
The wire and cable industry is competitive, mature and cost driven. In many
business segments, there is little differentiation among industry participants
from a manufacturing or technology standpoint. In addition to these general
industry conditions, in the industrial & specialty segment, industrial
construction spending in North America, which influences industrial cable
demand, is significantly less than the past ten-year peak level. However, this
segment is also experiencing stable demand for cables utilized in industrial
repairs and maintenance and the automotive aftermarket. The communications
segment has experienced a significant decline from historical spending levels
for outside plant telecommunications products and a weak market for
switching/local area networking cables. We believe sales for communications wire
and cable products will increase over time because current levels of spending by
our communication wire and cable customers are insufficient to maintain their
network infrastructures. In addition, the 2003 power outages in the U.S., Canada
and Europe emphasized a need to upgrade the power transmission infrastructure
used by electric utilities, which may over time cause an increase in demand for
our products. For more details, see "Business - Industry and Market Overview"
for additional information relating to our markets.
We believe our investment in Lean Six Sigma training, coupled with
effectively utilized manufacturing assets, provides a cost advantage compared to
many of our competitors and generates costs savings which help offset rising raw
material prices and other general economic cost increases. In addition, our
customer and supplier integration capabilities, one-stop selling, and geographic
and product balance are sources of competitive advantage. As a result, we
believe we are well positioned, relative to our competitors, in the current
difficult business environment.
As part of our ongoing efforts to reduce our total operating costs, we
continuously evaluate our ability to more efficiently utilize our existing
manufacturing capacity. Such evaluation includes the costs associated with and
benefits to be derived from the combination of existing manufacturing assets
into fewer plant locations and the possible outsourcing of certain manufacturing
processes. During the first quarter of 2001, we closed one of our
32
communication cable plants and incurred a pre-tax charge of approximately $4.8
million in that quarter. In the second quarter of 2002, we incurred a pre-tax
charge of $19.7 million in conjunction with the closure of two additional
communication cable plants.
During the fourth quarter of 2003, the Company incurred a $7.6 million
pre-tax charge related to the rationalization of certain of its industrial cable
manufacturing plants. Additional charges (currently estimated to be $14 million,
of which approximately $8 million will be cash payments) will be incurred during
2004 as the operations are wound down. In addition, the Company is currently
evaluating the closure of another North American facility. The Company plans to
announce the results of its evaluation in 2004 and would take additional charges
(currently estimated to be $5 million, of which approximately $2 million will be
cash payments) over the period the operations are wound down should it be
decided to rationalize the facility.
Our expectations related to future financial results are
forward-looking statements within the meaning of the securities laws and must be
viewed in light of the discussion under the heading "Forward-looking
Statements." We caution you not to place undue reliance on these expectations,
which are speculative in nature. Our actual results may differ materially from
these expectations due to various risks including, without limitation, decreases
in our customers' capital spending from their current levels in the U.S. and
other markets in which we operate; reductions or delays in customer orders for
our products; increases in the price of, or decreases in availability of, our
supply of raw materials we use in our manufacturing process; changes in our
expectations relating to inventory reductions and other risks identified under
"Forward-looking Statements" and "Risk Factors."
ACQUISITIONS AND DIVESTITURES
We actively seek to identify key trends in the industry to migrate our
business to capitalize on expanding markets and new niche markets or exit
declining or non-strategic markets in order to achieve better returns. We also
set aggressive performance targets for our business and intend to refocus or
divest those activities which fail to meet our targets or do not fit our
long-term strategies.
During 1999, we acquired the worldwide energy cable and cable systems
businesses of Balfour Beatty plc, formerly known as BICC plc, with operations in
the United States, Canada, Europe, Africa, the Middle East and Asia Pacific.
This acquisition was completed in three phases during 1999 for a total payment
of $385.8 million. The acquisition was accounted for as a purchase, and
accordingly, the results of operations of the acquired businesses are included
in the consolidated financial statements for periods after the respective
closing dates.
In December 1999, we decided to sell certain business units due to
their deteriorating operating performance. On February 9, 2000, we signed a
definitive agreement with Pirelli Cavi e Sistemi S.p.A., of Milan, Italy, for
the sale of the stock of these businesses for proceeds of $216 million, subject
to closing adjustments. The closing adjustments included changes in net assets
of the businesses sold since November 30, 1999, resulting from operating losses
and other adjustments as defined in the sale agreement. The businesses sold were
acquired from BICC plc during 1999 and consisted primarily of the operations in
the United Kingdom, Italy and Africa and a joint venture interest in Malaysia.
Gross proceeds of $180 million were received during the third quarter of 2000 as
a down payment against the final post-closing adjusted purchase price. During
the third quarter of 2001, the final post-closing adjusted purchase price was
agreed as $164 million resulting in the payment of $16 million to Pirelli. We
provided for a larger settlement amount in the third quarter of 2000, and
therefore, $7 million of income was recognized in the third quarter of 2001.
Proceeds from the transaction have been used to reduce our outstanding debt.
In September 2000, we acquired Telmag S.A. de C.V., a Mexico-based
manufacturer of telecommunications cables for $23 million. The acquisition
brought us additional outside plant telecommunications cable capacity as well as
provided available capacity for a broad range of other telecommunications
cables.
In March 2001, we sold the shares of our Pyrotenax business unit to
Raychem HTS Canada, Inc., a business unit of Tyco International, Ltd., for $60
million, subject to closing adjustments. The business unit, with operations in
Canada and the United Kingdom, principally produced mineral insulated
high-temperature cables. During the second quarter of 2002, the final
post-closing adjusted purchase price was agreed and resulted in a
33
payment to Tyco International, Ltd. of approximately $2 million during the third
quarter of 2002. The proceeds from the transaction were used to reduce our debt.
In September 2001, we announced our decision to exit the consumer
cordsets business. As a result of this decision, we closed our Montoursville,
Pennsylvania plant. This facility manufactured cordset products including indoor
and outdoor extension cords, temporary lighting and extension cord accessories.
In October 2001, we sold substantially all of the manufacturing assets
and inventory of our building wire business to Southwire Company for $82 million
of cash proceeds and the transfer to us of certain data communication cable
manufacturing equipment. Under the building wire sale agreement, Southwire
purchased the inventory and substantially all of the property, plant and
equipment located at our Watkinsville, Georgia and Kingman, Arizona facilities
and the wire and cable manufacturing equipment at our Plano, Texas facility. We
retained and continue to operate the copper rod mill in Plano, however we have
closed the Plano wire mill. The assets sold were used in manufacturing building
wire products principally for the retail and electrical distribution markets.
During the second quarter of 2002, the final purchase price for this transaction
was agreed resulting in a de minimis cash payment to Southwire. Proceeds from
the transaction have been used to reduce our outstanding debt.
Beginning in the third quarter of 2001, we have reported the building
wire and cordsets segment as discontinued operations for financial reporting
purposes. Administrative expenses formerly allocated to this segment are now
reported in the continuing operations segments. Prior periods have been restated
to reflect this change.
During the second quarter of 2002, we formed a joint venture company to
manufacture and market fiber optic cables. We contributed assets, primarily
inventory and machinery and equipment, to a subsidiary company which was then
contributed to the joint venture in exchange for a $10.2 million note receivable
which resulted in a $5.6 million deferred gain on the transaction. We will
recognize the gain as the note is repaid. At December 31, 2002 and 2003, other
non-current assets included an investment in the joint venture of $3.8 million
and $3.5 million, respectively. The December 31, 2002 and 2003 balance sheets
included a $10.2 million note receivable from the joint venture partner in other
non-current assets and a deferred gain from the initial joint venture formation
of $5.6 million in other liabilities. The Company will be required to
consolidate its joint venture company beginning in the first quarter of 2004 as
a result of FIN No. 46, as revised. For the year ended December 31, 2003, the
joint venture company had sales of $20.6 million ($20.2 million were sales to
General Cable) and an operating loss and net loss of $(0.6) million. At December
31, 2003, the joint venture company had total assets of $10.0 million, total
liabilities of $2.9 million and total equity of $7.1 million.
Growth through acquisition has been, and is expected to continue to be,
a significant part of our strategy. We regularly evaluate possible acquisition
candidates. We cannot assure you that we will be successful in identifying,
financing and closing acquisitions at favorable prices and terms. For more
details, see "Risk Factors -- Other Risks Relating to Our Business -- We may not
be able to successfully identify, finance or integrate acquisitions."
CRITICAL ACCOUNTING ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results
of Operations is based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. A summary of significant accounting policies is
provided in Note 2 to Notes to Audited Consolidated Financial Statements. The
application of these policies requires management to make estimates and
judgments that affect the amounts reflected in the financial statements.
Management based its estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions. The critical judgments impacting the financial
statements include determinations with respect to inventory valuation, pension
accounting, valuation allowances for deferred income taxes and revenue
recognition.
INVENTORY VALUATION
We utilize the LIFO method of inventory accounting for our metals
inventory. Our use of the LIFO method results in our income statement reflecting
the current costs of metals, while metals inventories in the balance sheet
34
are valued at historical costs as the LIFO layers were created. As a result of
volatile copper prices, the historic LIFO cost of our copper inventory exceeded
its replacement cost by approximately $16 million at December 31, 2002 while at
December 31, 2003, the replacement cost of our copper inventory exceeded its
historic LIFO cost by approximately $13 million. If we were not able to recover
the LIFO value of our inventory at a profit in some future period when
replacement costs were lower than the LIFO value of the inventory, we would be
required to take a charge to recognize in our income statement all or a portion
of the higher LIFO value of the inventory. Additionally, if LIFO inventory
quantities are reduced in a period when replacement costs are lower than the
LIFO value of the inventory, we would experience a decline in reported earnings.
Conversely, if LIFO inventory quantities are reduced in a period when
replacement costs exceed the LIFO value of the inventory, we would experience an
increase in reported earnings.
During 2003 and 2002, General Cable recorded a $0.5 million charge and
a $2.5 million charge, respectively, for the liquidation of LIFO inventory in
North America as the Company reduced its inventory levels. The Company expects
to further reduce inventory quantities during 2004 which may result in an
additional LIFO liquidation charge or benefit. The amount of the charge or
benefit to be incurred in 2004 will be dependent upon the quantity of the
inventory reduction and the market price of the metals at the time of the
inventory liquidation.
PENSION ACCOUNTING
Pension expense for the defined benefit pension plans sponsored by us
is determined based upon a number of actuarial assumptions, including an
expected long-term rate of return on assets of 8.5%. This assumption was based
on input from our actuaries, including their review of historical 10 year, 20
year, and 25-year rates of inflation and real rates of return on various broad
equity and bond indices in conjunction with the diversification of the asset
portfolio. The expected long-term rate of return on assets is based on an asset
allocation assumption of 65% allocated to equity investments, with an expected
real rate of return of 7%, and 35% with fixed-income investments, with an
expected real rate of return of 3%, and an assumed long-term rate of inflation
of 3.5%. Because of market fluctuations, the actual asset allocation as of
December 31, 2002 and 2003 were 78% and 74%, respectively, of equity investments
and 22% and 26%, respectively, of fixed-income investments.
The determination of pension expense for the defined benefit pension
plans is based on the fair market value of assets as of the measurement date.
Investment gains and losses are recognized in the measurement of assets
immediately. Such gains and losses will be amortized and recognized as part of
the annual benefit cost to the extent that unrecognized net gains and losses
from all sources exceed 10% of the greater of the projected benefit obligation
or the market value of assets.
The determination of future pension obligations utilizes a discount
rate based on a review of long-term bonds that receive one of the two highest
ratings given by a recognized rating agency which are expected to be available
during the period to maturity of the projected pension benefits obligations, and
input from our actuaries. The discount rate used at December 31, 2003 was 6.0%.
We evaluate our actuarial assumptions, at least annually, and adjust
them as necessary. In 2003, pension expense for our defined benefit plans was
$8.4 million. Due to the effect of the unrecognized actuarial losses based on an
expected rate of return on plan assets of 8.5%, a discount rate of 6.0% and
various other assumptions, our 2004 pension expense for our defined benefit
plans is expected to decrease approximately $3.0 million from 2003, primarily
due to improved investment performance during 2003 in the market value of the
assets held. A 1% decrease in the assumed discount rate would increase pension
expense by approximately $1.9 million. Future pension expense will depend on
future investment performance, changes in future discount rates and various
other factors related to the populations participating in the plans. In the
event that actual results differ from the actuarial assumptions, the funded
status of the defined benefit plans may change and any such deficiency could
result in a charge to equity and an increase in future pension expense and cash
contributions.
DEFERRED INCOME TAX VALUATION ALLOWANCE
We record a valuation allowance to reduce our deferred tax assets to
the amount that we believe is more likely than not to be realized. While we have
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in the event we
were to determine that we
35
would not be able to realize all or part of our net deferred tax assets in the
future, an adjustment to the deferred tax assets would be charged to income in
the period such determination was made. Likewise, should we determine that we
would be able to realize our deferred tax assets in the future in an amount that
was in excess of our net recorded amount, an adjustment to the deferred tax
assets would increase income in the period such determination was made. At
December 31, 2002 and 2003, the valuation allowance was $19.2 million and $19.0
million, respectively.
REVENUE RECOGNITION
Sales are recognized as revenue when the risk of loss and title pass to
the customer, generally at the time of shipment. Most revenue transactions
represent sales of inventory. A provision for payment discounts, product returns
and customer rebates is recorded within the same period that the revenue is
recognized. Given the nature of the Company's business, revenue recognition
practices do not contain estimates that materially affect results of operations.
NEW ACCOUNTING STANDARDS
In June 2002, the Financial Accounting Standards Board SFAS No. 146
"Accounting for Costs Associated with Exit or Disposal Activities" was issued.
SFAS No. 146 requires that costs associated with exit or disposal activities be
recognized when the costs are incurred, rather than at a date of commitment to
an exit or disposal plan. The Company adopted SFAS No. 146 for fiscal 2003, as
required. The adoption of this standard did not have a material impact on the
consolidated financial condition, results of operations or cash flows of General
Cable.
In November 2002, FASB Interpretation (FIN) No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" was issued. FIN 45 requires that as a
company issues a guarantee, it must recognize a liability for the fair value of
the obligations it assumes under that guarantee. Application of FIN 45 is
required for guarantees issued or modified after December 31, 2002. The adoption
of FIN 45 did not have a material impact on the consolidated financial position,
results of operations or cash flows of General Cable.
In January 2003, FIN No. 46, as revised, "Consolidation of Variable
Interest Entities" was issued. FIN 46 is intended to achieve more consistent
application of consolidation policies to variable interest entities. Application
of FIN 46 is required in financial statements of public entities that have
interests in variable interest entities or potential variable interest entities
commonly referred to as special-purpose entities for periods ending after
December 15, 2003. Application by public entities for all other types of
entities is required in financial statements for periods ending after March 15,
2004. Accordingly, the Company has adopted FIN 46, which will result in the
consolidation of its fiber optic joint venture in the first quarter of 2004. The
Company does not believe that the adoption of FIN 46 will have a material affect
on its financial position, results of operations or cash flows. See further
discussion in Note 21 to Notes to Audited Consolidated Financial Statements.
In May 2003, SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity" was issued.
SFAS No. 150 establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. SFAS No. 150 is effective for all financial instruments entered into or
modified after May 31, 2003. The adoption of SFAS No. 150 did not have a
material impact on the consolidated financial condition, results of operations
or cash flows of General Cable.
In December 2003, SFAS No. 132 (R), "Employers' Disclosure about
Pensions and Other Postretirement Benefits" was issued. This statement revised
employers' disclosure requirements about pension plans and other postretirement
benefit plans. The annual disclosure requirements apply to fiscal years ending
after December 31, 2003, except for the disclosure of expected future benefit
payments, which must be disclosed for fiscal years ending after June 15, 2004.
Interim disclosure requirements are generally effective for interim periods
beginning after December 15, 2003. The Company has included the disclosures
required by SFAS No. 132 (R).
36
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, statement of
operations data in millions of dollars and as a percentage of net sales.
Percentages may not add due to rounding.
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2001 2002 2003
------------------- ------------------ -------------------
AMOUNT % AMOUNT % AMOUNT %
---------- ----- ---------- ----- ---------- -----
Net sales ........................................ $ 1,651.4 100.0% $ 1,453.9 100.0% $ 1,538.4 100.0%
Cost of sales .................................... 1,410.7 85.4 1,287.3 88.5 1,365.0 88.7
---------- ----- ---------- ----- ---------- -----
Gross profit ..................................... 240.7 14.6 166.6 11.5 173.4 11.3
Selling, general and administrative
expenses ....................................... 136.4 8.3 150.9 10.4 127.7 8.3
---------- ----- ---------- ----- ---------- -----
Operating income ................................. 104.3 6.3 15.7 1.1 45.7 3.0
Other income ..................................... 8.1 0.5 -- -- 1.5 0.1
Interest expense, net ............................ (43.9) (2.7) (42.6) (2.9) (43.1) (2.8)
Other financial costs ............................ (10.4) (0.6) (1.1) (0.1) (6.0) (0.4)
---------- ----- ---------- ----- ---------- -----
Earnings (loss) from continuing
operations before income taxes .............. 58.1 3.5 (28.0) (1.9) (1.9) (0.1)
Income tax (provision) benefit ................... (20.6) (1.2) 9.9 0.7 (2.9) (0.2)
---------- ----- ---------- ----- ---------- -----
Income (loss) from continuing operations
(net of tax) ................................ 37.5 2.3 (18.1) (1.2) (4.8) (0.3)
Loss from discontinued operations ................ (6.8) (0.4) -- -- -- --
Loss on disposal of discontinued
operations (net of tax) ..................... (32.7) (2.0) (5.9) (0.4) -- --
---------- ----- ---------- ----- ---------- -----
Net loss ......................................... (2.0) (0.1) (24.0) (1.7) (4.8) (0.3)
Less: preferred stock dividends .................. -- -- -- -- (0.6) --
---------- ----- ---------- ----- ---------- -----
Net loss applicable to common shareholders ....... $ (2.0) (0.1)% $ (24.0) (1.7)% $ (5.4) (0.3)%
========== ===== ========== ===== ========== =====
YEAR ENDED DECEMBER 31, 2003 COMPARED WITH YEAR ENDED DECEMBER 31, 2002
The net loss applicable to common shareholders was $(5.4) million, or
$(0.16) on a per diluted share basis, in 2003 compared to a net loss applicable
to common shareholders of $(24.0) million, or $(0.73) per diluted share, in
2002. The net loss applicable to common shareholders for 2003 includes a $0.6
million dividend on the preferred stock issued in the fourth quarter of 2003,
pre-tax corporate charges of $7.6 million related to the rationalization of
certain of the Company's industrial cable manufacturing facilities and $2.7
million for severance related to the Company's ongoing cost cutting efforts in
Europe. These corporate charges were offset by $2.1 million of income resulting
from the reversal of unutilized restructuring reserves related to the closure in
prior years of North American manufacturing facilities. The net loss applicable
to common shareholders for 2003 also includes a $6.0 million charge related to
the refinancing of the Company's bank debt and a $1.5 million foreign currency
transaction gain resulting from a favorable change in exchange rates. The net
loss applicable to common shareholders for 2003 also includes a $4.4 million
increase in the tax provision in the fourth quarter of 2003 resulting from the
Company's refinancing. In conjunction with the refinancing, certain of the
Company's foreign subsidiaries guaranteed the Company's new revolving credit
facility, resulting in U.S. taxation of these foreign subsidiaries previously
unrepatriated earnings and profits as a deemed dividend. This is a non-cash
charge and does not result in a cash payment as the Company will utilize net
operating losses to offset the additional taxable income.
The 2002 net loss and net loss applicable to common shareholders of
$(24.0) million includes pre-tax corporate charges of $34.5 million, of which
$5.6 million was recorded in cost of sales, $27.8 million was recorded in
selling, general and administrative expense and $1.1 million was recorded in
other financial costs. The charges consisted of $21.2 million to close two
manufacturing plants in North America, $6.9 million in severance and severance
related costs worldwide, $3.6 million to reduce to fair value certain assets
contributed to the Company's Fiber Optic joint venture, $1.7 million related to
the sale of the Company's small non-strategic, United Kingdom based specialty
cables business, and $1.1 million related to the write-off of unamortized bank
fees as a result of the October 2002 amendment to the Company's former credit
facility. The 2002 net loss and net loss applicable to
37
common shareholders of $(24.0) million also includes a $5.9 million discontinued
operations after-tax charge principally related to an estimated lower net
realizable value for real estate remaining from the Company's former building
wire business, a longer than anticipated holding period for three distribution
centers with unexpired lease commitments and certain other costs.
Net Sales
The following table sets forth metal-adjusted net sales by segment in
millions of dollars. Net sales for the year 2002 have been adjusted to reflect
the 2003 copper COMEX average price of $0.81 and the aluminum rod average price
of $0.69 per pound.
METAL-ADJUSTED NET SALES
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2002 2003
--------------------------- ----------------------
AMOUNT % AMOUNT %
------------ ------- -------- --------
Energy ........................................... $ 526.8 35% $ 560.2 37%
Industrial & specialty ........................... 520.0 35% 542.4 35%
Communications ................................... 447.6 30% 435.8 28%
------------ ------- -------- --------
Total metal-adjusted net sales ................. 1,494.4 100% 1,538.4 100%
======= ========
Metal adjustment ................................. (40.5) --
------------ --------
Total net sales ................................ $ 1,453.9 $1,538.4
============ ========
Net sales increased 6% to $1,538.4 million in 2003 from $1,453.9
million in 2002. The net sales increase included an $84 million favorable impact
of foreign currency exchange rate changes principally related to the Company's
European operations. After adjusting 2002 net sales to reflect the $0.09
increase in the average monthly COMEX price per pound of copper and the $0.04
increase in the average aluminum rod price per pound in 2003, net sales
increased 3% to $1,538.4 million, up from $1,494.4 million in 2002. The increase
in metal-adjusted net sales reflects a 6% increase in the energy segment, a 4%
increase in the industrial & specialty segment and a 3% decrease in the
communications segment.
The 6% increase in metal-adjusted net sales for the energy segment
reflects a 19% increase in net sales in the Company's international operations
and a 1% increase in net sales in North America. The Company's international
operations have benefited from increased sales resulting from new contract
awards throughout Europe and a $39.5 million favorable impact from changes in
foreign currency exchange rates. The North American net sales reflects lower
sales volume during the first half of 2003 offset by strong demand from power
utilities for bare transmission wire in the fourth quarter of 2003. The sales
volume in the first quarter of 2003 was also negatively impacted by unseasonable
weather in the Midwest and Northeast, which affected the ability of the
Company's customers to install cables. The Company anticipates that sales volume
for North American customers should continue to improve over time as utility
customers address capital projects that were previously deferred. These capital
projects include enhancements to the power transmission and distribution grid.
During 2003, these projects were not released as quickly as expected. The
Company's management believes the timing of these projects has slowed in
anticipation of pending energy legislation in the United States. This
legislation could provide future regulatory relief and allow North American
utility companies to earn an adequate rate of return on their investment in
upgrading the transmission grid infrastructure.
The 4% increase in metal-adjusted net sales in the industrial &
specialty segment was principally due to a 19% increase in the Company's
international operations, growth in its domestic automotive aftermarket business
and an increase in sales of industrial cables utilized in plant maintenance,
repairs and operations. The increase in net sales of our international
operations includes a $41.2 million favorable impact from changes in foreign
currency exchange rates, the introduction of environmentally friendly cables in
Europe, an area in which our European operation is a leader. These increases
were partially offset by a 15% decrease in net sales of the North American
industrial business, the result of the continued weakness in demand for cables
utilized in new industrial construction and other major infrastructure projects.
However, net sales of these cables increased 2% in the fourth quarter of 2003
compared to the same period in 2002, the first year-over-year increase since the
first half of 2001 which may indicate that the bottoming of demand has occurred.
The 3% decrease in the communications segment metal-adjusted net sales
principally relates to a decrease in North American sales volume of telephone
exchange cable and data communication cable. Metal-adjusted net
38
sales of telephone exchange cable were off 4% for 2003 compared to 2002.
However, sales to the Company's three largest telephone operating company
customers increased in the third and fourth quarters of 2003 compared to same
periods in 2002. As a result of the Company's position as a low cost producer,
these products have historically been one of its most profitable business
segments. The sales volume decrease in data communication cables is the result
of weak general information technology spending in North America. The Company
believes that spending for data communication cable tends to lag other
information technology infrastructure spending by six to nine months and
therefore anticipates an improvement in demand for data communication cable
during the second half of 2004. These decreases were partially offset by an
increase in sales of electronics products resulting from sustained penetration
into targeted niche markets.
Selling, General and Administrative Expense
Selling, general and administrative expense decreased to $127.7 million
in 2003 from $150.9 million in 2002. This decrease reflects the impact of
actions taken to reduce fixed SG&A expense and controllable spending. These
actions were partially offset by increased medical and pension related costs
experienced during 2003 and the impact of increased SG&A expense in our European
operations as a result of foreign currency exchange rate changes. SG&A expense
for 2003 includes $0.2 million of corporate charges related to plant
rationalizations and the benefit of $2.1 million related to the reversal of
unutilized restructuring reserves. In 2002, SG&A expense included $27.8 million
of corporate charges, primarily relating to the closure of manufacturing plants
and severance costs.
Operating Income
The following table sets forth operating income by segment, in millions
of dollars.
OPERATING INCOME
YEAR ENDED DECEMBER 31,
----------------------------------------------
2002 2003
------------------ ------------------
AMOUNT % AMOUNT %
------- --- -------- -----
Energy ........................................... $ 36.9 75% $ 38.0 71%
Industrial & specialty ........................... 9.7 20% 9.9 18%
Communications ................................... 2.5 5% 6.0 11%
------- --- ------- -----
Subtotal excluding corporate charges ........... 49.1 100% 53.9 100%
=== =====
Corporate charges ................................ (33.4) (8.2)
------- -------
Total operating income ......................... $ 15.7 $ 45.7
======= =======
Operating income of $45.7 million for 2003 increased from $15.7 million
in 2002. This increase is primarily the result of reduced corporate charges in
2003, as discussed above. Operating income also increased due to the Company's
ongoing cost reduction initiatives in SG&A and manufacturing expenses, strong
performance from the Company's European operations and the favorable impact of
foreign currency exchange rate changes and a $2.0 million reduction in the LIFO
liquidation charge incurred in 2003 compared to 2002. Offsetting these increases
were reduced selling prices in the North American communications segment.
Additionally, increased raw material costs (most notably polyethylene) which
were not fully recovered during 2003 and higher pension and employee fringe
benefit costs negatively impacted operating income.
OTHER INCOME
Other income includes foreign currency transaction gains which result
from changes in exchange rates between the designated functional currency and
the currency in which a transaction is denominated.
Interest Expense
Net interest expense, excluding other financial costs discussed below,
increased to $43.1 million in 2003 from $42.6 million in 2002. The increase in
interest expense is the result of higher interest costs under the Company's
former credit facility during 2003 compared to the prior year, partially offset
by reduced interest costs under the Company's new debt structure (see previous
Refinancing discussion) effective November 24, 2003. The increase in interest
cost under the Company's former credit facility was primarily the result of a
higher credit spread for the Company's borrowings due to the former credit
facility amendment which became effective in October 2002 and the amortization
of bank fees related to the amendment, partially offset by lower average net
borrowings and lower interest rates on the floating rate portion of the
Company's debt.
39
As a result of the refinancing during the fourth quarter of 2003, the
Company recorded other financial costs of $6.0 million which consisted of
pre-tax charges of $4.4 million for the write-off of unamortized banks fees
related to the Company's former credit facility, $0.8 million related to the
early termination of interest rate swaps and $0.8 million related to the early
termination of the accounts receivable asset-backed securitization financing.
In October 2002, General Cable recorded other financial costs of $1.1
million related to the write-off of unamortized bank fees as a result of the
October 2002 credit facility amendment. Of the $1.1 million, $0.6 million
related to fees paid in April 2002 for a prior amendment, the terms of which
were substantially amended by the October amendment and $0.5 million was due to
a reduction in the borrowing capacity available under the revolving portion of
the former credit facility.
Tax Provision
The 2003 income tax provision of $2.9 million includes $4.4 million
related to a deemed dividend related to the guarantee by certain of the
Company's foreign subsidiaries of the Company's new revolving credit facility.
The deemed dividend resulted in U.S. taxation of previously unrepatriated
foreign earnings and profits, thereby increasing the tax provision but will not
impact cash tax payments as the Company will utilize net operating losses to
offset this additional taxable income. This increase to the tax provision was
offset by $0.8 million related to foreign income tax differentials and other
permanent differences. The Company's effective tax rate for 2002 was 35.5%.
YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED DECEMBER 31, 2001
The net loss and net loss applicable to common shareholders was $(24.0)
million, or $(0.73) per diluted share, in 2002 compared to a net loss and net
loss applicable to common shareholders of $(2.0) million, or $(0.06) per diluted
share, in 2001. The 2002 net loss and net loss applicable to common shareholders
of $(24.0) million includes a $2.5 million charge related to the liquidation of
LIFO inventory quantities in North America and pre-tax corporate charges of
$34.5 million, of which $5.6 million was recorded in cost of sales, $27.8
million was recorded in selling, general and administrative and $1.1 million was
recorded in other financial costs. These charges consisted of $21.2 million to
close two manufacturing plants in North America, $6.9 million in severance and
severance related costs worldwide, $3.6 million to reduce to fair value certain
assets contributed to the Company's fiber optic joint venture, $1.7 million
related to the sale of the Company's non-strategic, United Kingdom based
specialty cables business, and $1.1 million related to the write-off of
unamortized bank fees as a result of the October 2002 amendment to the Company's
former credit facility. The 2002 net loss and net loss applicable to common
shareholders of $(24.0) million also includes a $9.1 million discontinued
operations pre-tax charge principally related to an estimated lower net
realizable value for real estate remaining from the Company's former building
wire business, a longer than anticipated holding period for three distribution
centers with unexpired lease commitments and certain other costs.
The 2001 net loss and net loss applicable to common shareholders of
$(2.0) million includes net pre-tax corporate charges of $56.8 million
consisting of $6.1 million of net continuing operations charges and $50.7
million of charges related to the disposal of discontinued operations. The $6.1
million of 2001 pre-tax operating charges includes $7.0 million of charges
recorded in cost of sales, a net of $3.2 million of income reported in selling,
general and administrative, $8.1 million reported as other income and $10.4
million reported as other financial costs. The $6.1 million of 2001 pre-tax
charges includes $8.1 million of income from a foreign exchange gain on the
extinguishment of long-term debt in the United Kingdom, a net gain of $23.8
million related to the sale of the Pyrotenax business and $7.0 million in income
from the settlement of the final purchase price of certain assets sold to
Pirelli, all more than offset by $16.5 million in severance costs, $4.8 million
in costs to close a manufacturing plant, a $5.5 million loss on the sale of the
Company's non-strategic business that designed and manufactured extrusion
tooling and accessories, $10.4 million in costs associated with the Company's
accounts receivable asset-backed securitization program and a restructuring of
the Company's interest costs, $7.0 million in inventory disposal costs and $0.8
million of other costs. The $50.7 million of charges related to the disposal of
discontinued operations consists of $21.4 million related to the sale of the
building wire business, $16.6 million for the closure of the Company's
Montoursville, Pennsylvania plant, which manufactured retail cordsets, $10.6
million for the closure of four regional distribution centers and $2.1 million
for other costs.
40
Net Sales
The following table sets forth metal-adjusted net sales by segment, in
millions of dollars. Net sales for the year 2001 have been adjusted to the 2002
copper COMEX average of $0.72 per pound and the aluminum rod average of $0.65
per pound.
METAL-ADJUSTED NET SALES
YEAR ENDED DECEMBER 31,
----------------------------------------
2001 2002
----------------- ---------------
AMOUNT % AMOUNT %
-------- --- -------- ---
Energy.................................... $ 511.2 31% $ 516.0 36%
Industrial & specialty.................... 534.9 33% 499.4 34%
Communications............................ 589.4 36% 438.5 30%
-------- --- -------- ---
Total metal-adjusted net sales.......... 1,635.5 100% 1,453.9 100%
=== ===
Metal adjustment.......................... 15.9 --
-------- --------
Total net sales......................... $1,651.4 $1,453.9
======== ========
Net sales decreased 12% to $1,453.9 million in 2002 from $1,651.4
million in 2001. The net sales decrease is net of a $21 million favorable impact
of exchange rate changes from 2001 to 2002. After adjusting 2001 net sales to
reflect the $0.01 decrease in the average monthly COMEX price per pound of
copper and the $0.04 decrease in the average aluminum rod price per pound in
2002, net sales decreased 11% to $1,453.9 million, down from $1,635.5 million in
2001. The decrease in metal-adjusted net sales reflects a 1% increase in energy
products, a 7% decrease in industrial & specialty products and 26% decrease in
communication products.
The increase of 1% in metal-adjusted net sales in the energy products
segment is the result of higher volume in the North American market as the
Company realized the effect of new contracts won during 2001 and higher sales in
Europe as we continue to enjoy an increased presence with major European
utilities. During the second half of 2002, the Company benefited from contract
awards won earlier in the year, including a two-year supply agreement with
Electricite de France, one of Europe's largest electric utility companies. This
contract award for medium voltage energy cables commenced in June 2002 and is
valued at the equivalent of approximately $30 million through 2004. The Company
also benefited from its expanded position in the Italian and United Kingdom
energy cables markets. Partially offsetting these volume increases was lower
pricing in the North American market.
The 7% decrease in industrial & specialty products metal-adjusted net
sales includes the negative impact of the March 2001 divestiture of the
Pyrotenax business and the June 2001 divestiture of the Company's extrusion
tooling business. Excluding the impact of these businesses, industrial &
specialty products metal-adjusted net sales decreased 5% from the prior year.
This decrease is primarily the result of continued weak demand and pricing in
many industrial sectors of the North American economy. This decrease is
partially offset by a 4% increase in metal-adjusted net sales for the Company's
international operations.
The 26% decrease in communication products metal-adjusted net sales
principally relates to lower sales volume of outside plant telecommunications
cable and to a lesser extent high bandwidth networking cables. Sales volume for
outside plant telecommunications cable decreased year over year as many
customers significantly reduced their capital spending in 2002.
Selling, General and Administrative Expense
Selling, general and administrative expense increased to $150.9 million
in 2002 from $136.4 million in 2001. The 2002 and 2001 SG&A expense includes
$27.8 million of corporate operating expenses and $3.2 million of corporate
operating income, respectively. Excluding these expenses and income, SG&A
expense on a consistent basis decreased 12%. The 12% reduction reflects the
lower sales volumes and the impact of an aggressive program implemented since
November 2001 to reduce fixed selling, general and administrative expense and
controllable spending. The program included the elimination of salaried and
hourly positions worldwide and other actions. Despite a 12% decrease in reported
net sales year over year, selling, general and administrative expense, before
corporate operating items, as a percent of net sales was flat compared to 2001
at 8.5%.
41
Operating Income
The following table sets forth operating income by segment, in millions
of dollars.
OPERATING INCOME
YEAR ENDED DECEMBER 31,
----------------------------------
2001 2002
-------------- --------------
AMOUNT % AMOUNT %
------ --- ------ ---
Energy.................................. $ 35.3 33% $ 36.9 75%
Industrial & specialty.................. 24.3 22% 9.7 20%
Communications.......................... 48.5 45% 2.5 5%
------ --- ------ ---
Subtotal excluding corporate charges.. 108.1 100% 49.1 100%
=== ===
Corporate charges....................... (3.8) (33.4)
------ ------
Total operating income................ $104.3 $ 15.7
====== ======
As of January 1, 2001, General Cable changed its accounting method
related to non-North American metals inventory from the FIFO method to the LIFO
method resulting in a $4.1 million increase in operating income in 2001.
Operating income, including the corporate operating charges of $33.4
million in 2002 discussed above and the $3.8 million of corporate operating
items in 2001 noted above, decreased 85% to $15.7 million in 2002 from $104.3
million in 2001. Excluding the corporate operating charges of $33.4 million in
2002 and $3.8 million in 2001, operating income decreased 55% to $49.1 million
in 2002 from $108.1 million in 2001. Operating income decreased principally as a
result of reduced sales volume in the communications and industrial & specialty
segments and reduced selling prices in all three segments, partially offset by
increased volume in the Energy segment as well as lower operating costs from the
Company's cost containment programs.
Other Financial Costs
In October 2002, General Cable recorded other financial costs of $1.1
million related to the write-off of unamortized bank fees as a result of the
October 2002 credit facility amendment. Of the $1.1 million, $0.6 million
related to fees paid in April 2002 for a prior amendment, the terms of which
were substantially amended by the October amendment and $0.5 million was due to
a reduction in the borrowing capacity available under the revolving portion of
the credit facility.
During 2001, General Cable recorded other financial costs of $10.4
million as a result of recognizing $4.2 million of costs associated with the
implementation of its accounts receivable asset-backed securitization program.
The Company also wrote off $2.0 million of unamortized bank fees as a result of
a reduction in the borrowing capacity of its former credit facility due to the
application of the Pyrotenax proceeds and the accounts receivable asset-backed
securitization program proceeds against outstanding debt, and the Company
recorded a loss of $4.2 million related to interest rate collars which were
terminated. The collars were terminated in part due to the reduction of
indebtedness associated with the Pyrotenax and Pirelli transactions, as well to
allow the Company to more fully benefit from the more favorable interest rate
environment and future interest rate reductions.
Interest Expense
Net interest expense, excluding the other financial costs discussed
above, was $42.6 million in 2002 compared to $43.9 million in 2001. The decrease
reflects reduced debt levels due to the application of the proceeds from
non-strategic business divestitures, interest savings from the Company's
accounts receivable asset-backed securitization program implemented in the
second quarter of 2001 and lower base interest rates under the credit facility
in 2002 partially offset by the amortization of bank fees and higher credit
spreads related to the April 2002 and October 2002 credit facility amendments.
Tax Provision
The effective tax rate for 2002 and 2001 was 35.5%.
42
LIQUIDITY AND CAPITAL RESOURCES
In general, General Cable requires cash for working capital, capital
expenditures, debt repayment, interest and taxes. General Cable's working
capital requirement increases when it experiences strong incremental demand for
products and/or significant copper and aluminum price increases. Based upon
historical experience and the expected availability of funds under the new
credit facility, the Company believes its sources of liquidity will be
sufficient to enable it to meet the Company's cash requirements for working
capital, capital expenditures, debt repayment, interest and taxes for at least
the next twelve months.
General Cable Corporation is a holding company with no operations of
its own. All of the Company's operations are conducted, and net sales are
generated, by its subsidiaries and investments. Accordingly, the Company's cash
flow depends on the cash flows of its operations, in particular, the North
American operations upon which it has historically depended the most. However,
the Company's ability to use cash flow from its European operations, if
necessary, will likely be adversely affected by limitations on the Company's
ability to repatriate such earnings tax efficiently.
On November 24, 2003, the Company completed a comprehensive refinancing
of its bank debt which improved its capital structure and provided increased
financial and operating flexibility by reducing leverage, increasing liquidity
and extending debt maturities. The refinancing included: (i) a new senior
secured revolving credit facility, (ii) the private placement of the old notes,
(iii) the private placement of redeemable convertible preferred stock and (iv) a
public offering of common stock. The Company applied the net proceeds from these
transactions to repay all amounts outstanding under its former senior secured
revolving credit facility, senior secured term loans, accounts receivable
asset-backed securitization facility and to pay fees and expenses of
approximately $22 million related to the refinancing.
In the refinancing, the Company raised $47.6 million through the sale
of 5,807,500 shares of common stock at $8.20 per share (which included a 15%
over-allotment option exercised on December 2, 2003) and $103.5 million through
the sale of 2,070,000 shares of redeemable convertible preferred stock at $50.00
per share (which included the exercise of an option to purchase additional
shares of preferred stock). The preferred stock has an annual dividend rate of
5.75% and a conversion price of $10.004 per share.
The refinancing also included the issuance of $285.0 million of the old
notes and a $240.0 million secured revolving credit facility which matures in
2008. The senior unsecured notes bear interest at a fixed rate of 9.5% while
loans under the credit facility will bear interest initially at a rate of LIBOR
plus 275 basis points.
Cash flow used by operating activities in 2003 was $14.5 million. This
reflects a net loss before depreciation and amortization, foreign currency
exchange gain, deferred income taxes and loss on the disposal of property of
$27.4 million, a $27.8 million decrease in accounts receivable, a $16.9 million
decrease in inventories, and a $14.5 million decrease in prepaid and other
assets. The decrease in receivables is due to the inflow to the Company during
2003 of approximately $32 million of cash held at the prior year end in its off
balance sheet asset backed securitization facility. This cash inflow was
partially offset by an increase in receivables due to strong incremental sales
volumes in the fourth quarter of 2003. Inventories in 2003 were reduced through
strong distribution logistics, improved plant schedule attainment and a
rebalancing of our production loads. The decrease in prepaid and other assets
includes a $13.9 million refund of income taxes paid in previous years received
in the first quarter of 2003. These cash flows were offset by a decrease in
accounts payable, accrued and other liabilities of $21.1 million and $80.0
million used for the purchase of trade receivables resulting from the
termination of the Company's accounts receivable asset-backed securitization
financing, which was terminated as part of the Company's refinancing.
43
The following table sets forth net cash provided by (used by) operating
activities by geographic region for the following periods (in millions):
YEAR ENDED DECEMBER 31,
------------------------------------------------
2001 2002 2003
----- ----- ------
North America.......................... $66.6 $43.4 $(40.3)
Europe and Oceania..................... 16.6 13.9 25.8
----- ----- ------
Total.............................. $83.2 $57.3 $(14.5)
===== ===== ======
The cash flow used by operating activities in North America during
2003, includes $80.0 million used for the purchase of trade receivables
resulting from the termination of the Company's accounts receivable asset-backed
securitization financing, which was terminated as part of the Company's
refinancing.
Cash flow used by investing activities was $16.7 million in 2003,
principally reflecting $19.1 million of capital expenditures. This level of
capital spending is approximately 40% below 2002 and reflects an intentional
effort to limit capital spending given current general economic conditions. The
Company anticipates capital spending to be approximately $30 million in 2004.
The use of cash for capital expenditures was partially offset by $2.5 million of
proceeds received from the sale of former manufacturing facilities.
Cash flow provided by financing activities in 2003 was $27.2 million.
This represents gross proceeds from the Company's refinancing transactions net
of fees and expenses paid of (i) $44.6 million from the issuance of common
stock, (ii) $99.5 million from the issuance of preferred stock and (iii) $276.6
million from the issuance of senior unsecured notes. The proceeds from these
transactions were used to repay all amounts outstanding under the Company's
former credit facility, including $333.3 million of term loans. During 2003,
revolving credit borrowings were reduced by $35.2 million. This reflects the
repayment of all outstanding revolving credit borrowings under the former credit
facility, offset by new borrowings under the new credit facility of which $43.0
million was outstanding at December 31, 2003. Also, during 2003 other debt
decreased by $26.2 million, principally related to the Company's European
operations short-term borrowings and $1.0 million of cash was received in
partial payment of loans plus interest from shareholders.
The Company's new senior secured revolving credit facility provides for
up to $240.0 million in borrowings, including a $50.0 million sublimit for the
issuance of commercial and standby letters of credit and a $10.0 million
sublimit for swingline loans. Advances under the credit facility are limited to
a borrowing base based upon advance rates for eligible accounts receivables
inventory, equipment and owned real estate properties. The fixed asset component
of the borrowing base is subject to scheduled reductions. At December 31, 2003,
the Company had undrawn availability of $147.6 million under the new credit
facility.
Indebtedness under the credit facility is guaranteed by the Company's
North American subsidiaries and secured by a first priority security interest in
tangible and intangible property and assets of the Company's North American
subsidiaries. Loans under the credit facility bear interest at the Company's
option, equal to either an alternate base rate or an adjusted LIBOR rate plus an
applicable margin percentage. The applicable margin percentage is subject to
adjustments based upon a consolidated fixed charge coverage ratio, as defined.
The Company pays fees in connection with the issuance of letters of
credit and a commitment fee equal to 50 basis points per annum on any unused
commitments under the credit facility. Both fees are payable quarterly.
The credit facility requires that the Company comply on a quarterly
basis with certain financial covenants, including a minimum fixed charge
coverage ratio test and a maximum capital expenditures level. In addition, the
senior secured revolving credit facility and the indenture governing the senior
unsecured notes include negative covenants which restrict certain acts,
including the payment of dividends to holders of common stock. However, the
Company will be permitted to declare and pay dividends or distributions on the
convertible preferred stock so long as there is no default under the senior
secured revolving credit facility and the Company meets certain financial
conditions.
The Company's European operations participate in arrangements with
several European financial institutions who provide extended accounts payable
terms to the Company on an uncommitted basis. In general, the
44
arrangements provide for accounts payable terms of up to 180 days. At December
31, 2003, the arrangements had a maximum availability limit of the equivalent of
approximately $101.7 million, of which approximately $70.7 million was drawn.
Should the availability under these arrangements be reduced or terminated, the
Company would be required to negotiate longer payment terms or repay the
outstanding obligations with suppliers under this arrangement over 180 days and
seek alternative financing arrangements which could increase the Company's
interest expense. The Company also has an approximate $25 million uncommitted
facility in Europe, which allows the Company to sell at a discount, with limited
recourse, a portion of its accounts receivable to a financial institution. At
December 31, 2003, this accounts receivable facility was not drawn upon.
During the fourth quarter of 2002, as a result of declining returns in
the investment portfolio of the Company's defined benefit pension plan, the
Company was required to record a minimum pension liability equal to the
underfunded status of its plan. At December 31, 2002, the Company recorded an
after-tax charge of $29.2 million to accumulated other comprehensive income in
the equity section of its balance sheet. During 2003, the investment portfolio
experienced improved performance and as a result, the Company was able to reduce
the after tax charge to accumulated other comprehensive income by $7.3 million.
In 2004, pension expense is expected to decrease approximately $3 million from
2003, principally due to improved investment performance during 2003 and cash
contributions are expected to increase approximately $6 million from 2003.
As part of General Cable's ongoing efforts to reduce total operating
costs, the Company continuously evaluates its ability to more efficiently
utilize existing manufacturing capacity. Such evaluation includes the costs
associated with and benefits to be derived from the combination of existing
manufacturing assets into fewer plant locations and the possible outsourcing of
certain manufacturing processes. During the fourth quarter of 2003, the Company
incurred a $7.6 million pre-tax charge related to the rationalization of certain
of its industrial cable manufacturing plants. Additional charges (currently
estimated to be $14 million, of which approximately $8 million will be cash
payments) will be incurred during 2004 as the operations are wound down. In
addition, the Company is currently evaluating the closure of another North
American facility. The Company plans to announce the results of its evaluation
in 2004 and would take additional charges over the period the operations are
wound down should it be decided to rationalize the facility.
