PROSPECTUS SUPPLEMENT
(To Prospectus dated October 27, 2003)
5,050,000 Shares
[General Cable LOGO]
GENERAL CABLE CORPORATION
Common Stock
We are offering 5,050,000 shares of our common stock. We will receive all of
the net proceeds from the sale of such shares of our common stock.
Our common stock is listed on the New York Stock Exchange under the symbol
"BGC." On November 18, 2003, the last reported sale price of the common stock
on the New York Stock Exchange was $8.20 per share.
Investing in our common stock involves risks. See "Risk Factors" beginning
on page S-12 of this prospectus supplement and on page 3 of the accompanying
prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
Per Share Total
--------------------------------------------------------------------------------
Public offering price $8.200 $41,410,000
--------------------------------------------------------------------------------
Underwriting discounts and commissions $0.451 $ 2,277,550
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Proceeds, before expenses, to us $7.749 $39,132,450
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The underwriters may also purchase up to 757,500 shares of our common stock
from us at the public offering price, less underwriting discounts and
commissions within 30 days from the date of this prospectus supplement. The
underwriters may exercise this option only to cover over-allotments, if any.
The underwriters are offering the shares of our common stock as set forth in
"Underwriting." Delivery of the shares of the common stock will be made on or
about November 24, 2003.
Joint Book-Running Managers
Merrill Lynch & Co. UBS Investment Bank
November 18, 2003
We have not authorized any dealer, salesman or other person to give any
information or to make any representation other than those contained or
incorporated by reference in this prospectus supplement and the accompanying
prospectus. You must not rely upon any information or representation not
contained or incorporated by reference in this prospectus supplement or the
accompanying prospectus. This prospectus supplement and the accompanying
prospectus do not constitute an offer to sell or the solicitation of an offer
to buy any securities other than the registered securities to which they
relate, nor do this prospectus supplement and the accompanying prospectus
constitute an offer to sell or the solicitation of an offer to buy securities
in any jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. The information contained in this
prospectus supplement and the accompanying prospectus is accurate as of the
dates on their respective covers. When we deliver this prospectus supplement
and the accompanying prospectus or make a sale pursuant to this prospectus
supplement and the accompanying prospectus, we are not implying that the
information is current