Summarized information about our contractual obligations and commercial
commitments as of December 31, 2003 is as follows (in millions of dollars):
PAYMENTS DUE BY PERIOD
-----------------------------------------------------------------
LESS THAN 1 - 3 4 - 5 AFTER 5
CONTRACTUAL OBLIGATIONS: TOTAL 1 YEAR YEARS YEARS YEARS
------ --------- ----- ----- -------
Long-term debt.......................... $340.4 $ 2.3 $ 0.4 $43.3 $ 294.4
Operating leases........................ 23.0 7.2 11.4 4.4 -
Commodity futures and forward pricing
agreements........................ 46.6 46.5 0.1 - -
Foreign currency contracts.............. 38.4 37.7 0.7 - -
------ --------- ----- ----- -------
Total................................... $448.4 $ 93.7 $12.6 $47.7 $ 294.4
====== ========= ===== ===== =======
The Company will be required to make future cash contributions to its
defined benefit pension plans. The estimate for these contributions is
approximately $12.6 million during 2004. Estimates of cash contributions to be
made after 2004 are difficult to make due to the number of variable factors
which impact the calculation of defined benefit pension plan contributions.
General Cable will also be required to make interest payments on its debt. The
Company's senior unsecured notes will require interest payments of $27.1 million
a year, beginning in 2004 through 2010. The interest payments to be made on the
Company's revolving loans and other debt are based on variable interest rates
and the amount of the borrowings under the revolving credit facility depend upon
the Company's working capital requirements. The Company's preferred stock
dividends are payable in cash or common stock or a combination thereof, in the
amount of $6.0 million a year, beginning in 2004 through 2013.
The Company anticipates being able to meet its obligations as they come
due.
45
OFF BALANCE SHEET ASSETS AND OBLIGATIONS
In May 2001, the Company completed an accounts receivable asset-backed
securitization financing transaction. The securitization financing provided for
certain domestic trade receivables to be sold to a wholly owned, special
purpose, bankruptcy-remote subsidiary without recourse. This subsidiary in turn
transferred the receivables to a trust which issued floating rate five-year
certificates in an initial amount of $145 million. The proceeds from the initial
transfer were utilized to reduce term debt. In addition, a variable certificate
component of up to $45 million for seasonal borrowings was established as a part
of the securitization financing. This variable certificate component fluctuated
based on the amount of eligible receivables. Sales of receivables under this
program resulted in a reduction of total accounts receivable reported on the
Company's consolidated balance sheet in 2002. The Company's retained interest in
the receivables was carried at their fair value, which was estimated as the net
realizable value. The net realizable value considered the relatively short
liquidation period and included an estimated provision for credit losses. The
five-year certificates carried a weighted average interest rate of 57 basis
points over LIBOR.
As a result of the building wire asset sale and the exit from the
retail cordsets business, the securitization financing program was downsized in
the first quarter of 2002, through the repayment of a portion of the outstanding
certificates, to $80 million. The repayment of the certificates was funded by
the collection of the outstanding building wire and retail cordsets accounts
receivable. The $45 million seasonal borrowing component was unaffected.
At December 31, 2002, the off balance sheet debt, net of cash held in
the trust was $48.5 million. This off balance sheet debt was fully
collateralized by accounts receivable and cash held in the trust. During the
fourth quarter of 2003, this securitization financing was terminated in
connection with the refinancing transactions. As a result of the early
termination, the Company incurred costs of $0.8 million.
As part of the BICC plc acquisition, BICC agreed to indemnify General
Cable against environmental liabilities existing at the date of the closing of
the purchase of the business. In the sale of the businesses to Pirelli, General
Cable generally indemnified Pirelli against any environmental liabilities on the
same basis as BICC plc indemnified the Company in the earlier acquisition. In
addition, General Cable has agreed to indemnify Pirelli against any warranty
claims relating to the prior operation of the business. General Cable agreed to
indemnify Raychem HTS Canada, Inc., a business division of Tyco International,
Ltd. for certain environmental liabilities existing at the date of the closing
of the sale of the Company's former Pyrotenax business. General Cable has also
agreed to indemnify Southwire Company against certain liabilities arising out of
the operation of the business sold to Southwire prior to its sale. See Note 20
for further discussion of these indemnities.
ENVIRONMENTAL MATTERS
The Company's expenditures for environmental compliance and remediation
amounted to approximately $0.8 million in 2003, $0.6 million in 2002 and $0.9
million in 2001. In addition, certain of General Cable's subsidiaries have been
named as potentially responsible parties in proceedings that involve
environmental remediation. The Company had accrued $5.4 million at December 31,
2003 for all environmental liabilities. In the Wassall acquisition of General
Cable from American Premier Underwriters, American Premier indemnified the
Company against certain environmental liabilities arising out of General Cable
or its predecessors' ownership or operation of properties and assets, which were
identified during the seven-year period ended June 2001. As part of the 1999
acquisition, BICC plc agreed to indemnify General Cable against environmental
liabilities existing at the date of the closing of the purchase of the business.
The Company has agreed to indemnify Pirelli, Raychem HTS, Canada, Inc. and
Southwire Company against certain environmental liabilities arising out of the
operation of the divested businesses prior to the sale. However, the indemnity
the Company received from BICC plc related to the business sold to Pirelli
terminated upon the sale of those businesses to Pirelli. While it is difficult
to estimate future environmental liabilities, the Company does not currently
anticipate any material adverse effect on results of operations, cash flows or
financial position as a result of compliance with federal, state, local or
foreign environmental laws or regulations or remediation costs.
46
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General Cable is exposed to various market risks, including changes in
interest rates, foreign currency and commodity prices. To manage risk associated
with the volatility of these natural business exposures, General Cable enters
into interest rate, commodity and foreign currency derivative agreements as well
as copper and aluminum forward purchase agreements. General Cable does not
purchase or sell derivative instruments for trading purposes. General Cable does
not engage in trading activities involving commodity contracts for which a lack
of marketplace quotations would necessitate the use of fair value estimation
techniques.
General Cable's reported net sales are directly influenced by the price
of copper and to a lesser extent aluminum. The price of copper and aluminum has
been subject to considerable volatility, with the daily selling price of copper
cathode on the COMEX averaging $0.81 per pound in 2003, $0.72 per pound in 2002
and $0.73 per pound in 2001 and the daily price of aluminum rod averaging $0.69
per pound in 2003, $0.65 per pound in 2002 and $0.69 per pound in 2001.
General Cable utilizes the last-in first-out (LIFO) method of inventory
accounting for its metals inventory. The Company's use of the LIFO method
results in its income statement reflecting the current costs of metals, while
metals inventories in the balance sheet are valued at historical costs as the
LIFO layers were created. As a result of volatile copper prices, the replacement
cost of the Company's copper inventory exceeded the historic LIFO cost by
approximately $13 million at December 31, 2003 while, at December 31, 2002, the
historic LIFO cost of the Company's copper inventory exceeded its replacement
cost by approximately $16 million. If the Company were not able to recover the
LIFO value of its inventory at a profit in some future period when replacement
costs were lower than the LIFO value of the inventory, the Company would be
required to take a charge to recognize in its income statement all or a portion
of the higher LIFO value of the inventory. Additionally, if LIFO inventory
quantities were reduced in a period when replacement costs were lower than the
LIFO value of the inventory, the Company would experience a decline in reported
margins. Conversely, if LIFO inventory quantities were reduced in a period when
the replacement cost of the inventory exceeded the LIFO value, the Company would
experience an increase in reported margins.
General Cable has utilized interest rate swaps and interest rate
collars to manage its interest expense exposure by fixing its interest rate on a
portion of the Company's floating rate debt. Under the swap agreements, General
Cable typically pays a fixed rate while the counterparty pays to General Cable
the difference between the average fixed rate and the three-month LIBOR rate.
During 1999, the Company entered into certain interest rate derivative
contracts for hedging of the former credit facility floating interest rate risk
covering $375.0 million of the Company's debt. In March 2001, the Company
incurred a cost of $4.2 million to terminate these interest rate collars.
During 2001, the Company entered into several new interest rate swaps
which effectively fixed interest rates for borrowings under the former credit
facility and other debt. In the fourth quarter of 2003 in conjunction with the
refinancing of its bank debt, the Company incurred a cost of $0.8 million to
terminate the interest rate swaps related to the former credit facility. At
December 31, 2003, the remaining outstanding interest rate swap had a notional
value of $9.0 million, an interest rate of 4.49% and matures in October 2011.
The Company does not provide or receive any collateral specifically for this
contract.
The fair value of interest rate derivatives are based on quoted market
prices and third party provided calculations, which reflect the present values
of the difference between estimated future variable-rate receipts and future
fixed-rate payments. At December 31, 2003, the net unrealized loss on interest
rate derivatives and the related carrying value was $0.7 million. At December
31, 2002, the net unrealized loss on the net interest rate derivatives and the
related carrying value was $7.4 million. A 10% change in the variable rate would
change the unrealized loss by $0.2 million in 2003 and $0.5 million in 2002. All
interest rate derivatives are marked-to-market with changes in the fair value of
qualifying cash flow hedges recorded as other comprehensive income.
The Company enters into forward exchange contracts principally to hedge
the currency fluctuations in certain transactions denominated in foreign
currencies, thereby limiting the Company's risk that would otherwise result from
changes in exchange rates. Principal transactions hedged during the year were
firm sales and purchase commitments.
47
The fair value of foreign currency contracts represents the amount
required to enter into offsetting contracts with similar remaining maturities
based on quoted market prices. At December 31, 2003 and 2002, the net unrealized
(loss) gain on the net foreign currency contracts was $(0.8) million and $0.7
million, respectively.
A 10% change in the exchange rate for these currencies would change the
unrealized (loss) gain by $3.5 million in 2003 and $2.9 million in 2002.
However, since these contracts hedge forecasted foreign currency denominated
transactions, any change in the fair value of the contracts would be recorded in
other comprehensive income until the hedged transaction was reflected in the
income statement.
Outside of North America, General Cable enters into commodity futures
contracts for the purchase of copper and aluminum for delivery in a future month
to match certain sales transactions. At December 31, 2003 and 2002, General
Cable had an unrealized gain (loss) of $0.1 million and $(0.1) million
respectively, on the commodity futures. A 10% change in the price of copper and
aluminum would result in a change in the unrealized gain (loss) of $1.4 million
in 2003 and $0.9 million in 2002.
The notional amounts and fair values of these financial instruments at
December 31, 2003 and 2002 are shown below (in millions). The carrying amount of
the financial instruments was a liability of $1.4 million at December 31, 2003
and $6.8 million at December 31, 2002.
2002 2003
---------------------- -----------------
NOTIONAL FAIR NOTIONAL FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- -----
Interest rate swap......................................... $ 9.0 $(0.9) $ 9.0 $(0.7)
Forward starting interest rate swaps....................... 200.0 (6.5) - -
Foreign currency forward exchange.......................... 29.5 0.7 38.4 (0.8)
Commodity futures.......................................... 9.2 (0.1) 13.6 0.1
----- -----
$(6.8) $(1.4)
===== =====
In the normal course of business, General Cable enters into forward
pricing agreements for purchase of copper and aluminum for delivery in a future
month to match certain sales transactions. At December 31, 2003 and 2002,
General Cable had an unrealized gain of $2.4 million and an unrealized loss of
$2.8 million, respectively. General Cable expects to recover the unrealized
gains and losses under these agreements as a result of firm sales price
commitments with customers.
48
BUSINESS
OUR COMPANY
We are a FORTUNE 1000 company that is a leading global developer and
manufacturer in the wire and cable industry, an industry which is estimated to
have had $61 billion in sales in 2003. We have leading market positions in the
segments in which we compete due to our product, geographic and customer
diversity and our ability to operate as a low cost provider. We sell over 11,500
copper, aluminum and fiber optic wire and cable products, which we believe
represent the most diversified product line of any U.S. manufacturer. As a
result, we are able to offer our customers a single source for most of their
wire and cable requirements. We manufacture our product lines in 27 facilities
and sell our products worldwide through our operations in North America, Europe
and Oceania. Major customers for our products include leading utility companies
such as Consolidated Edison and Arizona Public Service; leading distributors
such as Graybar and Anixter; leading retailers such as The Home Depot and
AutoZone; and leading original equipment manufacturers, or OEMs, such as GE
Medical Systems; and leading telecommunications companies such as Qwest
Communications, Verizon Communications and SBC/Ameritech. Technical expertise
and implementation of Lean Six Sigma strategies have allowed us to maintain our
position as a low cost provider.
Our operations are divided into three main segments: energy, industrial
& specialty and communications. Our energy cable products include low-, medium-
and high-voltage power distribution and power transmission products for overhead
and buried applications. Our industrial & specialty wire and cable products
conduct electrical current for industrial, OEM, commercial and residential power
and control applications. Our communications wire and cable products transmit
low-voltage signals for voice, data, video and control applications. We believe
we are the number one supplier of energy and industrial & specialty cable
products and the number three supplier of communications products in North
America and a top three supplier in the majority of the segments in which we
compete in Oceania. We believe we are the largest supplier in the Iberian region
and a strong regional wire and cable manufacturer in the rest of Europe. For the
year ended December 31, 2003, we had net sales of $1.5 billion and a net loss
applicable to common shareholders of $(5.4) million.
PRODUCTS AND MARKETS
The net sales generated by each of our three main segments (as a
percentage of our total company results) over the twelve-month period ended
December 31, 2003 are summarized below:
[Pie Chart Omitted]
Products and Markets Percentage
-------------------- ----------
Energy 37%
Industrial & Specialty 35%
Communications 28%
49
The principal products, markets, distribution channels and end-users of
each of our product categories are summarized below:
PRODUCT CATEGORY PRINCIPAL PRODUCTS PRINCIPAL MARKETS PRINCIPAL END-USERS
---------------- ------------------ ----------------- -------------------
ENERGY
Utility Low-Voltage, Power Utility Investor-Owned Utility
Medium-Voltage Companies; State and
Distribution; Bare Local Public Power
Overhead Conductor; Companies; Rural
High-Voltage Electric Associations;
Transmission Cable Contractors
INDUSTRIAL & SPECIALTY
Instrumentation, Power, Rubber and Plastic- Industrial Power and Industrial Consumers;
Control and Specialty Jacketed Wire and Cable; Control; Utility/Marine/ Contractors; OEMs;
Power and Industrial Cable; Transit; Military; Military Customers;
Instrumentation and Mining; Oil and Gas Telecommunications
Control Cable Industrial; Power System Operators
Generation;
Infrastructure;
Residential Construction
Automotive Ignition Wire Sets; Automotive Aftermarket Consumers; OEMs
Booster Cables
COMMUNICATIONS
Outside Voice and Data Outside Plant Telecom Local Loop Telecommunications
(Telecommunications) Telecommunications Systems Operators
Exchange Cable; Outside
Service Wire
Data Communications Multi-Conductor/Multi-Pair; Computer Networking Contractors; OEMs;
Fiber Optic; Shipboard; and Multimedia Systems Integrators;
Military Fiber Cable Applications Systems Operators;
Military Customers
Electronics Multi-Conductor; Building Management; Contractors; Consumers;
Coaxial; Sound, Entertainment; Equipment Industrial
Security/Fire Alarm Cable Control
Assemblies Cable Harnesses; Telecommunications; Communications and
Connector Cable Industrial Equipment; Industrial Equipment
Medical Equipment Manufacturers
We operate our business globally, with 69% of net sales in 2003
generated from North America, 25% from Europe and 6% from Oceania. We estimate
that we sold our products and services to customers in more than 70 countries in
2003.
50
STRATEGIC INITIATIVES
Due to a decrease in net sales resulting from the global economic
downturn in 2001 and 2002 and its impact particularly in the telecommunications
markets globally and the industrial & specialty market in North America, we have
implemented various management initiatives to improve productivity and maximize
cash flow. These initiatives include the following:
- Consolidating our North American manufacturing and
distribution facilities, including closing three of seven
plants that manufacture communications products, one plant
that manufactures industrial products and four of six
distribution centers.
- Reducing head count by 1,700 persons, or 22% of our work force
employed in our continuing operations since September 30,
2000.
- Reducing outstanding aggregate indebtedness, and borrowings
under an off-balance sheet facility, by approximately 42%, or
$347.8 million, from June 30, 2000 (our historical peak
borrowing level) to September 30, 2003. As a result of the
refinancing transactions, we further reduced our outstanding
aggregate indebtedness. Our outstanding indebtedness at
December 31, 2003 was $340.4 million.
- Reducing inventory levels related to continuing operations
from $296.4 million at September 30, 2000 to $256.7 million at
December 31, 2003, a 13% decrease; this decrease is net of a
$23.1 million impact from foreign exchange rate fluctuations
on our reported international inventory levels. On a
consistent foreign exchange basis, the decrease in inventory
levels was $62.8 million, or 21%.
- Reducing capital expenditures from continuing operations from
$35.8 million in 2000 to $19.1 million in 2003.
- Exiting less profitable, non-core businesses, such as building
wire and consumer cordsets.
- Focusing on non-capital based productivity, such as Lean Six
Sigma and reduction of manufacturing cycle time.
In addition, in connection with reinforcing our position as a low-cost
provider, we have initiated a study at one of our North American industrial &
specialty manufacturing facilities to determine the feasibility of continuing
manufacturing operations at that location.
We believe that many of our markets have begun to stabilize as end
users begin to increase their spending on infrastructure maintenance and new
construction. Furthermore, the 2003 power outages in the U.S., Canada and Europe
emphasize the need to upgrade the power transmission infrastructure used by
electric utilities, which may over time cause an increase in demand for our
products. As a result of our strategic initiatives and adequate manufacturing
capacity in all our businesses, we believe that we are well positioned to
capitalize on any upturn in our markets without significant additional capital
expenditures.
COMPETITIVE STRENGTHS
We have adopted a "One Company" approach for our dealings with
customers and vendors. This approach is becoming increasingly important as the
electrical, industrial, data communications and electronic distribution
industries continue to consolidate into a smaller number of larger regional and
national participants with broader product lines. As part of our One Company
approach, we have established cross-functional business teams, which seek
opportunities to increase sales to existing customers and to new customers
inside and outside of traditional market channels. Our One Company approach
better integrates us with our major customers, thereby allowing us to become
their leading source for wire and cable products. We believe this approach also
provides us with purchasing leverage as we coordinate our North American
sourcing requirements. Our competitive strengths include:
Leading Market Positions. We have achieved leading market positions in
many of our business segments. For example, we believe that in 2003:
51
- In the energy segment, we were the number one producer in
North America, the number three producer in Oceania and a
strong regional producer in Europe;
- In the industrial & specialty segment, we were the number one
producer in North America and the number three producer in
Oceania; and
- In the communications segment, we were the number three
producer in North America and Oceania.
Product, Geographic and Customer Diversity. We sell over 11,500
products under well-established brand names, including General Cable(R),
Anaconda(R), BICC(R) and Carol(R), which we believe represent the most
diversified product line of any U.S. wire and cable manufacturer. The breadth of
our product line has enhanced our market share and operating performance by
enabling us to offer a diversified product line to customers who previously
purchased wire and cable from multiple vendors but prefer to deal with a smaller
number of broader-based suppliers. We believe that the breadth of our products
gives us the opportunity to expand our product offerings to existing customers.
We distribute our products to over 3,000 customers through our operations in
North America, Europe and Oceania. Our customers include utility companies,
telecommunications systems operators, contractors, OEMs, system integrators,
military customers, consumers and municipalities. The following summarizes sales
as a percentage of our 2003 domestic net sales by each category of customers:
[Pie Chart Omitted]
2003 Domestic Net Sales by
Each Category of Customers Percentage
--------------------------- ----------
Electric Utility 33%
OEMs & Electrical/Industrial Distributors 21%
Telco Utility 17%
Communication Distributors 14%
Automotive Retail 8%
Electrical Retail 5%
Other 2%
We strive to develop supply relationships with leading customers who
have a favorable combination of volume, product mix, business strategy and
industry position. Our customers are some of the largest consumers of wire and
cable products in their respective markets and include the following companies:
Consolidated Edison, an electric utility company serving the New York City
metropolitan area; Arizona Public Service, Arizona's largest electricity
utility; Graybar, one of the largest electrical and communications distributors
in the United States; Anixter, one of the largest domestic distributors of wire,
cable and communications connectivity products; The Home Depot, a leading home
center retail chain; AutoZone, the largest retailer of automotive aftermarket
parts in the United States; GE Medical Systems, a global leader in medical
imaging, interventional procedures, healthcare services and information
technology; Verizon Communications, a leading provider of communications
services in the Northeastern United States; and Qwest Communications and
SBC/Ameritech, former regional bell operating companies.
Our top 20 customers in 2003 accounted for 39% of our net sales, and no
one customer accounted for more than 5% of our net sales. We believe that our
diversity mitigates the risks associated with an excess concentration of sales
in any one market or geographic region or to any one customer.
Low Cost Provider. We are a low cost provider primarily because of our
focus on lean manufacturing, centralized sourcing and distribution and
logistics. We continuously focus on maintaining and optimizing our manufacturing
infrastructure by promoting an organization-wide "lean" mentality in order to
improve efficiencies. This enables us to maintain a low manufacturing cost
structure, reduce waste, inventory levels and cycle time, as well as retain a
high level of customer service. We have made a significant investment in Lean
Six Sigma training and have established a formal training program for employees
supporting this. We also facilitate the sharing of manufacturing techniques
through the exchange of best practices among design and manufacturing engineers
across
52
our global business units. We believe that these initiatives have enabled us to
achieve a high degree of non-capital based productivity which will allow us to
achieve further productivity improvements.
Experienced and Proven Management Team. Our senior management team has,
on average, over 15 years of experience in the wire and cable industry and 11
years with our company, and has successfully created a corporate-wide culture
that focuses on our One Company approach and continuous improvement in all
aspects of our operations. In addition, our senior management team has
successfully reduced overhead and operating costs, improved productivity and
increased working capital efficiency. For example, our SG&A expenses excluding
corporate items in 2000 have declined from $226.6 million, or 10.5% of net
sales, in 2000 to $127.7 million, or 8.3% of net sales, in 2003. We believe that
the level of our SG&A expenses as a percentage of our net sales is one of the
lowest in the wire and cable industry. Additionally, our senior management team
has restructured our business portfolio to eliminate less profitable, non-core
businesses and capitalize on market opportunities by anticipating market trends
and risks.
BUSINESS STRATEGY
We seek to distinguish ourselves from other wire and cable
manufacturers through the following business strategies:
Improving Operating Efficiency and Productivity.Our operations benefit
from management's ongoing evaluations of operating efficiency. These evaluations
have resulted in cost-saving initiatives designed to improve our profitability
and productivity across all areas of our operations. Recent initiatives include
rationalization of manufacturing facilities and product lines, consolidation of
distribution locations, product redesign, improvement in materials procurement
and usage, product quality and waste elimination and other non-capital based
productivity initiatives. We also expect that continued successful execution of
our One Company approach will provide more efficient purchasing, manufacturing,
marketing and distribution for our products.
Focus on Establishing and Expanding Long-Term Customer
Relationships. Each of our top 20 customers has been our customer for at least
five years. Our customer relationship strategy is focused on being the "wire
provider of choice" for the most demanding customers by providing a diverse
product line coupled with a high level of service. We place great emphasis on
customer service and provide technical resources to solve customer problems and
maintain inventory levels of critical products that are sufficient to meet
fluctuating demands for such products.
We have implemented a number of service and support programs, including
Electronic Data Interchange ("EDI") transactions, web-based product catalogues,
ordering and order tracking capabilities and Vendor Managed Inventory ("VMI")
systems. VMI is an inventory management system integrated into certain of our
customers' internal systems which tracks inventory turnover and places orders
with us for wire and cable on an automated basis. These technologies create high
supplier integration with these customers and position us to be their leading
source for wire and cable products.
Actively Pursue Strategic Initiatives. We believe that our management
has the ability to identify key trends in the industry, which allows us to
migrate our business to capitalize on expanding markets and new niche markets
and exit declining or non-strategic markets in order to achieve better returns.
For example, we exited the North American building wire business in late 2001.
This business had historically been highly cyclical, very price competitive and
had low barriers to entry. We also set aggressive performance targets for our
businesses and intend to refocus, turn around or divest those activities that
fail to meet our targets or do not fit our long-term strategies.
We regularly consider selective acquisitions and joint ventures to
strengthen our existing business lines. We believe there are strategic
opportunities in many international markets, including South America and Asia,
as countries in these markets continue to look to upgrade their power
transmission and generation infrastructure and invest in new communications
networks in order to participate in high-speed, global communications. We are
seeing increased opportunities in the European Union for our European
manufacturing operations. For more details, see "Risk Factors--Other Risks
Relating to Our Business--We may not be able to successfully identify, finance
or integrate acquisitions."
53
Reduce Leverage. We intend to reduce our leverage in the near to
intermediate term. As a result of our well-diversified business portfolio and
recent operating initiatives, we believe we can improve our existing operating
margin, which will allow us to generate increased cash flows. In order to
achieve this goal of debt reduction, we currently expect to use a substantial
portion of cash flow from operations and the net proceeds from any sale of
non-strategic assets to strengthen our balance sheet. In pursuit of this
strategy, we have reduced outstanding aggregate indebtedness, and borrowings
under an off-balance sheet facility, by $347.8 million, or 42%, from June 30,
2000 to September 30, 2003 through a combination of cash flow from operations
and strategic divestitures. Our outstanding indebtedness at December 31, 2003
was $340.4 million. We have adequate manufacturing capacity in all of our
businesses and are well positioned to capitalize on any upturns in our markets
without significant additional capital expenditures.
THE REFINANCING
On November 24, 2003, we issued $285 million aggregate principal amount
of the old notes. The old notes bear interest at a rate 9.5% per annum, payable
semi-annually on May 15 and November 15 of each year, beginning May 15, 2004,
and will mature on November 15, 2010. The offering of the old notes was part of
our comprehensive plan to improve our capital structure and provide us with
increased financial and operating flexibility to execute our business plan by
reducing leverage and extending debt maturities. This plan consisted of the
following transactions which we refer to as the "refinancing transactions,"
which were consummated concurrently: (i) a $240 million senior secured revolving
credit facility, (ii) the private offering of the old notes, (iii) a private
offering of $103.5 million of Series A redeemable convertible preferred stock
and (iv) a public offering of approximately $47.6 million of common stock
(including the exercise of an over-allotment option on December 2, 2003). We
applied the net proceeds from these refinancing transactions to repay all
borrowings outstanding under our then existing senior secured revolving credit
facility, then existing senior secured term loans and outstanding amounts under
our then existing accounts receivable asset-backed securitization facility and
to pay approximately $22 million in related fees and expenses.
INDUSTRY AND MARKET OVERVIEW
The global wire and cable market was estimated to have had $61 billion
in sales in 2003 by CRU International Limited. This marks a 5% increase from the
$58 billion in sales in 2002 and an 8% decrease from the $66 million in sales in
2001. The increase in the 2003 wire and cable market may indicate that 2002
industry conditions represented a bottoming of these markets. The decline in the
wire and cable market as compared to 2001 is directly related to the global
economic slowdown in 2001 and 2002 which resulted in reduced spending by
customers in all wire and cable markets as well as price erosion caused in part
by excess inventory sell off.
The wire and cable industry is competitive, mature and cost driven.
Wire and cable is relatively low value added, higher weight (and therefore
relatively expensive to transport) and often subject to regional or country
specifications. In many business segments there is little differentiation among
participants from a manufacturing standpoint. The industry is highly fragmented
with many participants in both the United States and worldwide. However, the 20
largest companies control approximately 47% of the overall global market. Since
the 1990's, the industry has been undergoing consolidation. Additionally, over
the past few years, some large market participants have been willing to divest
businesses that are underperforming or not perceived as good growth
opportunities.
The wire and cable industry is raw materials intensive with copper and
aluminum comprising the major cost component for cable products. Changes in the
cost of copper and aluminum are generally passed through to the customer,
although there can be timing delays of varying lengths depending on the type of
product, competitive conditions and particular customer arrangements.
PRODUCT MARKETS
As a result of asset sales and divestitures, we have repositioned our
operations into three main lines or segments: energy, industrial & specialty,
and communications businesses. We distribute our products to over 3,000
customers from our operations in North America, Europe and Oceania. Our
customers include: utility companies, telecommunications systems operators,
contractors, OEMs, system integrators, military customers, consumers and
municipalities.
54
The following table sets forth summarized financial information by
reportable segment for the years ended December 31, 2001, 2002 and 2003 (in
millions of dollars).
DECEMBER 31,
--------------------------------------
2001 2002 2003
-------- -------- --------
Net Sales:
Energy................................ $ 521.8 $ 516.0 $ 560.2
Industrial & specialty................ 537.6 499.4 542.4
Communications........................ 592.0 438.5 435.8
-------- -------- --------
$1,651.4 $1,453.9 $1,538.4
======== ======== ========
Operating Income:
Energy................................ $ 35.3 $ 36.9 $ 38.0
Industrial & specialty................ 24.3 9.7 9.9
Communications........................ 48.5 2.5 6.0
-------- -------- --------
108.1 49.1 53.9
Corporate and other operating items.... (3.8) (33.4) (8.2)
-------- -------- --------
$ 104.3 $ 15.7 $ 45.7
======== ======== ========
Energy Market
The energy market consists of low-, medium- and high-voltage power
distribution and power transmission products for overhead and buried
applications. The global market for power cables experienced an increase in
sales in 2003 of 7% to $15.4 billion from $14.4 billion in 2002. Growth in this
market will be largely dependent on investment policy of electric utilities and
infrastructure improvement. We believe that the increase in electricity
consumption in North America has outpaced the rate of utility investment in
power cables. As a result, we believe the average age of power transmission
cables has increased, the current electric transmission infrastructure needs to
be upgraded and the transmission grid is near capacity. In addition, the 2003
power outages in the U.S., Canada and Europe emphasize the need for upgrading
the power transmission infrastructure used by electric utilities that may, over
time, cause an increase in demand for our products.
The net sales in North America decreased as a result of lower sales
volume. We anticipate that sales volume for North American customers should
improve over time as utility customers address capital projects that were
previously deferred, including enhancements to the power transmission and
distribution grid. During 2003, projects were not released as quickly as
expected which management believes is partially due to pending energy
legislation in the United States which would provide future regulatory relief
and allow North American utility companies to earn an adequate rate of return on
their investment in upgrading the transmission grid infrastructure. In addition,
certain other proposed legislation in the United States, if passed, will permit
accelerated depreciation on transmission grids, certain tax credits and bonus
depreciation on new equipment which could create an increased demand for our
products.
In addition, a majority of our North America energy market customers
have entered into written agreements with us for the purchase of wire and cable
products. These agreements typically have 2-4 year terms, do not guarantee a
minimum level of sales and provide metal adjustments to selling prices to
reflect fluctuations in the price of copper and aluminum. Historically,
approximately 70% of our North America energy business is contracted for prior
to the start of each year.
We believe that we are the largest participant in North America in the
energy wire and cable market and the third largest participant in this market in
each of Europe and Oceania. We believe that we have approximately 29%, 6% and 8%
market shares in the energy markets in North America, Europe and Oceania. Sales
of energy products accounted for approximately 36% of our net sales in 2003.
55
Our utility cables business is the leader in the supply of energy
cables to the North America electric utility industry. The business manufactures
low- and medium-voltage aluminum and copper cable, bare overhead aluminum
conductor and high-voltage transmission cable. Bare transmission cables are
utilized by the utilities in the transmission grid to provide electric power
from the power generating stations to the distribution sub-stations.
Medium-voltage energy cables are utilized in the primary distribution
infrastructure to bring the power from the distribution sub-stations to the
transformers. Low-voltage energy cables are utilized in the secondary
distribution infrastructure to take the power from the transformers to the
end-user's meter.
Our North American utility cables business has strategic alliances in
the United States and Canada with a number of major customers and is
strengthening its position through these agreements. This business utilizes a
network of direct sales and authorized distributors to supply low- and
medium-voltage and bare overhead cable products. This market is represented by
approximately 3,500 utility companies.
Our European utility cables business is headquartered in Barcelona,
Spain and is a strong regional wire and cable manufacturer in Europe behind
Pirelli and Nexans. The business utilizes its broad product offering and its low
cost manufacturing platform to gain market share as evidenced by its recent
award of business with utilities in France, Italy and the United Kingdom. The
business has also benefited from its competitors ongoing withdrawal of
medium-voltage cable manufacturing capacity from the European market and from
the trend in Europe to install power cables underground, which requires more
highly engineered cables.
Industrial & Specialty Market
The industrial & specialty market consists of wire and cable products
for use in a wide variety of capital goods and consumer uses. The principal
product categories in this market are portable cord, industrial cables and
automotive products.
The global market for industrial & specialty cable products has many
niche markets and is difficult to quantify. Sales have declined as the result of
the substantial decline in industrial construction spending from mid-1990 peak
levels and in electric and wire cable spending from peaks in 1997. Growth in the
industrial & specialty markets is responsive to general growth in the economy
and will be largely dependent upon new industrial construction, investment in
capital equipment and vehicle after-market maintenance spending.
We believe that we are the largest participant in this highly
fragmented segment in North America and Oceania and the third largest in Europe.
We believe that we have a top three market share in most of the segments in
which we compete, including power, cord, mining, industrial flex, specialty
control and instrumentation, and automotive aftermarket. Sales of products in
the market accounted for approximately 35% of our net sales in 2003.
The North America market for the industrial & specialty cable products
for which we compete was approximately $3.0 billion in 2003.
Many industrial and commercial environments require cables with
exterior armor and/or jacketing materials that can endure exposure to chemicals,
extreme temperatures and outside elements. We offer products that are
specifically designed for these applications.
Portable Cord and Specialty Cables. We manufacture and sell a wide
variety of rubber and plastic insulated portable cord products for power and
control applications serving industrial, mining, entertainment, OEM, farming and
other markets. Portable cord products are used for the distribution of
electrical power, but are designed and constructed to be used in dynamic and
severe environmental conditions where a flexible but durable power supply is
required. Portable cord products include both standard commercial cord and cord
products designed to customer specifications. Portable rubber-jacketed power
cord, our largest selling cord product line, is typically manufactured without a
connection device at either end and is sold in standard and customer-specified
lengths. Portable cord is also sold to OEMs for use as power cords on their
products and in other applications, in which case the cord is made to the OEMs'
specifications. We also manufacture portable cord for use with moveable heavy
equipment and machinery. Our portable cord products are sold primarily through
electrical distributors and electrical retailers to industrial customers, OEMs,
contractors and consumers.
56
Our portable cords are used in the installation of new industrial
equipment and the maintenance of existing equipment, and to supply electrical
power at temporary venues such as festivals, sporting events, concerts and
construction sites. We expect demand for portable cord to be influenced by
general economic activity.
Our industrial & specialty products sold under the "Brand Rex" name
include low-voltage and data transmission cables, rail and mass transit cables,
shipboard cables, off-shore cables, other industrial cables and cables for
low-smoke, zero-halogen systems. Primary uses for these products include various
applications within power generating stations, marine, oil and gas,
transit/locomotive, OEMs, machine builders, medical imaging, shipboard,
aerospace industries, space flight and aircraft markets. Shipboard cables sold
by us hold a leading position with the U.S. Navy. Our "Polyrad XT" marine wire
and cable products also provide superior properties and performance levels that
are necessary for heavy-duty industrial applications to both onshore and
offshore platforms, ships and oil rigs.
Industrial cable products include medium and low voltage power, control
and instrumentation cable, armored power cable, flexible control cables, festoon
cables, robotic cables and industrial data communications cables. These products
have various applications in generating stations and substations, process
control, mining, material handling, machine tool and robotics markets.
Automotive Products.Our principal automotive products are ignition
wire sets and booster cables for sale to the automotive aftermarket. Booster
cable sales are affected by the severity of weather conditions and related
promotional activity by retailers. As a result, a majority of booster cable
sales occur between September and January.
We sell our automotive ignition wire sets and booster cables primarily
to automotive parts retailers and distributors, hardware and home center retail
chains and hardware distributors. Our automotive products are also sold on a
private label basis to retailers and other automotive parts manufacturers.
Communications Market
The communications market consists of:
- outside voice and data products--wire and cable products for
voice, data and video transmission applications;
- data communication products--high-bandwith twisted copper and
fiber optic cables and multiconductor cables for customer
premises, local area networks and telephone company central
offices;
- electronics--specialty products for use in machinery and
instrumentation interconnection, audio, computer, security and
other applications; and
- OEM products--harnesses and assemblies for telecommunication,
industrial and medical equipment manufacturers.
Sales of communications wire and cable products in the global market
were $18.3 billion in 2003, a decline of 2% from the 2002 market of $18.7
billion. This sales decline is the result of a significant decline in historic
spending levels for outside plant telecommunications cables and switching and
local area network cables, particularly for fiber optic cables (which has seen
as much as a 50% decline from 1990s average spending). Growth in this market
will be largely dependent upon capital spending by the region bell operating
companies, or RBOCs, on maintenance, repair and expansion of their
infrastructure and the level of information technology spending on network
infrastructure. We believe this decline has reached its bottom and sales for
communications wire and cable products will increase over time because current
levels of spending by our communications wire and cable customers are
insufficient to maintain their network infrastructures over time as surplus
field inventories have been liquidated by the RBOCs. For example, capital
spending by our four largest RBOC customers in 2003 is estimated to be between
12% - 17% of their net sales, a substantial decline from 21% - 47% of their net
sales in the 2000 and
57
2001 period. This reduction in capital spending by these RBOCs has resulted in a
50% reduction in their spending for exchange cables compared to 1990s averages.
We believe that we are the third largest participant in the North
America and Oceania communications market for copper wire and cable products. We
believe that we have approximately 17% and 18% market shares in the
communications market for copper wire and cable products in North America and
Oceania, respectively.
Outside Voice and Data Products. Our principal outside voice and data
products are outside plant telecommunications exchange cable and service wire.
Outside plant telecommunications exchange cable is short haul trunk, feeder or
distribution cable from a telephone company's central office to the subscriber
premises. It consists of multiple paired conductors (ranging from 2 pairs to
4,200 pairs) and various types of sheathing, water-proofing, foil wraps and
metal jacketing. Service wire is used to connect telephone subscriber premises
to curbside distribution cable. During 2000, we expanded our manufacturing
capacity of telecommunications cable through the acquisition of Telmag, S.A. de
C.V. Sales of these products accounted for approximately 14% of our North
American net sales in 2003.
We sell our outside voice and data products primarily to
telecommunications system operators through our direct sales force under supply
contracts of varying lengths, and also to telecommunications distributors. The
agreements do not guarantee a minimum level of sales. Product prices are
generally subject to periodic adjustment based upon changes in the cost of
copper and other factors.
Data Communications Products. Our data communications products are
high-bandwidth twisted pair copper and fiber optic cable for the customer
premise, local area networks, central office and OEM telecommunications
equipment markets. Customer premise products are used for wiring at subscriber
premises, and include computer, riser rated and plenum rated wire and cable.
Riser cable runs between floors and plenum cable runs in air spaces, primarily
above ceilings in non-residential structures. Local area network cables run
between computers along horizontal raceways and in backbones between servers.
Central office products interconnect components within central office switching
systems and public branch exchanges. Sales of data communications products
accounted for approximately 7% of our North American net sales in 2003.
We sell data communications products primarily through distributors and
agents. The fiber optic cable sold by us is manufactured by a joint venture
company we formed during 2002. The joint venture manufactures all of our fiber
optic cable products.
The market for data communications products has been adversely effected
by a decrease in information technology spending. However, this decrease has
been partially offset by continued spending in this market on maintenance and
repair.
Electronics. Our electronics products include multi-conductor,
multi-pair, coaxial, hook-up, audio and microphone cables, speaker and
television lead wire, and high temperature and shielded electronic wire. Primary
uses for these products are various applications within the commercial,
industrial instrumentation and control, and residential markets. These markets
require a broad range of multi-conductor products for applications involving
programmable controllers, robotics, process control and computer integrated
manufacturing, sensors and test equipment, as well as cable for fire alarm,
smoke detection, sprinkler control, entertainment and security systems.
OEM Products. Assemblies are used in communications switching systems
and industrial control applications as well as medical equipment applications.
These assemblies are used in such products as data processing equipment;
telecommunications network switches, diagnostic imaging equipment, office
machines and industrial machinery. Our industrial instrumentation and control
products are sold primarily through distributors and agents.
GEOGRAPHIC SEGMENTS
Revenues for our North American business represented approximately 69%,
74% and 77% of our total consolidated net sales for the years ended December 31,
2003, 2002 and 2001, respectively. Net sales for our European business
represented approximately 25%, 22% and 19% of our total consolidated net sales
for the years
58
ended December 31, 2003, 2002 and 2001, respectively. Net sales for our Oceania
business represented approximately 6%, 4% and 4% of our total consolidated net
sales for the years ended December 31, 2003, 2002 and 2001, respectively.
North America
Sales in the North American wire and cable market were approximately
$13.1 billion in 2003 or approximately 21% of the global market. Sales in the
North American market experienced a 5% decline in 2003 from $13.8 billion in
2002, representing the sharpest decline worldwide.
We believe that we are the largest participant in the North American
market. Other large competitors in this market are Southwire, Superior Telecom,
Belden and Avaya.
Europe
Sales in the European wire and cable market were approximately $16.5
billion in 2003 or approximately 27% of the global market. Sales in Europe
increased 9% in 2003 from $15.2 billion in 2002.
Our European business is headquartered in Barcelona, Spain, and has
three manufacturing facilities in the Barcelona area and a manufacturing
facility near Lisbon, Portugal, all of which are supported by centralized
marketing, sales and production planning. The main markets served are Spain,
Portugal, France, United Kingdom, Norway, Belgium and Brazil, with approximately
75% of sales generated in the European market and the remaining 25% representing
export sales. Over 90% of net sales in Europe are derived from energy and
industrial and specialty cable sales.
We believe that we are one of many strong regional wire and cable
manufacturers in Europe.
Oceania
We believe that we are the third largest participant in the market in
Oceania, behind Pirelli and Olex.
Our Oceania business consists of a regional headquarters and
manufacturing facility in Christchurch, New Zealand, a joint venture
manufacturing facility in Fiji and sales offices in New Zealand and Australia.
The business offers a broad product range in the energy, communications and
electrical markets principally serving New Zealand, Australia, Fiji and the
Pacific Islands with certain products also sold into Asia.
COMPETITION
The markets for all of our products are highly competitive, and we
experience competition from several competitors within each market. We believe
that we have developed strong customer relations as a result of our ability to
supply customer needs across a broad range of products, our commitment to
quality control and continuous improvement, our continuing investment in
information technology, our emphasis on customer service, and our substantial
product and distribution resources.
Although the primary competitive factors for our products vary somewhat
across the different product categories, the principal factors influencing
competition are generally breadth of product line, inventory availability and
delivery time, price, quality and customer service. Many of our products are
made to industry specifications and are therefore essentially functionally
interchangeable with those of competitors. However, we believe that significant
opportunities exist to differentiate all of our products on the basis of
quality, consistent availability, conformance to manufacturer's specifications
and customer service. Within some markets such as specialty and LAN cables,
conformance to manufacturer's specifications and technological superiority are
also important competitive factors. Brand recognition is also a primary
differentiating factor in the portable cord market and, to a lesser extent, in
our other product groups.
Our key competitors include other wire and cable manufacturers, such as
Pirelli, Southwire, Nexans, Okonite, Marmon and Alcan in energy products;
Leviton, Coleman Cable, Belden, Nexans, Pirelli, Marmon and
59
Okonite for instrumentation, power control and specialty cable products;
American Insulated Wire Corporation for cord products; Prestolite for automotive
products; Superior Telecom and Belden for outside voice & data products; and
Belden, Nexans, Cable Design Technologies, CommScope and Avaya for data
communications products.
RAW MATERIALS
The principal raw material used by us in the manufacture of our wire
and cable products is copper. We purchase copper in either cathode, rod or wire
form from a number of major domestic and foreign producers, generally through
annual supply contracts. Copper is available from many sources, and we believe
that we are not dependent on any single supplier of copper. In 2003, our two
largest suppliers of copper accounted for approximately 35% and 33% of our North
America copper purchases.
We have centralized our copper purchasing in North America to
capitalize on economies of scale and to facilitate the negotiation of favorable
purchase terms from suppliers. The cost of copper has been subject to
considerable volatility over the past several years. However, as a result of a
number of practices intended to match copper purchases with sales, our
profitability has generally not been significantly affected by changes in copper
prices. We generally pass changes in copper prices along to our customers,
although there are timing delays of varying lengths depending upon the type of
product, competitive conditions and particular customer arrangements. We do not
engage in speculative metals trading or other speculative activities, nor do we
engage in activities to hedge the underlying value of our copper inventory.
Other raw materials utilized by us include aluminum, nylon,
polyethylene resin and compounds and plasticizers, fluoropolymer compounds,
fiber and a variety of filling, binding and sheathing materials. For our North
American operations, we produced approximately 62% and 61% of our bare wire
strand and PVC compound requirements for 2003. We believe that all of these
materials are available in sufficient quantities through purchases in the open
market.
PATENTS AND TRADEMARKS
We believe that the success of our business depends more on the
technical competence, creativity and marketing abilities of our employees than
on any individual patent, trademark or copyright. Nevertheless, we have a policy
of seeking patents when appropriate on inventions concerning new products and
product improvements as part of our ongoing research, development and
manufacturing activities.
We own a number of U.S. and foreign patents and have patent
applications pending in the U.S. and abroad. We also own a number of U.S. and
foreign registered trademarks and have many applications for new registrations
pending.
Although in the aggregate these patents and trademarks are of
considerable importance to the manufacturing and marketing of many of our
products, we do not consider any single patent or trademark or group of patents
or trademarks to be material to our business as a whole. While we occasionally
obtain patent licenses from third parties, none are deemed to be material.
Trademarks which are considered to be generally important are General Cable(R),
Anaconda(R), BICC(R) and Carol(R), and our triad symbol. We believe that our
products bearing these trademarks have achieved significant brand recognition
within the industry.
We also rely on trade secret protection for our confidential and
proprietary information. We routinely enter into confidentiality agreements with
our employees. There can be no assurance, however, that others will not
independently obtain similar information and techniques or otherwise gain access
to our trade secrets or that we will be able to effectively protect our trade
secrets.
ENVIRONMENTAL MATTERS
We are subject to a variety of federal, state, local and foreign laws
and regulations covering the storage, handling, emission and discharge of
materials into the environment, including CERCLA, the Clean Water Act, the Clean
Air Act (including the 1990 amendments) and the Resource Conservation and
Recovery Act.
60
Our subsidiaries in the United States have been identified as
potentially responsible parties with respect to several sites designated for
cleanup under CERCLA or similar state laws, which impose liability for cleanup
of certain waste sites and for related natural resource damages without regard
to fault or the legality of waste generation or disposal. Persons liable for
such costs and damages generally include the site owner or operator and persons
that disposed or arranged for the disposal of hazardous substances found at
those sites. Although CERCLA imposes joint and several liability on all
potentially responsible parties, in application, the potentially responsible
parties typically allocate the investigation and cleanup costs based, among
other things, upon the volume of waste contributed by each potentially
responsible party.
Settlements can often be achieved through negotiations with the
appropriate environmental agency or the other potentially responsible parties.
Potentially responsible parties that contributed small amounts of waste
(typically less than 1% of the waste) are often given the opportunity to settle
as "de minimis" parties, resolving their liability for a particular site. We do
not own or operate any of the waste sites with respect to which we have been
named as a potentially responsible party by the government. Based on our review
and other factors, we believe that costs to us relating to environmental
clean-up at these sites will not have a material adverse effect on our results
of operations, cash flows or financial position.
In the transaction with Wassall PLC in 1994, American Premier
Underwriters, Inc. agreed to indemnify us against liabilities (including all
environmental liabilities) arising out of our or our predecessors' ownership or
operation of the Indiana Steel & Wire Company and Marathon Manufacturing
Holdings, Inc. businesses (which were divested), without limitation as to time
or amount. American Premier also agreed to indemnify us against 66 2/3% of all
other environmental liabilities arising out of our or our predecessors'
ownership or operation of other properties and assets in excess of $10 million
but not in excess of $33 million, which were identified during the seven-year
period ended June 2001. Indemnifiable environmental liabilities through June
2001 were substantially below that threshold. In addition, we also have claims
against third parties with respect to some of these liabilities.
During 1999, we acquired the worldwide energy cable and cable systems
business of Balfour Beatty plc, previously known as BICC plc. As part of this
acquisition, the seller agreed to indemnify us against environmental liabilities
existing at the date of the closing of the purchase of the business. The
indemnity is for an eight-year period ending in 2007, while we operate the
businesses, subject to certain sharing of losses (with BICC plc covering 95% of
losses in the first three years, 80% in years four and five and 60% in the
remaining three years). The indemnity is also subject to the overall indemnity
limit of $150 million, which applies to all warranty and indemnity claims in the
transaction. In addition, BICC plc assumed responsibility for cleanup of certain
specific conditions at various sites operated by us and cleanup is mostly
complete at these sites. In the sale of the European businesses to Pirelli in
August 2000, we generally indemnified Pirelli against any environmental
liabilities on the same basis as BICC plc indemnified us in the earlier
acquisition. However, the indemnity we received from BICC plc relating to the
European businesses sold to Pirelli terminated upon the sale of those businesses
to Pirelli. In addition, we generally indemnified Pirelli against other claims
relating to the prior operation of the business. Pirelli has asserted claims
under this indemnification. We are continuing to investigate these claims and
believe that the reserves established at the time of the transaction are
adequate to cover any obligations we may have.
We have also agreed to indemnify Southwire Company against certain
environmental liabilities arising out of the operation of the business we sold
to Southwire prior to its sale in 2001, including remediation of our former site
in Watkinsville, Georgia.
While it is difficult to estimate future environmental liabilities
accurately, we do not currently anticipate any material adverse effect on our
results of operations, financial condition or cash flows as a result of
compliance with federal, state, local or foreign environmental laws or
regulations or cleanup costs of the sites discussed above. As of December 31,
2003, we had an accrued liability of approximately $5.4 million for various
environmental-related liabilities of which we are aware. However, there can be
no guarantee that discovery of previously unknown conditions, future changes in
environmental laws and requirements or their enforcement, or inability to
enforce environmental indemnification agreements will not result in material
costs in excess of our reserve.
61
PROPERTIES
Our principal properties are listed below. We believe that our
properties are generally well maintained and are adequate for our current level
of operations.
SQUARE USE/PRODUCT OWNED
LOCATION FEET LINE(S) OR LEASED
-------- ---- ------- ---------
NORTH AMERICA
MANUFACTURING FACILITIES:
Marion, IN(1) 745,000 Industrial & Specialty Cables Owned
Marshall, TX 692,000 Aluminum Low-Voltage Energy Cables Owned
Willimantic, CT 686,000 Industrial & Specialty Cables Owned
Manchester, NH 550,000 Electronic Products Owned
Lawrenceburg, KY 383,000 Outside Voice and Data Products and Data Owned
Communications Products
Bonham, TX 364,000 Outside Voice and Data Products Owned
Lincoln, RI 350,000 Industrial & Specialty Cables and Automotive Owned
Products
Malvern, AR 338,000 Aluminum Medium-Voltage Energy Cables Owned
DuQuoin, IL 279,000 Medium-Voltage Energy Cables Owned
Tetla, Mexico 218,000 Outside Voice and Data Products Owned
Altoona, PA 193,000 Automotive Products Owned
Jackson, TN 182,000 Data Communications Cables Owned
South Hadley, MA(2) 150,000 Bare Wire Fabricating Owned
LaMalbaie, Canada 120,000 Low-and Medium-Voltage Energy Cables Owned
St. Jerome, Canada 110,000 Low-and Medium-Voltage Energy Cables Owned
DISTRIBUTION AND OTHER FACILITIES:
Lebanon, IN 198,000 Distribution Center Leased
Chino, CA 189,000 Distribution Center Leased
Highland Heights, KY 166,000 World Headquarters, Technology Center and Learning Owned
Center
Plano, TX 60,000 Rod Mill Owned
EUROPE AND OCEANIA
Barcelona, Spain(3) 1,080,000 Power Transmission and Distribution, Industrial & Owned
Specialty Cables
New Zealand(3) 314,000 Power Distribution, Industrial & Specialty and Owned
Communications Cables
Lisbon, Portugal 255,000 Power Distribution, Industrial & Specialty and Owned
Communications Cables
- ----------
(1) We are in the process of significantly reducing operations at this
facility.
(2) We have initiated a feasibility study to determine whether to continue
operations at this facility or move the product lines to other
facilities.
(3) Certain locations represent a collection of facilities in the local
area.
LEGAL PROCEEDINGS
We are subject to numerous federal, state, local and foreign laws and
regulations relating to the storage, handling, emission and discharge of
materials into the environment, including CERCLA, the Clean Water Act, the Clean
Air Act (including the 1990 amendments) and the Resource Conservation and
Recovery Act.
62
Our subsidiaries have been identified as potentially responsible
parties with respect to several sites designated for cleanup under CERCLA or
similar state laws, which impose liability for cleanup of certain waste sites
and for related natural resource damages without regard to fault or the legality
of waste generation or disposal. We do not own or operate any of the waste sites
with respect to which we have been named as a potentially responsible party by
the government. Based on our review and other factors, management believes that
our costs relating to environmental clean-up at these sites will not have a
material adverse effect on our results of operations, cash flows or financial
position. As of December 31, 2002 and September 30, 2003, we had an accrued
liability of approximately $4.6 million and $5.2 million, respectively, for
various environmental-related liabilities of which we are aware.
American Premier Underwriters, Inc., in connection with the 1994
Wassall PLC transaction, agreed to indemnify us against liabilities (including
all environmental liabilities) arising out of our or our predecessors' ownership
or operation of the Indiana Steel & Wire Company and Marathon Manufacturing
Holdings, Inc. businesses (which were divested by the predecessor prior to the
1994 Wassall transaction), without limitation as to time or amount. American
Premier also agreed to indemnify us against 66 2/3% of all other environmental
liabilities arising out of our or our predecessors' ownership or operation of
other properties and assets in excess of $10 million but not in excess of $33
million, which were identified during the seven-year period ended June 2001.
Indemnifiable environmental liabilities through June 2001 were substantially
below that threshold. In addition, we also have claims against third parties
with respect to some of these liabilities. While it is difficult to estimate
future environmental liabilities accurately, we do not currently anticipate any
material adverse effect on our results of operations, financial condition or
cash flows as a result of compliance with federal, state, local or foreign
environmental laws or regulations or cleanup costs of the sites discussed above.
As part of the BICC plc acquisition, BICC agreed to indemnify us
against environmental liabilities existing at the date of the closing of the
purchase of the business. The indemnity is for an eight-year period ending in
2007 while we operate the businesses subject to certain sharing of losses (with
BICC plc covering 95% of losses in the first three years, 80% in years four and
five and 60% in the remaining three years). The indemnity is also subject to the
overall indemnity limit of $150 million, which applies to all warranty and
indemnity claims in the transaction. In addition, BICC plc assumed
responsibility for cleanup of certain specific conditions at several sites
operated by us and cleanup is mostly complete at those sites. In the sale of the
European businesses to Pirelli in August 2000, we generally indemnified Pirelli
against any environmental liabilities on the same basis as BICC plc indemnified
us in the earlier acquisition. However, the indemnity we received from BICC plc
related to the European businesses sold to Pirelli terminated upon the sale of
those businesses to Pirelli. At this time, there are no claims outstanding under
the general indemnity provided by BICC plc.
We have also agreed to indemnify Southwire Company against certain
environmental liabilities arising out of the operation of the business we sold
to Southwire prior to our sale.
We have been a defendant in asbestos litigation for approximately 15
years. As of December 31, 2003, we were a defendant in approximately 48,000
lawsuits. Approximately 33,000 of these lawsuits have been brought on behalf of
plaintiffs by a single admiralty law firm ("MARDOC") and seek unspecified
damages. Plaintiffs in the MARDOC cases generally allege that they formerly
worked in the maritime industry and sustained asbestos-related injuries from
products that we ceased manufacturing in the mid-1970's. The MARDOC cases are
managed and supervised by a federal judge in the United States District Court
for the Eastern District of Pennsylvania ("District Court") by reason of a
transfer by the judicial panel on Multidistrict Litigation ("MDL").
In the MARDOC cases in the MDL, the District Court in May 1996
dismissed all pending cases filed without prejudice and placed them on an
inactive administrative docket. To reinstate a MARDOC case from the inactive
docket, plaintiffs' counsel must show that the plaintiff not only suffered from
a recognized asbestos-related injury, but also must produce specific product
identification evidence to proceed against an individual defendant. During 2002,
plaintiffs' counsel requested that the District Court allow discovery in
approximately 15 cases. Prior to this discovery, plaintiffs' counsel indicated
that they believed that product identification could be established as to many
of the approximately 100 defendants named in these MARDOC cases. To date, in
this discovery, we have not been identified as a manufacturer of
asbestos-containing products to which any of these plaintiffs were exposed.
63
We are also a defendant in approximately 15,000 cases brought in
various jurisdictions throughout the United States. About 5,000 of these cases
have been brought in federal court in Mississippi or other federal courts and
then been transferred to the MDL, but are on a different docket from the MARDOC
cases. The vast majority of cases on this MDL docket have been inactive for over
four years. Cases may only be removed from this MDL proceeding via a petition
filed by the plaintiff indicating that the matter is ready for trial and
requesting it be returned to the originating federal district court for trial.
Petitions usually only involve plaintiffs suffering from terminal diseases
allegedly caused by exposure to asbestos-containing products. To date, in cases
which we are a defendant, no plaintiff has requested return of any action to the
originating district court for trial.
With regard to the approximately 10,000 remaining cases, we have
aggressively defended these cases based upon either lack of product
identification as to General Cable manufactured asbestos-containing product
and/or lack of exposure to asbestos dust from the use of a General Cable
product. In the last 10 years, we have had no cases proceed to verdict. In many
of the cases, we were dismissed as a defendant before trial for lack of product
identification.
Plaintiffs have asserted monetary damage claims in 81 cases as of the
end of 2003. In 65 of these cases, plaintiffs allege only damages in excess of
some dollar amount (about $77,000 per plaintiff); there are no claims for
specific dollar amounts requested as to any defendant. In 16 other cases pending
in state and federal district courts (outside the MDL), plaintiffs seek
approximately $41 million in damages from each of about 110 defendants. In
addition, in each of 10 of these 16 cases, there are claims of $43 million in
punitive damages from all of the defendants. However, almost all of the
plaintiffs in these cases allege non-malignant injuries.
Based on our experience in this litigation, the amounts pleaded in the
complaints are not typically meaningful as an indicator of our potential
liability. This is because (1) the amounts claimed usually bear no relation to
the level of plaintiff's injury, if any; (2) complaints nearly always assert
claims against multiple defendants (a typical complaint asserts claims against
some 110 different defendants); (3) damages alleged are not attributed to
individual defendants; (4) the defendants' share of liability may turn on the
law of joint and several liability; (5) the amount of fault to be allocated to
each defendant is different depending on each case; (6) many cases are filed
against us, even though the plaintiff did not use any of our products, and
ultimately are withdrawn or dismissed without any payment; (7) many cases are
brought on behalf of plaintiffs who have not suffered any medical injuries, and
ultimately are resolved without any payment to that plaintiff; and (8) with
regard to claims for punitive damages, potential liability generally is related
to the amount of potential exposure to asbestos from a defendant's products. Our
asbestos-containing products contained only a minimal amount of fully
encapsulated asbestos.
Further, as indicated above, we have more than 15 years of experience
in this litigation, and have, to date, resolved the claims of approximately
11,500 plaintiffs. The cumulative average settlement for these matters is less
than $180 per case. As of December 31, 2003, we had accrued on our balance sheet
a liability of $1.6 million for asbestos-related claims. This amount represents
our best estimate in order to cover resolution of future asbestos-related
claims.
In January 1994, we entered into a settlement agreement with certain
principal primary insurers concerning liability for the costs of defense,
judgments and settlements, if any, in all of the asbestos litigation described
above. Subject to the terms and conditions of the settlement agreement, the
insurers are responsible for a substantial portion of the costs and expenses
incurred in the defense or resolution of this litigation. However, recently one
of the insurers participating in the settlement that was responsible for a
significant portion of the contribution under the settlement agreement has
entered into insurance liquidation proceedings. As a result, the contribution of
the insurers has been reduced and we may ultimately have to bear a larger
portion of the costs relating to these lawsuits. Moreover, certain of the other
insurers may be financially unstable, and if one or more of these insurers enter
into insurance liquidation proceedings, we will be required to pay a larger
portion of the costs incurred in connection with these cases.
Based on (1) the terms of the insurance settlement agreement; (2) the
relative costs and expenses incurred in the disposition of past asbestos cases;
(3) reserves established on our books which are believed to be reasonable; and
(4) defenses available to us in the litigation, we believe that the resolution
of the present asbestos litigation will not have a material adverse effect on
our financial results, cash flows or financial position. However, since the
64
outcome of litigation is inherently uncertain, we cannot give absolute assurance
regarding the future resolution of the asbestos litigation. Liabilities incurred
in connection with asbestos litigation are not covered by the American Premier
indemnification.
We are also involved in various routine legal proceedings and
administrative actions. In the opinion of our management, these proceedings and
actions should not, individually or in the aggregate, have a material adverse
effect on the results of our operations, cash flows or financial position.
EMPLOYEES
At December 31, 2003, approximately 6,000 persons were employed by
General Cable, and collective bargaining agreements covered approximately 3,600
employees at various locations around the world. During the last five years, the
Company has experienced one strike in Oceania which was settled on satisfactory
terms. There have been no other major strikes at any of the Company's facilities
during the last five years. In North America, union contracts will expire at six
facilities in 2004 and three in 2005. In Europe and Oceania, labor agreements
are generally negotiated on an annual or bi-annual basis. The Company believes
that its relationships with its employees are good.
65
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our amended and restated by-laws provide that our board of directors is
divided into three classes (Class I, Class II and Class III). At each annual
meeting of the shareholders, directors constituting one class are elected for a
three-year term. Each of the directors will be elected to serve until a
successor is elected and qualified or until such director's earlier resignation
or removal.
The following table sets forth certain information concerning our
directors and executive officers as of the date hereof.
NAME AGE POSITION
---- --- --------
Gregory B. Kenny 51 President, Chief Executive Officer and Class II Director
Christopher F. Virgulak 48 Executive Vice President, Chief Financial Officer and Treasurer
Robert J. Siverd 55 Executive Vice President, General Counsel and Secretary
John E. Welsh, III 53 Class I Director; Chairman of the Board
Jeffrey Noddle 56 Class I Director
Robert L. Smialek 60 Class II Director
Gregory E. Lawton 53 Class III Director
MR. KENNY has been one of our directors since 1997 and has been our
President and Chief Executive Officer since August 2001. He served as President
and Chief Operating Officer from May 1999 to August 2001. He served as Executive
Vice President and Chief Operating Officer of General Cable from March 1997 to
May 1999. From June 1994 to March 1997, he was Executive Vice President of
General Cable's immediate predecessor. He is also a director of IDEX Corporation
(NYSE: IEX), a manufacturer of highly engineered process and flow control
products.
MR. VIRGULAK has been our Executive Vice President, Chief Financial
Officer and Treasurer since October 2002. From June 2000 to October 2002, he was
Executive Vice President and Chief Financial Officer. He served as Executive
Vice President, Chief Financial Officer and Treasurer from March 1997 to June
2000. From October 1994 until March 1997, he was Executive Vice President, Chief
Financial Officer and Treasurer of the predecessor company.
MR. SIVERD has served as our Executive Vice President, General Counsel
and Secretary of General Cable since March 1997. From July 1994 until March
1997, he was Executive Vice President, General Counsel and Secretary of the
predecessor company.
MR. WELSH has been one of our directors since 1997 and is Non-executive
Chairman of the board and a member of our Audit Committee, Compensation
Committee and Corporate Governance Committee. He is currently President of
Avalon Capital Partners, LLC, an investment firm focused on private equity and
venture capital investments. From October 2000 to December 2002, he was a
Managing Director of CIP Management LLC, the management company for Continuation
Investments Group Inc. (Mr. Welsh continues to manage several portfolio
investments on behalf of CIP Management LLC). From November 1992 to December
1999, he served as Managing Director and Vice-Chairman of the board of directors
of SkyTel Communications, Inc. and as a Director of SkyTel from September 1992
until December 1999. Prior to 1992, Mr. Welsh was a Managing Director in the
Investment Banking Division of Prudential Securities, Inc.
MR. NODDLE has been one of our directors since 1998 and is Chairman of
our Compensation Committee and a member of our Audit Committee and the
Compensation Committee. He has been Chairman of the board of Minneapolis-based
Supervalu Inc. (NYSE: SVU) since May 2002. He was elected Chief Executive
Officer in June 2001. Prior to that, he served as President and Chief Operating
Officer from June 2000 to June 2001. From February 1995 to May 2000 he was
President and Chief Operating Officer of its Wholesale Food Companies. Supervalu
is the largest food wholesaler in the United States. Mr. Noddle has held various
marketing and merchandising positions with Supervalu since 1976. He is also a
director of Donaldson Company, Inc. (NYSE: DCI), a leading worldwide provider of
filtration systems and replacement parts.
66
MR. SMIALEK has been one of our directors since 1998 and is Chairman of
our Audit Committee and a member of our Compensation Committee and Corporate
Governance Committee. He was formerly President and Chief Executive Officer of
Applied Innovation, Inc. (NASDAQ: AINN) from July 2000 until August 2002. From
May 1993 until June 1999, he was the Chairman, President and Chief Executive
Officer of Insilco Corporation (The Pink Sheets: INSL), a diversified
manufacturing company based in Dublin, Ohio. He has been a director of Coors
Tek, Inc. since December 1999.
MR. LAWTON has been one of our directors since 1998. He is Chairman of
the Corporate Governance Committee and member of the Audit Committee and
Compensation Committee. Since October 2000, Mr. Lawton has been President and
Chief Executive Officer of Johnson Diversey, Inc., a supplier of cleaning and
hygiene solutions. From January 1999 until September 2000, he was President and
Chief Operating Officer of Johnson Wax Professional. Prior to joining Johnson
Wax, Mr. Lawton was President of NuTone Inc., a subsidiary of Williams plc based
in Cincinnati, Ohio, from 1994 to 1998. From 1989 to 1994, Mr. Lawton served
with Procter & Gamble (NYSE: PG) where he was Vice President and General Manager
of several consumer product groups. Mr. Lawton is a director of Johnson Outdoor
Inc. (NASDAQ: JOUT).
BOARD COMMITTEES AND MEETINGS
Our board of directors meets regularly during the year. In 2003, the
board of directors held six regular meetings and two special meetings. The board
currently has five members and there is one vacant seat as a result of a
resignation. The board has determined that Messrs. Lawton, Noddle, Smialek and
Welsh, who are not employees of the Company, are independent under the rules
issued by the NYSE. General Cable has three standing Committees, which are the
Audit Committee, the Compensation Committee, and the Corporate Governance
Committee which also meet regularly. In 2003, each director attended at least
75% of the total number of meetings of the board of directors and of the
committees on which he served.
Audit Committee
The audit committee consists of Robert L. Smialek (Chairman), Jeffrey
Noddle, Gregory E. Lawton and John E. Welsh, III, who are independent under the
rules of the NYSE. The Committee assists in board oversight of the integrity of
the Company's financial statements, the Company's compliance with legal
requirements and performance of the Company's internal audit functions and
independent auditors. This Committee also determines the public accounting firm
that General Cable retains as its independent auditor. None of the members of
the Committee are officers or employees of General Cable. The Audit Committee
met six times in 2003. The board of directors has determined that each of the
members of the Committee named above is an Audit Committee financial expert
under rules of the SEC.
In 2003, the Audit Committee adopted formal preapproval policies and
procedures relating to the services provided by its independent auditor as of
the effective date of the SEC Rules in May 2003. Under the Company's preapproval
policy, all audit and permissible non-audit services provided by the independent
auditors must be preapproved. The Audit Committee will generally preapprove a
list of specific services and categories of services, including audit,
audit-related and other services, for the upcoming or current fiscal year. Any
services that are not included in the approved list of services must be
separately preapproved by the Audit Committee. The Committee delegates to the
Chairman the authority to approve permitted audit and non-audit services to be
provided by the independent auditor between Committee meetings for the sake of
efficiency. The Committee Chairman reports any such interim preapproval at the
next meeting of the Committee
Compensation Committee
This compensation committee consists of Jeffrey Noddle (Chairman),
Gregory E. Lawton, Robert Smialek and John E. Welsh, III. The Compensation
Committee reviews and acts on General Cable's executive compensation and
employee benefit plans and programs, including their establishment, modification
and administration. It also determines the compensation of the Chief Executive
Officer and other executive officers. None of the members are officers or
employees of General Cable; all are independent under the rules of the NYSE. The
Compensation Committee charter is posted on the Company's website via the
Investor Information page.
67
Corporate Governance Committee
The corporate governance committee consists of Gregory E. Lawton
(Chairman), Jeffrey Noddle, Robert L. Smialek and John E. Welsh, III. The
Corporate Governance Committee considers and recommends nominees for election as
directors, appropriate director compensation, and the membership and
responsibilities of Board committees. It also conducts, in conjunction with the
Compensation Committee, an annual performance evaluation of the Chief Executive
Officer and sets performance objectives for the CEO. The Corporate Governance
Committee also reviews management development and succession policies and
practices. A copy of the Corporate Governance Committee's charter is available
on the Company's website via the Investor Information page. None of the members
of the Corporate Governance Committee are officers or employees of General
Cable; all are independent under the rules of the NYSE.
68
OWNERSHIP OF CAPITAL STOCK
The following table summarizes, as of March 12, 2004, the number and
percentage of outstanding shares of our common stock beneficially owned by the
following:
- each person or group management knows to beneficially own more
than 5% of such stock;
- each of our directors and executive officers; and
- all directors and executive officers as a group.
SHARES BENEFICIALLY OWNED(1)
-----------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT (2)
------------------------------------ ------ -----------
Fidelity Management & Research Co.................................................. 4,148,000(3) 10.56%
82 Devonshire Street
Boston, MA 02109
Cannell Capital LLC................................................................ 3,624,900(4) 9.23%
150 California Street
San Francisco, CA 94111
Pzena Investment Management........................................................ 2,715,425(5) 6.91%
830 Third Avenue
New York, NY 10022
Deutsch Bank AG.................................................................... 2,185,397(6) 5.56%
Taunusanlage 12, D - 60325
Frankfort am Main
Federal Republic of Germany
Fuller & Thaler Asset Management Inc............................................... 2,066,300(7) 5.26%
411 Borel Avenue - Suite 402
San Mateo, CA 94402
Zesiger Capital.................................................................... 2,016,800(8) 5.13%
320 Park Avenue
New York, NY 10022
Barclays Bank Global Investors, NA................................................. 1,968,122(9) 5.01%
45 Fremont Street
San Francisco, CA 94105
Gregory B. Kenny................................................................... 350,357(10)(17) *
Gregory E. Lawton.................................................................. 11,877(11)(17) *
Jeffrey Noddle..................................................................... 11,877(12)(17) *
Robert J. Siverd................................................................... 213,097(13)(17) *
Robert L. Smialek.................................................................. 14,877(14)(17) *
Christopher F. Virgulak............................................................ 136,510(15)(17) *
John E. Welsh, III................................................................. 75,894(16)(17) *
All directors and executive officers as a group (7 persons)........................ 814,489 2.03%
- ----------
* Less than 1%
(1) Beneficial ownership is determined under the rules of the SEC and
includes voting or investment power with respect to the shares.
(2) The percentages shown are calculated based on the total number of
shares of our common stock outstanding on March 12, 2004 (39,289,197
shares).
(3) These shares of common stock are owned by FMR Corp. as a parent holding
company, Fidelity Management and Research Company ("Fidelity"),
Fidelity Low Priced Stock Fund and Edward C. Johnson 3d and members of
his family. Fidelity beneficially owns 4,148,000 shares or 10.87% of
the common stock of General Cable by reason of its acting as investment
advisor to various registered investment companies. Edward C. Johnson
3d,
69
FMR Corp., through its control of Fidelity, has sole power to dispose
of 4,148,000 shares of General Cable common stock. Members of the
Johnson family are the predominant owners of Class B shares of FMR
Corp. common stock representing about 49% of the voting power of FMR
Corp.
(4) These shares of common stock are owned by Cannell Capital LLC as
follows: (i) 901,800 shares by The Anegada Fund Limited, (ii) 901,000
shares by The Cuttyhunk Fund Limited, (iii) 1,314,700 shares by Tonga
Partners, L.P., (iv) 322,100 shares by GS Cannell Portfolio, LLC and
(v) 185,300 shares by Pleiades Investment Partners, L.P. Cannell
Capital LLC is an investment advisor and has discretionary authority to
buy, sell and vote these shares for its investment advisory clients. J.
Carlo Cannell is the management member of Cannell Capital LLC.
(5) These shares of common stock are owned by Pzena Investment Management,
LLC ("Pzena"). Pzena has sole voting power with respect to 2,512,175
shares and sole dispositive power with respect to 2,715,425 shares of
General Cable common stock.
(6) These shares of common stock are owned by Deutsche Bank AG, the Private
Clients and Asset Management business group of Deutsche Bank AG and its
subsidiaries and affiliates, including Deutsche Bank Trust Company
Americas ("DBTC") and Deutsche Investment Management Company Americas
("DIMC"). DBTC has sole voting and dispositive power over 1,614,997
shares of General Cable common stock and sole dispositive power over
1,758,797 shares of common stock and DIMC has sole voting and
dispositive power over 361,300 shares of General Cable common stock.
(7) These shares of common stock are owned by Fuller & Thaler Asset
Management, Inc. ("Fuller & Thaler"), an investment advisor and Russell
J. Fuller, President of Fuller & Thaler. Fuller & Thaler has sole
voting power and sole dispositive power with respect to 1,461,900
shares of General Cable common stock. Russell Fuller has sole voting
power with respect to 2,066,300 shares and sole dispositive power with
respect to 1,931,600 shares.
(8) These shares of common stock are owned by a variety of investment
advisory clients of Zesiger Capital Group LLC ("Zesiger"). Zesiger has
sole voting power with respect to 1,486,000 shares and sole dispositive
power with respect to 2,016,800 shares.
(9) These shares of common stock are owned by Barclays Global Investments,
NA ("Barclays") and affiliated members of its group, including Barclays
Global Fund Advisors, Barclays Global Investors, Ltd. ("Barclays
Global"), Barclays Global Investments and Japan Trust and Banking
Company Limited, Barclays Life Assurance Company Limited, Barclays
Capital Securities Limited, Barclays Capital Inc., Barclays Private
Bank & Trust (Isle of Man) Limited, Barclays Private Bank and Trust
(Jersey) Limited, Barclays Bank Trust Company Limited and Barclays Bank
(Suisse SA). Barclays Global Investments has sole voting and
dispositive power with respect to 1,808,094 shares of General Cable
common stock. Barclays Global Advisors has sole voting power with
respect to 359,272 shares and sole dispositive power with respect to
359,272 shares of General Cable common stock. Barclays Capital Inc. has
sole voting and sole dispositive power with regard to 267,893 shares of
General Cable common stock
(10) Includes 2,100 shares held by Mr. Kenny as custodian for his children
and 1,167 shares of restricted stock awarded to Mr. Kenny under the
General Cable 1997 Stock Incentive Plan as to which he has voting
power; and 323,000 shares covered by options in common stock which may
be exercised within sixty (60) days of March 1, 2004. Excludes 358,884
shares of restricted and unrestricted common stock deferred under the
General Cable Deferred Compensation Plan.
(11) Includes 10,000 shares covered by stock options which may be exercised
by Mr. Lawton within sixty days of March 1, 2004. Excludes 19,229
shares of common stock deferred under the General Cable Deferred
Compensation Plan.
(12) Includes 10,000 shares covered by stock options which may be exercised
by Mr. Noddle within sixty days of March 1, 2004. Excludes 19,229
shares of common stock deferred under the General Cable Deferred
Compensation Plan.
70
(13) Includes 133,000 shares covered by stock options which may be exercised
by Mr. Siverd within sixty days of March 1, 2004. Excludes 58,072
shares of restricted common stock deferred under the General Cable
Deferred Compensation Plan.
(14) Includes 10,000 shares covered by stock options which may be exercised
by Mr. Smialek within sixty days of March 1, 2004. Excludes 19,229
shares of common stock deferred under the General Cable Deferred
Compensation Plan.
(15) Includes 135,000 shares covered by stock options which may be exercised
by Mr. Virgulak within sixty days of March 1, 2004. Excludes 106,407
shares of restricted and unrestricted common stock deferred under the
General Cable Deferred Compensation Plan.
(16) Includes 35,334 covered by stock options which may be exercised by Mr.
Welsh within sixty days of March 1, 2004. Excludes 64,758 shares of
common stock deferred under the General Cable Deferred Compensation
Plan.
(17) The address of our directors and executive officers is c/o General
Cable Corporation, 4 Tesseneer Drive, Highland Heights, Kentucky
41076-9753.
71
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The old notes were sold by us on November 24, 2003, and in connection
with such offering, we, and certain of our subsidiaries, as guarantors, entered
into a Registration Rights Agreement, dated as of November 24, 2003. The
Registration Rights Agreement requires us to file a registration statement under
the Securities Act with respect to the new notes and, upon the effectiveness of
that registration statement, offer to the holders of the old notes the
opportunity to exchange their old notes for a like principal amount of new
notes, which will be issued without a restrictive legend and may be reoffered
and resold by the holder without registration under the Securities Act. The
Registration Rights Agreement further provides that we must use our reasonable
best efforts to cause the registration statement with respect to the exchange
offer to be declared effective on or before May 21, 2004. Except as provided
below, upon the completion of the exchange offer, our obligations with respect
to the registration of the old notes and the new notes will terminate. Copies of
the Registration Rights Agreement have been filed as an exhibit to the
registration statement of which this prospectus is a part and, although we
believe that the summary herein of certain provisions thereof describes all
material elements of the Registration Rights Agreement, this summary may not be
complete and is subject to, and is qualified in its entirety, by the
Registration Rights Agreement. As a result of the filing and the effectiveness
of the registration statement, certain liquidated damages provided for in the
Registration Rights Agreement will not become payable by us.
In order to participate in the exchange offer, a holder must represent
to us, among other things, that:
- the new notes acquired pursuant to the exchange offer are
being obtained in the ordinary course of business of the
person receiving such new notes;
- neither the holder nor any such other person has an
arrangement or understanding with any person to participate in
the distribution of such new notes;
- neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 promulgated under the
Securities Act, of us or any guarantor; and
- if such holder or other person is an affiliate, that it will
comply with the registration and prospectus delivery
requirements under the Securities Act to the extent
applicable.
Pursuant to the Registration Rights Agreement, we are required to file
a "shelf" registration statement for a continuous offering pursuant to Rule 415
under the Securities Act in respect of the old notes if:
- because of any change in law or applicable interpretations of
the staff of the SEC, we are not permitted to effect the
exchange offer;
- for any other reason the exchange offer is not consummated by
June 21, 2004;
- upon the request of any of the initial purchasers;
- any holder notifies us within 20 business days after the
commencement of the exchange offer that (i) due to a change in
applicable law or Commission policy it is not entitled to
participate in the exchange offer, or it may not resell the
new notes to the public without delivering a prospectus and
the prospectus that forms part of the registration statement
is not appropriate or available for such resales or (ii) it is
a broker-dealer and owns old notes acquired directly from us
or an affiliate of ours; or
- any holder of old notes participates in the exchange offer and
does not receive freely transferable new notes in exchange for
old notes. In the event that we are obligated to file a
"shelf" registration statement, we will be required to keep
such "shelf" registration statement effective for up to two
years.
72
Other than as set forth in this paragraph, no holder will have the
right to participate in the "shelf" registration statement nor otherwise to
require that we register such holder's shares of old notes under the Securities
Act. See "-- Procedures for Tendering."
Based on an interpretation by the SEC's staff set forth in no-action
letters issued to third-parties unrelated to us, we believe that new notes
issued pursuant to the exchange offer in exchange for old notes may be offered
for resale, sold and otherwise transferred by any person receiving such new
notes, whether or not such person is the holder, other than any such holder or
such other person which is an "affiliate" of General Cable Corporation or any of
the guarantors within the meaning of Rule 405 under the Securities Act, without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that:
- the new notes are acquired in the ordinary course of business
of that holder or such other person;
- neither the holder nor such other person is engaging in or
intends to engage in a distribution of the new notes; and
- neither the holder nor such other person has an arrangement or
understanding with any person to participate in the
distribution of the new notes.
Any holder who tenders in an exchange offer for the purpose of
participating in a distribution of new notes cannot rely on this interpretation
by the SEC's staff and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Each broker-dealer that receives new notes for its own account in
exchange for old notes, whether the old notes were acquired by that
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such new notes. See "Plan of Distribution."
CONSEQUENCE OF FAILURE TO EXCHANGE
Following the completion of the exchange offer, except as set forth in
the third paragraph under "-- Purpose and Effect" above, holders of old notes
not tendered will not have any further registration rights and those old notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for a holder's old notes could be adversely affected
upon completion of the exchange offer if the holder does not participate in the
exchange offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal, we will accept any and all old
notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time,
on the expiration date. We will issue $1,000 principal amount of new notes in
exchange for each $1,000 principal amount of old notes accepted in the exchange
offer. Holders may tender some or all of their old notes pursuant to the
exchange offer. However, old notes may be tendered only in integral multiples of
$1,000 in principal amount.
The form and terms of the new notes will be substantially the same as
the form and terms of the old notes except that:
- interest on the new notes will accrue from the date of the
issuance of the old notes or the date of the last periodic
payment of interest on such old notes, whichever is later; and
- the new notes have been registered under the Securities Act
and will not bear legends restricting their transfer.
The new notes will evidence the same debt as the old notes and will be
issued pursuant to, and entitled to the benefits of, the indenture governing the
old notes.
As of the date of this prospectus, old notes representing $285,000,000
aggregate principal amount were outstanding. This prospectus, together with the
letter of transmittal, is being sent to registered holders and to others
73
believed to have beneficial interests in the old notes. Holders of old notes do
not have any appraisal or dissenters' rights under the General Corporation Law
of the State of Delaware or the indenture governing the notes in connection with
the exchange offer. We intend to conduct the exchange offer in accordance with
the applicable requirements of the Exchange Act and the rules and regulations of
the SEC promulgated thereunder.
We shall be deemed to have accepted validly tendered old notes when,
as, and if we have given oral or written notice thereof, to the exchange agent.
The exchange agent will act as agent for the tendering holders for the purpose
of receiving the new notes from us. If any tendered old notes are not accepted
for exchange because of an invalid tender, the occurrence of certain other
events set forth herein or otherwise, certificates for any such unaccepted old
notes will be returned, without expense, to the tendering holder thereof as
promptly as practicable after the expiration date.
Holders who tender old notes in the exchange offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
letter of transmittal, transfer taxes with respect to the exchange of old notes
pursuant to the exchange offer. We will pay all charges and expenses, other than
certain applicable taxes, in connection with the exchange offer. See "--Fees and
Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" shall mean, with respect to the exchange
offer, 5:00 p.m., New York City time, on , 2004, unless we, in our
discretion, extend the exchange offer, in which case the term "expiration date"
shall mean the latest date and time to which the exchange offer is extended. In
any event, the exchange offer will be held open for at least thirty days. In
order to extend the exchange offer, we will issue a notice of any extension by
press release or other public announcement prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled expiration date.
We reserve the right, in our discretion:
- to delay accepting any old notes, to extend the exchange
offer, or, if any of the conditions set forth under "The
Exchange Offer--Conditions to the Exchange Offer" shall not
have been satisfied, to terminate the exchange offer, by
giving oral or written notice of such delay, extension or
termination to the exchange agent, as the case may be; or
- to amend the terms of the exchange offer in any manner.
PROCEDURES FOR TENDERING
Only a holder of old notes may tender the old notes in an exchange
offer. Except as set forth under "--Book Entry Transfer," to tender in an
exchange offer a holder must complete, sign and date the letter of transmittal
applicable to the exchange offer, or a copy thereof, have the signature thereon
guaranteed if required by such letter of transmittal, and mail or otherwise
deliver such letter of transmittal or copy to the exchange agent for the
exchange offer prior to the expiration date for such exchange offer. In
addition, either:
- certificates for such old notes must be received by the
exchange agent for such exchange offer along with the letter
of transmittal applicable to such exchange offer; or
- a timely confirmation of a book-entry transfer of such old
notes, if that procedure is available, into the account of the
exchange agent for such exchange offer at DTC pursuant to the
procedure for book-entry transfer described below, must be
received by such exchange agent prior to the expiration date;
or
- the holder must comply with the guaranteed delivery procedures
described below. To be tendered effectively, a letter of
transmittal and other required documents must be received by
the exchange agent at its address set forth under "--Exchange
Agent" prior to the expiration date.
The tender by a holder that is not withdrawn before the expiration date
will constitute an agreement between that holder and us in accordance with the
terms and subject to the conditions set forth herein and in the letter of
transmittal to the exchange offer.
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THE METHOD OF DELIVERY OF OLD NOTES, A LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO US. HOLDERS MAY REQUEST
THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES, OR
NOMINEES TO EFFECT THESE TRANSACTIONS FOR THEM.
Any beneficial owner whose old notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing a letter of transmittal and delivering the owner's old
notes, either make appropriate arrangements to register ownership of the old
notes in the beneficial owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an eligible institution listed below unless
old notes tendered pursuant thereto are tendered:
- by a registered holder who has not completed the box entitled
"Special Registration Instructions" or "Special Delivery
Instructions" on such letter of transmittal; or
- for the account of an eligible institution.
If signatures on a letter of transmittal or a notice of withdrawal, as
the case may be, are required to be guaranteed, the guarantee must be by any
eligible guarantor institution within the meaning of Rule 17Ad-15 under the
Exchange Act.
If a letter of transmittal is signed by a person other than the
registered holder of any old notes listed therein, the old notes must be
endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the old notes.
If a letter of transmittal or any old notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations, or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and evidence satisfactory to us of
their authority to so act must be submitted with such letter of transmittal
unless waived by us.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of tendered old notes will be determined by
us in our discretion, which determination will be final and binding. We reserve
the right to reject any and all old notes not properly tendered or any old notes
the acceptance of which would, in the opinion of counsel, be unlawful. We also
reserve the right to waive any defects, irregularities, or conditions of tender
as to particular old notes. Our interpretation of the terms and conditions of
the exchange offer, including the instructions in a letter of transmittal, will
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of old notes must be cured within such
time as we shall determine. Although we intend to notify holders of defects or
irregularities with respect to tenders of old notes, neither we, the exchange
agent, nor any other person shall incur any liability for failure to give such
notification. Tenders of old notes will not be deemed to have been made until
such defects or irregularities have been cured or waived. Any old notes received
by the exchange agent that are not properly tendered and as to which the defects
or irregularities have not been cured or waived will be returned by the exchange
agent to the tendering holders, unless otherwise provided in the letter of
transmittal accompanying such old notes, as soon as practicable following the
expiration date.
In addition, we reserve the right in our sole discretion to purchase or
make offers for any old notes that remain outstanding after the expiration date
or, as set forth under "--Conditions to the Exchange Offer," to terminate the
exchange offer and, to the extent permitted by applicable law, purchase old
notes in the open market, in privately negotiated transactions, or otherwise.
The terms of any such purchases or offers could differ from the terms of the
exchange offer.
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By tendering, each holder will represent that, among other things:
- the new notes acquired pursuant to the exchange offer are
being obtained in the ordinary course of business of the
person receiving such new notes;
- neither the holder nor any such other person has an
arrangement or understanding with any person to participate in
the distribution of such new notes;
- neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 promulgated under the
Securities Act, of General Cable Corporation or any guarantor;
and
- if such holder or other person is an affiliate, that it will
comply with the registration and prospectus delivery
requirements under the Securities Act to the extent
applicable.
In all cases, issuance of new notes for old notes that are accepted for
exchange pursuant to an exchange offer will be made only after timely receipt by
the exchange agent for such exchange offer of certificates for such old notes or
a timely book-entry confirmation of such old notes into such exchange agent's
account at DTC, a properly completed and duly executed letter of transmittal or,
with respect to DTC and its participants, electronic instructions in which the
tendering holder acknowledges its receipt of and agreement to be bound by the
letter of transmittal for the exchange offer, and all other required documents.
If any tendered old notes are not accepted for any reason set forth in the terms
and conditions of the exchange offer for such old notes or if old notes are
submitted for a greater principal amount than the holder desires to exchange,
such unaccepted or non-exchanged old notes will be returned without expense to
the tendering holder thereof or, in the case of old notes tendered by book-entry
transfer into the exchange agent's account at DTC pursuant to the book-entry
transfer procedures described below, such non-exchanged old notes will be
credited to an account maintained with DTC, as promptly as practicable after the
expiration or termination of the exchange offer for such old notes.
BOOK-ENTRY TRANSFER
The exchange agent will make requests to establish accounts with
respect to the old notes at DTC for purposes of the exchange offer after the
date of this prospectus, and any financial institution that is a participant in
DTC's systems may make book-entry delivery of old notes being tendered by
causing DTC to transfer such old notes into the exchange agent's account at DTC
in accordance with DTC's procedures for transfer. However, although delivery of
old notes may be effected through book-entry transfer at DTC, a letter of
transmittal or copy thereof, with any required signature guarantees and any
other required documents, must, in any case other than as set forth in the
following paragraph, be transmitted to and received by the exchange agent at its
address set forth under "--Exchange Agent" on or prior to the expiration date or
the guaranteed delivery below must be complied with.
DTC's Automated Tender Offer Program or "ATOP" is the only method of
processing exchange offers through DTC. To accept an exchange offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in place of sending a signed, hard copy letter of
transmittal. DTC is obligated to communicate those electronic instructions to
the exchange agent. To tender old notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the exchange agent must
contain the participant's acknowledgment of its receipt of and agreement to be
bound by the letter of transmittal for such old notes.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of old notes desires to tender the old notes and
the old notes are not immediately available, or time will not permit the
holder's old notes or other required documents to reach the exchange agent
before the expiration date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if:
- the tender is made through an eligible institution;
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- prior to the expiration date, the exchange agent received from
such eligible institution a properly completed and duly
executed letter of transmittal or a facsimile thereof and
notice of guaranteed delivery, substantially in the form
provided by us tendered by telegram, telex, facsimile
transmission, mail or hand delivery, setting forth the name
and address of the holder of such old notes and the amount of
old notes tendered, stating that the tender is being made
thereby and guaranteeing that within three New York Stock
Exchange trading days after the date of execution of the
notice of guaranteed delivery, the certificates for all
physically tendered old notes, in proper form for transfer, or
a book-entry confirmation, as the case may be, and any other
documents required by the applicable letter of transmittal
will be deposited by the eligible institution with the
exchange agent; and
- the certificates for all physically tendered old notes, in
proper form for transfer, or a book entry confirmation, as the
case may be, and all other documents required by the
applicable letter of transmittal, are received by such
exchange agent within three NYSE trading days after the date
of execution of the notice of delivery.
WITHDRAWAL RIGHTS
Tenders of old notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the expiration date.
For a withdrawal of a tender of old notes to be effective, a written
or, for a DTC participant, electronic ATOP transmission, notice of withdrawal
must be received by the exchange agent at its address set forth in this
prospectus prior to 5:00 p.m., New York City time, on the expiration date. Any
such notice of withdrawal must:
- specify the name of the person having deposited the old notes
to be withdrawn;
- identify the old notes to be withdrawn, including the
certificate number or numbers and principal mount of such old
notes;
- be signed by the holder in the same manner as the original
signature on the letter of transmittal by which such old notes
were tendered, including any required signature guarantees, or
be accompanied by documents of transfer sufficient to have the
trustee of such old notes register the transfer of such old
notes into the name of the person withdrawing the tender; and
- specify the name in which any such old notes are to be
registered, if different from that of the holder who tendered
such old notes.
All questions as to the validity, form, and eligibility, including time
of receipt, of such notices will be determined by us subject to such notice,
whose determination shall be final and binding on all parties. Any old notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the exchange offer. Any old notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender, or termination of the exchange offer relating
to such old notes. Properly withdrawn old notes may be retendered by following
one of the procedures under "-- Procedures for Tendering" at any time on or
prior to the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we shall not
be required to accept for exchange, or to issue new notes in exchange for, any
old notes and may terminate or amend the exchange offer if at any time before
the acceptance of such old notes for exchange or the exchange of the new notes
for such old notes, we determine that the exchange offer violates applicable
law, any applicable interpretation of the staff of the SEC or any order of any
governmental agency or court of competent jurisdiction.
The foregoing conditions are for the sole benefit of us and may be
asserted by us regardless of the circumstances giving rise to any such condition
or may be waived by us in whole or in part at any time and from time to time in
our sole discretion. The failure by us at any time to exercise any of the
foregoing rights shall not be
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deemed a waiver of any such right and each such right shall be deemed an ongoing
right which may be asserted at any time and from time to time.
In addition, we will not accept for exchange any old notes tendered,
and no new notes will be issued in exchange for any such old notes, if at such
time any stop order shall be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture relating to the old notes under the Trust
Indenture Act of 1939, as amended. In any such event we are required to use
every reasonable effort to obtain the withdrawal of any stop order at the
earliest possible time.
EXCHANGE AGENT
All executed letters of transmittal should be directed to the exchange
agent. U.S. Bank National Association has been appointed as exchange agent for
the new notes. Questions, requests for assistance and requests for additional
copies of this prospectus or the letter of transmittal and requests for a copy
of the Notice of Guaranteed Delivery should be directed to the exchange agent
addressed as follows:
To: U.S. BANK NATIONAL ASSOCIATION
By Mail or Hand/Overnight Delivery: By Facsimile:
U.S. Bank National Association (651) 495-8158
60 Livingston Ave. Confirm by Telephone:
Attn: Specialized Finance (800) 934-6802
St. Paul, MN 55107
U.S. Bank National Association also serves as Trustee, Registrar and
Paying Agent under the indenture.
FEES AND EXPENSES
We will not make any payments to brokers, dealers, or other soliciting
acceptances of the exchange offer. The principal solicitation is being made by
mail; however, additional solicitations may be made in person or by telephone by
officers and employees of us.
The estimated cash expenses to be incurred in connection with the
exchange offer will be paid by us and are estimated in the aggregate to be
$150,000, which includes fees and expenses of the trustee for the old notes,
accounting, legal, printing, and related fees and expenses.
TRANSFER TAXES
Holders who tender their old notes for exchange will not be obligated
to pay any transfer taxes in connection with the exchange except that holders
who instruct us to register new notes in the name of, or request that old notes
not tendered or not accepted in an exchange offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
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DESCRIPTION OF SENIOR CREDIT FACILITY AND PREFERRED STOCK
DESCRIPTION OF SENIOR SECURED REVOLVING CREDIT FACILITY
As part of the refinancing transactions described under the caption
"Prospectus Summary -- The Refinancing", our wholly owned subsidiary, General
Cable Industries, Inc., a Delaware corporation ("Borrower"), entered into a
senior secured revolving credit facility with a syndicate of financial
institutions, including UBS Securities LLC, as a Joint Lead Arranger, UBS AG,
Stamford Branch, as Administrative Agent and Issuing Bank, UBS Loan Finance LLC,
as a Lender and Swingline Lender, and Merrill Lynch Capital, a Division of
Merrill Lynch Business Financial Services Inc., as Collateral Agent, a Joint
Lead Arranger and a Lender. Set forth below is a summary of the terms of the
senior secured revolving credit facility.
The senior secured revolving credit facility provides for up to $240.0
million in borrowings, including a $50.0 million sublimit for the issuance of
commercial and standby letters of credit and a $10.0 million sublimit for
swingline loans. Advances under the senior secured revolving credit facility are
limited to a borrowing base based upon advance rates for eligible accounts
receivables, inventory, equipment and owned real estate properties. The fixed
asset component of the borrowing base is subject to scheduled reductions. Actual
advance rates and details of eligibility criteria, as well as the levels of
collateral that may be included in the borrowing base are to be determined after
the collateral audit is completed and shall be subject to reserves and further
revision, from time to time, by the Collateral Agent. Under limited
circumstances, the facility may permit advances in excess of the borrowing base.
All borrowings under the senior secured revolving credit facility are
subject to the satisfaction of customary conditions, including absence of a
default and accuracy of representations and warranties.
Proceeds of the revolving loan, together with the proceeds from the
other refinancing transactions, were used as described under the heading
"Prospectus Summary -- The Refinancing." Availability for cash advances under
the senior secured revolving credit facility will be reduced by an aggregate of
up to $50.0 million of letters of credit which could be outstanding under the
senior secured revolving credit facility at any time. Proceeds of the senior
secured revolving credit facility will be used to provide financing for general
corporate and working capital purposes.
Collateral and Guarantors
Indebtedness under the senior secured revolving credit facility is
guaranteed by us and all of our current direct and indirect material
subsidiaries organized in North America (except Borrower) and material future
subsidiaries organized in North America and is secured by a first priority
security interest in substantially all of our and the guarantors' existing and
future tangible and intangible property and assets, wherever located, including
accounts receivable, inventory, equipment, general intangibles, insurance
policies, intercompany notes, intellectual property, investment property, other
personal property, owned real property, cash and cash proceeds of the foregoing,
including a first priority pledge of all of the equity interests of the
guarantors and 100% (or if a pledge of 100% would result in an adverse material
tax impact, then 65%) of the equity interests of our first-tier foreign
subsidiaries, whether now owned or hereafter acquired. Except for our Canadian
and Mexican operating subsidiaries, no foreign subsidiary is required to
guarantee or pledge its assets to secure the senior secured revolving credit
facility.
Interest and Fees
The interest rates per annum applicable to loans under the senior
secured revolving credit facility are, at Borrower's option, equal to either an
alternate base rate or an adjusted LIBOR rate plus an applicable margin
percentage.
The applicable margin percentage is initially a percentage per annum
equal to (1) 1.50% for alternate base rate revolving loans and (2) 2.75% for
adjusted LIBOR rate revolving loans. Beginning approximately May 2004, the
applicable margin percentage under the senior secured revolving credit facility
will be subject to adjustments based upon consolidated fixed charge coverage
ratio.
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On the last day of each calendar month, Borrower will be required to
pay each lender a 0.50% per annum commitment fee in respect of any unused
commitments of such lender under the senior secured revolving credit facility.
Prepayments
Subject to exceptions, the senior secured revolving credit facility
requires mandatory prepayments of the loans in amounts equal to:
- 100% of the insurance or condemnation proceeds received in
connection with a casualty event, condemnation or other loss,
- 100% of the net proceeds from issuance of debt securities, and
- 100% of the net cash proceeds of asset sales or other
dispositions.
Under certain circumstances, such mandatory prepayments will be applied
to reduce the commitments under the senior secured revolving credit facility.
Voluntary prepayments of loans under the senior secured revolving
credit facility and voluntary reductions of secured revolving loan commitments
will be permitted, in whole or in part, with prior notice but without premium or
penalty (except LIBOR breakage costs) in minimum amounts as set forth in the
credit agreement.
Restrictive Covenants and Other Matters
The senior secured revolving credit facility requires that Borrower
comply on a quarterly basis with certain financial covenants, including a
minimum fixed charge coverage ratio test and a maximum capital expenditures
level. In addition, the senior secured revolving credit facility includes
negative covenants which, among other things, limit:
- dispositions of assets,
- changes of business and ownership,
- mergers and acquisitions and other business combinations,
subject to permitted acquisitions,
- dividends and restricted payments,
- indebtedness (including guarantees and other contingent
obligations),
- sale and leaseback transactions,
- loans and investments,
- liens and further negative pledges,
- transaction with affiliates, and
- other matters customarily restricted in such agreements.
Such covenants apply to us, certain of our subsidiaries, Borrower and
Borrower's parent. Such negative covenants are subject to exceptions. We will be
permitted to declare and pay dividends or distributions on our Series A
redeemable convertible preferred stock so long as there is no default under the
senior secured revolving credit facility and we meet certain financial
conditions. There are no limitations on dividend payments by the Borrower to us
to fund interest payments on the old and new notes.
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The senior secured revolving credit facility contains certain customary
representations and warranties, affirmative covenants and events of default,
including payment defaults, breach of representations and warranties, covenant
defaults, cross-defaults to certain indebtedness, certain events of bankruptcy
and insolvency, certain events under ERISA, judgments in excess of specified
amounts, actual or asserted failure of any guaranty or security document
supporting the senior secured revolving credit facility to be in full force and
effect and change of control. If such an event of default occurs, the lenders
under the senior secured revolving credit facility would be entitled to take
various actions, including the acceleration of amounts outstanding under the
senior secured revolving credit facility and all actions permitted to be taken
by a secured creditor. The representations and warranties and affirmative
covenants apply to us, certain of our subsidiaries, Borrower and Borrower's
parent.
DESCRIPTION OF SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
As part of the refinancing transactions described under the caption
"Prospectus Summary -- The Refinancing", we have sold 2,070,000 shares of 5.75%
Series A redeemable convertible preferred stock in a private placement.
Each share has a liquidation preference of $50.00 per share. Dividends
accrue on the convertible preferred stock at the rate of 5.75% per annum and are
payable quarterly in arrears on February 24, May 24, August 24 and November 24
of each year, starting on February 24, 2004. Dividends are payable in cash,
shares of our common stock or a combination.
Holders of the convertible preferred stock are entitled to convert any
or all of their shares of convertible preferred stock into shares of our common
stock, at an initial conversion price of $10.004 per share. The conversion price
is subject to adjustments under certain circumstances.
We are obligated to redeem all outstanding shares of convertible
preferred stock on November 24, 2013 at par. We may, at our option, elect to pay
the redemption price in cash or in shares of our common stock valued at a
discount of 5% from its market price, or any combination thereof. We have the
option to redeem some or all of the outstanding shares of convertible preferred
stock in cash beginning on the fifth anniversary of the issue date. The
redemption premium initially equals one-half the dividend rate on the
convertible preferred stock and declines ratably to par on the date of mandatory
redemption. In the event of a change of control as defined in the certificate of
designations for the convertible preferred stock, under certain circumstances,
we will be required to offer to purchase all of the convertible preferred stock
at par. This right of holders is subject to our obligation to repay or
repurchase any indebtedness required in connection with a change of control and
to any contractual restrictions then contained in our indebtedness. Our senior
secured revolving credit facility prohibits us from paying, and the indenture
governing the old and new notes restricts our ability to pay, the purchase price
of the convertible preferred stock in cash.
This is a summary of the terms of the convertible preferred stock. We
have filed with the SEC the certificate of designations of Series A redeemable
convertible preferred stock which contains all of the terms.
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DESCRIPTION OF THE NEW NOTES
The old notes were, and the new notes will be, issued under an
Indenture (the "Indenture") dated as of November 24, 2003 between the Company,
the Guarantors and U.S. Bank National Association, as trustee (the "Trustee").
The terms of the Notes include those stated in the Indenture and those made a
part of the Indenture by reference to the Trust Indenture Act of 1939.
The terms of the new notes are identical in all material respects to
the terms of the old notes, except that the transfer restrictions, registration
rights and additional interest provisions relating to the old notes do not apply
to the new notes.
The old notes and the new notes will be considered collectively to be a
single class for all purposes under the Indenture, including, without
limitation, waivers and amendments.
The following is a summary of the material provisions of the Indenture
and does not purport to be complete. A copy of the Indenture has been filed as
an exhibit to the Registration Statement of which this prospectus is a part. For
definitions of capitalized terms used in the following summary, see " -- Certain
Definitions." For purposes of this section, the term "Company" means General
Cable Corporation only, and does not include any of its Subsidiaries.
BRIEF DESCRIPTION OF THE NOTES
THE NOTES
The Notes will be:
- general unsecured obligations of the Company;
- equal in right of payment to all existing and future
unsubordinated Indebtedness of the Company;
- effectively subordinated to all secured Indebtedness of the
Company to the extent of the value of the assets securing such
Indebtedness; and
- senior in right of payment to any future Indebtedness of the
Company that is expressly subordinated to the Notes.
THE GUARANTEES
The Notes will be unconditionally guaranteed by each of the Company's
Restricted Subsidiaries that is a borrower or a guarantor under any U.S. Credit
Facility.
The Guarantee by each Guarantor will be:
- a general unsecured obligation of such Guarantor;
- equal in right of payment to all existing and future
unsubordinated Indebtedness of such Guarantor;
- effectively subordinated to all secured Indebtedness of such
Guarantor to the extent of the value of the assets securing
such Indebtedness; and
- senior in right of payment to any future Indebtedness of such
Guarantor that is expressly subordinated to the Guarantee of
such Guarantor.
Not all of our Subsidiaries will guarantee the Notes. In the event of a
bankruptcy, liquidation or reorganization of any of these non-guarantor
Subsidiaries, these non-guarantor Subsidiaries will pay their debt and other
obligations (including trade payables) before they will be able to distribute
any of their assets to us. Our non-
82
guarantor Subsidiaries generated approximately 30% of our consolidated net
sales, 80% of our consolidated operating income and 6% of our consolidated cash
flow from operating activities for the nine months ended September 30, 2003 and
held approximately 36% of our total consolidated assets as of September 30,
2003. As of September 30, 2003, after giving effect to the refinancing
transactions, those Subsidiaries would have had outstanding $3.7 million of
indebtedness and $77 million outstanding under European accounts payable
arrangements.
The Notes will be issued only in registered form, without interest
coupons, in denominations of $1,000 and integral multiples of $1,000. The
Company will appoint the Trustee to serve as registrar and paying agent under
the Indenture at its offices at 100 Wall Street, Suite 1600, New York, NY 10005.
No service charge will be made for any registration of transfer or exchange of
the Notes, except for any tax or other governmental charge that may be imposed
in connection therewith.
MATURITY, INTEREST AND PRINCIPAL OF THE NOTES
The Notes will initially be issued in an aggregate principal amount of
$285.0 million (the "Initial Notes") and will mature on November 15, 2010.
Additional Notes may be issued in one or more series from time to time (the
"Additional Notes"), subject to compliance with the covenant described under "
- -- Certain Covenants -- Limitation on Indebtedness and Issuance of Disqualified
Capital Stock." Any Additional Notes subsequently issued under the Indenture
will be treated as a single class with the Initial Notes issued in this offering
for all purposes under the Indenture, including, without limitation, for
purposes of waivers, amendments, redemptions, Change of Control Offers and Net
Proceeds Offers.
Cash interest on the Notes will accrue at a rate of 9.5% per annum and
will be payable semi-annually in arrears on each May 15 and November 15,
commencing May 15, 2004, to the Holders of record of Notes at the close of
business on May 1 and November 1, respectively, immediately preceding such
interest payment date. Cash interest will accrue from the most recent interest
payment date to which interest has been paid or, if no interest has been paid,
from November 24, 2003. Interest will be computed on the basis of a 360-day year
of twelve 30-day months.
GUARANTEES
The Guarantors will, jointly and severally, unconditionally guarantee
the Company's obligations under the Notes. The obligations of each Guarantor
under its Guarantee will be limited as necessary, after giving effect to all
other liabilities of such Guarantors (including without limitation, any
obligations under a U.S. Credit Facility permitted under clause (3) of " --
Certain Covenants -- Limitations on Indebtedness and Issuances of Disqualified
Capital Stock") and after giving effect to the amount of any contribution
received from any other Guarantor pursuant to the contribution obligations in
the Indenture, to prevent that Guarantee from constituting a fraudulent
conveyance under applicable law. For more details, see "Risk Factors -- Federal
and state statutes allow courts, under certain circumstances, to void certain
obligations; as a result, a court could void our subsidiaries' guarantees of the
notes under fraudulent transfer laws."
The Guarantee of a Guarantor will be released under the circumstances
described under " -- Certain Covenants -- Subsidiary Guarantees."
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or
in part, at any time on or after November 15, 2007, at the redemption prices
(expressed as a percentage of principal amount) set forth below, plus accrued
and unpaid interest thereon, if any, to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date), if redeemed during the twelve-month
period beginning on November 15 of the years indicated below:
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REDEMPTION
YEAR PRICE
- ---- -----
2007................................................................ 104.750%
2008................................................................ 102.375%
2009 and thereafter................................................. 100.000%
In addition, at any time and from time to time on or prior to November
15, 2006, the Company may redeem in the aggregate up to 35% of the original
aggregate principal amount of the Notes (calculated after giving effect to the
original issuance of Additional Notes, if any) with the net cash proceeds from
one or more Public Equity Offerings, at a redemption price in cash equal to
109.5% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of redemption (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date); provided, however, that at least 65% of the original
aggregate principal amount of the Notes (calculated after giving effect to the
issuance of Additional Notes, if any) must remain outstanding immediately after
giving effect to each such redemption (excluding any Notes held by the Company
or any of its Affiliates). Notice of any such redemption must be given within 60
days after the date of the closing of the relevant Public Equity Offering.
SELECTION AND NOTICE OF REDEMPTION. In the event that less than all of
the Notes are to be redeemed at any time pursuant to an optional redemption,
selection of such Notes for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which the Notes are listed or, if the Notes are not then listed on a national
securities exchange, on a pro rata basis, by lot or by such method as the
Trustee shall deem fair and appropriate; provided, however, that no Notes of a
principal amount of $1,000 or less shall be redeemed in part; provided, further,
however, that if a partial redemption is made with the net cash proceeds of a
Public Equity Offering, selection of the Notes or portions thereof for
redemption shall be made by the Trustee only on a pro rata basis or on as nearly
a pro rata basis as is practicable (subject to the procedures of The Depository
Trust Company), unless such method is otherwise prohibited. Notice of redemption
shall be mailed by first-class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in a principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
will cease to accrue on Notes or portions thereof called for redemption as long
as the Company has deposited with the paying agent for the Notes funds in
satisfaction of the applicable redemption price pursuant to the Indenture.
REPURCHASE AT THE OPTION OF THE HOLDERS
CHANGE OF CONTROL. In the event of the occurrence of a Change of
Control (the date of such occurrence being the "Change of Control Date"), the
Company shall, within 30 days after the occurrence of such Change of Control,
make an offer (the "Change of Control Offer") to all Holders to purchase all
outstanding Notes properly tendered pursuant to such offer, and within 60 days
after the occurrence of the Change of Control, all Notes properly tendered
pursuant to such offer shall be accepted for purchase (the date of such
purchase, the "Change of Control Purchase Date") for a cash price equal to 101%
of the principal amount thereof as of the Change of Control Purchase Date, plus
accrued and unpaid interest and Additional Interest, if any, to the date of
purchase.
In order to effect the Change of Control Offer, the Company shall mail
a notice to each Holder with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase such Holder's Notes at a purchase price
(the "Change of Control Purchase Price") in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest and Additional Interest, if any,
to the date of purchase;
(2) the purchase date, which shall be a Business Day no earlier than 30
days nor later than 60 days from the date such notice is mailed;
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(3) that, unless the Company defaults in the payment of the purchase
price, any Notes accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Purchase Date; and
(4) the procedures determined by the Company, consistent with the
Indenture, that a Holder must follow in order to have its Notes purchased.
Alternatively, the Company will not be required to make a Change of
Control Offer as provided above, if, in connection with or in contemplation of
any Change of Control, the Company has made an offer to purchase (an "Alternate
Offer") any and all Notes validly tendered at a cash price equal to or higher
than the Change of Control Purchase Price and has purchased all Notes properly
tendered in accordance with the terms of such Alternate Offer so long as the
terms and conditions of such contemplated Change of Control are described in
reasonable detail to the Holders in the notice delivered in connection with such
Alternate Offer.
The occurrence of certain of the events that would constitute a Change
of Control would constitute a default under the U.S. Credit Agreement. Future
Credit Facilities and other Indebtedness of the Company and its Subsidiaries may
also contain prohibitions of certain events that would constitute a Change of
Control or require such Indebtedness to be repaid or repurchased upon a Change
of Control. Moreover, the exercise by the Holders of their right to require the
Company to purchase the Notes could cause a default under such Indebtedness,
even if the Change of Control itself does not, including a default due to the
financial effect of such purchase on the Company. Finally, the Company's ability
to pay cash to the Holders upon a purchase may be limited by the Company's then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any required purchases. The failure of
the Company to make or consummate the Change of Control Offer or pay the Change
of Control Purchase Price when due would result in an Event of Default and would
give the Trustee and the Holders of the Notes the rights described under " --
Events of Default."
The definition of "Change of Control" includes, among other
transactions, a disposition of all or substantially all of the assets of the
Company and its Subsidiaries. With respect to the disposition of assets, the
phrase "all or substantially all" as used in the Indenture varies according to
the facts and circumstances of the subject transaction, has no clearly
established quantitative meaning under New York law (which is the choice of law
under the Indenture) and is subject to judicial interpretation. Accordingly, in
certain circumstances there may be a degree of uncertainty in ascertaining
whether a particular transaction would involve a disposition of "all or
substantially all" of the assets of a Person, and therefore it may be unclear as
to whether a Change of Control has occurred and whether the Company is required
to make an offer to purchase the Notes as described above.
The Company will not be required to make a Change of Control Offer
following a Change of Control if a third party makes the Change of Control Offer
in a manner, at the times and otherwise in compliance with the requirements
applicable to a Change of Control Offer made by the Company or makes an
Alternate Offer and purchases all Notes validly tendered and not withdrawn under
such Change of Control Offer or Alternate Offer.
If the Company makes a Change of Control Offer or Alternate Offer, the
Company will comply with all applicable tender offer laws and regulations,
including, to the extent applicable, Section 14(e) and Rule 14e-1 under the
Exchange Act, and any other applicable federal or state securities laws and
regulations and any applicable requirements of any securities exchange on which
the Notes are listed, and any violation of the provisions of the Indenture
relating to such Change of Control Offer occurring as a result of such
compliance shall not be deemed a Default or an Event of Default.
The existence of a Holder's right to require the Company to purchase
such Holder's Notes upon a Change of Control may deter a third party from
acquiring the Company in a transaction that constitutes a Change of Control.
The definition of "Change of Control" in the Indenture is limited in
scope. The provisions of the Indenture may not afford Holders the right to
require the Company to purchase such Notes in the event of a highly leveraged
transaction or certain transactions with the Company's management or its
Affiliates, including a reorganization, restructuring, merger or similar
transaction involving the Company (including, in certain circumstances, an
acquisition of the Company by management or its Affiliates) that may adversely
affect Holders, if such transaction is not a transaction defined as a Change of
Control. A transaction involving the Company's management or its
85
Affiliates, or a transaction involving a recapitalization of the Company, would
result in a Change of Control if it is the type of transaction specified by such
definition.
ASSET SALES. The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, make any Asset Sale, unless:
(1) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the assets sold or otherwise disposed of, and
(2) at least 75% of such consideration received by the Company or such
Restricted Subsidiary consists of (A) cash or Cash Equivalents, (B) assets
(other than securities) to be used in a Related Business, (C) the Capital Stock
of any Person engaged in a Related Business that is, or as a result of or in
connection with the acquisition of such Capital Stock by the Company or such
Restricted Subsidiary becomes, a Restricted Subsidiary or (D) a combination of
cash, Cash Equivalents, such assets and such Capital Stock.
The amount of any (A) Indebtedness (other than any Subordinated
Indebtedness) of the Company or any Restricted Subsidiary that is actually
assumed by the transferee in such Asset Sale and from which the Company and the
Restricted Subsidiaries are fully and unconditionally released shall be deemed
to be cash for purposes of determining the percentage of the consideration
received by the Company or the Restricted Subsidiaries in cash or Cash
Equivalents and (B) notes or other obligations received by the Company or the
Restricted Subsidiaries from such transferee that are converted, sold or
exchanged within 90 days of the related Asset Sale by the Company or the
Restricted Subsidiaries into cash or Cash Equivalents shall be deemed to be
cash, in an amount equal to the net cash proceeds or the Fair Market Value of
the Cash Equivalents realized upon such conversion, sale or exchange for
purposes of determining the percentage of the consideration received by the
Company or the Restricted Subsidiaries in cash or Cash Equivalents.
If at any time any non-cash consideration received by the Company or
any Restricted Subsidiary, as the case may be, in connection with any Asset Sale
is converted into or sold or otherwise disposed of for cash (other than interest
received with respect to any such non-cash consideration), then such conversion
or disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Cash Proceeds thereof shall be applied in accordance with the provisions of this
covenant.
The Company or such Restricted Subsidiary, as the case may be, may
apply an amount equal to the Net Cash Proceeds of any Asset Sale within 360 days
of receipt thereof to:
(1) repay Indebtedness outstanding under any Credit Facility or any
other secured Indebtedness of the Company or any Restricted Subsidiary (and to
cause a corresponding permanent reduction in commitments if such repaid
Indebtedness was outstanding under the revolving portion of a Credit Facility);
or
(2) make an investment in or expenditures for assets (other than
securities) to be used in a Related Business or acquire the Capital Stock of any
Person engaged in a Related Business that is, or as a result of or in connection
with such Investment becomes, a Restricted Subsidiary.
Pending the final application of any such Net Cash Proceeds, the
Company or such Restricted Subsidiary may temporarily reduce revolving credit
borrowings to the extent not prohibited by the Indenture.
To the extent all or part of the Net Cash Proceeds of any Asset Sale
are not applied or committed within 360 days of such Asset Sale as described in
clause (1) or (2) (such Net Cash Proceeds, the "Unutilized Net Cash Proceeds"),
the Company shall, within 20 days after such 360th day, make an offer to
purchase (a "Net Proceeds Offer") all outstanding Notes and other Indebtedness
that is not, by its terms, expressly subordinated in right of payment to the
Notes and the terms of which require an offer to purchase such other
Indebtedness to be made with the proceeds from the sale of assets ("Pari Passu
Debt") on a pro rata basis up to an aggregate maximum principal amount of Notes
and such Pari Passu Debt equal to such Unutilized Net Cash Proceeds, at a
purchase price in cash equal, in the case of the Notes, to 100% of the principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
purchase date thereof and, in the case of such other Indebtedness, the purchase
price specified by the terms thereof; provided, however, that the Net Proceeds
Offer may be deferred until there are aggregate Unutilized
86
Net Cash Proceeds equal to or in excess of $10.0 million, at which time the
entire amount of such Unutilized Net Cash Proceeds, and not just the amount in
excess of $10.0 million, shall be applied as required pursuant to this
paragraph.
With respect to any Net Proceeds Offer effected pursuant to this
covenant, among the Notes and the Pari Passu Debt that is subject to provisions
similar to those set forth in the Indenture with respect to offers to purchase
or redeem such Pari Passu Debt with the proceeds from the sale of assets, to the
extent the aggregate principal amount of Notes and such Pari Passu Debt tendered
pursuant to such Net Proceeds Offer exceeds the Unutilized Net Cash Proceeds to
be applied to the repurchase thereof, such Notes and such Pari Passu Debt shall
be purchased pro rata based on the aggregate principal amount of such Notes and
such Pari Passu Debt tendered by each holder thereof. To the extent the
Unutilized Net Cash Proceeds exceed the aggregate amount of Notes and Pari Passu
Debt tendered by the holders thereof pursuant to such Net Proceeds Offer (such
excess constituting an "Excess"), the Company may retain and utilize such Excess
for any general corporate purposes. Upon the completion of a Net Proceeds Offer,
the amount of Unutilized Net Cash Proceeds shall be reset to zero.
If the Company makes a Net Proceeds Offer, the Company will comply with
all applicable tender offer laws and regulations, including, to the extent
applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other
applicable federal or state securities laws and regulations and any applicable
requirements of any securities exchange on which the Notes are listed, and any
violation of the provisions of the Indenture relating to such Net Proceeds Offer
occurring as a result of such compliance shall not be deemed a Default or an
Event of Default.
CERTAIN COVENANTS
The Indenture contains, among other things, the following covenants:
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company shall not, and shall
not cause or permit any Restricted Subsidiary to, directly or indirectly:
(1) declare or pay any dividend or any other distribution on any
Capital Stock of the Company or any Restricted Subsidiary or make any payment or
distribution to the direct or indirect holders (in their capacities as such) of
Capital Stock of the Company or any Restricted Subsidiary (other than any
dividends, distributions and payments made to the Company or any Restricted
Subsidiary and dividends or distributions payable to any Person solely in the
form of Qualified Capital Stock of the Company or in options, warrants or other
rights to purchase Qualified Capital Stock of the Company);
(2) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company, any Restricted Subsidiary or any of their
Affiliates (other than any such Capital Stock owned by the Company or any
Restricted Subsidiary);
(3) purchase, redeem, defease or retire for value, or make any
principal payment on, prior to any scheduled maturity, scheduled repayment or
scheduled sinking fund payment, any Subordinated Indebtedness (other than any
Subordinated Indebtedness held by the Company or any Restricted Subsidiary); or
(4) make any Investment in any Person (other than Permitted
Investments)
(any such payment or other action (other than any exception thereto)
described in clause (1), (2), (3) or (4) above, a "Restricted Payment"), unless
at the time the Company or such Restricted Subsidiary makes such Restricted
Payment:
(A) no Default or Event of Default shall have occurred and be
continuing at the time or immediately after giving effect to such Restricted
Payment;
(B) immediately after giving effect to such Restricted Payment, the
Company would be able to Incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under " -- Limitation on Indebtedness and Issuance of
Disqualified Capital Stock" below; and
87
(C) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after the
Issue Date does not exceed an amount equal to the sum of:
(i) 50% of cumulative Consolidated Net Income determined for the period
(taken as one period) from the beginning of the first fiscal quarter beginning
on or after the Issue Date and ending on the last day of the most recent fiscal
quarter immediately preceding the date of such Restricted Payment for which
consolidated financial information of the Company is available (or if such
cumulative Consolidated Net Income shall be a loss, minus 100% of such loss),
plus
(ii) the aggregate net cash proceeds received after the Issue Date by
the Company either (x) as capital contributions to the Company or (y) from the
issue and sale (other than to a Subsidiary) of its Qualified Capital Stock
(except, in each case, to the extent such proceeds are used to purchase, redeem,
retire, defease or otherwise acquire Capital Stock or Subordinated Indebtedness
as set forth in clause (2) or (3) of paragraph (b) below and excluding the net
proceeds from any issuance and sale of (I) Qualified Capital Stock financed,
directly or indirectly, using funds borrowed from the Company or any Subsidiary
until and to the extent such borrowing is repaid, (II) Redeemable Convertible
Preferred Stock pursuant to an option granted to the initial purchasers of the
Redeemable Convertible Preferred Stock issued and sold on the Issue Date or
(III) common stock of the Company pursuant to the overallotment option granted
to the underwriters of the common stock sold and issued on the Issue Date), plus
(iii) the principal amount (or accreted amount, determined in
accordance with GAAP, if less) of any Indebtedness of the Company or any
Restricted Subsidiary Incurred after the Issue Date which has been converted
into or exchanged for Qualified Capital Stock of the Company (except, in each
case, to the extent such proceeds are used to purchase, redeem, retire, defease
or otherwise acquire Subordinated Indebtedness as set forth in clause (3) of
paragraph (b) below), plus
(iv) in the case of the disposition or repayment of any Investment or
the release of a guarantee constituting a Restricted Payment made after the
Issue Date, an amount (to the extent not included in the computation of
Consolidated Net Income) equal to the lesser of (x) the return of capital with
respect to such Investment and (y) the amount of such Investment which was
treated as a Restricted Payment, in either case, less the cost of the
disposition of such Investment and net of taxes, and, in the case of guarantees,
less any amounts paid under such guarantee, plus
(v) so long as the Designation thereof was treated as a Restricted
Payment made after the Issue Date, with respect to any Unrestricted Subsidiary
that has been redesignated as a Restricted Subsidiary after the Issue Date in
accordance with the covenant described under " -- Designation of Unrestricted
Subsidiaries" below, the Company's proportionate interest in an amount equal to
the excess of (x) the Total Assets of such Subsidiary, valued on an aggregate
basis at Fair Market Value, over (y) the total liabilities of such Subsidiary,
determined in accordance with GAAP (and provided that such amount shall not in
any case exceed the Designation Amount with respect to such Restricted
Subsidiary upon its Designation).
(b) The foregoing provisions will not prevent:
(1) the payment of any dividend or distribution on, or redemption of,
Capital Stock within 60 days after the date of declaration of such dividend or
distribution or the giving of formal notice of such redemption, if at the date
of such declaration or giving of such formal notice such payment or redemption
would comply with the provisions of the Indenture;
(2) the purchase, redemption, retirement or other acquisition of any
Capital Stock of the Company in exchange for, or out of the net cash proceeds of
the substantially concurrent issue and sale (other than to a Subsidiary) of,
other Capital Stock of the Company (other than Disqualified Capital Stock in the
case of any such purchase, redemption, retirement or other acquisition of
Qualified Capital Stock); provided, however, that any such net cash proceeds and
the value of any Qualified Capital Stock issued in exchange for such retired
Capital Stock are excluded from clause (C)(ii) of paragraph (a) above (and were
not included therein at any time);
(3) the purchase, redemption, retirement, defeasance or other
acquisition of Subordinated Indebtedness, or any other payment thereon, made in
exchange for, or out of the net cash proceeds of, a substantially concurrent
issue and sale (other than to a Subsidiary) of:
88
(A) Qualified Capital Stock of the Company; provided, however, that any
such net cash proceeds and the value of any Qualified Capital Stock issued in
exchange for Subordinated Indebtedness are excluded from clauses (C)(ii) and
(C)(iii) of paragraph (a) above (and were not included therein at any time) or
(B) Disqualified Capital Stock of the Company or other Subordinated
Indebtedness having no stated maturity for the payment of any portion of
principal thereof prior to the final stated maturity of the Subordinated
Indebtedness being purchased, redeemed, retired, defeased or otherwise acquired
and having a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Subordinated Indebtedness being
purchased, redeemed, retired, defeased or otherwise acquired;
(4) Restricted Payments not to exceed $10.0 million in the aggregate
since the Issue Date;
(5) on or prior to the second anniversary of the Issue Date, payments
of regular cash dividends on the Redeemable Convertible Preferred Stock, payable
quarterly in arrears, at the rate per annum set forth in the certificate of
designations relating to the Redeemable Convertible Preferred Stock, as in
effect on the Issue Date;
(6) the repurchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company or any Restricted Subsidiary held by
any director, officer or employee of the Company or any Subsidiary; provided
that the aggregate price paid for all such repurchased, redeemed, acquired or
retired Capital Stock shall not exceed $2.0 million in any twelve-month period;
(7) repurchases of Capital Stock of the Company deemed to occur upon
the exercise of stock options if such Capital Stock represents a portion of the
exercise price thereof, and repurchases of Capital Stock of the Company deemed
to occur upon the withholding of a portion of the Capital Stock issued, granted
or awarded to any director, officer or employee of the Company to pay for the
taxes payable by such director, officer or employee upon such issuance, grant or
award in order to satisfy, in whole or in part, withholding tax requirements in
connection with the exercise of such options, in accordance with the provisions
of an option or rights plan or program of the Company; and
(8) the repurchase of any subordinated Indebtedness at a purchase price
not greater than 101% or 100% of the principal amount of such subordinated
Indebtedness in connection with a change of control offer pursuant to a
provision similar to the requirements set forth under " -- Repurchase at the
Option of the Holders -- Change of Control" covenant, or an asset sale offer
pursuant to a provision similar to the requirement set forth under " --
Repurchase at the Option of the Holders -- Asset Sales," respectively; provided
that prior to any such repurchase the Company has made the Change of Control
Offer or the Net Proceeds Offer, as applicable, required by the terms of the
Indenture and repurchased all Notes validly tendered for repayment in connection
with such Change of Control Offer or Net Proceeds Offer, as applicable;
provided, however, that in the case of each of clauses (2), (3), (4), (5), (6)
and (8), no Default or Event of Default shall have occurred and be continuing or
would arise therefrom.
In determining the amount of Restricted Payments permissible under
clause (C) of paragraph (a) of this covenant, amounts expended pursuant to
clauses (1) and (5) of the immediately preceding paragraph shall be included as
Restricted Payments and amounts expended pursuant to clauses (2), (3), (4), (6),
(7) and (8) shall be excluded. The amount of any non-cash Restricted Payment
shall be deemed to be equal to the Fair Market Value thereof at the date of the
making of such Restricted Payment.
LIMITATION ON INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED CAPITAL
STOCK. The Company shall not, directly or indirectly, Incur any Indebtedness
(including any Acquired Indebtedness) or issue any Disqualified Capital Stock,
and shall not cause or permit any Restricted Subsidiary to, directly or
indirectly, Incur any Indebtedness (including any Acquired Indebtedness) or
issue any Preferred Capital Stock, except in each case for Permitted
Indebtedness; provided, however, that the Company and any Guarantor may Incur
Indebtedness, and the Company may issue Disqualified Capital Stock, if, in any
such case, at the time of and immediately after giving pro forma effect to such
Incurrence of Indebtedness or issuance of Disqualified Capital Stock and the
application of the proceeds therefrom, no Default or Event of Default shall have
occurred and be continuing and the Consolidated Coverage Ratio of the Company
would be greater than 2.0 to 1.0.
89
The foregoing limitations will not apply to the Incurrence or issuance
of any of the following (collectively, "Permitted Indebtedness"), each of which
shall be given independent effect:
(1) Indebtedness under the Notes issued on the Issue Date, the
Guarantees and the Indenture with respect to obligations resulting from the
Notes issued on the Issue Date and the Guarantees;
(2) Existing Indebtedness;
(3) Indebtedness of the Company and the Restricted Subsidiaries under
any Credit Facility in an aggregate principal amount at any one time outstanding
not to exceed the greater of (x) $240.0 million, less the amount of any
scheduled amortization of principal payments made thereunder and the amount by
which the commitments thereunder are from time to time permanently reduced, and
(y) the sum of (i) 85% of the book value of accounts receivable of the Company
and the Restricted Subsidiaries, determined in accordance with GAAP, (ii) 60% of
the book value of inventory of the Company and the Restricted Subsidiaries,
determined in accordance with GAAP, and (iii) $40.0 million; provided that in no
event shall the aggregate principal amount at any one time outstanding under
European Credit Facilities under this clause (3) exceed (euro)50 million;
(4) Indebtedness of any Restricted Subsidiary owed to and held by the
Company or any other Restricted Subsidiary and Indebtedness of the Company owed
to and held by any Restricted Subsidiary or Disqualified Capital Stock of the
Company or any Restricted Subsidiary held by the Company or any Restricted
Subsidiary; provided, however, that (i) any such Indebtedness owed by the
Company or any Guarantor shall be unsecured and expressly subordinated in right
of payment to the payment and performance of the Company's or such Guarantor's
obligations under the Indenture, the Notes and the Guarantees, as applicable,
and (ii) an Incurrence of Indebtedness and issuance of Disqualified Capital
Stock that is not permitted by this clause (4) shall be deemed to have occurred
upon (x) any sale or other disposition of any Indebtedness or Disqualified
Capital Stock of the Company or any Restricted Subsidiary referred to in this
clause (4) to a Person other than the Company or any Restricted Subsidiary, and
(y) the designation of a Restricted Subsidiary which holds Indebtedness or
Disqualified Capital Stock of the Company or any other Restricted Subsidiary as
an Unrestricted Subsidiary;
(5) guarantees by the Company or any Guarantor of Indebtedness
permitted to be Incurred under this covenant;
(6) Hedging Obligations of the Company and the Restricted Subsidiaries;
provided, however, that such Hedging Obligations are entered into in the
ordinary course of business for genuine business purposes and not for
speculative purposes to protect the Company and/or Restricted Subsidiaries
against interest rate, currency exchange rate, commodity prices or similar
fluctuations; provided, further, that (i) in the case of Hedging Agreements
which relate to Indebtedness, such Hedging Agreements do not increase the
Indebtedness of the Company and the Restricted Subsidiaries outstanding other
than as a result of fluctuations in foreign currency exchange rates or interest
rates or by reason of fees, indemnities and compensation payable thereunder and
(ii) in the case of Hedging Agreements relating to interest rates, the foregoing
shall not prohibit the swap of fixed to floating rates for genuine business
purposes;
(7) Indebtedness of the Company or any Restricted Subsidiary consisting
of Purchase Money Indebtedness and Capital Lease Obligations, and refinancings
thereof, in an aggregate principal amount which, when aggregated with the
principal amount of all other Indebtedness then outstanding and Incurred
pursuant to this clause (7), does not exceed 3.5% of Consolidated Tangible
Assets at the time of such Incurrence;
(8) Indebtedness of the Company or any Restricted Subsidiary consisting
of indemnities or obligations in respect of purchase price adjustments in
connection with the acquisition or disposition of assets, including, without
limitation, Capital Stock; provided that the maximum aggregate liability in
respect of all such Indebtedness shall at no time exceed the gross proceeds
actually received by the Company and the Restricted Subsidiaries in connection
with such disposition;
(9) Acquired Indebtedness of any Restricted Subsidiary that is not a
Guarantor, other than Indebtedness Incurred in connection with, or in
contemplation of, such transaction; provided, however, that at the time of
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acquisition of such Restricted Subsidiary, the Company on a pro forma basis
could Incur $1.00 of additional Indebtedness pursuant to the first paragraph of
this covenant;
(10) the Incurrence by the Company or any Restricted Subsidiary of
Indebtedness in connection with letters of credit (including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance) with respect to reimbursement type obligations, regarding
workers' compensation claims, escrow agreements, bankers' acceptances and surety
and performance bonds (in each case to the extent that such Incurrence does not
result in the Incurrence of any obligation to repay any obligation relating to
borrowed money), all in the ordinary course of business;
(11) Indebtedness or Disqualified Capital Stock of the Company or a
Restricted Subsidiary to the extent representing a replacement, renewal,
refinancing or extension (collectively, a "refinancing") of outstanding
Indebtedness Incurred or Disqualified Capital Stock issued in compliance with
the proviso of the first paragraph of this covenant or any of clause (1), (2) or
(9) of this covenant; provided, however, that:
(A) any such refinancing shall not exceed the sum of the principal
amount (or accreted amount (determined in accordance with GAAP), if less) or
liquidation preference, as applicable, of the Indebtedness or Disqualified
Capital Stock being refinanced, plus the amount of accrued interest or dividends
thereon, plus the amount of any reasonably determined prepayment premium
necessary to accomplish and actually paid in connection with such refinancing
and reasonable fees and expenses incurred in connection therewith,
(B) the refinancing Indebtedness or Disqualified Capital Stock shall
have a final maturity not earlier than, and a Weighted Average Life to Maturity
not less than the Weighted Average Life to Maturity of, the Indebtedness or
Disqualified Capital Stock, as applicable, being refinanced;
(C) Subordinated Indebtedness may be refinanced only with Subordinated
Indebtedness or Disqualified Capital Stock, and Disqualified Capital Stock may
be refinanced only with other Disqualified Capital Stock; and
(D) refinancing Indebtedness Incurred by a Restricted Subsidiary that
is not a Guarantor may be used to refinance Indebtedness only of a Restricted
Subsidiary that is not a Guarantor; and
(12) in addition to the items referred to in clauses (1) through (11)
above, Indebtedness of the Company or any Restricted Subsidiary (including any
Indebtedness under any Credit Facility that utilizes this clause (12)) having an
aggregate principal amount not to exceed $15.0 million at any time outstanding.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (1) through (12) above
(other than Indebtedness under the U.S. Credit Agreement outstanding on the
Issue Date, which will be deemed to have been Incurred under clause (3)) or is
entitled to be Incurred pursuant to the first paragraph of this covenant, the
Company may, in its sole discretion, classify such item of Indebtedness in any
manner that results in compliance with this covenant. Any increase in the U.S.
dollar equivalent of outstanding Indebtedness of the Company or any of the
Restricted Subsidiaries denominated in a currency other than U.S. dollars
resulting from fluctuations in the exchange values of currencies will not be
considered to be an Incurrence of Indebtedness for purposes of this covenant;
provided that the amount of Indebtedness outstanding at any time will be the
U.S. dollar equivalent of such Indebtedness outstanding at such time.
None of the Company or any Guarantor shall, directly or indirectly,
Incur any Indebtedness that by its terms (or by the terms of any agreement
governing such Indebtedness) would be expressly subordinate or junior in right
of payment in any respect to any other Indebtedness unless such Indebtedness is
also by its terms (or by terms of any agreement governing such Indebtedness)
subordinate or junior in right of payment to the Notes or the Guarantees, as
applicable, at least to the same extent such Indebtedness is subordinated or
junior in right of payment to such other Indebtedness.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES. The Company shall not, and shall not cause or permit
any Restricted Subsidiary to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any consensual encumbrance or restriction
on the ability of
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any Restricted Subsidiary to: (A) pay dividends or make any other distributions
to the Company or any other Restricted Subsidiary on its Capital Stock or with
respect to any other interest or participation in, or measured by, its profits,
or pay any Indebtedness owed to the Company or any other Restricted Subsidiary,
(B) make loans or advances to, or guarantee any Indebtedness or other
obligations of, the Company or any other Restricted Subsidiary or (C) transfer
any of its assets to the Company or any other Restricted Subsidiary, except for
such encumbrances or restrictions existing under or by reason of:
(1) the U.S. Credit Agreement, or any other agreement of the Company or
any of the Restricted Subsidiaries outstanding on the Issue Date, in each case
as in effect on the Issue Date, and any amendments, restatements, renewals,
replacements or refinancings thereof, and any other Credit Facility; provided,
however, that any such amendment, restatement, renewal, replacement or
refinancing or other such Credit Facility is no more restrictive in the
aggregate in any material respect with respect to such encumbrances or
restrictions than those contained in the agreement being amended, restated,
renewed, replaced or refinanced or the U.S. Credit Agreement in effect on the
Issue Date, as the case may be;
(2) any applicable law or any rule, regulation or order of any
governmental authority;
(3) any instrument of an Acquired Person acquired by the Company or any
Restricted Subsidiary after the Issue Date as in effect at the time of such
acquisition and not entered into by such Acquired Person in connection with, as
a result of or in contemplation of such acquisition; provided, however, that
such encumbrances and restrictions are not applicable to the Company or any
Restricted Subsidiary or the assets of the Company or any Restricted Subsidiary
other than the Acquired Person or the assets of the Acquired Person;
(4) customary non-assignment provisions in leases, licenses or
contracts;
(5) Purchase Money Indebtedness and Capital Lease Obligations for
assets acquired in the ordinary course of business that impose encumbrances and
restrictions only on the assets so acquired;
(6) any agreement for the sale or disposition of the Capital Stock or
assets of any Restricted Subsidiary; provided, however, that such encumbrances
and restrictions described in this clause (6) are applicable only to such
Restricted Subsidiary or assets, as applicable, and any such sale or disposition
is made in compliance with "Repurchase at the Option of the Holders -- Asset
Sales" to the extent applicable thereto;
(7) refinancing Indebtedness permitted under clause (11) of the second
paragraph of " -- Limitation on Indebtedness and Issuance of Disqualified
Capital Stock" above; provided, however, that such encumbrances and restrictions
contained in the agreements governing such Indebtedness are no more restrictive
in the aggregate in any material respect than those contained in the agreements
governing the Indebtedness being refinanced immediately prior to such
refinancing;
(8) the Indenture;
(9) any instrument governing Acquired Indebtedness, which encumbrance
or restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person or the properties or assets of the Person so
acquired;
(10) restrictions on the transfer of assets subject to any Lien
permitted under the Indenture imposed by the holder of such Lien;
(11) customary restrictions imposed by the terms of shareholders',
partnership or joint venture agreements entered into in the ordinary course of
business; provided, however, that such restrictions do not apply to any
Restricted Subsidiary other than the applicable company, partnership or joint
venture;
(12) restrictions on cash or other deposits imposed by customers under
contracts entered into in the ordinary course of business; and
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(13) Indebtedness of Foreign Subsidiaries permitted to be Incurred
under the Indenture; provided that any such encumbrances or restrictions are
ordinary and customary with respect to the type of Indebtedness being Incurred
under the relevant circumstances and do not, in the good faith judgment of the
Board of Directors of the Company, materially impair the Company's ability to
make payments on the Notes when due.
DESIGNATION OF UNRESTRICTED SUBSIDIARIES. The Company may designate
after the Issue Date any Subsidiary of the Company as an "Unrestricted
Subsidiary" under the Indenture (a "Designation") only if:
(1) no Default or Event of Default shall have occurred and be
continuing or shall result after giving effect to such Designation;
(2) at the time of and after giving effect to such Designation, the
Company could Incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under " -- Limitation on Indebtedness and Issuance of Disqualified
Capital Stock" above;
(3) the Company would be permitted to make an Investment at the time of
Designation in an amount of the Designation Amount; and
(4) such Unrestricted Subsidiary is not a party to any agreement,
contract, arrangement or understanding at such time with the Company or any
Restricted Subsidiary unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company or, in the event such condition is not
satisfied, the value of such agreement, contract, arrangement or understanding
to such Unrestricted Subsidiary shall be deemed a Restricted Payment.
Neither the Company nor any Restricted Subsidiary shall at any time (A)
provide credit support for, subject any of its assets (other than the Capital
Stock of any Unrestricted Subsidiary) to the satisfaction of, or guarantee, any
Indebtedness of any Unrestricted Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness), (B) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (C) be
directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary, except for any guarantee given
solely to support the pledge by the Company or any Restricted Subsidiary of the
Capital Stock of any Unrestricted Subsidiary, which guarantee is not recourse to
the Company or any Restricted Subsidiary. All Subsidiaries of Unrestricted
Subsidiaries shall be automatically deemed to be Unrestricted Subsidiaries.
The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") if:
(1) no Default or Event of Default shall have occurred and be
continuing or shall result after giving effect to such Revocation;
(2) at the time of and after giving effect to such Revocation, the
Company could Incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under " -- Limitation on Indebtedness and Issuance of Disqualified
Capital Stock" above; and
(3) all Liens of such Unrestricted Subsidiary outstanding immediately
following such Revocation would be permitted to be outstanding under the
Indenture.
All Designations and Revocations must be evidenced by filing by the
Company with the Trustee of Board Resolutions and an Officers' Certificate
certifying compliance with the foregoing provisions.
LIMITATION ON LIENS. The Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, Incur or suffer to
exist any Liens (other than Permitted Liens) against or upon any of their
93
respective assets now owned or hereafter acquired, or any proceeds therefrom or
any income or profits therefrom, in each case to secure any Indebtedness unless
contemporaneously therewith:
(1) in the case of any Lien securing an obligation that ranks pari
passu with the Notes or a Guarantee, effective provision is made to secure the
Notes or such Guarantee, as the case may be, at least equally and ratably with
or prior to such obligation with a Lien on the same collateral; and
(2) in the case of any Lien securing an obligation that is subordinated
in right of payment to the Notes or a Guarantee, effective provision is made to
secure the Notes or such Guarantee, as the case may be, with a Lien on the same
collateral that is prior to the Lien securing such subordinated obligation,
in each case, for so long as such obligation is secured by such Lien.
TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not
cause or permit any Restricted Subsidiary to, directly or indirectly, conduct
any business or enter into, renew, amend or conduct any transaction or series of
related transactions (including the purchase, sale, lease or exchange of any
assets or the rendering of any service) with or for the benefit of any of their
respective Affiliates (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction, taken as a whole, is on terms which are
no less favorable to the Company or such Restricted Subsidiary, as the case may
be, than would be available in a comparable transaction on an arm's-length basis
with an unaffiliated third party;
(2) if such Affiliate Transaction or series of related Affiliate
Transactions involves aggregate payments or other consideration having a Fair
Market Value in excess of $2.0 million, such Affiliate Transaction is in writing
and a majority of the disinterested members of the Board of Directors of the
Company shall have approved such Affiliate Transaction and determined that such
Affiliate Transaction complies with the foregoing provisions, or, in the event
that there are no disinterested directors, the Trustee has received a written
opinion from an Independent Financial Advisor stating that the terms of such
Affiliate Transaction are fair, from a financial point of view, to the Company
or the Restricted Subsidiary involved in such Affiliate Transaction, as the case
may be; and
(3) if such Affiliate Transaction or series of related Affiliate
Transactions involves aggregate payments or other consideration having a Fair
Market Value in excess of $5.0 million, such Affiliate Transaction is in writing
and the Trustee has received a written opinion from an Independent Financial
Advisor stating that the terms of such Affiliate Transaction are fair, from a
financial point of view, to the Company or the Restricted Subsidiary involved in
such Affiliate Transaction, as the case may be.
Notwithstanding the foregoing, the restrictions set forth in this covenant shall
not apply to:
(a) transactions with or among the Company and any Restricted
Subsidiary or between or among Restricted Subsidiaries (so long as no Person
(other than a Restricted Subsidiary) that is an Affiliate of the Company has any
direct or indirect interest in such Restricted Subsidiary);
(b) any Restricted Payment of the type described in clause (1), (2) or
(3) of the definition thereof permitted to be made pursuant to the covenant
described under " -- Limitation on Restricted Payments" above;
(c) any reasonable and customary issuance of securities, or other
payments, awards or grants in cash, securities or otherwise, pursuant to
employment arrangements, or any stock options and stock ownership plans for the
benefit of employees, officers and directors, consultants and advisors approved
by the Board of Directors of the Company;
(d) the payment of customary directors' fees, indemnification and
similar arrangements, consulting fees, employee salaries, bonuses or employment
agreements, compensation or employee benefit arrangements and incentive
arrangements with any officer, director or employee of the Company or any
Restricted Subsidiary entered into in the ordinary course of business (including
customary benefits thereunder) and payments under any indemnification
arrangements permitted by applicable law;
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(e) any transactions undertaken pursuant to any contractual obligations
in existence on the Issue Date, as such obligations are in effect on the Issue
Date or as thereafter amended, restated or amended and restated in any manner
not materially adverse to the Holders of Notes;
(f) transactions with distributors, suppliers or other purchasers or
sellers of goods or services, in each case in the ordinary course of business
and otherwise in compliance with the terms of the Indenture;
(g) the issue and sale by the Company of its Qualified Capital Stock;
(h) any transaction with an Affiliate where the only consideration paid
by the Company or any Restricted Subsidiary is Qualified Capital Stock;
(i) the pledge of Capital Stock of Unrestricted Subsidiaries to support
the Indebtedness thereof;
(j) customary shareholders' and registration rights agreements among
the Company or any Subsidiary thereof and the shareholders thereof; and
(k) commercial transactions entered into in the ordinary course of
business with any joint venture to which the Company or any Restricted
Subsidiary is a party (so long as no Person (other than a Restricted Subsidiary)
that is an Affiliate of the Company has any direct or indirect interest in such
joint venture).
LIMITATION ON CAPITAL STOCK OF RESTRICTED SUBSIDIARIES. The Company
will not permit any Restricted Subsidiary to issue any Capital Stock to any
Person (other than to the Company or a Wholly Owned Subsidiary of the Company)
or permit any Person (other than the Company or a Wholly Owned Subsidiary of the
Company) to own any Capital Stock of a Restricted Subsidiary of the Company, if
in either case as a result thereof such Restricted Subsidiary would no longer be
a Restricted Subsidiary of the Company unless the Company's remaining ownership
interest in such Person after such sale would be permitted by the covenant as
described under " -- Limitation on Restricted Payments"; provided, however, that
this provision shall not prohibit (x) the Company or any of the Restricted
Subsidiaries from selling, transferring or otherwise disposing of all of the
Capital Stock of any Restricted Subsidiary or (y) the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary in compliance with the
Indenture.
SUBSIDIARY GUARANTEES. If any Restricted Subsidiary (including any
Restricted Subsidiary formed or acquired after the Issue Date) shall become a
borrower or guarantor under any U.S. Credit Facility, then such Restricted
Subsidiary shall (i) execute and deliver to the Trustee a supplemental indenture
in form and substance satisfactory to the Trustee pursuant to which such
Restricted Subsidiary shall unconditionally Guarantee all of the Company's
obligations under the Notes and the Indenture on the terms set forth in the
Indenture and (ii) deliver to the Trustee an opinion of counsel that such
supplemental indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and enforceable
obligation of such Subsidiary.
Notwithstanding the foregoing, any Guarantee by a Restricted Subsidiary
may provide by its terms that it shall be automatically and unconditionally
released and discharged:
(1) upon any sale or other disposition of all or substantially all
of the assets of such Restricted Subsidiary (including by way
of merger or consolidation or any sale of all of the Capital
Stock of that Restricted Subsidiary) to a Person that is not
the Company or a Subsidiary of the Company; provided that the
Company shall, if applicable, apply the Net Cash Proceeds of
that sale or other disposition in accordance with the
applicable provisions of the Indenture;
(2) if the Company designates such Restricted Subsidiary as an
Unrestricted Subsidiary in accordance with the Indenture; or
(3) if such Restricted Subsidiary ceases to be a borrower or
guarantor under any U.S. Credit Facility (other than by reason
of a payment under a guarantee by any Restricted Subsidiary).
95
LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Company will not, and
will not cause or permit any Restricted Subsidiary to, directly or indirectly,
enter into any Sale/Leaseback Transaction with respect to any assets unless:
(1) the Company or such Restricted Subsidiary could have Incurred
Indebtedness in the amount of the Attributable Indebtedness with respect to such
Sale/Leaseback Transaction pursuant to the covenant described under " --
Limitation on Indebtedness and Issuance of Disqualified Capital Stock" above;
(2) the Company or such Restricted Subsidiary could have incurred a
Lien on such assets securing such Attributable Indebtedness with respect to such
Sale/Leaseback Transaction without equally and ratably securing the Notes or the
Guarantees pursuant to the covenant described under " -- Limitation on Liens"
above;
(3) the net proceeds received by the Company or any Restricted
Subsidiary in connection with such Sale/Leaseback Transaction are at least equal
to the Fair Market Value of the related assets; and
(4) the Company applies the proceeds of such transaction in compliance
with the covenant described under "Repurchase at the Option of the Holders --
Asset Sales."
PROVISION OF FINANCIAL INFORMATION. Whether or not required by the SEC,
so long as any Notes are outstanding, the Company will furnish to the Holders
within the time periods specified in the SEC's rules and regulations for
reporting companies under Section 13 or 15(d) of the Exchange Act:
(1) all annual and quarterly financial information that would be
required to be contained in a filing with the SEC on Forms 10-K and 10-Q if the
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report on the annual financial statements by
the Company's independent public accountants; and
(2) all current reports that would be required to be filed with the SEC
on Form 8-K if the Company were required to file such reports.
If the Company has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph shall include or be accompanied by a reasonably detailed
presentation of the financial condition and results of operations of the Company
and the Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company.
In addition, whether or not required by the SEC, the Company shall file
a copy of all of the information and reports referred to in the second preceding
paragraph with the SEC for public availability (unless the SEC will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request. The Company shall also furnish to Holders,
securities analysts and prospective investors upon request the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so
long as the Notes are not freely transferable under the Securities Act. The
Company shall also comply with the other provisions of Section 314(a) of the
Trust Indenture Act of 1939.
MERGER, SALE OF ASSETS, ETC.
The Company shall not consolidate with or merge with or into (whether
or not the Company is the Surviving Person) any other entity and the Company
shall not, and shall not cause or permit any Restricted Subsidiary to, sell,
convey, assign, transfer, lease or otherwise dispose of all or substantially all
of the Company's and the Restricted Subsidiaries' assets (determined on a
consolidated basis for the Company and the Restricted Subsidiaries) to any
Person in a single transaction or series of related transactions, unless:
(1) either (A) the Company shall be the Surviving Person or (B) the
Surviving Person (if other than the Company) shall be a corporation or limited
liability company organized and validly existing under the laws of the United
States of America or any State thereof or the District of Columbia, and shall,
in any such case, expressly assume by a supplemental indenture, the due and
punctual payment of the principal of, premium, if any, and interest
96
on all the Notes and the performance and observance of every covenant of the
Indenture and the Registration Rights Agreement to be performed or observed on
the part of the Company;
(2) immediately thereafter, on a pro forma basis after giving effect to
such transaction (and treating any Indebtedness not previously an obligation of
the Company or any Restricted Subsidiary in connection with or as a result of
such transaction as having been Incurred at the time of such transaction), no
Default or Event of Default shall have occurred and be continuing; and
(3) immediately after giving effect to any such transaction including
the Incurrence by the Company or any Restricted Subsidiary, directly or
indirectly, of additional Indebtedness (and treating any Indebtedness not
previously an obligation of the Company or any Restricted Subsidiary in
connection with or as a result of such transaction as having been Incurred at
the time of such transaction), the Surviving Person could Incur, on a pro forma
basis after giving effect to such transaction, at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under "Certain Covenants --
Limitation on Indebtedness and Issuance of Disqualified Capital Stock" above.
Notwithstanding the provisions of clause (3) of the immediately
preceding paragraph, any Restricted Subsidiary may consolidate with, merge into
or transfer all or part of its assets to the Company or another Restricted
Subsidiary.
For purposes of the foregoing, the transfer (by lease, assignment, sale
or otherwise, in a single transaction or series of transactions) of all or
substantially all the assets of one or more Restricted Subsidiaries the Capital
Stock of which constitute all or substantially all the assets of the Company
shall be deemed to be the transfer of all or substantially all the assets of the
Company.
A Guarantor may not sell, convey, assign, transfer, lease or otherwise
dispose of all or substantially all of its assets to, or consolidate with or
merge with or into (whether or not such Guarantor is the Surviving Person),
another Person unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(2) either:
(a) in the case of a sale, conveyance, assignment, transfer, lease or
other disposition of all or substantially all of such Guarantor's assets, the
Net Cash Proceeds of such sale or other disposition are applied in accordance
with the applicable provisions of the Indenture; or
(b) in the case of a consolidation with or merger into another Person,
either (i) such Guarantor shall be the Surviving Person or (ii) the Surviving
Person (if other than such Guarantor) shall be a corporation, partnership,
company or trust organized and validly existing under the laws of the United
States of America or any State thereof or the District of Columbia, and shall,
in any such case, expressly assume by a supplemental indenture reasonably
satisfactory to the Trustee all obligations of such Guarantor under its
Guarantee and the performance and observance of every covenant of the Indenture
and the Registration Rights Agreement to be performed or observed on the part of
such Guarantor.
In connection with any consolidation, merger, transfer, lease or other
disposition contemplated hereby, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger, transfer, lease or other disposition and the
supplemental indenture in respect thereof comply with the requirements under the
Indenture. In addition, each Guarantor, in the case of a transaction described
in the first paragraph hereunder, unless it is the other party to the
transaction or unless its Guarantee will be released and discharged in
accordance with its terms as a result of the transaction, will be required to
confirm, by supplemental indenture, that its Guarantee will continue to apply to
the obligations of the Company or the Surviving Person under the Indenture.
Upon any consolidation or merger of the Company or any Guarantor or any
transfer of all or substantially all of the assets of the Company in accordance
with the foregoing in which the Company or a Guarantor is not the
97
Surviving Person, the Surviving Person shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under the Indenture, the
Notes and the Registration Rights Agreement or such Guarantor under the
Indenture, the Guarantee of such Guarantor and the Registration Rights
Agreement, as the case may be, with the same effect as if such successor
corporation had been named as the Company or such Guarantor, as the case may be,
therein; and thereafter except in the case of a lease, the Company shall be
discharged from all obligations and covenants under the Indenture, the Notes and
the Registration Rights Agreement and such Guarantor shall be discharged from
all obligations and covenants under the Indenture, the Registration Rights
Agreement and the Guarantee of such Guarantor, as the case may be.
For all purposes of the Indenture and the Notes (including the
provision of this covenant and the covenants described under "Certain Covenants
- -- Limitation on Indebtedness and Issuance of Disqualified Capital Stock,"
"Certain Covenants -- Limitation on Restricted Payments" and "Certain Covenants
- -- Limitation on Liens"), Subsidiaries of any Surviving Person shall, upon such
transaction or series of related transactions, become Restricted Subsidiaries
unless and until designated as Unrestricted Subsidiaries pursuant to and in
accordance with the terms of the Indenture and all Indebtedness, and all Liens
on assets, of the Company and the Restricted Subsidiaries in existence
immediately prior to such transaction or series of related transactions will be
deemed to have been Incurred upon such transaction or series of related
transactions.
EVENTS OF DEFAULT
The occurrence of any of the following will be defined as an "Event of
Default" under the Indenture:
(1) failure to pay principal of (or premium, if any, on) any Note when
due and payable, whether at its Stated Maturity, upon optional redemption, upon
required purchase, upon acceleration or otherwise;
(2) failure to pay any interest on any Note when due and payable, and
such failure continues for 60 days or more;
(3) failure to perform or comply with any of the provisions described
under "Repurchase at the Option of the Holders -- Change of Control,"
"Repurchase at the Option of the Holders -- Asset Sales" or "Merger, Sale of
Assets, etc." above;
(4) failure to perform any other covenant, warranty or agreement of the
Company or a Guarantor under the Indenture, in the Notes or in a Guarantee
(other than those defaults specified in clause (1), (2) or (3) above) continued
for 60 days or more after written notice to the Company by the Trustee or to the
Trustee and the Company by Holders of at least 25% in aggregate principal amount
of the then outstanding Notes;
(5) a default or defaults under the terms of one or more instruments
evidencing or securing Indebtedness of the Company or any of the Restricted
Subsidiaries having an outstanding principal amount of greater than $10.0
million individually or in the aggregate, which default (A) is caused by a
failure to pay at final maturity principal on such Indebtedness within the
applicable express grace period, (B) results in the acceleration of such
Indebtedness prior to its express final maturity or (C) results in the
commencement of judicial proceedings to foreclose upon, or to exercise remedies
under applicable law or applicable security documents to take ownership of, the
assets securing such Indebtedness;
(6) the rendering of a final judgment or judgments (not subject to
appeal) against the Company or any of the Restricted Subsidiaries in an amount
of greater than $10.0 million which remain undischarged or unstayed for a period
of 60 days after the date on which the right to appeal has expired;
(7) a Guarantee ceases to be in full force and effect or is declared to
be null and void and unenforceable or a Guarantee is found to be invalid or a
Guarantor denies its liability under its Guarantee or gives notice to that
effect (other than by reason of release of the Guarantor in accordance with the
terms of the Indenture); or
(8) certain events of bankruptcy, insolvency or reorganization
affecting the Company or any of its Significant Subsidiaries.
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Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the Holders of Notes,
unless such Holders shall have offered to the Trustee reasonable indemnity.
Subject to such provisions for the indemnification of the Trustee, the Holders
of a majority in aggregate principal amount of the outstanding Notes will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power conferred
on such Trustee.
If an Event of Default with respect to the Notes (other than an Event
of Default with respect to the Company or any Guarantor that is a Significant
Subsidiary described in clause (8) of the first paragraph of this section)
occurs and is continuing, the Trustee or the Holders of at least 25% in
aggregate principal amount of the outstanding Notes, by notice in writing to the
Trustee and the Company, may declare the unpaid principal of (and premium, if
any) and accrued interest to the date of acceleration on all the outstanding
Notes to be due and payable immediately. If an Event or Default specified in
clause (8) of the first paragraph of this section with respect to the Company or
any Guarantor that is a Significant Subsidiary occurs under the Indenture, the
Notes will automatically become immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder of the Notes.
Any such declaration with respect to the Notes may be rescinded or
annulled by the Holders of a majority in aggregate principal amount of the
outstanding Notes if all Defaults and Events of Default, other than the
nonpayment of accelerated principal and interest, have been cured or waived as
provided in the Indenture, and certain other conditions specified in the
Indenture are satisfied.
The Indenture will provide that the Trustee shall, within 30 days after
the occurrence of any Default or Event of Default with respect to the Notes
outstanding, give the Holders of the Notes thereof notice of all uncured
Defaults or Events of Default thereunder known to it. Except in the case of a
Default or an Event of Default in payment with respect to the Notes or a Default
or Event of Default in complying with "Merger, Sale of Assets, etc." above, the
Trustee may withhold such notice if and so long as a committee of its trust
officers in good faith determines that the withholding of such notice is in the
interest of the Holders of the Notes.
No Holder of any Note will have any right to institute any proceeding
with respect to the Indenture or for any remedy thereunder, unless such Holder
shall have previously given to the Trustee written notice of a continuing Event
of Default thereunder and unless the Holders of at least 25% of the aggregate
principal amount of the outstanding Notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as the
Trustee, and the Trustee shall have not have received from the Holders of a
majority in aggregate principal amount of such outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a Holder of such a Note for enforcement of payment of the
principal of and premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note.
The Company will be required to furnish to the Trustee annually a
statement as to the performance by it of certain of its obligations under the
Indenture and as to any default in such performance. The Company is also
required to notify the Trustee within 30 days of becoming aware of a Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the
Company or any of its Affiliates, as such, shall have any liability for any
obligations of the Company or any of its Affiliates under the Notes or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Indenture will be discharged and the Company's substantive
obligations in respect of the Notes will cease when:
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(1) either (A) all Notes theretofore authenticated and delivered have
been delivered to the Trustee for cancellation or (B) all Notes not previously
delivered to the Trustee for cancellation (i) have become due and payable, (ii)
will become due and payable at their Stated Maturity within one year or (iii)
are to be called for redemption within one year under arrangements satisfactory
to the Trustee for the giving of notice of redemption by the Trustee in the
name, and at the expense of, the Company;
(2) the Company has deposited or caused to be deposited with the
Trustee, in trust for the benefit of the Holders of the Notes, all sums payable
by it on account of principal of, premium, if any, and interest on all Notes
(except lost, stolen or destroyed Notes which have been replaced or paid) or
otherwise, together with irrevocable instructions from the Company directing the
Trustee to apply such funds to the payment thereof at the Stated Maturity or
redemption date, as the case may be; and
(3) the Company complies with certain other requirements set forth in
the Indenture.
In addition to the foregoing, provided that no Default or Event of
Default has occurred and is continuing or would arise therefrom (or, with
respect to a Default or Event of Default specified in clause (8) of "Events of
Default" above, occurs at any time on or prior to the 91st calendar day after
the date the Company deposits with the Trustee all sums payable by it on account
of principal of, premium, if any, and interest on all Notes or otherwise (it
being understood that this condition shall not be deemed satisfied until after
such 91st day)) under the Indenture and provided that no default under any other
Indebtedness of the Company would result therefrom, the Company may terminate
its substantive covenant obligations in respect of the Notes (except for its
obligations to pay the principal of (and premium, if any, on) and the interest
on the Notes) by:
(1) depositing with the Trustee, under the terms of an irrevocable
trust agreement, money or United States Government Obligations sufficient
(without reinvestment) to pay all remaining Indebtedness on such Notes;
(2) delivering to the Trustee either an Opinion of Counsel or a ruling
directed to the Trustee from the Internal Revenue Service to the effect that the
Holders of the Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such deposit and termination of obligations; and
(3) complying with certain other requirements set forth in the
Indenture.
GOVERNING LAW AND SUBMISSION TO JURISDICTION
The Indenture, the Notes and the Guarantees will be governed by and
construed in accordance with the laws of the State of New York.
MODIFICATION AND WAIVER
The Indenture may be amended by the Company, the Guarantors and the
Trustee, without the consent of any Holder, to, among other things:
(1) cure any ambiguity, defect or inconsistency in the Indenture;
(2) evidence the obligations of a new Guarantor to comply with the
provisions described under "Certain Covenants -- Subsidiary Guarantees" or to
evidence the succession of another Person to the Company or a Guarantor and the
assumption by any such successor of the applicable obligations under the
Indenture in accordance with "Merger, Sale of Assets, etc.";
(3) comply with any requirements of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act;
(4) evidence and provide for the acceptance of appointment by a
successor Trustee;
(5) provide for uncertificated Notes in addition to certificated Notes;
or
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(6) make any other change that would provide any additional benefit or
rights to the Holders or that does not materially adversely affect the rights of
any Holder.
Modifications and amendments of the Indenture may be made by the
Company, the Guarantors and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the outstanding Notes (including
consents obtained in connection with a tender offer or exchange offer for the
Notes); provided, however, that no such modification or amendment to the
Indenture may, without the consent of the Holder of each Note affected thereby:
(1) change the maturity of the principal of any such Note;
(2) reduce the principal amount of (or the premium on) any such Note;
(3) reduce the rate of or extend the time for payment of interest on
any such Note;
(4) reduce the premium payable upon the redemption of any Note or
change the time at which any Note may be redeemed as described under "Optional
Redemption" above;
(5) change the currency of payment of principal of (or premium on) or
interest on any such Note;
(6) impair the right of the Holders of Notes to receive payment of
principal of and interest on such Holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to any such Note;
(7) reduce the percentage of the principal amount of outstanding Notes
necessary for amendment to or waiver of compliance with any provision of the
Indenture or the Notes or for waiver of any Default or Event of Default in
respect thereof;
(8) waive a default in the payment of principal of, interest on, or
redemption payment with respect to, the Notes (except a rescission of
acceleration of the Notes by the Holders thereof as provided in the Indenture
and a waiver of the payment default that resulted from such acceleration);
(9) cause the Notes or the Guarantees to become subordinate in right of
payment to any other Indebtedness;
(10) following an event or circumstance which may give rise to the
requirement to make a Change of Control Offer or Net Proceeds Offer, modify the
provisions of any covenant (or the related definitions) in the Indenture
requiring the Company to make a Change of Control Offer or Net Proceeds Offer in
a manner materially adverse to the Holders of Notes affected thereby;
(11) release any Guarantor from any of its obligations under its
Guarantee or the Indenture otherwise than in accordance with the terms of the
Indenture; or
(12) make any change in the amendment or waiver provisions of the
Indenture.
The Holders of a majority in aggregate principal amount of the
outstanding Notes, on behalf of all Holders of Notes, may waive compliance by
the Company with certain restrictive provisions of the Indenture. Subject to
certain rights of the Trustee, as provided in the Indenture, the Holders of a
majority in aggregate principal amount of the Notes, on behalf of all Holders,
may waive any past default under the Indenture (including any such waiver
obtained in connection with a tender offer or exchange offer for the Notes),
except a default in the payment of principal, premium or interest or a default
arising from failure to purchase any Notes tendered pursuant to a Change of
Control Offer or a Net Proceeds Offer, or a default in respect of a provision
that under the Indenture cannot be modified or amended without the consent of
the Holder of each Note that is affected.
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THE TRUSTEE
Except during the continuance of a Default, the Trustee will perform
only such duties as are specifically set forth in the Indenture. During the
existence of a Default, the Trustee will exercise such rights and powers vested
in it under the Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture contains limitations on the rights of the Trustee, should
it become a creditor of the Company, or any other obligor upon the Notes, to
obtain payment of claims in certain cases or to realize on certain assets
received by it in respect of any such claim as security or otherwise. The
Trustee will be permitted to engage in other transactions with the Company or an
Affiliate of the Company; provided, however, that if it acquires any conflicting
interest, it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. The
Indenture contains a full definition of all such terms, as well as any other
capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (1) assumed in
connection with an Acquisition of such Person or (2) existing at the time such
Person becomes a Restricted Subsidiary or is consolidated with or merged into
the Company or any Restricted Subsidiary, whether or not such Indebtedness was
Incurred in connection with, or in contemplation of, such transaction.
"Acquired Person" means, with respect to any specified Person, any
other Person which merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (1) any capital contribution (by means of transfers
of cash or other assets to others or payments for assets or services for the
account or use of others, or otherwise) by the Company or any Restricted
Subsidiary to any other Person, or any acquisition or purchase of Capital Stock
of any other Person by the Company or any Restricted Subsidiary, in either case
pursuant to which such Person shall become a Restricted Subsidiary or shall be
consolidated or amalgamated with or merged into the Company or any Restricted
Subsidiary or (2) any acquisition by the Company or any Restricted Subsidiary of
the assets of any Person which constitute substantially all of an operating unit
or line of business of such Person or which is otherwise outside of the ordinary
course of business.
"Additional Interest" has the meaning provided in the Registration
Rights Agreement.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Affiliate Transaction" has the meaning set forth under "Certain
Covenants -- Transactions with Affiliates" above.
"Alternate Offer" has the meaning set forth under "Repurchase at the
Option of the Holders -- Change of Control" above.
"Asset Sale" means any direct or indirect sale, conveyance, transfer,
lease (that has the effect of a disposition) or other disposition (including,
without limitation, any merger, consolidation or Sale/Leaseback Transaction or
upon any condemnation, eminent domain or similar proceedings) to any Person
other than the Company or a Restricted Subsidiary, in one transaction or a
series of related transactions, of:
(1) any Capital Stock of any Subsidiary (other than directors'
qualifying shares);
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(2) any assets of the Company or any Restricted Subsidiary which
constitute substantially all of an operating unit or line of business of the
Company or any Restricted Subsidiary; or
(3) any other assets (including without limitation intellectual
property) or asset of the Company or any Restricted Subsidiary outside of the
ordinary course of business.
For the purposes of this definition, the term "Asset Sale" shall not
include:
(A) any transaction consummated in compliance with "Merger, Sale of
Assets, etc." above and the creation of and foreclosure on any Lien not
prohibited by "Certain Covenants -- Limitation on Liens" above;
(B) sales of property or equipment that, in the reasonable
determination of the Company, has become worn out, obsolete or damaged or
otherwise unsuitable for use in connection with the business of the Company or
any Restricted Subsidiary;
(C) any Permitted Investment or any Restricted Payment not prohibited
by "Certain Covenants -- Limitation on Restricted Payments" above;
(D) any transaction or series of related transactions involving assets
with a Fair Market Value not in excess of $2.0 million;
(E) any operating lease or sublease;
(F) the surrender or waiver of contract rights or the settlement,
release or surrender of contract, tort or other claims of any kind;
(G) the licensing or sublicensing of intellectual property or other
general intangibles;
(H) sales or other dispositions of Cash Equivalents, inventory,
receivables and other current assets in the ordinary course of business; and
(I) any transaction between or among the Company and/or one or more
Restricted Subsidiaries.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which such
lease has been extended).
"Board of Directors" means, with respect to any Person, (i) in the case
of any corporation, the board of directors of such Person, (ii) in the case of
any limited liability company, the board of managers of such Person, (iii) in
the case of any partnership, the Board of Directors of the general partner of
such Person and (iv) in any other case, the functional equivalent of the
foregoing.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person or a duly authorized
committee thereof, as applicable.
"Business Day" means a day that is not a Saturday, a Sunday or a day on
which (i) commercial banking institutions in New York, New York are authorized
or required by law to be closed or (ii) the New York Stock Exchange is not open
for trading.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a lease that would at
such time be required to be capitalized on a balance sheet prepared in
accordance with GAAP.
"Capital Stock" in any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
103
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Capital Stock and any right or interest
which is classified as equity in accordance with GAAP.
"Cash Equivalents" means
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States government or issued by any agency or
instrumentality thereof and backed by the full faith and credit of the United
States, in each case maturing within one year from the date of acquisition
thereof;
(2) marketable direct obligations issued by any state of the United
States of America or by the District of Columbia maturing within one year from
the date of acquisition thereof and, at the time of acquisition, having one of
the two highest ratings obtainable from either S&P or Moody's;
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at least
A-1 from S&P or a rating of at least P-1 from Moody's;
(4) investments in time deposit accounts, term deposit accounts, money
market deposit accounts, certificates of deposit or bankers' acceptances
maturing within one year from the date of acquisition thereof issued by any bank
organized under the laws of the United States of America or any state thereof or
the District of Columbia having at the date of acquisition thereof combined
capital and surplus of not less than $500.0 million;
(5) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered into
with any bank meeting the qualifications specified in clause (4) above; and
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in any of clauses (1) through
(5) above.
"Change of Control" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company):
(1) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have beneficial ownership of all shares that such Person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of Voting Stock representing 50% or
more of the total voting power of all outstanding Voting Stock of the Company;
or
(2) the Company consolidates with, or merges with or into, another
Person (other than a Wholly Owned Restricted Subsidiary) or the Company and/or
one or more the Restricted Subsidiaries sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of the assets of the Company and
the Restricted Subsidiaries (determined on a consolidated basis) to any Person
(other than the Company or a Wholly Owned Restricted Subsidiary), other than any
such transaction where immediately after such transaction the Person or Persons
that "beneficially owned" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) immediately prior to such transaction, directly or indirectly,
Voting Stock representing a majority of the total voting power of all
outstanding Voting Stock of the Company, "beneficially own or owns" (as so
determined), directly or indirectly, Voting Stock representing a majority of the
total voting power of the outstanding Voting Stock of the surviving or
transferee Person; or
(3) during any consecutive two-year period, the Continuing Directors
cease for any reason to constitute a majority of the Board of Directors of the
Company; or
(4) the adoption of a plan of liquidation or dissolution of the
Company.
"Change of Control Date" has the meaning set forth under "Repurchase at
the Option of the Holders -- Change of Control" above.
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"Change of Control Offer" has the meaning set forth under "Repurchase
at the Option of the Holders -- Change of Control" above.
"Change of Control Purchase Date" has the meaning set forth under
"Repurchase at the Option of the Holders -- Change of Control" above.
"Change of Control Purchase Price" has the meaning set forth under
"Repurchase at the Option of the Holders -- Change of Control" above.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated EBITDA for the latest
four-quarter period for which financial statements are available ending prior to
the date of such determination (the "Four-Quarter Period") to (ii) Consolidated
Interest Expense for such Four-Quarter Period; provided, however, that:
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness or issued any Disqualified Capital Stock since the beginning of
such Four-Quarter Period that remains outstanding on such date of determination
or if the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio involves an Incurrence of Indebtedness or an issuance of
Disqualified Capital Stock, Consolidated EBITDA and Consolidated Interest
Expense for such Four-Quarter Period shall be calculated after giving effect on
a pro forma basis to such Indebtedness or such Disqualified Capital Stock as if
such Indebtedness or such Disqualified Capital Stock had been Incurred on the
first day of such Four-Quarter Period,
(2) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased, retired or otherwise discharged (a "Discharge") any
Indebtedness or Disqualified Capital Stock since the beginning of such
Four-Quarter Period that no longer remains outstanding on such date of
determination or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio involves a Discharge of Indebtedness or Disqualified
Capital Stock, Consolidated EBITDA and Consolidated Interest Expense for such
Four-Quarter Period shall be calculated after giving effect on a pro forma basis
to such Discharge of Indebtedness or Disqualified Capital Stock, including with
the proceeds of any new Indebtedness, as if such Discharge (and Incurrence of
new Indebtedness or Disqualified Capital Stock, if any) had occurred on the
first day of such Four-Quarter Period,
(3) if since the beginning of such Four-Quarter Period the Company or
any Restricted Subsidiary shall have effected any asset sale, Consolidated
EBITDA for such Four-Quarter Period shall be reduced by an amount equal to the
Consolidated EBITDA (if positive) directly attributable to the assets that are
the subject of such asset sale for such Four-Quarter Period or increased by an
amount equal to the Consolidated EBITDA (if negative) directly attributable
thereto for such Four-Quarter Period, and Consolidated Interest Expense for such
Four-Quarter Period shall be reduced by an amount equal to the Consolidated
Interest Expense directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased or otherwise discharged with respect
to the Company and its continuing Restricted Subsidiaries in connection with
such asset sale for such Four-Quarter Period (or, if the Capital Stock of any
Restricted Subsidiary is sold, the Consolidated Interest Expense for such
Four-Quarter Period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent the Company and its continuing Restricted Subsidiaries
are no longer liable for such Indebtedness after such sale),
(4) if since the beginning of such Four-Quarter Period the Company or
any Restricted Subsidiary (by merger or otherwise) shall have made an Investment
in any Restricted Subsidiary (or any Person that becomes a Restricted
Subsidiary) or an Acquisition, including any Acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder,
Consolidated EBITDA and Consolidated Interest Expense for such Four-Quarter
Period shall be calculated after giving pro forma effect thereto (including the
Incurrence of any Indebtedness) as if such Investment or acquisition occurred on
the first day of such Four-Quarter Period and
(5) if since the beginning of such Four-Quarter Period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such Four-Quarter
Period) shall have made any asset sale or any Investment or Acquisition that
would have required an adjustment pursuant to clause (3) or (4) above if made by
the Company or a Restricted Subsidiary during such Four-Quarter Period,
Consolidated EBITDA and Consolidated Interest Expense for such Four-Quarter
Period shall be calculated after giving pro forma effect thereto as if such
Asset Sale, Investment or Acquisition occurred on, with
105
respect to any Investment or Acquisition, the first day of such Four-Quarter
Period and, with respect to any asset sale, the first day of such Four-Quarter
Period.
For purposes of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the amount of income or earnings relating
thereto and the amount of Consolidated Interest Expense associated with any
Indebtedness Incurred in connection therewith, the pro forma calculations shall
be determined in accordance with Regulation S-X under the Securities Act. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any agreement under which Hedging Obligations
relating to interest are outstanding applicable to such Indebtedness if such
agreement under which such Hedging Obligations are outstanding has a remaining
term as at the date of determination in excess of 12 months).
"Consolidated EBITDA" means, for any period, the Consolidated Net
Income for such period, minus any non-cash item increasing Consolidated Net
Income during such period, (A) plus the following, to the extent deducted in
calculating such Consolidated Net Income:
(1) Consolidated Income Tax Expense for such period;
(2) Consolidated Interest Expense for such period;
(3) depreciation expense for such period;
(4) amortization expense for such period;
(5) all other non-cash items reducing Consolidated Net Income for such
period (other than any non-cash item requiring an accrual or a reserve for cash
disbursements in any future period); and
(6) severance and other unusual charges for such period, to the extent
recorded prior to the first anniversary of the Issue Date and relating to plant
closures of the Company or any Restricted Subsidiary; minus
(B) all non-cash items increasing Consolidated Net Income for such period.
"Consolidated Income Tax Expense" means, with respect to the Company
for any period, the provision for federal, provincial, state, local and foreign
income taxes payable by the Company and the Restricted Subsidiaries for such
period as determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to the Company for
any period, without duplication, the sum of:
(1) the interest expense of the Company and the Restricted Subsidiaries
for such period as determined on a consolidated basis in accordance with GAAP,
including, without limitation, (a) the net cost under Hedging Obligations
relating to interest (including any amortizations of discounts, but excluding
any mark-to-market adjustments), (b) the interest portion of any deferred
payment obligation, (c) all commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance financing, (d)
all capitalized interest and all accrued interest and (e) the accretion of any
original issue discount on any Indebtedness;
(2) the interest component of Capital Lease Obligations paid, accrued
and/or scheduled to be paid or accrued by the Company and the Restricted
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP;
(3) the product of (x) the amount of dividends and distributions paid
or accrued in respect of Disqualified Capital Stock of the Company or Preferred
Capital Stock of any Restricted Subsidiary (other than dividends or
distributions consisting solely of Qualified Capital Stock) during such period
as determined on a consolidated basis in accordance with GAAP and (y) a
fraction, the numerator of which is one and the denominator of which is one
106
minus the then current effective consolidated federal, provincial, state and
local tax rate of the Company, expressed as a decimal; and
(4) all interest on any Indebtedness described in clause (7) or (8) of
the definition of "Indebtedness";
excluding, however, (i) any premiums, fees and expenses (and any amortization
thereof), including the costs to terminate interest rate swaps, incurred in
connection with the refinancing transactions described in this prospectus to
occur on the Issue Date and entering into of the European Credit Facility
described in this prospectus and (ii) the portion of interest expense at
non-Wholly Owned Restricted Subsidiaries equal to the percentage of outstanding
Voting Stock of such Restricted Subsidiary held by Persons other than the
Company, any Subsidiary of the Company or Affiliates of the Company or any of
its Subsidiaries. Notwithstanding anything to the contrary, in the event that
the Redeemable Convertible Preferred Stock is reclassified as indebtedness
pursuant to SFAS 150 or otherwise in accordance with GAAP and dividends thereon
are deemed to constitute interest under GAAP, such dividends shall be excluded
from the calculation of Consolidated Interest Expense.
"Consolidated Net Income" means, for any period, the consolidated net
income (loss) of the Company and the Restricted Subsidiaries (which, for the
avoidance of doubt, shall be after deduction of minority interests in Restricted
Subsidiaries held by third parties) for such period determined in accordance
with GAAP; provided, however, that there shall not be included in calculating
such Consolidated Net Income:
(1) any net income (loss) of any Person other than the Company or a
Restricted Subsidiary, except to the extent of the amount of cash actually
distributed by such Person during such period to the Company or (subject to the
limitation in clause (2) below) a Restricted Subsidiary as a dividend or other
distribution;
(2) for purposes of the covenant described under "Certain Covenants --
Limitation on Restricted Payments," any net income (but not loss) of any
Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions,
directly or indirectly, precluding the payment of dividends or the making of
distributions by such Restricted Subsidiary, directly or indirectly, to the
Company to the extent of such limitations or restrictions;
(3) any gain or loss realized upon the sale or other disposition of any
asset of the Company or any Restricted Subsidiary (including pursuant to any
Sale/Leaseback Transaction) that is not sold or otherwise disposed of in the
ordinary course of business and any gain or loss realized upon the sale or other
disposition of any Capital Stock of any Person;
(4) any extraordinary gain or loss;
(5) the cumulative effect of a change in accounting principles; and
(6) unrealized gains or losses in respect of Hedging Obligations
permitted by clause (6) of the "Certain Covenants -- Limitation on Indebtedness
and Issuance of Disqualified Capital Stock" covenant as recorded on the
statement of operations in accordance with GAAP;
provided, however, that in the case of clauses (3), (4) and (6) such amount or
charge shall be net of any tax or tax benefit to the Company (less all fees and
expenses relating to such transaction) or any Restricted Subsidiary resulting
therefrom.
"Consolidated Tangible Assets" means, at any date, the total assets
(less accumulated depreciation and valuation reserves and other reserves and
items deductible from gross book value of specific asset accounts under GAAP) of
the Company and the Restricted Subsidiaries, after deducting therefrom all
goodwill, trade names, trademarks, patents, unamortized debt discount,
organization expenses and other like intangibles of the Company and the
Restricted Subsidiaries, all calculated in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who was (1) a member of such
Board of Directors on the Issue Date or (2) nominated for election or elected to
such Board of Directors with the approval of a majority of the Continuing
Directors who were members of such board at the time of such nomination or
election.
107
"Credit Facilities" means one or more of U.S. Credit Facilities and/or
European Credit Facilities.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designation" has the meaning set forth under "Certain Covenants --
Designation of Unrestricted Subsidiaries" above.
"Designation Amount" has the meaning set forth in the definition of
"Investment."
"Disposition" means, with respect to any Person, any merger,
consolidation, amalgamation or other business combination involving such Person
(whether or not such Person is the Surviving Person) or the sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
such Person's assets.
"Disqualified Capital Stock" means any Capital Stock which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable at the option of the holder thereof), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof, in
whole or in part, or exchangeable into Indebtedness on or prior to the date
which is 91 days after the Stated Maturity of the principal of the Notes;
provided, however, that any Capital Stock that would not constitute Disqualified
Capital Stock but for provisions thereof giving holders thereof the right to
require the issuer to purchase or redeem such Capital Stock upon the occurrence
of an "asset sale" or "change of control" occurring prior to the maturity date
of the Notes shall not constitute Disqualified Capital Stock if (1) the "asset
sale" or "change of control" provisions applicable to such Capital Stock are not
more favorable in any material respect to the holders of such Capital Stock than
the terms applicable to the Notes and described under the captions "Repurchase
at the Option of the Holders -- Change of Control" and "Repurchase at the Option
of the Holders -- Asset Sales" and (2) any such requirement becomes operative
only after compliance with such terms applicable to the Notes, including the
prior completion of any offer to purchase Notes pursuant to a Change of Control
Offer or a Net Proceeds Offer.
"Domestic Subsidiary" means a Subsidiary incorporated or organized
under the laws of the United States of America, any State thereof or the
District of Columbia.
"European Credit Facility" means one or more debt facilities providing
for senior revolving credit loans, senior term loans and/or letters of credit to
one or more Foreign Subsidiaries, as borrower or borrowers and guarantors
thereunder, including any notes, guarantees, collateral and security documents,
instruments and agreements executed in connection therewith (including Hedging
Obligations related to the Indebtedness incurred thereunder), as amended,
amended and restated, supplemented, modified, refinanced, replaced or otherwise
restructured, in whole or in part from time to time, including increasing the
amount of available borrowings thereunder or adding other Foreign Subsidiaries
as additional borrowers or guarantors thereunder, with respect to all or any
portion of the Indebtedness under such facilities or any successor or
replacement facilities and whether with the same or any other agent, lender or
group of lenders.
"Excess" has the meaning set forth under "Repurchase at the Option of
the Holders -- Asset Sales."
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Existing Indebtedness" means (i) any Indebtedness of the Company and
the Restricted Subsidiaries in existence on the Issue Date (after giving effect
to the use of proceeds of the offering of the Notes and the other financing
transactions on the Issue Date) until such amounts are repaid and (ii) up to
(euro)20.0 million of Indebtedness which may, from time to time, be borrowed
under the Company's European accounts receivable facility existing as of the
Issue Date.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction;
108
provided, however, that the Fair Market Value of any such asset or assets in
excess of $1.0 million shall be determined conclusively by the Board of
Directors of the Company (or a duly authorized committee thereof) acting in good
faith, and shall be evidenced by a Board Resolution delivered to the Trustee.
"Foreign Subsidiary" means any Subsidiary that is not a Domestic
Subsidiary.
"Four-Quarter Period" has the meaning set forth in the definition of
"Consolidated Coverage Ratio" above.
"GAAP" means, at any date of determination, generally accepted
accounting principles in effect in the United States at such time and which are
consistently applied.
"guarantee" means, as applied to any obligation, (1) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (2) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. A guarantee shall include,
without limitation, any agreement to maintain or preserve any other Person's
financial condition or to cause any other Person to achieve certain levels of
operating results.
"Guarantee" means the senior guarantee by each Guarantor of the
Company's payment obligations under the Indenture and the Notes, executed
pursuant to the Indenture.
"Guarantors" means each of:
(1) Diversified Contractors, Inc., a Delaware corporation;
Genca Corporation, a Delaware corporation;
General Cable Canada, Ltd. (Ontario), an Ontario corporation;
General Cable Company, a Nova Scotia corporation;
General Cable de Mexico del Norte, S.A. de C.V., a Mexico
corporation;
General Cable de Latinoamerica, S.A. de C.V., a Mexico
corporation;
General Cable Industries, Inc., a Delaware corporation;
General Cable Industries, LLC, a Delaware limited liability
company;
General Cable Management LLC, a Delaware limited liability
company;
General Cable Overseas Holdings, Inc., a Delaware corporation;
General Cable Technologies Corporation, a Delaware corporation;
General Cable Texas Operations, L.P., a Delaware limited
partnership;
GK Technologies, Incorporated, a New Jersey corporation;
Marathon Steel Company, an Arizona corporation;
Marathon Manufacturing Holdings, Inc., a Delaware corporation;
and
MLTC Company, a Delaware corporation; and
(2) any other Subsidiary that executes a Guarantee in accordance with
the provisions of the Indenture;
and their respective successors and assigns, in each case, until such Person is
released from its Guarantee in accordance with the terms of the Indenture.
"Hedging Obligations" means, with respect to any Person, the
Obligations of such Person under (1) interest rate swap agreements, interest
rate cap agreements, interest rate collar agreements and similar agreements or
arrangements and (2) foreign currency or commodity hedge, swap, exchange and
similar agreements (agreements referred to in this definition being referred to
herein as "Hedging Agreements").
"Holder" means the registered holder of any Note.
"Incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
109
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing). Indebtedness of any Acquired Person or any of its
Subsidiaries existing at the time such Acquired Person becomes a Restricted
Subsidiary (or is merged into or consolidated with the Company or any Restricted
Subsidiary), whether or not such Indebtedness was Incurred in connection with,
as a result of, or in contemplation of, such Acquired Person becoming a
Restricted Subsidiary (or being merged into or consolidated or amalgamated with
the Company or any Restricted Subsidiary), shall be deemed Incurred at the time
any such Acquired Person becomes a Restricted Subsidiary or merges into or
consolidates or amalgamates with the Company or any Restricted Subsidiary. The
accrual of interest and the accretion or amortization of original issue discount
will not be deemed to be an Incurrence of Indebtedness; provided, however, in
each such case, that the amount thereof is included in Consolidated Interest
Expense as accrued. For the avoidance of doubt, the reclassification of the
Redeemable Convertible Preferred Stock pursuant to SFAS 150 or otherwise in
accordance with GAAP shall not be an Incurrence of Indebtedness under the
Indenture.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent:
(1) every obligation of such Person for money borrowed;
(2) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in connection
with the acquisition of assets or businesses by such Person;
(3) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such Person;
(4) every obligation of such Person issued or assumed as the deferred
purchase price of assets or services (but excluding (A) earnout or other similar
obligations until such time as the amount of such obligation is capable of being
determined and its payment is probable, (B) trade accounts payable incurred in
the ordinary course of business and payable in accordance with industry
practices (including, so long as not treated as Indebtedness in accordance with
GAAP, trade payables subject to the payables extension facility described in
this prospectus under "Management's discussion and analysis of financial
condition -- Liquidity and capital resources"), or (C) other accrued liabilities
arising in the ordinary course of business which are not overdue or which are
being contested in good faith);
(5) every Capital Lease Obligation of such Person, including, without
limitation, from Sale/Leaseback Transactions;
(6) every net obligation payable under Hedging Agreements of such
Person;
(7) every obligation of the type referred to in clauses (1) through (6)
of another Person and all dividends of another Person the payment of which, in
either case, such Person has guaranteed or is responsible or liable for,
directly or indirectly, as obligor, guarantor or otherwise, the amount of such
obligation being the maximum amount covered by such guarantee or for which such
Person is otherwise liable; and
(8) every obligation of the type referred to in clauses (1) through (7)
above of another Person the payment of which is secured by the assets of that
Person, the amount of such obligation being deemed to be the lesser of (i) the
Fair Market Value of such asset or (ii) the amount of the obligation so secured.
Indebtedness:
(A) shall never be calculated taking into account any cash and cash
equivalents held by such Person;
(B) shall not include obligations of any Person (1) arising from the
honoring by a bank or other financial institution of a check, draft or similar
instrument inadvertently drawn against insufficient funds in the ordinary course
of business, provided that such obligations are extinguished within 5 Business
Days of their Incurrence, (2) resulting from the endorsement of negotiable
instruments for collection in the ordinary course of business and
110
consistent with past business practices and (3) under standby letters of credit
to the extent collateralized by cash or Cash Equivalents;
(C) shall include the liquidation preference and any mandatory
redemption payment obligations in respect of any Disqualified Capital Stock of
the Company or any Preferred Capital Stock of any Restricted Subsidiary;
(D) shall not include any liability for federal, provincial, state,
local or other taxes; and
(E) shall not include obligations under performance bonds, performance
guarantees, surety bonds and appeal bonds, letters of credit or similar
obligations, incurred in the ordinary course of business.
"Independent Financial Advisor" means a nationally recognized
accounting, appraisal or investment banking firm or consultant in the United
States that is, in the judgment of the Company's Board of Directors, qualified
to perform the task for which it has been engaged (1) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (2) which, in the judgment of the
Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"interest" means, with respect to the Notes, the sum of any cash
interest and any Additional Interest on the Notes.
"Investment" means, with respect to any Person, any direct or indirect
loan, advance, guarantee or other extension of credit (in each case other than
in connection with an acquisition of property or assets that does not otherwise
constitute an Investment) or capital contribution to (by means of transfers of
cash or other property or assets to others or payments for property or services
for the account or use of others, or otherwise), or purchase or acquisition of
Capital Stock, bonds, notes, debentures or other securities or evidences of
Indebtedness issued by, any other Person. The amount of any Investment shall be
the original cost of such Investment, plus the cost of all additions thereto,
and minus the amount of any portion of such Investment repaid to such Person in
cash as a repayment of principal or a return of capital, as the case may be, but
without any other adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment. In determining the
amount of any Investment involving a transfer of any property or asset other
than cash, such property shall be valued at its Fair Market Value at the time of
such transfer. For purposes of the covenant described under "Certain Covenants
- -- Limitation on Restricted Payments" above, an Investment shall be deemed to be
made upon any Designation in an amount (the "Designation Amount") equal to the
greater of (1) the net book value of the Company's interest in the applicable
Subsidiary calculated in accordance with GAAP and (2) the Fair Market Value of
the Company's interest in the applicable Subsidiary as determined in good faith
by the Board of Directors of the Company (or a duly authorized committee
thereof) and evidenced by a Board Resolution, whose determination shall be
conclusive. If the Company or any Restricted Subsidiary sells or otherwise
disposes of any Capital Stock of any Restricted Subsidiary such that, after
giving effect to such sale or disposition, such Person ceases to be a Restricted
Subsidiary, the Company will be deemed to have made an Investment on the date of
such sale or disposition equal to the Fair Market Value of the Capital Stock of
such Restricted Subsidiary that after giving effect to such sale or disposition
is owned, directly or indirectly, by the Company.
"Issue Date" means the original issue date of the Initial Notes.
"Lien" means any lien, mortgage, charge, security interest,
hypothecation, assignment for security or encumbrance of any kind (including any
conditional sale or capital lease or other title retention agreement, and any
agreement to give any security interest but excluding any lease which does not
secure Indebtedness).
"Maturity Date" means November 15, 2010.
"Net Cash Proceeds" means the aggregate proceeds in the form of cash or
Cash Equivalents received by the Company or any Restricted Subsidiary in respect
of any Asset Sale, including all cash or Cash Equivalents received upon any
sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of:
111
(1) the direct costs relating to such Asset Sale (including, without
limitation, reasonable legal, accounting and investment banking fees, brokerage
fees and sales commissions) and any relocation expenses incurred as a result
thereof;
(2) taxes paid or payable directly as a result thereof;
(3) amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale; and
(4) amounts deemed, in good faith, appropriate by the Board of
Directors of the Company (or a duly authorized committee thereof) to be provided
as a reserve, in accordance with GAAP, against any liabilities associated with
such assets which are the subject of such Asset Sale (provided that the amount
of any such reserves shall be deemed to constitute Net Cash Proceeds at the time
such reserves shall have been released or are not otherwise required to be
retained as a reserve).
"Net Proceeds Offer" has the meaning set forth under "Repurchase at the
Option of the Holders -- Asset Sales" above.
"Notes" means, collectively, the Initial Notes and the Additional
Notes, if any.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Officer" means the Chairman, any Vice Chairman, the President, any
Vice President, the Chief Financial Officer, the Treasurer or the Secretary of
the Company.
"Officers' Certificate" means a certificate signed by two Officers or
by one Officer and any Assistant Treasurer or Assistant Secretary of the Company
and which complies with the provisions of the Indenture.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee; such counsel may be an employee of or
counsel to the Company or the Trustee.
"Pari Passu Debt" has the meaning set forth under "Repurchase at the
Option of the Holders -- Asset Sales" above.
"Permitted Indebtedness" has the meaning set forth in the second
paragraph of "Certain Covenants -- Limitation on Indebtedness and Issuance of
Disqualified Capital Stock" above.
"Permitted Investments" means:
(1) Investments in cash in (a) euros or dollars and Cash Equivalents
or, to the extent determined by the Company or a Foreign Subsidiary in good
faith to be necessary for local working capital requirements and operational
requirements of the Foreign Subsidiaries, other cash and cash equivalents
denominated in the currency of any jurisdiction which are, as determined in good
faith by the Company or such Foreign Subsidiary, necessary or desirable for
reasonable business purposes and, in the case of cash equivalents, are otherwise
substantially similar to the items specified in the definition of "Cash
Equivalents," and (b) cash and Cash Equivalents denominated in the currency of
the jurisdiction of organization or place of business of a Foreign Subsidiary
that are otherwise substantially similar to items specified in the definition of
"Cash Equivalents," except that if such jurisdiction prohibits the repatriation
of working capital to the United States, any specific rating required in the
definition of "Cash Equivalents" shall be deemed to be satisfied if such
Investments have, at the time of the acquisition, the highest rating from any
rating agency of any Investments available to be issued in such currency;
(2) Investments in the Company, any Guarantor or any Wholly Owned
Restricted Subsidiary or any Person that, as a result of or in connection with
such Investment, (a) becomes a Guarantor or a Wholly Owned Restricted Subsidiary
or (b) is merged or consolidated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company, any
Guarantor or any Wholly Owned Restricted Subsidiary;
112
(3) Investments in the Notes;
(4) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation, performance and other
similar deposits made in the ordinary course of business consistent with past
practices;
(5) Hedging Obligations permitted by clause (6) of the definition of
"Permitted Indebtedness";
(6) any Investment to the extent that the consideration therefor
consists of Qualified Capital Stock of the Company;
(7) accounts receivable acquired in the ordinary course of business or
Investments (including debt obligations) received in connection with the
bankruptcy or reorganization of suppliers and customers and in settlement of
delinquent obligations of, and other disputes with, customers and suppliers
arising in the ordinary course of business;
(8) loans and advances to employees who are not directors or executive
officers made in the ordinary course of business not to exceed $2.0 million in
the aggregate at any one time outstanding;
(9) any non-cash consideration received as a result of Asset Sales in
compliance with "Repurchase at the Option of Holders -- Asset Sales" above;
(10) Investments in joint ventures engaged in a Related Business in an
aggregate amount outstanding not to exceed 2.5% of Consolidated Tangible Assets
at the time of such Investment is made; and
(11) in addition to the Investments described in clauses (1) through
(10) above, other Investments not to exceed $25.0 million at any time
outstanding.
The amount of Investments outstanding at any time pursuant to clause
(11) above shall be deemed to be reduced:
(a) upon the disposition or repayment of or return on any Investment
made pursuant to clause (11) above, by an amount equal to the return of capital
with respect to such Investment to the Company or any Restricted Subsidiary (to
the extent not included in the computation of Consolidated Net Income), less the
cost of the disposition of such Investment and net of taxes; and
(b) upon a redesignation of an Unrestricted Subsidiary as a Restricted
Subsidiary, by an amount equal to the lesser of (x) the Fair Market Value of the
Company's proportionate interest in such Subsidiary immediately following such
redesignation, and (y) the aggregate amount of Investments in such Subsidiary
that increased (and did not previously decrease) the amount of Investments
outstanding pursuant to clause (11) above.
"Permitted Liens" means:
(1) Liens on property of a Person existing at the time such Person is
merged or consolidated with or into the Company or any Restricted Subsidiary;
provided, however, that such Liens were in existence prior to the contemplation
of such merger or consolidation and do not attach to any property or assets of
the Company or any Restricted Subsidiary other than the property or assets
subject to the Liens prior to such merger or consolidation and the proceeds
thereof;
(2) Liens securing the Credit Facilities;
(3) Liens existing on the Issue Date securing Indebtedness outstanding
on the Issue Date;
(4) Liens securing all of the Obligations under the Indenture;
(5) Liens in favor of the Company or any Restricted Subsidiary;
113
(6) Liens securing Hedging Obligations incurred pursuant to clause (6)
of the definition of "Permitted Indebtedness";
(7) Liens securing Capital Lease Obligations and Purchase Money
Indebtedness, provided such Indebtedness shall not be secured by any asset other
than the specified asset being financed and additions and improvements thereto;
(8) Liens securing Indebtedness of Foreign Subsidiaries;
(9) Liens to secure any refinancings, renewals, extensions,
modifications or replacements (collectively, "refinancing") (or successive
refinancings), in whole or in part, of any Indebtedness secured by Liens
referred to in clauses (1), (2), (3), (4) or (7) above so long as such Lien does
not extend to any other property (other than improvements thereto);
(10) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or any Restricted Subsidiary shall have
set aside on its books such reserves as may be required pursuant to GAAP;
(11) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
Incurred in the ordinary course of business for sums not yet delinquent or being
contested in good faith, if such reserve or other appropriate provision, if any,
as shall be required by GAAP shall have been made in respect thereof;
(12) Liens Incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money);
(13) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate the
purchase, shipment or storage of such inventory or other goods;
(14) judgment Liens not giving rise to a Default so long as such Liens
are adequately bonded and any appropriate legal proceedings which may have been
duly initiated for the review of such judgment have not been finally terminated
or the period within which the proceedings may be initiated has not expired;
(15) easements, rights-of-way, zoning restrictions and other similar
charges, restrictions or encumbrances in respect of real property or immaterial
imperfections of title which do not, in the aggregate, impair in any material
respect the ordinary conduct of the business of the Company and the Restricted
Subsidiaries taken as a whole;
(16) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other assets relating
to such letters of credit and products and proceeds thereof;
(17) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company or
any Restricted Subsidiary, including rights of offset and setoff;
(18) bankers' Liens, rights of setoff and other similar Liens existing
solely with respect to cash and Cash Equivalents on deposit in one or more of
accounts maintained by the Company or any Restricted Subsidiary, in each case
granted in the ordinary course of business in favor of the bank or banks with
which such accounts are maintained, securing amounts owing to such bank with
respect to cash management and operating account arrangements, including those
involving pooled accounts and netting arrangements; provided that in no case
shall any such Liens secure (either directly or indirectly) the repayment of any
Indebtedness;
(19) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company or any Restricted
Subsidiary;
114
(20) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(21) Liens securing Acquired Indebtedness permitted to be Incurred
under the Indenture; provided that the Liens do not extend to assets not subject
to such Liens at the time of acquisition (other than improvements thereon) and
are no more favorable to the lienholders than those securing such Acquired
Indebtedness prior to the Incurrence of such Acquired Indebtedness by the
Company or a Restricted Subsidiary;
(22) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(23) Liens on and pledges of the Capital Stock of any Unrestricted
Subsidiary securing any Indebtedness of such Unrestricted Subsidiary; and
(24) additional Liens securing obligations and Attributable
Indebtedness Incurred pursuant to the covenant described under "Certain
Covenants -- Limitation on Sale/Leaseback Transactions" in an aggregate amount
outstanding not to exceed 3.0% of Consolidated Tangible Assets at the time of
such Incurrence.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
limited partnership, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Preferred Capital Stock," in any Person, means Capital Stock of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Capital
Stock of any other class in such Person.
"Public Equity Offering" means an underwritten public offering of
Qualified Capital Stock of the Company with gross cash proceeds to the Company
of at least $25.0 million pursuant to a registration statement that has been
declared effective by the SEC pursuant to the Securities Act (other than a
registration statement on Form S-4 (or any successor form covering substantially
the same transactions), Form S-8 (or any successor form covering substantially
the same transactions) or otherwise relating to equity securities issuable under
any employee benefit plan of the Company), other than the concurrent offering of
the Company's common stock as described in this prospectus.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any property;
provided, however, that (i) the aggregate principal amount of such Indebtedness
does not exceed the lesser of the Fair Market Value of such property or such
purchase price or cost, including any refinancing of such Indebtedness that does
not increase the aggregate principal amount (or accreted amount, if less)
thereof as of the date of refinancing, and (ii) such Indebtedness shall be
Incurred within 180 days after such acquisition of such asset by the Company or
such Restricted Subsidiary or completion of such construction or improvement.
"Qualified Capital Stock" in any Person means any Capital Stock in such
Person other than any Disqualified Capital Stock.
"Redeemable Convertible Preferred Stock" means the Company's 5.75%
Series A redeemable convertible preferred stock issued on the date of the
Indenture.
"Redemption Date" has the meaning set forth in the third paragraph of
"Optional Redemption" above.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of the Issue Date by and among the Company, the Guarantors, Merrill
Lynch, Pierce, Fenner & Smith Incorporated and UBS Securities LLC.
115
"Related Business" means those businesses in which the Company or any
of the Restricted Subsidiaries is engaged on the Issue Date, or that are
reasonably related, ancillary, incidental or complementary thereto, as
determined by the Company's Board of Directors.
"Restricted Subsidiary" means any Subsidiary of the Company other than
any Subsidiary of the Company that has been designated by the Board of Directors
of the Company, by a Board Resolution delivered to the Trustee, as an
Unrestricted Subsidiary pursuant to "Certain Covenants -- Designation of
Unrestricted Subsidiaries" above. Any designation of a Subsidiary of the Company
as an Unrestricted Subsidiary may be revoked by a Board Resolution delivered to
the Trustee, subject to the provisions of "Certain Covenants -- Designation of
Unrestricted Subsidiaries" above.
"Revocation" has the meaning set forth under "Certain Covenants --
Designation of Unrestricted Subsidiaries" above.
"Sale/Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Subsidiary leases it
from such Person.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, or any successor
statute, and the rules and regulations promulgated by the SEC thereunder.
"Significant Subsidiary" means (1) any Restricted Subsidiary that would
be a "significant subsidiary" as defined in Regulation S-X promulgated pursuant
to the Securities Act as such Regulation is in effect on the Issue Date and (2)
any Restricted Subsidiary that, when aggregated with all other Restricted
Subsidiaries that are not otherwise Significant Subsidiaries and as to which any
event described in clause (8) under "Events of Default" has occurred and is
continuing, would constitute a Significant Subsidiary under clause (1) of this
definition.
"Stated Maturity," when used with respect to any Note or any
installment of interest thereon, means the date specified in such Note as the
fixed date on which the principal of such Note or such installment of interest
is due and payable.
"Subordinated Indebtedness" means any Indebtedness of the Company or a
Guarantor that is expressly subordinated in right of payment to the Notes or the
Guarantee of such Guarantor.
"Subsidiary" with respect to any Person means (1) any corporation,
limited liability company, association or other business entity of which more
than 50% of the total voting power of all outstanding Voting Stock entitled
(without regard to the occurrence of any contingency) to vote in the election of
the Board of Directors thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (2) any partnership (a) the sole general
partner or the managing general partner of which is such Person or a Subsidiary
of such Person or (b) the only general partners of which are such Person or of
one or more Subsidiaries of such Person (or any combination thereof). Unless
otherwise specified, "Subsidiary" refers to a Subsidiary of the Company.
"Surviving Person" means, with respect to any Person involved in or
that makes any Disposition, the Person formed by or surviving such Disposition
or the Person to which such Disposition is made.
"Total Assets" means, with respect to any Person, as of any date, the
consolidated total assets of such Person, as determined in accordance with GAAP.
"United States Government Obligations" means direct non-callable
obligations of the United States of America for the payment of which the full
faith and credit of the United States is pledged.
"Unrestricted Subsidiary" means any Subsidiary of the Company
designated as such pursuant to and in compliance with "Certain Covenants --
Designation of Unrestricted Subsidiaries" above, in each case until such time
116
as any such designation may be revoked by a Board Resolution delivered to the
Trustee, subject to the provisions of such covenant.
"Unutilized Net Cash Proceeds" has the meaning set forth in the fifth
paragraph under "Repurchase at the Option of the Holders -- Asset Sales" above.
"U.S. Credit Agreement" means the credit agreement dated on or about
the Issue Date by and among General Cable Industries, Inc., as borrower, the
Company and certain other Subsidiaries, as guarantors and/or additional
borrowers, the lenders party thereto from time to time, UBS Securities LLC, as
joint lead arranger, UBS AG, Stamford Branch, as administrative agent and
issuing bank and Merrill Lynch Capital, a Division of Merrill Lynch Business
Financial Services, Inc., as collateral agent and joint lead arranger, including
any notes, guarantees, collateral and security documents, instruments and
agreements executed in connection therewith (including Hedging Obligations
related to the Indebtedness incurred thereunder), as amended, amended and
restated, supplemented or otherwise modified from time or time.
"U.S. Credit Facility" means one or more debt facilities providing for
senior revolving credit loans, senior term loans and/or letters of credit to the
Company and/or one or more Domestic Subsidiaries, as borrower or borrowers and
guarantors thereunder (including, without limitation, the U.S. Credit
Agreement), as amended, amended and restated, supplemented, modified,
refinanced, replaced or otherwise restructured, in whole or in part from time to
time, including increasing the amount of available borrowings thereunder or
adding other Domestic Subsidiaries as additional borrowers and/or guarantors
thereunder, with respect to all or any portion of the Indebtedness under such
facilities or any successor or replacement facilities and whether with the same
or any other agent, lender or group of lenders; provided, that no such debt
facility that otherwise complies with the definition shall cease to be a U.S.
Credit Facility solely as a result of a Foreign Subsidiary becoming a borrower
or guarantor thereunder.
"Voting Stock" means Capital Stock in a corporation or other Person
with voting power under ordinary circumstances entitling the holders thereof to
elect the Board of Directors or other comparable governing body of such
corporation or Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness (including Disqualified Capital Stock) at any date, the number of
years obtained by dividing (1) the sum of the products obtained by multiplying
(A) the amount of each then remaining installment, sinking fund, serial maturity
or other required scheduled payment of principal or dividends including payment
at final maturity, in respect thereof, by (B) the number of years (calculated to
the nearest one-twelfth) that will elapse between such date and the making of
such payment, by (2) the then outstanding aggregate principal amount of such
Indebtedness (including Disqualified Capital Stock).
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary
all of the voting power of outstanding Voting Stock (other than directors'
qualifying shares) of which is owned, directly or indirectly, by the Company.
117
BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the new notes initially will
be represented by one or more permanent global certificates in definitive, duly
registered form. The global notes will be deposited on their date of issue with,
or on behalf of, U.S. Bank National Association or "DTC" and registered in the
name of a nominee of DTC.
GLOBAL NOTES
The Company expects that pursuant to procedures established by DTC:
- upon the issuance of the global notes, DTC or its custodian
will credit, on its internal system, the principal amount of
new notes of the individual beneficial interests represented
by such global notes to the respective accounts of persons who
have accounts with such depositary; and
- ownership of beneficial interests in the global notes will be
shown on, and the transfer of such ownership will be effected
only through, records maintained by DTC or its nominee, with
respect to interests of participants, and the records of
participants, with respect to interests of persons other than
participants. Ownership of beneficial interests in the global
notes will be limited to persons who have accounts with DTC or
"participants" or persons who hold interests through
participants.
So long as DTC, or its nominee, is the registered owner or holder of
the new notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the new notes represented by such global notes for all
purposes under the indenture. No beneficial owner of any interest in the global
notes will be able to transfer that interest except in accordance with DTC's
procedures.
Payments of the principal of, premium, if any, and interest on, the
global notes will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of the Company, the trustee or any paying agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the global
notes or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any
payment of principal, premium, if any, and interest on the global notes, will
credit participants' accounts with payments in amounts proportionate to their
beneficial interests in the principal amount of the global notes as shown on the
records of DTC or its nominee. The Company also expects that payments by
participants to owners of beneficial owners in the global notes held through
such participants will be governed by standing instructions and customary
practice, as is now the case with securities held for the accounts of customers
registered in the names of nominees for such customers. Such payments will be
the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary
way through DTC's same-day funds system in accordance with DTC rules and will be
settled in same-day funds. If a holder requires physical delivery of a
certificated note for any reason, including to sell notes to persons in states
which require physical delivery of the notes, or to pledge such securities, such
holder must transfer its interest in a global note, in accordance with the
normal procedures of DTC.
DTC has advised the Company that it will take any action permitted to
be taken by a holder of notes, including the presentation of new notes for
exchange as described below, only at the direction of one or more participants
to whose account the DTC interests in the global notes are credited and only in
respect of such portion of the aggregate principal amount of new notes as to
which such participant or participants has or have given such direction.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
118
securities brokers and dealers, banks, trust companies and clearing corporations
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the global notes among participants of DTC,
it is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary
for the global notes and a successor depositary is not appointed by the Company,
certificated notes will be issued in exchange for the global notes.
119
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account in
exchange for old notes acquired by the broker-dealer as a result of
market-making or other trading activities must acknowledge that it will deliver
a prospectus in connection with any resale of those new notes. This prospectus,
as it may be amended or supplemented from time to time, may be used by a
participating broker-dealer in connection with resales of new notes received in
exchange for such old notes. For a period of up to 180 days after the expiration
date, we will make this prospectus, as amended or supplemented, available to any
such broker-dealer that requests copies of this prospectus in the letter of
transmittal for use in connection with any such resale.
We will not receive any proceeds from any sale of new notes by
broker-dealers or any other persons. New notes received by participating
broker-dealers for their own account pursuant to the exchange offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions or through the writing of options on the new notes, or a
combination of these methods of resale, at market prices prevailing at the time
of resale or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such participating broker-dealer
that resells the new notes that were received by it for its own account pursuant
to the exchange offer. Any broker or dealer that participates in a distribution
of new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of new notes and any
commissions or concessions received by these persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date, the Company will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the applicable letter of transmittal. The Company has agreed to pay all
expenses incident to the exchange offer each holder other than underwriting
discounts, commissions and transfer taxes, if any, relating to the sale or
disposition of the old notes. In addition, the Company will indemnify holders of
the old notes, including any broker-dealers, against certain liabilities under
the Securities Act.
120
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of material federal income tax
considerations relevant to the exchange of old notes for new notes, but does not
purport to be a complete analysis of all potential tax effects. The discussion
is based upon the Internal Revenue Code of 1986, as amended, Treasury
regulations, Internal Revenue Service rulings and pronouncements, and judicial
decisions now in effect, all of which are subject to change at any time by
legislative, judicial or administrative action. Any such changes may be applied
retroactively in a manner that could adversely affect a holder of the new notes.
The description does not consider the effect of any applicable foreign, state,
local or other tax laws or estate or gift tax considerations.
EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF EXCHANGING OLD NOTES FOR NEW NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF OLD NOTES FOR NEW NOTES
The exchange of old notes for new notes pursuant to the exchange offer
should not constitute a sale or an exchange for federal income tax purposes.
Accordingly, such exchange should have no federal income tax consequences to
holders of old notes.
LEGAL MATTERS
The validity of the notes and the guarantees offered hereby will be
passed upon by Blank Rome LLP, Philadelphia, Pennsylvania.
EXPERTS
The consolidated financial statements and financial statement schedule
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
121
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants F-2
Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001 F-3
Consolidated Balance Sheets at December 31, 2003 and 2002 F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001 F-5
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31,
2003, 2002 and 2001 F-6
Notes to Audited Consolidated Financial Statements F-7
Financial Statement Schedule F-37
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
GENERAL CABLE CORPORATION:
We have audited the accompanying consolidated balance sheets of General
Cable Corporation and subsidiaries as of December 31, 2003 and 2002, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
2003. Our audits also included the financial statement schedule listed in the
Index at Page F-1. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly,
in all material respects, the financial position of the General Cable
Corporation and subsidiaries as of December 31, 2003 and 2002, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
March 12, 2004
F-2
GENERAL CABLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
Year Ended December 31,
------------------------------------------
2003 2002 2001
---------- ---------- ----------
Net sales $ 1,538.4 $ 1,453.9 $ 1,651.4
Cost of sales 1,365.0 1,287.3 1,410.7
---------- ---------- ----------
Gross profit 173.4 166.6 240.7
Selling, general and administrative expenses 127.7 150.9 136.4
---------- ---------- ----------
Operating income 45.7 15.7 104.3
Other income 1.5 - 8.1
Interest income (expense):
Interest expense (43.5) (43.5) (45.6)
Interest income 0.4 0.9 1.7
Other financial costs (6.0) (1.1) (10.4)
---------- ---------- ----------
(49.1) (43.7) (54.3)
---------- ---------- ----------
Income (loss) from continuing operations before income taxes (1.9) (28.0) 58.1
Income tax (provision) benefit (2.9) 9.9 (20.6)
Income (loss) from continuing operations (4.8) (18.1) 37.5
Loss from operations of discontinued operations (net of tax) - - (6.8)
Loss on disposal of discontinued operations (net of tax) - (5.9) (32.7)
---------- ---------- ----------
Net loss (4.8) (24.0) (2.0)
Less: preferred stock dividends (0.6) - -
---------- ---------- ----------
Net loss applicable to common shareholders $ (5.4) $ (24.0) $ (2.0)
========== ========== ==========
EPS of Continuing Operations
Earnings (loss) per common share $ (0.16) $ (0.55) $ 1.14
========== ========== ==========
Weighted average common shares 33.6 33.0 32.8
========== ========== ==========
Earnings (loss) per common share-assuming dilution $ (0.16) $ (0.55) $ 1.13
========== ========== ==========
Weighted average common shares-assuming dilution 33.6 33.0 33.1
========== ========== ==========
EPS of Discontinued Operations
Loss per common share $ - $ (0.18) $ (1.20)
========== ========== ==========
Loss per common share-assuming dilution $ - $ (0.18) $ (1.19)
========== ========== ==========
EPS including Discontinued Operations
Loss per common share $ (0.16) $ (0.73) $ (0.06)
========== ========== ==========
Loss per common share-assuming dilution $ (0.16) $ (0.73) $ (0.06)
========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
F-3
GENERAL CABLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT PER SHARE DATA)
December 31,
--------------------------
2003 2002
---------- ----------
Assets
Current Assets:
Cash $ 25.1 $ 29.1
Receivables, net of allowances of $15.6 million in 2003 and $11.6 million in 2002 268.9 105.9
Retained interest in accounts receivable - 84.8
Inventories 256.7 258.3
Deferred income taxes 13.5 12.2
Prepaid expenses and other 24.9 42.6
---------- ----------
Total current assets 589.1 532.9
Property, plant and equipment, net 333.3 323.3
Deferred income taxes 76.5 68.3
Other non-current assets 50.6 48.8
---------- ----------
Total assets $ 1,049.5 $ 973.3
========== ==========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 250.6 $ 242.1
Accrued liabilities 99.6 99.2
Current portion of long-term debt 2.3 40.8
---------- ----------
Total current liabilities 352.5 382.1
Long-term debt 338.1 411.1
Deferred income taxes 9.6 2.1
Other liabilities 109.2 117.1
---------- ----------
Total liabilities 809.4 912.4
---------- ----------
Shareholders' Equity:
Redeemable convertible preferred stock, 2,070,000 shares
at redemption value (liquidation preference of $50.00 per share) 103.5 -
Common stock, $0.01 par value, issued and outstanding shares:
2003 - 38,908,512 (net of 4,828,225 treasury shares)
2002 - 33,135,002 (net of 4,754,425 treasury shares) 0.4 0.4
Additional paid-in capital 140.8 100.0
Treasury stock (50.4) (50.0)
Retained earnings 54.5 59.9
Accumulated other comprehensive loss (5.5) (44.6)
Other shareholders' equity (3.2) (4.8)
---------- ----------
Total shareholders' equity 240.1 60.9
---------- ----------
Total liabilities and shareholders' equity $ 1,049.5 $ 973.3
========== ==========
See accompanying Notes to Consolidated Financial Statements.
F-4
GENERAL CABLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS, EXCEPT PER SHARE DATA)
Year Ended December 31,
------------------------------------------
2003 2002 2001
---------- ---------- ----------
Cash flows of operating activities:
Net loss $ (4.8) $ (24.0) $ (2.0)
Adjustments to reconcile net loss to net cash provided by
(used by) operating activities:
Depreciation and amortization 33.4 30.6 35.0
Foreign currency exchange gain (1.5) - (8.5)
Deferred income taxes (6.5) 14.4 (16.7)
(Gain) loss on disposal of property and businesses 6.8 1.7 (18.3)
Changes in operating assets and liabilities, net of
effect of acquisitions and divestitures:
Sale (purchase) of receivables (80.0) - 145.0
Decrease in receivables 27.8 15.1 16.6
Decrease in inventories 16.9 61.5 37.3
(Increase) decrease in other assets 14.5 (8.0) 3.9
Decrease in accounts payable, accrued and other
liabilities (21.1) (34.0) (109.1)
---------- ---------- ----------
Net cash flows of operating activities (14.5) 57.3 83.2
---------- ---------- ----------
Cash flows of investing activities:
Capital expenditures (19.1) (31.4) (54.9)
Proceeds from sale of businesses, net of cash sold - 1.7 141.8
Proceeds from properties sold 2.5 1.6 6.7
Other, net (0.1) (0.5) (1.7)
---------- ---------- ----------
Net cash flows of investing activities (16.7) (28.6) 91.9
---------- ---------- ----------
Cash flows of financing activities:
Dividends paid - (5.0) (6.6)
Common stock issued, net of fees and expenses 44.6 - -
Preferred stock issued, net of fees and expenses 99.5 - -
Repayment of loans from shareholders 1.0 - -
Net change in revolving credit borrowings (35.2) (2.2) 33.2
Net change in other debt (26.0) 4.0 3.2
Issuance of long-term debt, net of fees and expenses 276.6 - -
Repayment of long-term debt (333.3) (15.4) (209.4)
Acquisition of treasury stock - - (2.2)
Proceeds from exercise of stock options - 2.4 2.1
---------- ---------- ----------
Net cash flows of financing activities 27.2 (16.2) (179.7)
---------- ---------- ----------
Increase (decrease) in cash (4.0) 12.5 (4.6)
Cash - beginning of period 29.1 16.6 21.2
---------- ---------- ----------
Cash - end of period $ 25.1 $ 29.1 $ 16.6
========== ========== ==========
SUPPLEMENTAL INFORMATION
Cash paid (received) during the period for:
Income tax refunds, net of payments $ (12.7) $ (27.0) $ 6.2
========== ========== ==========
Interest paid $ 38.5 $ 44.1 $ 58.3
========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
F-5
GENERAL CABLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN MILLIONS, SHARE AMOUNTS IN THOUSANDS)
Preferred Common
Stock Stock Add'l
--------------- ---------------- Paid in Treasury Retained
Shares Amount Shares Amount Capital Stock Earnings
------ ------ ------ ------ ------- ------- --------
Balance, December 31, 2000 - $ - 32,649 $ 0.4 $ 91.4 $ (47.8) $ 97.5
Comprehensive loss:
Net loss (2.0)
Foreign currency translation
adjustment
Loss on change in fair value of
financial instruments, net
of $2.4 million tax benefit
Pension adjustments, net of
$0.8 million tax benefit
Unrealized investment losses
Comprehensive loss
Common stock dividends (6.6)
Purchase treasury shares (355) (2.2)
Issuance of restricted stock 358 2.7
Amortization of restricted stock
and other 0.2
Exercise of stock options 184 2.1
Other 2
----- ------ ------ ------ ------- ------- --------
Balance, December 31, 2001 - $ - 32,838 $ 0.4 $ 96.4 $ (50.0) $ 88.9
Comprehensive loss:
Net loss (24.0)
Foreign currency translation
Adjustment
Pension adjustments, net of
$16.1 million tax benefit
Unrealized investment losses
Loss on change in fair value of
financial instruments, net
of $0.2 million tax benefit
Comprehensive loss
Amortization of restricted
stock and other 0.9
Common stock dividends (5.0)
Exercise of stock options 265 2.4
Other 32 0.3
----- ------ ------ ------ ------- ------- --------
Balance, December 31, 2002 - $ - 33,135 $ 0.4 $ 100.0 $ (50.0) $ 59.9
Comprehensive income:
Net loss (4.8)
Foreign currency translations
adjustment
Pension adjustments, net of
$4.2 million tax expense
Unrealized investment gain
Gain on change in fair value of
financial instruments, net of
$1.9 million tax expense
Comprehensive income
Preferred stock dividend (0.6)
Amortization of restricted
stock and other 0.4
Repayment of loans from
shareholders (74) (0.4) (0.4)
Issuance of preferred stock net
of fees and expenses 2,070 103.5 (4.0)
Issuance of common stock net of
fees and expenses 5,808 44.6
Other 40 0.2
----- ------ ------ ------ ------- ------- --------
Balance, December 31, 2003 2,070 $103.5 38,909 $ 0.4 $ 140.8 $ (50.4) $ 54.5
===== ====== ====== ====== ======= ======= ========
Accumulated
Other Other
Comprehensive Shareholders'
Income/ (Loss) Equity Total
-------------- ------------- ------
Balance, December 31, 2000 $ (7.4) $ (5.6) $128.5
Comprehensive loss:
Net loss (2.0)
Foreign currency translation
adjustment (12.9) (12.9)
Loss on change in fair value of
financial instruments, net
of $2.4 million tax benefit (3.7) (3.7)
Pension adjustments, net of
$0.8 million tax benefit (1.4) (1.4)
Unrealized investment losses (0.3) (0.3)
------
Comprehensive loss (20.3)
Common stock dividends (6.6)
Purchase treasury shares (2.2)
Issuance of restricted stock (2.7) -
Amortization of restricted stock
and other 2.1 2.3
Exercise of stock options 2.1
Other 1.1 1.1
------------- ------ ------
Balance, December 31, 2001 $ (25.7) $ (5.1) $104.9
Comprehensive loss:
Net loss (24.0)
Foreign currency translation
Adjustment 11.2 11.2
Pension adjustments, net of
$16.1 million tax benefit (29.2) (29.2)
Unrealized investment losses (0.4) (0.4)
Loss on change in fair value of
financial instruments, net
of $0.2 million tax benefit (0.5) (0.5)
------
Comprehensive loss (42.9)
Amortization of restricted
stock and other 0.1 1.0
Common stock dividends (5.0)
Exercise of stock options 2.4
Other 0.2 0.5
------------- ------ ------
Balance, December 31, 2002 $ (44.6) $ (4.8) $ 60.9
Comprehensive income:
Net loss (4.8)
Foreign currency translations
adjustment 27.1 27.1
Pension adjustments, net of
$4.2 million tax expense 7.3 7.3
Unrealized investment gain 1.2 1.2
Gain on change in fair value of
financial instruments, net of
$1.9 million tax expense 3.5 3.5
------
Comprehensive income 34.3
Preferred stock dividend (0.6)
Amortization of restricted
stock and other 0.1 0.5
Repayment of loans from
shareholders 1.5 0.7
Issuance of preferred stock net
of fees and expenses 99.5
Issuance of common stock net of
fees and expenses 44.6
Other 0.2
------------- ------ ------
Balance, December 31, 2003 $ (5.5) $ (3.2) $240.1
============= ====== ======
See accompanying Notes to Consolidated Financial Statements.
F-6
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
General Cable Corporation and subsidiaries (General Cable) is a leading global
developer and manufacturer in the wire and cable industry. The Company sells
copper, aluminum and fiber optic wire and cable products worldwide. The
Company's operations are divided into three main segments: energy, industrial &
specialty and communications. As of December 31, 2003, General Cable operated 28
manufacturing facilities in eight countries and two regional distribution
centers in North America in addition to the corporate headquarters in Highland
Heights, Kentucky.
2. SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of General Cable
Corporation and its wholly-owned subsidiaries. Investments in 50% or less owned
joint ventures are accounted for under the equity method of accounting. Other
non-current assets included an investment in a joint venture of $3.5 million and
$3.8 million at December 31, 2003 and 2002, respectively. All transactions and
balances among the consolidated companies have been eliminated. Certain
reclassifications have been made to the prior year to conform to the current
year's presentation.
REVENUE RECOGNITION
Revenue is recognized when goods are shipped and title passes to the customer.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per common share and loss per common share-assuming dilution are
computed based on the weighted average number of common shares outstanding.
Earnings per common share-assuming dilution are computed based on the weighted
average number of common shares outstanding and the dilutive effect of stock
options and restricted stock units outstanding.
FOREIGN CURRENCY TRANSLATION
For operations outside the United States that prepare financial statements in
currencies other than the U.S. dollar, results of operations and cash flows are
translated at average exchange rates during the period, and assets and
liabilities are translated at spot exchange rates at the end of the period.
Foreign currency translation adjustments are included as a separate component of
accumulated other comprehensive income (loss) in shareholders' equity. The
effects of changes in exchange rates between the designated functional currency
and the currency in which a transaction is denominated are recorded as foreign
currency transaction gains (losses). See further discussion in Note 4.
INVENTORIES
General Cable values all its North American inventories and its non-North
American metal inventories using the LIFO method and all remaining inventories
using the first-in first-out (FIFO) method. Inventories are stated at the lower
of cost or market value. The Company determines whether a lower of cost or
market provision is required on a quarterly basis by computing whether inventory
on hand, on a last-in first-out (LIFO) basis, can be sold at a profit based upon
current selling prices less variable selling costs. No provision was required in
2003 or 2002. In the event that a provision is required in some future period,
the Company will determine the amount of the provision by writing down the value
of the inventory to the level where its sales, using current selling prices less
variable selling costs, will result in a profit.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Costs assigned to property,
plant and equipment relating to acquisitions are based on estimated fair values
at that date. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets: new buildings, from 15 to 50 years; and
machinery, equipment and office furnishings, from 3 to 15 years. Leasehold
improvements are depreciated over the life of the lease.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments are defined as cash or contracts relating to the receipt,
delivery or exchange of financial instruments. Except as otherwise noted, fair
value approximates the carrying value of such instruments.
F-7
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FORWARD PRICING AGREEMENTS FOR PURCHASES OF COPPER AND ALUMINUM
In the normal course of business, General Cable enters into forward pricing
agreements for purchases of copper and aluminum to match certain sales
transactions. At December 31, 2003 and 2002, General Cable had $30.5 million and
$89.9 million, respectively, of future copper and aluminum purchases that were
under forward pricing agreements. The fair market value of the forward pricing
agreements was $32.9 million and $87.1 million at December 31, 2003 and 2002,
respectively. General Cable expects to recover the cost of copper and aluminum
under these agreements as a result of firm sales price commitments with
customers.
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CONCENTRATION OF CREDIT RISK
General Cable sells a broad range of products throughout primarily the United
States, Canada, Europe and the Asia Pacific region. Concentrations of credit
risk with respect to trade receivables are limited due to the large number of
customers, including members of buying groups, composing General Cable's
customer base. Ongoing credit evaluations of customers' financial condition are
performed, and generally, no collateral is required. General Cable maintains
reserves for potential credit losses and such losses, in the aggregate, have not
exceeded management's estimates. Certain subsidiaries also maintain credit
insurance for certain customer balances.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are utilized to manage interest rate, commodity
and foreign currency risk. General Cable does not hold or issue derivative
financial instruments for trading purposes.
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting For
Derivative Instruments and Hedging Activities," as amended, requires that all
derivatives be recorded on the balance sheet at fair value. The accounting for
changes in the fair value of the derivative depends on the intended use of the
derivative and whether it qualifies for hedge accounting.
SFAS No. 133, as applied to General Cable's risk management strategies, may
increase or decrease reported net income, and stockholders' equity, or both,
prospectively depending on changes in interest rates and other variables
affecting the fair value of derivative instruments and hedged items, but will
have no effect on cash flows or economic risk. See further discussion in Note
12.
General Cable has entered into interest rate swap and collar agreements designed
to hedge underlying debt obligations. During the first quarter of 2001, the
Company incurred a cost of $4.2 million related to interest rate collars, which
were terminated. During the fourth quarter of 2003, the Company incurred a cost
of $0.8 million for the termination of interest rate swaps as a result of the
refinancing of the Company's bank debt.
Foreign currency and commodity contracts are used to hedge future sales and
purchase commitments. Unrealized gains and losses on such contracts are recorded
in other comprehensive income until the underlying transaction occurs and is
recorded in the income statement at which point such amounts included in other
comprehensive income are recognized in income which generally will occur over
periods less than one year.
ACCOUNTS RECEIVABLE SECURITIZATION
The Company accounted for the securitization of accounts receivable in
accordance with SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, a replacement of FASB
Statement No. 125." At the time the receivables were sold, the balances were
removed from the Consolidated Balance Sheet. Costs associated with the
transaction, primarily related to the discount and the one-time program
implementation costs that were incurred in the second quarter of 2001, were
included in interest income (expense) in the Consolidated Statement of
Operations. This statement, which became effective for the Company during the
second quarter of 2001, modified certain standards for the accounting of
transfers of financial assets and also required expanded financial statement
disclosures related to securitization activities. During the fourth quarter of
2003, this securitization financing was terminated in connection with the
refinancing of the Company's bank debt. See further discussion in Note 6.
F-8
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does
not require, companies to record compensation cost for stock-based employee
compensation plans at fair value. General Cable has chosen to continue to
account for stock-based compensation using the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock. No compensation cost for stock options is reflected in
net income, as all options granted had an exercise price equal to the market
value of the underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of SFAS No. 123 to stock-based
employee compensation.
Year Ended December 31,
------------------------------------------
2003 2002 2001
---------- ---------- ----------
Net loss applicable to common shareholders, as reported $ (5.4) $ (24.0) $ (2.0)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects (2.2) (2.4) (5.7)
---------- ---------- ----------
Pro forma net loss applicable to common shareholders $ (7.6) $ (26.4) $ (7.7)
========== ========== ==========
Loss per share:
Basic -- as reported $ (0.16) $ (0.73) $ (0.06)
Basic -- pro forma $ (0.23) $ (0.80) $ (0.23)
Diluted -- as reported $ (0.16) $ (0.73) $ (0.06)
Diluted -- pro forma $ (0.23) $ (0.80) $ (0.23)
NEW STANDARDS
In June 2002, the Financial Accounting Standards Board SFAS No. 146 "Accounting
for Costs Associated with Exit or Disposal Activities" was issued. SFAS No. 146
requires that costs associated with exit or disposal activities be recognized
when the costs are incurred, rather than at a date of commitment to an exit or
disposal plan. The Company adopted SFAS No. 146 for fiscal 2003, as required.
The adoption of this standard did not have a material impact on the consolidated
financial condition, results of operations or cash flows of General Cable.
In November 2002, FASB Interpretation (FIN) No. 45 "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" was issued. FIN 45 requires that as a company issues a
guarantee, it must recognize a liability for the fair value of the obligations
it assumes under that guarantee. Application of FIN 45 is required for
guarantees issued or modified after December 31, 2002. The adoption of FIN 45
did not have a material impact on the consolidated financial position, results
of operations or cash flows of General Cable.
In January 2003, FIN No. 46, as revised "Consolidation of Variable Interest
Entities" was issued. FIN 46 is intended to achieve more consistent application
of consolidation policies to variable interest entities. Application of FIN 46
is required in financial statements of public entities that have interests in
variable interest entities or potential variable interest entities commonly
referred to as special-purpose entities for periods ending after December 15,
2003. Application by public entities for all other types of entities is required
in financial statements for periods ending after March 15, 2004. Accordingly,
the Company has adopted FIN 46 which will result in the consolidation of its
fiber optic joint venture in the first quarter of 2004. The Company does not
believe that the adoption of FIN 46 will have a material affect on its financial
position, results of operations or cash flows. See further discussion in Note
21.
In May 2003, SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity" was issued. SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 is effective for all financial instruments entered into or modified
after May 31, 2003. The adoption of SFAS No. 150 did not have a material impact
on the consolidated financial condition, results of operations or cash flows of
General Cable.
F-9
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In December 2003, SFAS No. 132 (R), "Employers' Disclosure about Pensions and
Other Postretirement Benefits" was issued. This statement revised employers'
disclosure requirements about pension plans and other postretirement benefit
plans. The annual disclosure requirements apply to fiscal years ending after
December 31, 2003, except for the disclosure of expected future benefit
payments, which must be disclosed for fiscal years ending after June 15, 2004.
Interim disclosure requirements are generally effective for interim periods
beginning after December 15, 2003. The Company has included the disclosures
required by SFAS No. 132 (R).
3. ACQUISITIONS AND DIVESTITURES
During 1999, the Company acquired the worldwide energy cable and cable systems
businesses of Balfour Beatty plc, previously known as BICC plc, with operations
in the United Sates, Canada, Europe, Africa, the Middle East and Asia Pacific.
This acquisition, which was completed in three phases during 1999 for a total
payment of $385.8 million, was accounted for as a purchase, and accordingly, the
results of operations of the acquired businesses are included in the
consolidated financial statements for periods after the respective closing
dates.
In December 1999, the Company decided to sell certain businesses due to their
deteriorating operating performance. On February 9, 2000, the Company signed a
definitive agreement with Pirelli Cavi e Sistemi, S.p.A., of Milan, Italy
(Pirelli) for the sale of the stock of these businesses for a purchase price of
$216.0 million, subject to closing adjustments. The closing adjustments included
changes in net assets of the businesses sold since November 30, 1999, resulting
from operating losses and other adjustments as defined in the sale agreement.
The businesses sold were acquired from BICC plc during 1999 and consisted
primarily of the operations in the United Kingdom, Italy and Africa and a joint
venture interest in Malaysia. Gross proceeds of $180.0 million were received
during the third quarter of 2000 as a down payment against the final
post-closing adjusted purchase price. Proceeds from the transaction were used to
reduce the Company's outstanding debt. As a result of the sale to Pirelli, the
Company recognized a $34.3 million charge in the third quarter of 2000. This
charge was related to severance, transaction costs, warranty and other claims,
the realization of the foreign exchange translation loss on the divested
businesses that was previously charged directly to equity and $3.3 million
write-off of unamortized bank fees due to the prepayment of indebtedness. During
the third quarter of 2001, the final post-closing adjusted purchase price was
agreed as $164.0 million resulting in a payment of $16.0 million to Pirelli. The
Company had provided for a larger settlement amount and therefore $7.0 million
of income was recorded in the third quarter of 2001. Proceeds from the
transaction were used to reduce the Company's outstanding debt.
In September 2000, the Company acquired Telmag S.A. de C.V., a Mexico-based
manufacturer of telecommunications cables, for $23.0 million. The acquisition
brought in-house additional outside plant telecommunications cable capacity as
well as provided available capacity for a broad range of telecommunications
cables.
In March 2001, the Company sold the shares of its Pyrotenax business unit to
Raychem HTS Canada, Inc., a business unit of Tyco International, Ltd., for $60
million, subject to closing adjustments. The business unit, with operations in
Canada and the United Kingdom, principally produced mineral insulated
high-temperature cables. During the second quarter of 2002, the final
post-closing adjusted purchase price was agreed and resulted in a payment to
Tyco International, Ltd. of approximately $2 million during the third quarter of
2002. This payment plus other costs associated with settling the final purchase
price was equal to the amount provided for in the Company's balance sheet. The
proceeds from the transaction were used to reduce the Company's debt.
In September 2001, the Company announced its decision to exit the retail
cordsets business. As a result of this decision, the Company closed its
Montoursville, Pennsylvania plant. This facility manufactured cordset products
including indoor and outdoor extension cords, temporary lighting and extension
cord accessories.
In October 2001, the Company sold substantially all of the manufacturing assets
and inventory of its building wire business to Southwire Company for $82 million
of cash proceeds and the transfer to the Company of certain data communication
cable manufacturing equipment. Under the building wire sale agreement, Southwire
purchased the inventory and substantially all of the property, plant and
equipment located at the Company's Watkinsville, Georgia and Kingman, Arizona
facilities and the wire and cable manufacturing equipment at its Plano, Texas
facility. General Cable retained and continues to operate its copper rod mill in
Plano and closed its Plano wire mill. The assets sold were used in manufacturing
building wire principally for the retail and electrical distribution markets.
During the second quarter of 2002, the final purchase price for this transaction
was agreed resulting in a deminimus cash payment to Southwire. Proceeds from the
transaction were used to reduce the Company's outstanding debt.
F-10
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Beginning in the third quarter of 2001, the Company has reported the Building
Wire and Cordsets segment as discontinued operations for financial reporting
purposes. Administrative expenses formerly allocated to this segment are now
reported in continuing operations segments. Quarterly historical data for the
first six months of 2001 has been restated to reflect this change.
During the second quarter of 2002, General Cable formed a joint venture company
to manufacture and market fiber optic cables. General Cable contributed assets,
primarily inventory and machinery and equipment, to a subsidiary company, which
was then contributed to the joint venture in exchange for a $10.2 million note
receivable, which resulted in a $5.6 million deferred gain on the transaction.
The Company will recognize the gain as the note is repaid. At December 31, 2003
and 2002, other non-current assets included an investment in the joint venture
of $3.5 million and $3.8 million. The December 31, 2003 and 2002 balance sheets
also included a $10.2 million note receivable from the joint venture partner and
other liabilities included a deferred gain from the initial joint venture
formation of $5.6 million.
4. OTHER INCOME
Other income includes foreign currency transaction gains or losses which result
from changes in exchange rates between the designated functional currency and
the currency in which a transaction is denominated. During the fourth quarter of
2003, the Company recorded a $1.5 million gain resulting from favorable foreign
currency transaction gain. During the second quarter of 2001, the Company
recognized a gain of $8.6 million related to a foreign exchange gain on the
extinguishment of long-term debt in the United Kingdom partially offset by costs
of $0.5 million to close out foreign exchange contracts at one of the Company's
international subsidiaries.
5. DISCONTINUED OPERATIONS
In September, 2001, the Company announced its decision to sell its building wire
business and to exit its retail cordsets business, the results of which have
been reported as discontinued operations. Operating results of the discontinued
operations were as follows (in millions):
Year Ended December 31,
-----------------------------------------
2003 2002 2001
---------- ---------- ----------
Net sales $ - $ - $ 352.9
========== ========== ==========
Pre-tax loss from discontinued operations $ - $ - $ (10.7)
Income tax benefit - - 3.9
Pre-tax loss on disposal of discontinued operations - (9.1) (50.6)
Income tax benefit - 3.2 17.9
---------- ---------- ----------
Loss from discontinued operations $ - $ (5.9) $ (39.5)
========= ========== ==========
Administrative expenses formerly allocated to these businesses for segment
reporting purposes have been reallocated to continuing operations. A portion of
the Company's overall interest expense has been allocated to these businesses
based upon the outstanding debt balance attributable to those operations. Taxes
have been allocated using the same overall rate incurred by the Company in each
of the periods presented.
During the third quarter of 2001, the Company recorded a $50.6 million loss on
disposal of discontinued operations. The components of this charge include $21.4
million related to the sale of the building wire business, $16.6 million for the
closure of the Company's Montoursville, Pennsylvania facility, which
manufactured retail cordsets, $10.6 million for the closure of four regional
distribution centers and $2.0 million for other costs.
During 2002, the Company recorded an additional $9.1 million pre-tax loss on
disposal of discontinued operations. The components of this charge principally
related to an estimated lower net realizable value for real estate remaining
from the
Company's former building wire business unit, a longer than anticipated holding
period for three distribution centers with unexpired lease commitments and
certain other costs.
F-11
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. ACCOUNTS RECEIVABLE ASSET-BACKED SECURITIZATION
In May 2001, the Company completed an Accounts Receivable Asset-backed
Securitization Financing transaction ("Securitization Financing"). The
Securitization Financing provided for certain domestic trade receivables to be
transferred to a wholly-owned, special purpose bankruptcy-remote subsidiary
without recourse. This subsidiary in turn transferred the receivables to a
trust, which issued, via private placement, floating rate five-year certificates
in an initial amount of $145 million. In addition, a variable certificate
component of up to $45 million for seasonal borrowings was also established as a
part of the Securitization Financing. This variable certificate component would
fluctuate based on the amount of eligible receivables. As a result of the
building wire asset sale and the exit from the retail cordsets business, the
Securitization Financing program was downsized to $80 million in the first
quarter of 2002, through the repayment of a portion of the outstanding
certificates. The repayment of the certificates was funded by the collection of
the outstanding building wire and retail cordsets accounts receivable. The $45
million seasonal borrowing component was unaffected.
Transfers of receivables under this program were treated as a sale and result in
a reduction of total accounts receivable reported on the Company's consolidated
balance sheet. In conjunction with the initial transaction, the Company incurred
one-time charges of $4.2 million in the second quarter of 2001. The Company
continued to service the transferred receivables and received annual servicing
fees from the special purpose subsidiary of approximately 1% of the average
receivable balance. The market cost of servicing the receivables offset the
servicing fee income and resulted in a servicing asset equal to zero. The
Company's retained interest in the receivables were carried at their fair value,
which was estimated as the net realizable value. The net realizable value
considered the relatively short liquidation period and an estimated provision
for credit losses. The provision for credit losses was determined based on
specific identification of uncollectible accounts and the application of
historical collection percentages by aging category. The receivables were not
subject to prepayment risk. The key assumptions used in measuring the fair value
of retained interests at the time of securitization were receivables days sales
outstanding of 54 and interest rates on LIBOR based on borrowings of 4.92%. At
December 31, 2002, key assumptions used in measuring the fair value of the
retained interest were days sales outstanding of 49 and interest rates on LIBOR
based borrowings of 2.0%
At December 31, 2002, the Company's retained interest in accounts receivable was
$84.8 million and off balance sheet financing, net of cash held in the trust was
$48.5 million. The effective interest rate in the securitization financing was
approximately 2.0% at December 31, 2002. In 2002, proceeds from new sales
totaled $1,067.6 million and cash collections reinvested totaled $1,030.8
million. The portfolio of accounts receivable that the Company serviced totaled
approximately $130 million at December 31, 2002. This securitization financing
was terminated during the fourth quarter of 2003 in conjunction with the
Company's refinancing of its bank debt. As a result of its early termination,
the Company incurred costs of $0.8 million in the fourth quarter of 2003.
7. INVENTORIES
Inventories consisted of the following (in millions):
December 31,
--------------------------
2003 2002
---------- ----------
Raw materials $ 25.5 $ 26.1
Work in process 34.9 33.2
Finished goods 196.3 199.0
---------- ----------
Total $ 256.7 $ 258.3
========== ==========
At December 31, 2003 and December 31, 2002, $202.4 million and $214.3 million,
respectively, of inventories were valued using the LIFO method. Approximate
replacement costs of inventories valued using the LIFO method totaled $218.2
million at December 31, 2003 and $198.1 million at December 31, 2002.
If in some future period, the Company was not able to recover the LIFO value of
its inventory at a profit when replacement costs were lower than the LIFO value
of the inventory, the Company would be required to take a charge to recognize in
its income statement all or a portion of the higher LIFO value of the inventory.
During 2002, the Company recorded a $2.5 million LIFO charge for the liquidation
of LIFO inventory in North America as the Company significantly reduced its
inventory levels. The Company further reduced inventory quantities in North
America during 2003 and recorded a $0.5 million LIFO liquidation charge.
F-12
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in millions):
December 31,
--------------------------
2003 2002
---------- ----------
Land $ 27.0 $ 25.1
Buildings and leasehold improvements 63.9 53.2
Machinery, equipment and office furnishings 408.1 348.5
Construction in progress 7.8 32.5
---------- ----------
Total - gross book value 506.8 459.3
Less accumulated depreciation and amortization (173.5) (136.0)
---------- ----------
Total - net book value $ 333.3 $ 323.3
========== ==========
Depreciation expense totaled $29.8 million, $28.1 million and $31.7 million for
the years ended December 31, 2003, 2002 and 2001, respectively.
9. ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in millions):
December 31,
-------------------
2003 2002
------- -------
Payroll related accruals $ 24.3 $ 16.7
Customers deposits and prepayments 11.3 10.1
Taxes other than income 10.0 10.6
Customer rebates 8.6 6.6
Insurance claims and related expenses 5.4 8.0
Accrued restructuring costs 4.3 15.2
Current deferred tax liability 3.4 1.8
Other accrued liabilities 32.3 30.2
------- -------
Total $ 99.6 $ 99.2
======= =======
10. RESTRUCTURING CHARGES
Changes in accrued restructuring costs were as follows (in millions):
Severance Facility
and Related Closing
Costs Costs Total
----------- ---------- ----------
Original provisions $ 29.8 $ 42.9 $ 72.7
Utilization (27.2) (32.2) (59.4)
---------- ---------- ----------
Balance, December 31, 2001 2.6 10.7 13.3
Provisions 14.0 10.0 24.0
Utilization (12.2) (9.9) (22.1)
---------- ---------- ----------
Balance, December 31, 2002 4.4 10.8 15.2
Provisions, net of reversals 2.5 5.7 8.2
Utilization (5.5) (13.6) (19.1)
---------- ---------- ----------
Balance, December 31, 2003 $ 1.4 $ 2.9 $ 4.3
========== ========== ==========
During 2003, provisions of $10.3 million were recorded for severance and related
cost resulting from headcount reductions of approximately 110 associates at the
Company's European operations ($2.7 million) and the rationalization of
industrial cable manufacturing facilities ($7.6 million). The Company's Taunton,
Massachusetts facility ceased operations on January 30, 2004 and employed
approximately 50 associates and was comprised of approximately 131,000 square
feet of space. The Company announced the downsizing of operations at its Marion,
Indiana facility. Many of the products manufactured at this facility will be
moved to other General Cable locations before the end of 2004. The Marion plant
will remain open and employ approximately 65 associates. The Company estimates
it will incur additional charges of approximately $14 million related to these
rationalizations. Additionally,
F-13
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
the Company reversed unutilized provisions of $1.6 million related to severance
costs and $0.5 million related to facility closing costs. Provisions of $10.1
million were included in cost of sales while $0.2 million were in selling,
general and administrative expenses. The reversal of unutilized provisions of
$2.1 million was recorded in selling, general and administrative expense. All of
the restructuring provisions, net of reversals are reflected in the corporate
segment.
During 2002, $24.0 million of provisions were recorded ($14.9 million in
continuing operations and $9.1 million in discontinued operations). The $9.1
million discontinued operations pre-tax charge principally related to an
estimated lower net realizable value for real estate remaining from the
Company's former building wire business, a longer than anticipated holding
period for three distribution centers with unexpired lease commitments and
certain other costs. The $14.9 million continuing operations charge included
$6.9 million for severance and related costs resulting from worldwide headcount
reductions of approximately 140 associates and $8.0 million related to costs to
close two manufacturing facilities.
The $8.0 million charge for the closure of manufacturing facilities included
$5.6 million for severance and related costs. The closed manufacturing
facilities, located in Monticello, Illinois and Sanger, California, employed
approximately 200 associates and utilized more than 350,000 square feet in the
production of service wire sold to the telecommunications industry and certain
data communications cables.
During 2001, provisions were recorded for $72.7 million of restructuring
activities ($22.1 million in continuing operations and $50.6 million in
discontinued operations). The $22.1 million continuing operations charge
included $4.8 million for the closure of a manufacturing facility, which
included $3.1 million for severance costs. The closed facility, located in Cass
City, Michigan, employed approximately 175 associates and utilized approximately
100,000 square feet in the production of data communication products. The
continuing operations charge also included $16.5 million for severance and
related costs resulting from the worldwide headcount reduction of approximately
100 associates and $0.8 million for certain other costs. The $50.6 million
discontinued operations charge related to the sale of the building wire business
($21.4 million), closure of a manufacturing facility that produced retail
cordset products ($16.6 million), the elimination of four regional distribution
centers ($10.6 million) and certain other costs ($2.0 million).
11. LONG-TERM DEBT
Long-term debt consisted of the following (in millions):
December 31,
--------------------------
2003 2002
---------- ----------
Senior notes due 2010 $ 285.0 $ -
Term loans - 337.4
Revolving loans 43.0 78.2
Other 12.4 36.3
---------- ----------
Total debt 340.4 451.9
Less current maturities 2.3 40.8
---------- ----------
Long-term debt $ 338.1 $ 411.1
========== ==========
Weighted average interest rates
were as follows:
Senior notes due 2010 9.5% n/a
Term loans n/a 6.5%
Revolving loans 3.9% 6.3%
Other 2.1% 3.4%
On November 24, 2003, the Company completed a comprehensive refinancing of its
bank debt that improved its capital structure and provided increased financial
and operating flexibility by reducing leverage, increasing liquidity and
extending debt maturities. The refinancing included the following: (i) the
private placement of 7-year senior unsecured notes, (ii) a new senior secured
revolving credit facility, (iii) the private placement of redeemable convertible
preferred stock and (iv) a public offering of common stock. The Company applied
the net proceeds from these refinancing transactions to repay all amounts
outstanding under its former senior secured revolving credit facility, senior
secured term loans and accounts receivable asset-backed securitization facility
and to pay fees and expenses related to the refinancing.
F-14
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The senior unsecured notes (the "Notes") were issued in the amount of $285.0
million, bear interest at a fixed rate of 9.5% and mature in 2010. The estimated
fair value of the Notes was approximately $305.0 million at December 31, 2003.
The new senior secured revolving credit facility is a five year $240.0 million
asset based revolving credit agreement (the "Credit Agreement"). The Credit
Agreement is secured by substantially all U.S. and Canadian assets. Borrowing
availability is based on eligible U.S. and Canadian accounts receivable and
inventory and certain U.S. fixed assets. As of December 31, 2003, the Company
had outstanding borrowings of $43.0 million and availability of $147.6 million
under the terms of the Credit Agreement. Availability of borrowings under the
fixed asset component of the new facility is reduced quarterly over a seven-year
period resulting in a reduction in the overall availability of $5.7 million per
annum beginning in 2004. The new facility also includes a sub-facility for
letters of credit of up to $50.0 million. At December 31, 2003, the Company had
outstanding letters of credit of $37.7 million.
Borrowings under the Credit Agreement bear interest at LIBOR plus 2.75% and/or
prime plus 1.50%, at the Company's option through June 30, 2004. Effective July
1, 2004, borrowings under the Credit Agreement bear interest at a rate of LIBOR
plus 2.50% to 3.00% and/or prime plus 1.25% to 1.75% depending upon the
Company's fixed charge coverage, as defined by the Credit Agreement. On
borrowings outstanding at December 31, 2003, the interest rate was 3.92%. The
weighted average interest rate on borrowings under the Credit Agreement for the
period November 24, 2003 through December 31, 2003 was 3.90%. Under the Credit
Agreement, the Company pays a commitment fee of 0.50% per annum on the unused
portion of the commitment. In connection with the refinancing, the Company
incurred fees and expenses aggregating $6.6 million, which are being amortized
over the term of the Credit Agreement. In addition, $4.4 million of unamortized
fees related to the former credit facility were written off in the fourth
quarter of 2003.
The Credit Agreement contains covenants that limit capital spending and the
payment of dividends to holders of common stock and require a minimum fixed
charge coverage ratio, as defined. At December 31, 2003, the Company was in
compliance with all covenants under the Credit Agreement.
The Company's former credit facility was entered into in 1999 with one lead bank
as administrative agent, and a syndicate of lenders. As of December 31, 2002,
the former facility, as amended and reduced by prepayments, consisted of: 1)
term loans in Dollars in an aggregate amount up to $307.3 million, 2) term loans
in Dollars and foreign currencies in an aggregate amount up to $30.1 million and
3) revolving loans in Dollars in an aggregate amount of $78.2 million. During
2001, the Company had repaid $208.8 million of term loans in advance of their
scheduled repayment date. This amount includes the proceeds from the Building
Wire sale, the Company's Securitization Financing and the Pyrotenax sale
received during 2001. In conjunction with these reductions in the borrowing
capacity of the facility, the Company recorded a $2.4 million charge to
write-off a portion of its unamortized bank fees during 2001. During 2002, the
Company amended its former credit facility which resulted in the write-off of
unamortized bank fees of $1.6 million.
The weighted average interest rate on borrowings under the former credit
facility for the period January 1, 2003 through November 24, 2003 was 6.15%.
At December 31, 2003, maturities of long-term debt during each of the years 2004
through 2008 are $2.3 million, $0.2 million, $0.2 million, $0.2 million and
$43.2 million, respectively, and $294.3 million thereafter.
12. FINANCIAL INSTRUMENTS
General Cable is exposed to various market risks, including changes in interest
rates, foreign currency and commodity prices. To manage risk associated with the
volatility of these natural business exposures, General Cable enters into
interest rate, commodity and foreign currency derivative agreements as well as
copper and aluminum forward purchase agreements. General Cable does not purchase
or sell derivative instruments for trading purposes.
General Cable has utilized interest rate swaps and interest rate collars to
manage its interest expense exposure by fixing its interest rate on a portion of
the Company's floating rate debt. Under the swap agreements, General Cable paid
a fixed rate while the counterparty paid to General Cable the difference between
the fixed rate and the three-month LIBOR rate.
F-15
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
During 1999, the Company entered into certain interest rate derivative contracts
for hedging of the former credit facility floating interest rate risk covering
$375.0 million of the Company's debt. In March 2001, the Company incurred a cost
of $4.2 million to terminate these interest rate collars.
During 2001, the Company entered into several interest rate swaps which
effectively fixed interest rates for borrowings under the former credit facility
and other debt. In December 2003 in conjunction with the refinancing of its bank
debt, the Company incurred a cost of $0.8 million to terminate the interest rate
swaps related to the former credit facility. At December 31, 2003, the remaining
outstanding interest rate swap had a notional value of $9.0 million, an interest
rate of 4.49% and matures in October 2011. The Company does not provide or
receive any collateral specifically for this contract.
The fair value of interest rate derivatives are based on quoted market prices
and third party provided calculations, which reflect the present values of the
difference between estimated future variable-rate receipts and future fixed-rate
payments. At December 31, 2003, the net unrealized loss on the interest rate
derivative and the related carrying value was $0.7 million. At December 31,
2002, the net unrealized loss on the net interest rate derivatives and the
related carrying value was $7.4 million.
The Company enters into forward exchange contracts principally to hedge the
currency fluctuations in certain transactions denominated in foreign currencies,
thereby limiting the Company's risk that would otherwise result from changes in
exchange rates. Principal transactions hedged during the year were firm sales
and purchase commitments.
The fair value of foreign currency contracts represents the amount required to
enter into offsetting contracts with similar remaining maturities based on
quoted market prices. At December 31, 2003 and 2002, the net unrealized (loss)
gain on the net foreign currency contracts was $(0.8) million and, $0.7 million
respectively. However, since these contracts hedge forecasted foreign currency
denominated transactions, any change in the fair value of the contracts would be
recorded in other comprehensive income until the hedged transaction was
recognized in the income statement.
Outside of North America, General Cable enters into commodity futures contracts
for the purchase of copper and aluminum for delivery in a future month to match
certain sales transactions. At December 31, 2003 and 2002, General Cable had an
unrealized gain (loss) of $0.1 million and $(0.1) million respectively, on the
commodity futures.
The notional amounts and fair values of these financial instruments at December
31, 2003 and 2002 are shown below (in millions). The carrying amount of the
financial instruments was a liability of $1.4 million and $6.8 million at
December 31, 2003 and 2002, respectively.
2003 2002
------------------- ---------------------
Notional Fair Notional Fair
Amount Value Amount Value
-------- ------ ------- -------
Interest rate swap $ 9.0 $(0.7) $ 9.0 $ (0.9)
Forward starting interest rate swaps - - 200.0 (6.5)
Foreign currency forward exchange 38.4 (0.8) 29.5 0.7
Commodity futures 13.6 0.1 9.2 (0.1)
----- ------
$(1.4) $ (6.8)
===== ======
In the normal course of business, General Cable enters into forward pricing
agreements for purchase of copper and aluminum for delivery in a future month to
match certain sales transactions. At December 31, 2003 General Cable had an
unrealized gain of $2.4 million, and at December 31, 2002, the Company had an
unrealized loss of $2.8 million related to these transactions. General Cable
expects to recover the unrealized gains and losses under these agreements as a
result of firm sales price commitments with customers.
F-16
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
13. INCOME TAXES
The provision (benefit) for income taxes attributable to continuing operations
consisted of the following (in millions):
Year Ended December 31,
------------------------------------------
2003 2002 2001
---------- ---------- ----------
Current tax expense (benefit):
Federal $ - $ (13.8) $ 4.1
State 0.2 0.1 0.1
Foreign 8.1 6.8 11.3
Deferred tax expense (benefit):
Federal (14.7) (6.9) 0.5
State - 2.9 1.0
Foreign 9.3 1.0 3.6
---------- ---------- ----------
Total $ 2.9 $ (9.9) $ 20.6
========== ========== ==========
The income tax benefit attributable to the operations and disposal of
discontinued operations was $3.2 million and $21.8 million for 2002 and 2001,
respectively.
The reconciliation of reported income tax expense (benefit) to the amount of
income tax expense that would result from applying domestic federal statutory
tax rates to pretax income from continuing operations is as follows (in
millions):
Year Ended December 31,
------------------------------------------
2003 2002 2001
---------- ---------- ----------
Statutory federal income tax $ (0.7) $ (9.8) $ 20.3
State and foreign income tax differential (0.3) 0.8 (0.3)
Subpart F taxation of foreign profits 4.4 - -
Other, net (0.5) (0.9) 0.6
---------- ---------- ----------
Total $ 2.9 $ (9.9) $ 20.6
========== ========== ==========
The components of deferred tax assets and liabilities were as follows (in
millions):
December 31,
--------------------------
2003 2002
---------- ----------
Deferred tax assets:
Net operating loss carryforwards $ 89.4 $ 74.7
Pension and retiree benefits accruals 15.1 18.1
Asset and rationalization reserves 2.5 5.1
Inventory reserves 5.8 4.0
Capital loss carryforwards - 1.1
Tax credit carryforwards 7.7 7.7
Other liabilities 11.3 14.4
Valuation allowance (19.0) (19.2)
---------- ----------
Total deferred tax assets 112.8 105.9
Deferred tax liabilities:
Inventory 5.6 6.1
Depreciation and fixed assets 30.2 23.2
---------- ----------
Net deferred tax assets $ 77.0 $ 76.6
========== ==========
As of December 31, 2003, the Company has recorded a valuation allowance for its
U.S. foreign tax credit carryforwards, its state net operating loss
carryforwards, and a portion of its foreign net operating loss carryforwards due
to uncertainties regarding the ability to obtain future tax benefits for these
tax attributes. The December 31, 2003 valuation allowance of $19.0 million
decreased $0.2 million from the prior year. The December 31, 2002 valuation
allowance of $19.2 million increased $13.6 million from the prior year.
After taking into account 2001 and 2002 U.S. net operating loss carrybacks that
resulted in tax refunds of $50.9 million, the Company generated U.S. net
operating loss carryforwards of $55.2 million in 2000, $68.4 million in 2002,
and $27.2 million in 2003. These U.S. net operating loss carryforwards expire in
2020, 2022 and 2023,
F-17
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
respectively. The Company also has other U.S. net operating loss carryforwards
that are subject to an annual limitation under Internal Revenue Code Section
382. These Section 382 limited net operating loss carryforwards expire in
varying amounts from 2006-2009. The total Section 382 limited net operating loss
carryforward that may be utilized prior to expiration is estimated at $53.9
million. The Company also has approximately $21.2 million of net operating loss
carryforwards in various foreign jurisdictions. A valuation allowance has been
established against $19.0 million of these foreign net operating losses due to
the uncertainty of utilization prior to expiration.
The major component of the Company's $7.7 million of tax credit carryforwards is
$6.5 million of U.S. alternative minimum tax credits, which have no expiration
date. $3.1 million of these alternative minimum tax credit carryforwards are
also subject to Section 382 limitations. Undistributed earnings of foreign
subsidiaries that are considered to be reinvested indefinitely are approximately
$94.4 million.
14. PENSION PLANS
General Cable provides retirement benefits through contributory and
noncontributory pension plans for the majority of its regular full-time
employees. Pension expense under the defined contribution plans sponsored by
General Cable in the United States equaled four percent of each eligible
employee's covered compensation. In addition, General Cable sponsors employee
savings plans under which General Cable may match a specified portion of
contributions made by eligible employees.
Benefits provided under defined benefit pension plans sponsored by General Cable
are generally based on years of service multiplied by a specific fixed dollar
amount. Contributions to these pension plans are based on generally accepted
actuarial methods, which may differ from the methods used to determine pension
expense. The amounts funded for any plan year are neither less than the minimum
required under federal law nor more than the maximum amount deductible for
federal income tax purposes. Pension plan assets consist of various fixed-income
investments and equity securities.
Net pension expense included the following components (in millions):
Year Ended December 31,
------------------------------------------
2003 2002 2001
---------- ---------- ----------
Service cost $ 1.9 $ 2.1 $ 2.6
Interest cost 9.1 9.1 8.4
Expected return on plan assets (7.4) (10.2) (10.9)
Net amortization and deferral 4.8 1.0 0.7
---------- ---------- ----------
Net defined benefit pension expense 8.4 2.0 0.8
Net defined contribution pension expense 5.4 5.7 7.2
---------- ---------- ----------
Total pension expense $ 13.8 $ 7.7 $ 8.0
========== ========== ==========
The changes in the benefit obligation and plan assets, the funded status of the
plan and the amounts recognized in the Consolidated Balance Sheets were as
follows (in millions):
December 31,
--------------------------
2003 2002
---------- ----------
Changes in Benefit Obligation:
Beginning benefit obligation $ 141.0 $ 124.1
Impact of foreign currency exchange rate change 2.3 0.2
Acquisitions - 6.3
Service cost 1.9 2.1
Interest cost 9.1 9.1
Curtailment gain (0.3) (1.9)
Special termination benefits 0.3 0.1
Benefits paid (10.1) (12.3)
Amendments - 0.1
Assumption change 7.4 10.3
Actuarial loss 2.9 2.9
---------- ----------
Ending benefit obligation $ 154.5 141.0
========== ==========
F-18
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31,
--------------------------
2003 2002
---------- ----------
Changes in Plan Assets:
Beginning fair value of plan assets $ 88.9 $ 111.9
Impact of foreign currency exchange rate change 1.7 0.2
Acquisitions - 6.9
Actual return (loss) on plan assets 28.0 (20.8)
Company contributions 6.1 3.0
Benefits paid (10.1) (12.3)
---------- ----------
Ending fair value of plan assets $ 114.6 $ 88.9
========== ==========
Reconciliation of Funded Status:
Funded status of the plan $ (39.9) $ (52.1)
Unrecognized net transition obligation 0.5 0.5
Unrecognized actuarial loss 35.4 49.3
Unrecognized prior service cost 9.2 10.1
---------- ----------
Prepaid pension cost $ 5.2 $ 7.8
========== ==========
Amounts Recognized in Consolidated Balance Sheet:
Prepaid pension cost $ 0.7 $ 0.6
Accrued pension liability (35.4) (44.6)
Intangible asset 5.1 5.1
Accumulated other comprehensive income 34.8 46.7
---------- ----------
Net amount recognized $ 5.2 $ 7.8
========== ==========
The curtailment gain and special termination benefits in 2003 and 2002 were the
result of closing and selling certain manufacturing locations. In 2002, the
acquisition amounts are related to the recording of pension obligations for
individuals located in the United Kingdom. These pension obligations were
expected to transfer to Tyco International, Ltd. after completion of the
Pyrotenax sale, however, these individuals either retired during the pension
obligation valuation period or elected to stay in the General Cable United
Kingdom based defined benefit pension plan.
The weighted average interest rate assumptions used in determining pension costs
and the benefit obligations were:
2003 2002 2001
---- ---- ----
Discount rate 6.0% 6.5% 7.25%
Expected rate of increase in future compensation levels 4.0% 4.0% 4.0%
Long-term rate of return on plan assets 8.5% 9.0% 9.5%
Pension expense for the defined benefit pension plans sponsored by General Cable
is determined based upon a number of actuarial assumptions, including an
expected long-term rate of return on assets of 8.5%. This assumption was based
on input from actuaries, including their review of historical 10 year, 20 year,
and 25 year rates of inflation and real rates of return on various broad equity
and bond indices in conjunction with the diversification of the asset portfolio.
The expected long-term rate of return on assets is based on an asset allocation
assumption of 65% allocated to equity investments, with an expected real rate of
return of 7%, and 35% with fixed-income investments, with an expected real rate
of return of 3%, and an assumed long-term rate of inflation of 3.5%. Because of
market fluctuations, the actual asset allocations as of December 31, 2003 and
2002 were 74% and 78%, respectively, of equity investments and 26% and 22%,
respectively, of fixed-income investments. Management believes that long-term
asset allocation on average will approximate the Company's assumptions and that
a 8.5% long-term rate of return is a reasonable assumption.
The determination of pension expense for the defined benefit pension plans is
based on the fair market value of assets as of the measurement date which is
December 31, 2003. Investment gains and losses are recognized in the measurement
of assets immediately. Such gains and losses will be amortized and recognized as
part of the annual benefit cost to the extent that unrecognized net gains and
losses from all sources exceed 10% of the greater of the projected benefit
obligation or the market value of assets.
The determination of future pension obligations utilizes a discount rate based
on a review of long-term bonds that receive one of the two highest ratings given
by a recognized rating agency which are expected to be available during the
period to maturity of the projected pension benefit obligations, and input from
our actuaries. The discount rate used at December 31, 2003 was 6.0%.
F-19
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The accumulated benefit obligation for all of the Company's defined benefit
pension plans was $149.5 million and $133.5 million at December 31, 2003 and
2002, respectively. The projected benefit obligation and accumulated benefit
obligation for the pension plans with accumulated benefit obligations in excess
of plan assets were $136.3 million and $135.2 million at December 31, 2003, and
$136.5 million and $129.9 million at December 31, 2002.
The Company expects to contribute $12.6 million to its defined benefit pension
plans for 2004.
15. POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
General Cable has post-retirement benefit plans that provide medical and life
insurance for certain retirees and eligible dependents. General Cable funds the
plans as claims or insurance premiums are incurred. Net post-retirement benefit
expense (income) included the following components (in millions):
Year ended December 31,
--------------------------
2003 2002 2001
------ ------ ------
Service cost $ 0.3 $ 0.3 $ 0.3
Interest cost 0.6 0.7 0.7
Amortization of prior service cost (0.6) (0.7) (0.8)
Curtailment loss (gain) - 0.2 (0.4)
------ ------ ------
Net post-retirement benefit expense (income) $ 0.3 $ 0.5 $ (0.2)
====== ====== ======
The curtailment loss (gain) was the result of closing certain manufacturing
locations in 2002 and 2001.
The change in the accrued post-retirement benefit liability was as follows (in
millions):
December 31,
----------------
2003 2002
------ ------
Beginning benefit obligation balance $ 10.8 $ 11.4
Net periodic benefit expense 0.3 0.5
Benefits paid (1.0) (1.1)
------ ------
Ending benefit obligation balance $ 10.1 $ 10.8
====== ======
The discount rate used in determining the accumulated post-retirement benefit
obligation was 6.0% for the year ended December 31, 2003, 6.5% for the year
ended December 31, 2002 and 7.25% for the year ended December 31, 2001. The
assumed health-care cost trend rate used in measuring the accumulated
post-retirement benefit obligation was 9.0%, decreasing gradually to 4.50% in
year 2009 and thereafter. Changing the assumed health-care cost trend rate by 1%
would result in a change in the accumulated post-retirement benefit obligation
of $0.7 million for 2003. The effect of this change would affect net
post-retirement benefit expense by $0.1 million.
In January 2004, the Financial Accounting Standards Board issued FASB Staff
Position No. SFAS 106-1, "Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003" which
addresses the accounting and disclosure implications that are expected to arise
as a result of the Medicare Prescription Drug, Improvement and Modernization Act
of 2003 enacted on December 8, 2003. The Act introduces a prescription drug
benefit under Medicare as well as a federal subsidy to sponsors of retiree
health care benefit plans that provide a benefit that is at least equivalent to
Medicare. The Company has reviewed the provisions of the Act and determined that
it has no material impact on its financial statements.
16. SHAREHOLDERS' EQUITY
General Cable is authorized to issue 75 million shares of common stock and 25
million shares of preferred stock.
In the fourth quarter of 2003, the Company completed a comprehensive refinancing
of its bank debt. The refinancing included the private placement of 2,070,000
shares of redeemable convertible preferred stock and a public offering of
5,807,500 shares of common stock.
The preferred stock has a liquidation preference of $50.00 per share. Dividends
accrue on the convertible preferred stock at the rate of 5.75% per annum and are
payable quarterly in arrears starting on February 24, 2004. Dividends are
payable in cash, shares of General Cable common stock or a combination thereof.
Holders of the convertible preferred stock are entitled to convert any or all of
their shares of convertible preferred stock into shares of General
F-20
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Cable common stock, at an initial conversion price of $10.004 per share. The
conversion price is subject to adjustments under certain circumstances. General
Cable is obligated to redeem all outstanding shares of convertible preferred
stock on November 24, 2013 at par. The Company may, at its option, elect to pay
the redemption price in cash or in shares of General Cable common stock with an
equivalent fair value, or any combination thereof. The Company has the option to
redeem some or all of the outstanding shares of convertible preferred stock in
cash beginning on the fifth anniversary of the issue date. The redemption
premium will initially equal one-half the dividend rate on the convertible
preferred stock and decline ratably to par on the date of mandatory redemption.
In the event of a change in control, the Company has the right to either redeem
the preferred stock for cash or to convert the preferred stock to common stock.
The Company has two equity compensation plans, the 1997 Stock Incentives Plan
and the 2000 Stock Option Plan. The 1997 Stock Incentive Plan authorizes a
maximum of 4,725,000 shares, options or units of Common Stock to be granted.
Stock options are granted to employees selected by the Compensation Committee of
the Board or the Chief Executive Officer at prices, which are not less than the
closing market price on the date of grant. The Compensation Committee (or Chief
Executive Officer) has authority to set all the terms of each grant. The
majority of the options granted under the plan expire in 10 years and become
fully exercisable ratably over three years of continued employment or become
fully exercisable after three years of continued employment. Restrictions on the
majority of shares awarded to employees under the plan expire ratably over a
three-year period or expire after six years from the date of grant. Restricted
stock units were awarded to employees in November 1998 as part of a Stock Loan
Incentive Plan.
The 2000 Stock Option Plan as amended authorizes a maximum of 1,500,000
non-incentive options to be granted. No other forms of award are authorized
under this plan. Stock options are granted to employees selected by the
Compensation Committee of the Board or the Chief Executive Officer at prices,
which are not less than the closing market price on the date of grant. The
Compensation Committee (or Chief Executive Officer) has authority to set all the
terms of each grant. The majority of the options granted under the plan expire
in 10 years and become fully exercisable ratably over three years of continued
employment or become fully exercisable after three years of continued
employment.
During the first quarter of 2001, 355,500 shares of restricted common stock with
performance accelerated vesting features were awarded to certain senior
executives under the Company's 1997 Stock Incentive Plan as amended. Under the
terms of this plan, the Company can award restricted common stock to executives
and key employees with such features.
The restricted shares vest six years from the date of grant unless certain
performance criteria are met. The performance measure used to determine vesting
is the Company's stock price. The stock price targets must be sustained for 20
business days in order to trigger accelerated vesting. During the second quarter
of 2001, as a result of the achievement of performance criteria, restrictions on
50% of the stock expired and the Company recognized accelerated amortization of
$1.2 million.
Amortization of all outstanding restricted stock awards was $0.1 million, $0.1
million and $2.1 million during 2003, 2002 and 2001, respectively.
In November 1998, General Cable entered into a Stock Loan Incentive Plan (SLIP)
with executive officers and key employees. Under the SLIP, the Company loaned
$6.0 million to facilitate open market purchases of General Cable common stock.
A matching restricted stock unit (MRSU) was issued for each share of stock
purchased under the SLIP. The fair value of the MRSUs at the grant date of $6.0
million, adjusted for subsequent forfeitures, was being amortized to expense
over the five-year vesting period. In June 2003, all executive officers repaid
their loans plus interest that were originally made under the SLIP in the amount
of $1.8 million. The Company accepted as partial payment for the loans common
stock owned by the executive officers and restricted stock units previously
awarded to them under the SLIP. In July 2003, the Company approved an extension
of the loan maturity for the remaining participants in the SLIP for an
additional three years to November 2006, subject in the extension period to a
rate of interest of 5.0%. As part of the loan extension the vesting schedule on
the MRSUs was also extended so that the MRSUs vest in November 2006. If the
vesting requirements are met, one share of General Cable common stock will be
issued in exchange for each MRSU. There are 140,530 MRSUs outstanding as of
December 31, 2003. Amortization expense related to the MRSUs was $0.4 million,
$0.9 million and $0.2 million during 2003, 2002 and 2001 respectively.
F-21
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The components of accumulated other comprehensive income (loss) consisted of the
following (in millions):
December 31,
-------------------
2003 2002
-------- --------
Foreign currency translation adjustment $ 17.6 $ (9.5)
Pension adjustments, net of tax (23.3) (30.6)
Change in fair value of derivatives, net of tax (0.7) (4.2)
Unrealized investment (losses) gains 0.9 (0.3)
-------- --------
Total $ (5.5) $ (44.6)
======== ========
Other shareholder's equity consisted of the following (in millions):
December 31,
-------------------
2003 2002
-------- --------
Loans to shareholders $ (2.8) $ (4.3)
Restricted stock (0.4) (0.5)
-------- --------
Total $ (3.2) $ (4.8)
======== ========
17. STOCK OPTIONS
General Cable applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for stock options issued under its 1997 Stock
Incentive Plan and its 2000 Stock Option Plan (see description of plans in Note
16). Accordingly, no compensation cost has been recognized for stock option
grants under the plans. If compensation cost for General Cable's stock option
grants had been determined based on the fair value at the grant dates for awards
under the plans consistent with the method of SFAS No. 123, the proforma net
loss would have been as follows (in millions except per share amounts):
Year Ended December 31,
--------------------------------
2003 2002 2001
-------- -------- --------
Net loss applicable to common shareholders, as reported $ (5.4) $ (24.0) $ (2.0)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects (2.2) (2.4) (5.7)
-------- -------- --------
Pro forma net loss applicable to common shareholders $ (7.6) $ (26.4) $ (7.7)
======== ======== ========
Loss per share:
Basic-- as reported $ (0.16) $ (0.73) $ (0.06)
Basic-- pro forma $ (0.23) $ (0.80) $ (0.23)
Diluted-- as reported $ (0.16) $ (0.73) $ (0.06)
Diluted-- pro forma $ (0.23) $ (0.80) $ (0.23)
These proforma amounts may not be representative of future disclosures because
the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years. In
determining the proforma amounts above, the fair value of each option was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions:
2003 2002 2001
--------- --------- ---------
Risk-free interest rate 3.6% 3.2% 5.1%
Expected dividend yield N/A 1.5% 3.0%
Expected option life 6.5 years 6.5 years 6.5 years
Expected stock price volatility 70.1% 95.7% 66.1%
Weighted average fair value of options granted $2.72 $9.58 $6.09
F-22
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A summary of option information for the years ended December 31, 2003, 2002 and
2001 follows (options in thousands):
Weighted
Average
Options Exercise
Outstanding Price
----------- --------
Balance at December 31, 2000 3,204 $ 14.74
Granted 623 7.83
Exercised (184) 11.34
Forfeited (419) 13.22
------- -------
Balance at December 31, 2001 3,224 13.75
Granted 641 13.39
Exercised (265) 8.99
Forfeited (857) 15.47
------- -------
Balance at December 31, 2002 2,743 13.55
Granted 1,126 4.05
Exercised (15) 7.92
Forfeited (363) 11.37
------- -------
Balance At December 31, 2003 3,491 $ 10.61
======= =======
The following table summarizes information about stock options outstanding at
December 31, 2003 (options in thousands):
Weighted
Weighted Average
Average Remaining Weighted
Range of Options Exercise Contractual Options Average
Option Prices Outstanding Price Life Exercisable Exercise Price
- ------------- ----------- ------- ---------- ----------- --------------
$0 - $7 1,078 $ 4.03 9.1 - -
$ 7 - $14 1,870 $11.49 6.2 1,136 $10.97
$14 - $21 152 $14.25 5.6 147 $14.20
$21 - $28 391 $23.09 4.6 391 $23.09
As of December 31, 2003, 2002 and 2001, there were 1,674,000, 1,612,000 and
2,120,000 exercisable stock options, respectively.
18. EARNINGS (LOSS) PER COMMON SHARE OF CONTINUING OPERATIONS
A reconciliation of the numerator and denominator of earnings (loss) per common
share of continuing operations to earnings (loss) per common share of continuing
operations assuming dilution is as follows (in millions):
Year Ended December 31,
--------------------------------
2003 2002 2001
-------- -------- --------
EPS from continuing operations - basic:
Income (loss) from continuing operations $ (4.8) $ (18.1) $ 37.5
Less: preferred stock dividends (0.6) - -
-------- -------- --------
Income (loss) from continuing operations applicable to common
shareholders (1) $ (5.4) $ (18.1) $ 37.5
Weighted average shares outstanding (2) 33.6 33.0 32.8
Earnings (loss) per common share from continuing
operations - basic $ (0.16) $ (0.55) $ 1.14
EPS from continuing operations - diluted:
Income (loss) from continuing operations $ (4.8) $ (18.1) $ 37.5
Less: preferred stock dividends (0.6) - -
-------- -------- --------
Income (loss) from continuing operations applicable to common
shareholders (1) $ (5.4) $ (18.1) $ 37.5
F-23
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Year Ended December 31,
--------------------------------
2003 2002 2001
-------- -------- --------
Weighted average shares outstanding 33.6 33.0 32.8
Dilutive effect of stock options and restricted stock units - - 0.3
-------- -------- --------
Weighted average shares outstanding - diluted (2) 33.6 33.0 33.1
Earnings (loss) per common share from continuing
operations - diluted $ (0.16) $ (0.55) $ 1.13
- ----------
(1) Numerator
(2) Denominator
The earnings (loss) per common share -- assuming dilution computation excludes
the impact of 3.6 million, 2.7 million, and 3.0 million stock options and
restricted stock units in 2003, 2002 and 2001, respectively, because their
impact was anti-dilutive. This computation also excludes the impact of the
assumed conversion of Company's preferred stock (which was issued in the fourth
quarter of 2003) because its impact was anti-dilutive in 2003.
19. SEGMENT INFORMATION
General Cable has three reportable operating segments: energy, industrial &
specialty and communications. These segments are strategic business units
organized around three product categories that follow management's internal
organization structure. Beginning in the third quarter of 2001, the Company has
reported the building wire and cordsets segment as discontinued operations for
financial reporting purposes.
The energy segment manufactures and sells wire and cable products that include
low-, medium- and high-voltage power distribution and power transmission
products. The industrial & specialty segment manufactures and sells wire and
cable products that conduct electrical current for industrial, OEM, commercial
and residential power and control applications. The communications segment
manufactures and sells wire and cable products that transmit low-voltage signals
for voice, data, video and control applications.
Segment net sales represent sales to external customers. Segment operating
income represents profit from continuing operations before interest income,
interest expense, other financial costs or income taxes. The operating loss
included in corporate for 2003 consisted of $7.6 million related to the
rationalization of certain of the Company's industrial cable manufacturing
facilities and $2.7 million for severance related to headcount reductions of
approximately 110 associates in the Company's European operations. These charges
were offset by $2.1 million of income resulting from the reversal of unutilized
restructuring reserves related to the closure in prior years of North American
manufacturing facilities. The operating loss included in corporate for 2002
consisted of $21.2 million related to the closure of two manufacturing plants, a
$1.7 million loss on the sale of a non-strategic United Kingdom-based specialty
cables business, a $3.6 million charge to reduce to fair value certain assets
contributed to the Company's Fiber Optic joint venture, and $6.9 million for
severance and related costs for headcount reductions of approximately 140
associates worldwide. The operating loss in corporate for 2001 consisted of a
pre-tax gain of $7.0 million related to the divestiture of assets to Pirelli, a
pre-tax gain of $23.8 million from the sale of the Pyrotenax business, a $4.8
million charge for the closure of a manufacturing plant, $16.5 million in
severance and related charges for a plan to reduce headcount throughout its
worldwide operations by approximately 100 associates, $5.5 million loss related
to the sale of a non-strategic business which designs and manufactures extrusion
tooling and accessories, $7.0 million related to the disposal of inventory as
part of the Company's optimization of its distribution network and $0.8 million
for certain other costs. Depreciation on corporate property has been allocated
to the operating segments. The accounting policies of the operating segments are
the same as those described in the summary of significant accounting policies
(see Note 2). The Company has recorded the operating items discussed above in
the corporate segment rather than reflect such items in the energy, industrial &
specialty or communications segments operating income. These items are reported
in the corporate segment because they are not considered in the operating
performance evaluation of the energy, industrial & specialty or communications
segment by the Company's chief operating decision-maker, its Chief Executive
Officer.
Corporate assets included cash, deferred income taxes, certain property and
prepaid expenses and other current and non-current assets. Capital expenditures
and depreciation expense included in the corporate column represent the
discontinued operations.
F-24
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Summarized financial information for the Company's operating segments for the
years ended December 31, is as follows (in millions). Certain reclassifications
have been made to the prior year to conform to the current year segment
presentation.
Industrial &
Energy Specialty Communications Corporate Total
------- ------------ -------------- --------- ---------
Net Sales:
2003 $ 560.2 $ 542.4 $ 435.8 $ - $ 1,538.4
2002 516.0 499.4 438.5 - 1,453.9
2001 521.8 537.6 592.0 - 1,651.4
Operating Income:
2003 38.0 9.9 6.0 (8.2) 45.7
2002 36.9 9.7 2.5 (33.4) 15.7
2001 35.3 24.3 48.5 (3.8) 104.3
Identifiable Assets:
2003 269.5 325.1 302.9 152.0 1,049.5
2002 229.1 289.9 318.3 136.0 973.3
Capital Expenditures:
2003 6.6 8.7 3.8 - 19.1
2002 9.9 13.4 8.1 - 31.4
2001 17.0 12.1 24.0 1.8 54.9
Depreciation Expense:
2003 5.7 9.6 14.5 - 29.8
2002 3.8 8.5 15.8 - 28.1
2001 3.5 7.5 15.1 5.6 31.7
The following table presents revenues by geographic region based on the country
of origin of the product or services for the years ended December 31 (in
millions):
2003 2002 2001
---------- ---------- ----------
North America $ 1,074.2 $ 1,077.2 $ 1,267.7
Europe 377.9 314.7 322.2
Oceania 86.3 62.0 61.5
---------- ---------- ----------
Total $ 1,538.4 $ 1,453.9 $ 1,651.4
========== ========== ==========
The following table presents property, plant and equipment by geographic region
based on the location of the asset as of December 31 (in millions):
2003 2002
-------- --------
North America $ 219.0 $ 250.4
Europe 98.7 62.9
Oceania 15.6 10.0
-------- --------
Total $ 333.3 $ 323.3
======== ========
20. COMMITMENTS AND CONTINGENCIES
Certain present and former operating sites, or portions thereof,
currently or previously owned or leased by current or former operating units of
General Cable are the subject of investigations, monitoring or remediation under
the United States Federal Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA or Superfund), the Federal Resource Conservation and
Recovery Act or comparable state statutes or agreements with third parties.
These proceedings are in various stages ranging from initial investigations to
active settlement negotiations to implementation of the cleanup or remediation
of sites.
Certain present and former operating units of General Cable in the United States
have been named as potentially responsible parties (PRPs) at several off-site
disposal sites under CERCLA or comparable state statutes in federal court
proceedings. In each of these matters, the operating unit of General Cable is
working with the governmental agencies involved and other PRPs to address
environmental claims in a responsible and appropriate manner.
F-25
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
At December 31, 2003 and 2002, General Cable had an accrued liability of
approximately $5.4 million and $4.6 million, respectively, for various
environmental-related liabilities of which General Cable is aware. American
Premier Underwriters Inc., a former parent of General Cable, agreed to indemnify
General Cable against all environmental-related liabilities arising out of
General Cable's or its predecessors' ownership or operation of the Indiana Steel
& Wire Company and Marathon Manufacturing Holdings, Inc. businesses (which were
divested by General Cable), without limitation as to time or amount. American
Premier also agreed to indemnify General Cable against 662/3% of all other
environmental-related liabilities arising out of General Cable's or its
predecessors' ownership or operation of other properties and assets in excess of
$10 million but not in excess of $33 million which were identified during the
seven-year period ended June 2001. Indemnifiable environmental liabilities
through June 2001 were substantially below that threshold. While it is difficult
to estimate future environmental-related liabilities accurately, General Cable
does not currently anticipate any material adverse impact on its results of
operations, financial position or cash flows as a result of compliance with
federal, state, local or foreign environmental laws or regulations or cleanup
costs of the sites discussed above.
As part of the acquisition of the worldwide energy cable and cable systems
business of BICC plc, BICC plc agreed to indemnify General Cable against
environmental liabilities existing at the date of the closing of the purchase of
the business. The indemnity is for an eight-year period ending in 2007 while
General Cable operates the businesses subject to certain sharing of losses (with
BICC plc covering 95% of losses in the first three years, 80% in years four and
five and 60% in the remaining three years). The indemnity is also subject to the
overall indemnity limit of $150 million, which applies to all warranty and
indemnity claims in the transaction. In addition, BICC plc assumed
responsibility for cleanup of certain specific conditions at several sites
operated by General Cable and cleanup is mostly complete at those sites. In the
sale of the European businesses to Pirelli in August 2000, the Company generally
indemnified Pirelli against any environmental-related liabilities on the same
basis as BICC plc indemnified the Company in the earlier acquisition. However,
the indemnity the Company received from BICC plc related to the European
businesses sold to Pirelli terminated upon the sale of those businesses to
Pirelli. At this time, there are no claims outstanding under the general
indemnity provided by BICC plc. In addition, the Company generally indemnified
Pirelli against other claims relating to the prior operation of the business.
Pirelli has asserted claims under this indemnification. The Company is
continuing to investigate these claims and believes that the reserves currently
included in the Company's balance sheet are adequate to cover any obligation it
may have.
General Cable has agreed to indemnify Raychem HTS Canada, Inc. against certain
environmental liabilities arising out of the operation of the business it sold
to Raychem HTS Canada, Inc. prior to its sale. The indemnity generally is for a
five year period from the closing of the sale and is subject to an overall limit
of $60 million. At this time, there are no claims outstanding under this
indemnity.
General Cable has also agreed to indemnify Southwire Company against certain
environmental liabilities arising out of the operation of the business it sold
to Southwire prior to its sale. The indemnity is for a ten year period from the
closing of the sale and is subject to an overall limit of $20 million. At this
time, there are no claims outstanding under this indemnity.
In addition, Company subsidiaries have been named as defendants in lawsuits
alleging exposure to asbestos in products manufactured by the Company. At
December 31, 2003, there were approximately 15,000 non-maritime claims and
33,000 maritime asbestos claims outstanding. During 2003, some 4,006 new
non-maritime claims and 315 maritime claims were filed; 20 non-maritime claims
and no maritime claims were dismissed, settled or otherwise disposed of in that
period. At December 31, 2003 and 2002, General Cable had accrued approximately
$1.6 million and $1.3 million, respectively, for these lawsuits.
The Company does not believe that the outcome of the litigation will have a
material adverse effect on its results of operations, financial position or cash
flows.
General Cable is also involved in various routine legal proceedings and
administrative actions. Such proceedings and actions should not, individually or
in the aggregate, have a material adverse effect on its result of operations,
cash flows or financial position.
General Cable has entered into various operating lease agreements related
principally to certain administrative, manufacturing and distribution facilities
and transportation equipment. Future minimum rental payments required under
non-cancelable lease agreements at December 31, 2003 were as follows: 2004 -
$7.2 million, 2005 - $6.5
F-26
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
million, 2006 - $4.9 million, 2007 - $2.3 million and 2008 - $2.1 million.
Rental expense recorded under operating leases was $11.9 million, $10.3 million
and $16.2 million for the years ended December 31, 2003, 2002 and 2001,
respectively.
21. RELATED PARTY TRANSACTIONS
In May of 2002, General Cable formed a joint venture company to manufacture and
market fiber optic cables. General Cable contributed assets, primarily inventory
and machinery and equipment, to a subsidiary company, which was then contributed
to the joint venture in exchange for a $10.2 million note receivable, which
resulted in a $5.6 million deferred gain on the transaction. The Company will
recognize the gain as the note is repaid. At December 31, 2003, General Cable
owned 49% of the joint venture company.
The joint venture company manufactures and sells to General Cable all of the
fiber optic cable products that General Cable sells to its customers. During the
year ended December 31, 2003 and the eight month period ended December 31, 2002,
General Cable purchased approximately $20.2 million and $12.2 million from the
joint venture company. At December 31, 2003 and 2002, General Cable had a $1.0
million and $3.0 million payable to the joint venture company for these
purchases.
General Cable sells fiber to the joint venture company. During the year ended
December 31, 2003 and the eight month period ended December 31, 2002, General
Cable sold approximately $10.4 million and $6.8 million to the joint venture
company. At December 31, 2003 and 2002, General Cable had a receivable of $1.0
million and $2.6 million from the joint venture company for these transactions.
For the year ended December 31, 2003, the joint venture company had sales of
$20.6 million and an operating loss and net loss of $(0.6) million. At December
31, 2003, the joint venture company had total assets of $10.0 million, total
liabilities of $2.9 million and total equity of $7.1 million. For the eight
month period ended December 31, 2002, the joint venture company had sales of
$12.3 million and an operating loss and net loss of $(1.2) million. At December
31, 2002, the joint venture company had total assets of $12.9 million, total
liabilities of $5.1 million and total equity of $7.8 million.
Beginning in the first quarter of 2004, the Company will be required to
consolidate the joint venture company as a result of the adoption of FIN No. 46.
22. QUARTERLY OPERATING RESULTS (UNAUDITED)
The interim financial information is unaudited. In the opinion of management,
the interim financial information reflects all adjustments necessary for a fair
presentation of quarterly financial information. Quarterly results have been
influenced by seasonal factors inherent in General Cable's businesses. The sum
of the quarter's earnings (loss) per share amounts may not add to full year
earnings per share because each quarter is calculated independently. Summarized
historical quarterly financial data for 2003 and 2002 are set forth below (in
millions, except per share data):
First Second Third Fourth
Quarter Quarter Quarter Quarter(1)
------- ------- ------- ----------
2003
Net sales $ 352.6 $ 398.0 $ 382.5 $ 405.3
Gross profit 42.4 46.6 45.4 39.0
Net income (loss) 0.1 3.0 2.1 (10.0)
Net income (loss) applicable to common shareholders 0.1 3.0 2.1 (10.6)
Earning (loss) per common share $ - $ 0.09 $ 0.06 $ (0.30)
Earnings (loss) per common share - assuming dilution $ - $ 0.09 $ 0.06 $ (0.30)
F-27
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
2002
Net sales $ 361.4 $ 393.7 $ 347.4 $ 351.4
Gross profit 48.1 44.7 37.6 36.2
Income (loss) from continuing operations 4.9 (11.8) (4.0) (7.2)
Loss on disposal of discontinued operations (net of tax) -- (3.9) -- (2.0)
Net income (loss) 4.9 (15.7) (4.0) (9.2)
Earning (loss) of continuing operations per common share $ 0.15 $ (0.36) $ (0.12) $ (0.22)
Earnings (loss) of continuing operations per common share--assuming dilution $ 0.15 $ (0.36) $ (0.12) $ (0.22)
Loss of discontinued operations per common share -- $ (0.12) -- $ (0.06)
Loss of discontinued operations per common share--assuming dilution -- $ (0.12) -- $ (0.06)
Earnings (loss) per common share $ 0.15 $ (0.48) $ (0.12) $ (0.28)
Earnings (loss) per common share--assuming dilution $ 0.15 $ (0.48) $ (0.12) $ (0.28)
(1) The fourth quarter of 2003 includes charges of $7.6 million related to the
rationalization of industrial cable manufacturing facilities, $1.0 million
for severance related to headcount reductions in Europe and income of $2.1
million related to the reversal of unutilized restructuring reserves. See
Note 10 for further discussion.
F-28
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
23. SUPPLEMENTAL GUARANTOR INFORMATION
General Cable Corporation and its material North American wholly-owned
subsidiaries fully and unconditionally guarantee the $285.0 million of Senior
Notes due 2010 of General Cable Corporation (the Issuer) on a joint and several
basis. The Company has not presented separate financial statements and other
disclosures concerning the guarantor subsidiaries because management has
determined that such information will not be material to the holders of the
Senior Notes. The following consolidating financial information presents
information about the Issuer, guarantor subsidiaries and non-guarantor
subsidiaries. All of the Company's subsidiaries are "restricted subsidiaries"
for purposes of the Senior Notes. Investments in subsidiaries are accounted for
on the equity basis. Intercompany transactions are eliminated.
SUPPLEMENTAL CONSOLIDATING STATEMENTS OF OPERATIONS
(IN MILLIONS)
Year Ended December 31, 2003
------------------------------------------------------------------
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------- ------------ --------
Net sales:
Customers $ - $1,074.2 $ 464.2 $ - $1,538.4
Intercompany 28.8 - - (28.8) -
-------- -------- -------- -------- --------
28.8 1,074.2 464.2 (28.8) 1,538.4
Cost of sales - 1,011.3 382.5 (28.8) 1,365.0
-------- -------- -------- -------- --------
Gross profit 28.8 62.9 81.7 - 173.4
Selling, general and administrative expenses 22.7 69.0 36.0 - 127.7
-------- -------- -------- -------- --------
Operating income (loss) 6.1 (6.1) 45.7 - 45.7
Other income 1.5 - - - 1.5
Interest income (expense):
Interest expense (40.2) (71.3) (2.6) 70.6 (43.5)
Interest income 56.3 14.4 0.3 (70.6) 0.4
Other financial costs (5.1) (0.9) - - (6.0)
-------- -------- -------- -------- --------
11.0 (57.8) (2.3) - (49.1)
-------- -------- -------- -------- --------
Year Ended December 31, 2003
------------------------------------------------------------------
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------ ------------ --------
Income (loss) before income taxes 18.6 (63.9) 43.4 - (1.9)
Income tax (provision) benefit (6.5) 18.3 (14.7) - (2.9)
-------- -------- -------- -------- --------
Net income (loss) 12.1 (45.6) 28.7 - (4.8)
Less: preferred stock dividends (0.6) - - - (0.6)
-------- -------- -------- -------- --------
Net income (loss) applicable to common
shareholders $ 11.5 $ (45.6) $ 28.7 $ - $ (5.4)
======== ======== ======== ======== ========
Year Ended December 31, 2002
------------------------------------------------------------------
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiaries Eliminations Total
--------- ------------ ------------- ------------ ---------
Net sales:
Customers $ - $ 1,077.2 $ 376.7 $ - $ 1,453.9
Intercompany 25.6 - - (25.6) -
--------- --------- --------- --------- ---------
25.6 1,077.2 376.7 (25.6) 1,453.9
Cost of sales - 998.1 314.8 (25.6) 1,287.3
--------- --------- --------- --------- ---------
Gross profit 25.6 79.1 61.9 - 166.6
Selling, general and administrative expenses 20.7 102.4 27.8 - 150.9
--------- --------- --------- --------- ---------
Operating income (loss) 4.9 (23.3) 34.1 - 15.7
Interest income (expense):
Interest expense (37.4) (66.1) (5.9) 65.9 (43.5)
Interest income 44.4 20.8 1.6 (65.9) 0.9
Other financial costs (1.1) - - - (1.1)
--------- --------- --------- --------- ---------
5.9 (45.3) (4.3) - (43.7)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes 10.8 (68.6) 29.8 - (28.0)
Income tax (provision) benefit (3.8) 24.3 (10.6) - 9.9
--------- --------- --------- --------- ---------
Income (loss) from continuing operations 7.0 (44.3) 19.2 - (18.1)
Loss on disposal of discontinued operations
(net of tax) - (5.9) - - (5.9)
--------- --------- --------- --------- ---------
Net income (loss) $ 7.0 $ (50.2) $ 19.2 $ - $ (24.0)
========= ========= ========= ========= =========
F-29
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Year Ended December 31, 2001
------------------------------------------------------------------
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiaries Eliminations Total
--------- ------------ ------------- ------------ ---------
Net sales:
Customers $ - $ 1,245.3 $ 406.1 $ - $ 1,651.4
Intercompany 39.0 - - (39.0) -
--------- --------- --------- --------- ---------
39.0 1,245.3 406.1 (39.0) 1,651.4
Cost of sales - 1,110.9 338.8 (39.0) 1,410.7
--------- --------- --------- --------- ---------
Gross profit 39.0 134.4 67.3 - 240.7
Selling, general and administrative expenses 35.4 67.1 33.9 - 136.4
--------- --------- --------- --------- ---------
Operating income 3.6 67.3 33.4 - 104.3
Other income - - 8.1 - 8.1
Interest income (expense):
Interest expense (47.0) (53.8) (10.7) 65.9 (45.6)
Interest income 59.3 7.4 0.9 (65.9) 1.7
Other financial costs (6.2) (4.2) - - (10.4)
--------- --------- --------- --------- ---------
6.1 (50.6) (9.8) - (54.3)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes 9.7 16.7 31.7 - 58.1
Income tax (provision) benefit (3.4) (5.9) (11.3) - (20.6)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations 6.3 10.8 20.4 - 37.5
Loss from operations of discontinued
operations (net of tax) - (6.8) - - (6.8)
Loss on disposal of discontinued operations
(net of tax) - (32.7) - - (32.7)
--------- --------- --------- --------- ---------
Net income (loss) $ 6.3 $ (28.7) $ 20.4 $ - $ (2.0)
========= ========= ========= ========= =========
F-30
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL CONSOLIDATING BALANCE SHEETS
(IN MILLIONS)
December 31, 2003
------------------------------------------------------------------
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiaries Eliminations Total
--------- ------------ ------------- ------------ ---------
ASSETS
Current assets:
Cash $ - $ 3.7 $ 21.4 $ - $ 25.1
Receivables, net of allowances - 149.2 119.7 - 268.9
Inventories - 169.9 86.8 - 256.7
Deferred income taxes 1.5 12.0 - - 13.5
Prepaid expenses and other 1.2 22.8 0.9 - 24.9
--------- --------- --------- --------- ---------
Total current assets 2.7 357.6 228.8 - 589.1
Property, plant and equipment, net 0.5 218.5 114.3 - 333.3
Deferred income taxes - 72.5 4.0 - 76.5
Intercompany accounts 623.4 132.4 163.6 (919.4) -
Investment in subsidiaries 33.7 345.3 - (379.0) -
Other non-current assets 7.0 42.8 0.8 - 50.6
--------- --------- --------- --------- ---------
Total assets $ 667.3 $ 1,169.1 $ 511.5 $(1,298.4) $ 1,049.5
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ - $ 104.5 $ 146.1 $ - $ 250.6
Accrued liabilities 8.1 73.0 18.5 - 99.6
Current portion of long-term debt - - 2.3 - 2.3
--------- --------- --------- --------- ---------
Total current liabilities 8.1 177.5 166.9 - 352.5
Long-term debt 285.0 52.1 1.0 - 338.1
Deferred income taxes - 2.7 6.9 - 9.6
Intercompany accounts 31.2 761.5 126.7 (919.4) -
Other liabilities 32.9 67.8 8.5 - 109.2
--------- --------- --------- --------- ---------
Total liabilities 357.2 1,061.6 310.0 (919.4) 809.4
Total shareholders' equity 310.1 107.5 201.5 (379.0) 240.1
--------- --------- --------- --------- ---------
Total liability and shareholders' equity $ 667.3 $ 1,169.1 $ 511.5 $(1,298.4) $ 1,049.5
========= ========= ========= ========= =========
F-31
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 2002
-----------------------------------------------------------------
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------- ------------ --------
ASSETS
Current assets:
Cash $ - $ 8.1 $ 21.0 $ - $ 29.1
Receivables, net of allowances - 7.4 98.5 - 105.9
Retained interest in accounts receivable - 84.8 - - 84.8
Inventories - 149.5 108.8 - 258.3
Deferred income taxes - 12.2 - - 12.2
Prepaid expenses and other 1.3 40.4 0.9 - 42.6
Total current assets 1.3 302.4 229.2 - 532.9
Property, plant and equipment, net 0.5 249.9 72.9 - 323.3
Deferred income taxes (3.6) 78.1 (6.2) - 68.3
Intercompany accounts 451.8 - 24.3 (476.1) -
Investment in subsidiaries 33.8 345.2 - (379.0) -
Other non-current assets 8.8 38.9 1.1 - 48.8
-------- -------- -------- -------- --------
Total assets $ 492.6 $1,014.5 $ 321.3 $ (855.1) $ 973.3
======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ - $ 112.2 $ 129.9 $ - $ 242.1
Accrued liabilities 5.6 77.4 16.2 - 99.2
Current portion of long-term debt - 13.0 27.8 - 40.8
-------- -------- -------- -------- --------
Total current liabilities 5.6 202.6 173.9 - 382.1
Long-term debt 304.1 77.4 29.6 - 411.1
Deferred income taxes - 1.9 0.2 - 2.1
Intercompany accounts - 476.1 - (476.1) -
Other liabilities 32.9 78.2 6.0 - 117.1
-------- -------- -------- -------- --------
Total liabilities 342.6 836.2 209.7 (476.1) 912.4
Total shareholders' equity 150.0 178.3 111.6 (379.0) 60.9
-------- -------- -------- -------- --------
Total liability and shareholders' equity $ 492.6 $1,014.5 $ 321.3 $ (855.1) $ 973.3
======== ======== ======== ======== ========
F-32
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL CONSOLIDATING CASH FLOWS
(IN MILLIONS)
Year Ended December 31, 2003
----------------------------------------------------------------
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------- ------------ --------
Cash flows of operating activities:
Net income (loss) $ 12.1 $ (45.6) $ 28.7 $ - $ (4.8)
Adjustment to reconcile net loss to net
cash provided by (used by) operating
activities:
Depreciation and amortization 0.5 30.8 2.1 - 33.4
Foreign currency exchange gain (1.5) - - - (1.5)
Deferred income taxes - (2.9) (3.6) - (6.5)
(Gain) loss on disposal of property and
businesses - 6.8 - - 6.8
Changes in operating assets and liabilities,
net of effect of acquisitions and
divestitures:
Purchase of receivables - (80.0) - - (80.0)
Decrease in receivables - 23.0 4.8 - 27.8
Decrease in inventories - 13.1 3.8 - 16.9
Decrease in other assets 2.0 11.9 0.6 - 14.5
Increase (decrease) in accounts,
payable accrued and other liabilities 1.9 (12.4) (10.6) - (21.1)
-------- -------- -------- -------- --------
Net cash flows of operating
activities 15.0 (55.3) 25.8 - (14.5)
-------- -------- -------- -------- --------
Cash flows of investing activities:
Capital expenditures - (8.9) (10.2) - (19.1)
Proceeds from properties sold - 2.4 0.1 - 2.5
Other, net - (0.1) - - (0.1)
-------- -------- -------- -------- --------
Net cash flows of investing activities - (6.6) (10.1) - (16.7)
-------- -------- -------- -------- --------
Cash flows of financing activities:
Common stock issued, net of fees and
expenses 44.6 - - - 44.6
Preferred stock issued, net of fees and
expenses 99.5 - - - 99.5
Repayment of loans from shareholders - 1.0 - - 1.0
Intercompany accounts (131.6) 90.8 40.8 - -
Net change in revolving credit borrowings (57.9) 22.7 - - (35.2)
Net change in other debt - - (26.0) - (26.0)
Issuance of long term debt, net of fees
and expenses 276.6 - - - 276.6
Repayment of long-term debt (246.2) (57.0) (30.1) - (333.3)
-------- -------- -------- -------- --------
Net cash flows of financing activities (15.0) 57.5 (15.3) - 27.2
-------- -------- -------- -------- --------
Increase (decrease) in cash - (4.4) 0.4 - (4.0)
Cash - beginning of period - 8.1 21.0 - 29.1
-------- -------- -------- -------- --------
Cash - end of period $ - $ 3.7 $ 21.4 $ - $ 25.1
======== ======== ======== ======== ========
F-33
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Year Ended December 31, 2002
---------------------------------------------------------------
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------- ------------ --------
Cash flows of operating activities:
Net income (loss) $ 7.0 $ (50.2) $ 19.2 $ - $ (24.0)
Adjustment to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1.1 29.0 0.5 - 30.6
Deferred income taxes 0.2 12.7 1.5 - 14.4
(Gain) loss on sale of business - 1.7 - - 1.7
Changes in operating assets and liabilities,
net of effect of acquisitions
and divestitures:
(Increase) decrease in receivables - 7.0 8.1 - 15.1
(Increase) decrease in inventories - 65.8 (4.3) - 61.5
(Increase) decrease in other assets 4.4 (13.4) 1.0 - (8.0)
Increase (decrease) in accounts payable,
and other liabilities (2.8) (19.1) (12.1) - (34.0)
-------- -------- -------- -------- --------
Net cash flows of operating activities 9.9 33.5 13.9 - 57.3
-------- -------- -------- -------- --------
Cash flows of investing activities:
Capital expenditures (0.2) (17.3) (13.9) - (31.4)
Proceeds from sale of businesses,
net of cash sold - 1.7 - - 1.7
Proceeds from properties sold - 1.2 0.4 - 1.6
Other, net - (0.5) - - (0.5)
-------- -------- -------- -------- --------
Net cash flows of investing activities (0.2) (14.9) (13.5) - (28.6)
-------- -------- -------- -------- --------
Cash flows of financing activities:
Dividends paid (5.0) - - - (5.0)
Intercompany accounts (6.9) (2.6) 9.5 - -
Net changes in revolving credit borrowings 0.5 (2.7) - - (2.2)
Net change in other debt - 3.5 0.5 - 4.0
Repayment of long-term debt (0.7) (15.5) 0.8 - (15.4)
Proceeds from exercise of stock options 2.4 - - - 2.4
-------- -------- -------- -------- --------
Net cash flows of financing activities (9.7) (17.3) 10.8 - (16.2)
-------- -------- -------- -------- --------
Increase (decrease) in cash - 1.3 11.2 - 12.5
Cash - beginning of period - 6.8 9.8 - 16.6
-------- -------- -------- -------- --------
Cash - end of period $ - $ 8.1 $ 21.0 $ - $ 29.1
======== ======== ======== ======== ========
F-34
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL CONSOLIDATING CASH FLOWS
(IN MILLIONS)
Year Ended December 31, 2001
---------------------------------------------------------------
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------- ------------ --------
Cash flows of operating activities:
Net income (loss) $ 6.3 $ (28.7) $ 20.4 - $ (2.0)
Adjustment to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 2.4 32.2 0.4 - 35.0
Foreign currency translation adjustment - - (8.5) - (8.5)
Deferred income taxes (2.1) (42.3) 27.7 - (16.7)
(Gain) loss on sale of business - (18.3) - - (18.3)
Changes in operating assets and liabilities,
net effect of acquisitions and divestitures:
Sale of receivables - 145.0 - - 145.0
(Increase) decrease in receivables - 16.9 (0.3) - 16.6
(Increase) decrease in inventories - 35.7 1.6 - 37.3
(Increase) decrease in other assets 4.3 (3.4) 3.0 - 3.9
Increase (decrease) in accounts payable
accrued and other liabilities (11.7) (69.7) (27.7) - (109.1)
-------- -------- -------- -------- --------
Net cash flows of operating activities (0.8) 67.4 16.6 - 83.2
-------- -------- -------- -------- --------
Cash flows of investing activities:
Capital expenditures - (41.3) (13.6) - (54.9)
Proceeds from sale of businesses, net of
cash sold - 141.8 - - 141.8
Proceeds from properties sold - (0.2) 6.9 - 6.7
Other, net - (1.7) - - (1.7)
-------- -------- -------- -------- --------
Net cash flows of investing activities - 98.6 (6.7) - 91.9
-------- -------- -------- -------- --------
Cash flows of financing activities:
Dividends paid (6.6) - - - (6.6)
Intercompany accounts 43.8 (70.1) 26.3 - -
Net change in revolving credit borrowings 36.9 (3.7) - - 33.2
Net change in other debt - (0.3) 3.5 - 3.2
Repayment of long-term debt (73.2) (94.8) (41.4) - (209.4)
Acquisition of treasury stock (2.2) - - - (2.2)
Proceeds from exercise of stock options 2.1 - - - 2.1
-------- -------- -------- -------- --------
Net cash flows of financing activities 0.8 (168.9) (11.6) - (179.7)
-------- -------- -------- -------- --------
Increase (decrease) in cash - (2.9) (1.7) - (4.6)
Cash - beginning of period - 9.7 11.5 - 21.2
-------- -------- -------- -------- --------
Cash - end of period $ - $ 6.8 $ 9.8 $ - $ 16.6
======== ======== ======== ======== ========
F-35
SCHEDULE II
GENERAL CABLE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE ALLOWANCES
(IN MILLIONS)
FOR THE YEARS
ENDED DECEMBER 31,
--------------------------------
2003 2002 2001
-------- -------- --------
Accounts Receivable Allowances:
Beginning balance $ 11.6 $ 11.4 $ 12.6
Impact of foreign currency exchange rate change 1.3 0.8 (0.3)
Provision 4.8 3.5 6.1
Write-offs (2.1) (4.1) (7.0)
-------- -------- --------
Ending balance $ 15.6 $ 11.6 $ 11.4
======== ======== ========
F-36
[GENERAL CABLE LOGO]
GENERAL CABLE CORPORATION
OFFER TO EXCHANGE ALL OUTSTANDING
OLD 9.5% SENIOR NOTES DUE 2010
FOR
NEW 9.5% SENIOR NOTES DUE 2010, SERIES B
-----------------------------
PROSPECTUS
-----------------------------
, 2004
UNTIL , 2004, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to the authority conferred by Section 102 of the Delaware
General Corporation Law, as amended ("DGCL"), Article VII of the Registrant's
amended and restated certificate of incorporation, contains provisions which
eliminate personal liability of members of the Registrant's board of directors
for violations of their fiduciary duty of care. Neither the DGCL nor our amended
and restated certificate of incorporation, however, limits the liability of a
director for breaching his duty of loyalty, failing to act in good faith,
engaging in intentional misconduct or knowingly violating a law, paying a
dividend or approving a stock repurchase under circumstances where such payment
or repurchase is not permitted under the DGCL, or obtaining an improper personal
benefit. Article VII of the Registrant's amended and restated certificate of
incorporation, also provides that if the DGCL is amended to authorize corporate
action further eliminating or limiting the personal liability of directors, the
liability of the Registrant's directors shall be eliminated or limited to the
fullest extent permitted by the DGCL, as so amended.
In accordance with Section 145 of the DGCL, which provides for the
indemnification of directors, officers and employees under certain
circumstances, Article XIV of the Registrant's amended and restated bylaws
provides that the Registrant is obligated to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (other than an action by or in the right of
the Registrant in which such person has been adjudged liable to the Registrant)
by reason of the fact that he is or was a director, officer or employee of the
Registrant, or is or was a director, officer or employee of the Registrant
serving at the request of the Registrant as a director, officer, employee or
agent or another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against expenses, judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In the case of any action,
suit or proceeding by or in the right of the Registrant in which a claim, issue
or matter as to which such person shall have been adjudged to be liable to the
Registrant, such person shall be indemnified only to the extent that the Court
of Chancery of the State of Delaware or the court in which such action or suit
was brought has determined that such person is fairly and reasonably entitled to
indemnify for such expenses which such court shall deem proper.
The Registrant currently maintains insurance policies that provide
coverage pursuant to which it will be reimbursed for amounts it may be required
or permitted by law to pay to indemnify directors and officers.
II-1
ITEM 21. EXHIBITS.
1.1* Purchase Agreement dated November 18, 2003, among the Company, certain
Guarantors named therein and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and UBS Securities LLC as representatives of the Initial
Purchasers named therein
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Registration Statement
on Form S-1 (File No. 333-22961) of the Company filed with the
Securities and Exchange Commission on March 7, 1997, as amended (the
"Initial S-1"))
3.2 Amended and Restated By-Laws of the Company (incorporated by reference
to Exhibit 3.2 to the Initial S-1)
3.3* Certificate of Incorporation, as amended, of Diversified Contractors,
Inc.
3.4* Bylaws of Diversified Contractors, Inc.
3.5* Certificate of Incorporation of Genca Corporation
3.6* Bylaws of Genca Corporation
3.7* Certificate of Incorporation and Memorandum of Association, as amended,
of General Cable Canada, Ltd.
3.8* Articles of Incorporation, as amended, of General Cable Company
3.9* Bylaws of General Cable Company
3.10* Restated and Amended Certificate of Incorporation of General Cable
Industries, Inc.
3.11* Bylaws of General Cable Industries, Inc.
3.12* Certificate of Formation, as amended, of General Cable Industries LLC
3.13* Operating Agreement of General Cable Industries LLC
3.14* Bylaws of General Cable de Latinoamerica S.A. de C.V.
3.15* Certificate of Formation of General Cable Management LLC
3.16* Operating Agreement, as amended, of General Cable Management LLC
3.17* General Cable de Mexico del Norte, S.A. de C.V.
3.18* Certificate of Incorporation of General Cable Overseas Holdings, Inc.
3.19* Bylaws of General Cable Overseas Holdings, Inc.
3.20* Certificate of Incorporation, as amended, of General Cable Technologies
Corporation
3.21* Bylaws of General Cable Technologies Corporation
3.22* Certificate of Limited Partnership of General Cable Texas Operations,
L.P.
3.23* Amendment No. 2 to Limited Partnership Agreement of General Cable Texas
Operations, L.P.
3.24* Restated Certificate of Incorporation of GK Technologies, Incorporated
II-2
3.25* Bylaws of GK Technologies, Incorporated
3.26* Certificate of Incorporation, as amended, of Marathon Manufacturing
Holdings, Inc.
3.27* Bylaws of Marathon Manufacturing Holdings, Inc.
3.28* Certificate of Incorporation, as amended, of Marathon Steel Company
3.29* Bylaws of Marathon Steel Company
3.30* Certificate of Incorporation, as amended, of MLTC Company
3.31* Bylaws of MLTC Company
4.1 Certificate of Designations filed with the Secretary of State of
Delaware on November 21, 2003, setting forth the powers, preferences
and rights, and the qualifications, limitations and restrictions of the
Company's 5.75% Series A redeemable convertible preferred stock
(incorporated by reference to Exhibit 4.1 to the Current Report on Form
8-K dated December 12, 2003)
4.2 Indenture among the Company, certain Guarantors named therein and U.S.
Bank National Association as Trustee (incorporated by reference to
Exhibit 4.2 to the Current Report on Form 8-K dated December 12, 2003)
4.3 Registration Rights Agreement dated November 24, 2003, among the
Company, certain Guarantors named therein and Merrill Lynch, Pierce,
Fenner & Smith Incorporated and UBS Securities LLC as representatives
of the Initial Purchasers named therein (incorporated by reference to
Exhibit 4.4 to the Current Report on Form 8-K dated December 12, 2003)
5.1* Opinion of Blank Rome LLP regarding the validity of the new notes
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1 Independent Auditors' Consent
23.2* Consent of Blank Rome LLP (included in Exhibit 5.1)
24.1* Powers of Attorney (included on signature pages)
25.1* Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939
of U.S. Bank National Association, as Trustee under the Indenture
99.1 Form of Letter of Transmittal
99.2* Form of Notice of Guaranteed Delivery
99.3* Form of Letter to Clients
99.4* Form of Letter to Broker, Dealers and Other Nominees
- --------------------
* Previously filed
II-3
ITEM 22. UNDERTAKINGS.
The undersigned Registrant and Co-Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Co-Registrants pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Company's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) Insofar as indemnification for liabilities under the Securities Act
may be permitted to directors, officers and controlling persons of the
Co-Registrants pursuant to the provisions described in Item 15 above, or
otherwise, the Co-Registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim of indemnification against such liabilities (other than the
payment by the Co-Registrant of expenses incurred or paid by a director, officer
or controlling person of a Co-Registrant in a successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Co-Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
(6) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
(7) To supply by means of a post-effective amendment all information
concerning a transaction that was not the subject of and included in the
registration statement when it became effective.
II-5
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-4 and has duly caused this Amendment
No. 2 to the registration statement (No. 333-112744) to be signed on its behalf
by the undersigned, thereunto duly authorized, in the city of Highland Heights,
State of Kentucky, on this 2nd day of April 2004.
GENERAL CABLE CORPORATION
(Registrant)
By: /s/ Robert J. Siverd
-------------------------------------
Robert J. Siverd
Executive Vice President,
General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the registration statement (No. 333-112744) has been signed
by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* Director, President and Chief Executive Officer April 2, 2004
- -------------------------------- (Principal Executive Officer)
Gregory B. Kenny
* Executive Vice President, Chief Financial Officer April 2, 2004
- -------------------------------- and Treasurer (Principal Financial and Accounting
Christopher F. Virgulak Officer)
/s/Robert J. Siverd Executive Vice President, General Counsel and April 2, 2004
- -------------------------------- Secretary
Robert J. Siverd
* Director April 2, 2004
- --------------------------------
Jeffrey Noddle
* Director April 2, 2004
- --------------------------------
John E. Welsh, III
* Director April 2, 2004
- --------------------------------
Robert L. Smialek
* Director April 2, 2004
- --------------------------------
Gregory E. Lawton
* By: /s/ Robert J. Siverd
---------------------
Robert J. Siverd
Attorney-in-Fact
II-6
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrants certify that they have reasonable grounds to believe that they
meet all of the requirements for filing on Form S-4 and have duly caused this
Amendment No. 2 to the registration statement (No. 333-112744) to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Highland Heights, State of Kentucky, on this 2nd day of April 2004.
DIVERSIFIED CONTRACTORS, INC.
MARATHON MANUFACTURING HOLDINGS, INC.
MARATHON STEEL COMPANY
MLTC COMPANY
(Co-Registrants)
By: /s/ Robert J. Siverd
--------------------------------
Robert J. Siverd
President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the registration statement (No. 333-112744) has been signed
by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/Robert J. Siverd Director, President and Secretary (Principal April 2, 2004
- -------------------------------- Executive Officer)
Robert J. Siverd
* Director, Executive Vice President, Chief Financial April 2, 2004
- -------------------------------- Officer and Treasurer (Principal Financial and
Christopher F. Virgulak Accounting Officer)
* By: /s/Robert J. Siverd
--------------------------
Robert J. Siverd
Attorney-in-Fact
II-7
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 2 to the registration statement (No. 333-112744) to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of
Highland Heights, State of Kentucky, on this 2nd day of April 2004.
GENCA CORPORATION
(Co-Registrant)
By: /s/ Robert J. Siverd
--------------------------------------
Robert J. Siverd
Executive Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the registration statement (No. 333-112744) has been signed
by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* President (Principal Executive Officer) April 2, 2004
- --------------------------------
Gregory B. Kenny
* Director, Executive Vice President, Chief Financial April 2, 2004
- -------------------------------- Officer and Treasurer (Principal Financial and
Christopher F. Virgulak Accounting Officer)
/s/Robert J. Siverd Director, Executive Vice President and Secretary April 2, 2004
- --------------------------------
Robert J. Siverd
* By: /s/Robert J. Siverd
--------------------------
Robert J. Siverd
Attorney-in-Fact
II-8
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrants certify that they have reasonable grounds to believe that they
meet all of the requirements for filing on Form S-4 and have duly caused this
Amendment No. 2 to the registration statement (No. 333-112744) to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Highland Heights, State of Kentucky, on this 2nd day of April 2004.
GENERAL CABLE CANADA, LTD.
GENERAL CABLE COMPANY
(Co-Registrants)
By: /s/ Robert J. Siverd
-------------------------------------
Robert J. Siverd
Executive Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the registration statement (No. 333-112744) has been signed
by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* Director and President (Principal Executive Officer) April 2, 2004
- --------------------------------
Gregory B. Kenny
* Director, Executive Vice President, Chief Financial April 2, 2004
- -------------------------------- Officer and Treasurer (Principal Financial and
Christopher F. Virgulak Accounting Officer)
/s/Robert J. Siverd Director, Executive Vice President and Secretary April 2, 2004
- --------------------------------
Robert J. Siverd
* By: /s/Robert J. Siverd
--------------------------
Robert J. Siverd
Attorney-in-Fact
II-9
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrants certify that they have reasonable grounds to believe that they
meet all of the requirements for filing on Form S-4 and have duly caused this
Amendment No. 2 to the registration statement (No. 333-112744) to be signed on
their behalf by the undersigned, thereunto duly authorized, in the city of
Highland Heights, State of Kentucky, on this 2nd day of April 2004.
GENERAL CABLE INDUSTRIES, INC.
GENERAL CABLE INDUSTRIES, LLC
GENERAL CABLE MANAGEMENT, LLC
GENERAL CABLE OVERSEAS HOLDINGS, INC.
GENERAL CABLE TEXAS OPERATIONS, L.P.
GK TECHNOLOGIES, INCORPORATED
(Co-Registrants)
By: /s/ Robert J. Siverd
------------------------------------
Robert J. Siverd
Executive Vice President,
General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the registration statement (No. 333-112744) has been signed
by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* President and Chief Executive Officer (Principal April 2, 2004
- -------------------------------- Executive Officer)
Gregory B. Kenny
* Director, Executive Vice President, Chief Financial April 2, 2004
- -------------------------------- Officer and Treasurer (Principal Financial and
Christopher F. Virgulak Accounting Officer)
/s/Robert J. Siverd Director, Executive Vice President, General Counsel April 2, 2004
- -------------------------------- and Secretary
Robert J. Siverd
* By: /s/Robert J. Siverd
-------------------
Robert J. Siverd
Attorney-in-Fact
II-10
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 2 to the registration statement (No. 333-112744) to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of
Highland Heights, State of Kentucky, on this 2nd day of April 2004.
GENERAL CABLE DE LATINOAMERICA, S.A. DE C.V.
(Co-Registrant)
By: /s/ Robert J. Siverd
-------------------------------------
Robert J. Siverd
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the registration statement (No. 333-112744) has been signed
by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* Chairman and President (Principal Executive April 2, 2004
- -------------------------------- Officer)
Gregory B. Kenny
* Vice President and Chief Financial Officer April 2, 2004
- -------------------------------- (Principal Financial and Accounting Officer)
Christopher F. Virgulak
/s/Robert J. Siverd Vice President and Secretary April 2, 2004
- --------------------------------
Robert J. Siverd
* Director and Alternate Secretary April 2, 2004
- --------------------------------
Jeffrey J. Whelan
* Director and Plant Manager April 2, 2004
- --------------------------------
Jose Ausencio Sanroman Tovar
* By: /s/Robert J. Siverd
--------------------------
Robert J. Siverd
Attorney-in-Fact
II-11
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 2 to the registration statement (No. 333-112744) to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of
Highland Heights, State of Kentucky, on this 2nd day of April 2004.
GENERAL CABLE DE MEXICO DEL
NORTE, S.A. DE C.V.
(Co-Registrant)
By: /s/ Robert J. Siverd
------------------------------------
Robert J. Siverd
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the registration statement (No. 333-112744) has been signed
by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* President (Principal Executive Officer) April 2, 2004
- --------------------------------
Gregory B. Kenny
* Executive Vice President, Chief Financial Officer April 2, 2004
- -------------------------------- and Treasurer (Principal Financial and Accounting
Christopher F. Virgulak Officer)
/s/Robert J. Siverd Secretary April 2, 2004
- --------------------------------
Robert J. Siverd
* General Director April 2, 2004
- --------------------------------
German Savala
* By: /s/Robert J. Siverd
--------------------------
Robert J. Siverd
Attorney-in-Fact
II-12
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 2 to the registration statement (No. 333-112744) to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of
Highland Heights, State of Kentucky, on this 2nd day of April 2004.
GENERAL CABLE TECHNOLOGIES CORPORATION
(Co-Registrant)
By: /s/ Robert J. Siverd
--------------------------------------
Robert J. Siverd
Executive Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the registration statement (No. 333-112744) has been signed
by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* Director, President and Treasurer (Principal April 2, 2004
- -------------------------------- Executive, Financial and Accounting Officer)
Christopher F. Virgulak
/s/Robert J. Siverd Director, Executive Vice President and Secretary April 2, 2004
- --------------------------------
Robert J. Siverd
* By: /s/Robert J. Siverd
-------------------
Robert J. Siverd
Attorney-in-Fact
II-13
EXHIBIT INDEX
1.1* Purchase Agreement dated November 18, 2003, among the Company, certain
Guarantors named therein and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and UBS Securities LLC as representatives of the Initial
Purchasers named therein
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Registration Statement
on Form S-1 (File No. 333-22961) of the Company filed with the
Securities and Exchange Commission on March 7, 1997, as amended (the
"Initial S-1"))
3.2 Amended and Restated By-Laws of the Company (incorporated by reference
to Exhibit 3.2 to the Initial S-1)
3.3* Certificate of Incorporation, as amended, of Diversified Contractors,
Inc.
3.4* Bylaws of Diversified Contractors, Inc.
3.5* Certificate of Incorporation of Genca Corporation
3.6* Bylaws of Genca Corporation
3.7* Certificate of Incorporation and Memorandum of Association, as amended,
of General Cable Canada, Ltd.
3.8* Articles of Incorporation, as amended, of General Cable Company
3.9* Bylaws of General Cable Company
3.10* Restated and Amended Certificate of Incorporation of General Cable
Industries, Inc.
3.11* Bylaws of General Cable Industries, Inc.
3.12* Certificate of Formation, as amended, of General Cable Industries LLC
3.13* Operating Agreement of General Cable Industries LLC
3.14* Bylaws of General Cable de Latinoamerica S.A. de C.V.
3.15* Certificate of Formation of General Cable Management LLC
3.16* Operating Agreement, as amended, of General Cable Management LLC
3.17* General Cable de Mexico del Norte, S.A. de C.V.
3.18* Certificate of Incorporation of General Cable Overseas Holdings, Inc.
3.19* Bylaws of General Cable Overseas Holdings, Inc.
3.20* Certificate of Incorporation, as amended, of General Cable Technologies
Corporation
3.21* Bylaws of General Cable Technologies Corporation
3.22* Certificate of Limited Partnership of General Cable Texas Operations,
L.P.
3.23* Amendment No. 2 to Limited Partnership Agreement of General Cable Texas
Operations, L.P.
3.24* Restated Certificate of Incorporation of GK Technologies, Incorporated
3.25* Bylaws of GK Technologies, Incorporated
3.26* Certificate of Incorporation, as amended, of Marathon Manufacturing
Holdings, Inc.
3.27* Bylaws of Marathon Manufacturing Holdings, Inc.
3.28* Certificate of Incorporation, as amended, of Marathon Steel Company
3.29* Bylaws of Marathon Steel Company
3.30* Certificate of Incorporation, as amended, of MLTC Company
3.31* Bylaws of MLTC Company
4.1 Certificate of Designations filed with the Secretary of State of
Delaware on November 21, 2003, setting forth the powers, preferences
and rights, and the qualifications, limitations and restrictions of the
Company's 5.75% Series A redeemable convertible preferred stock
(incorporated by reference to Exhibit 4.1 to the Current Report on Form
8-K dated December 12, 2003)
4.2 Indenture among the Company, certain Guarantors named therein and U.S.
Bank National Association as Trustee (incorporated by reference to
Exhibit 4.2 to the Current Report on Form 8-K dated December 12, 2003)
4.3 Registration Rights Agreement dated November 24, 2003, among the
Company, certain Guarantors named therein and Merrill Lynch, Pierce,
Fenner & Smith Incorporated and UBS Securities LLC as representatives
of the Initial Purchasers named therein (incorporated by reference to
Exhibit 4.4 to the Current Report on Form 8-K dated December 12, 2003)
5.1* Opinion of Blank Rome LLP regarding the validity of the new notes
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1 Independent Auditors' Consent
23.2* Consent of Blank Rome LLP (included in Exhibit 5.1)
24.1* Powers of Attorney (included on signature pages)
25.1* Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939
of U.S. Bank National Association, as Trustee under the Indenture
99.1 Form of Letter of Transmittal
99.2* Form of Notice of Guaranteed Delivery
99.3* Form of Letter to Clients
99.4* Form of Letter to Broker, Dealers and Other Nominees
- -------------------------
* Previously filed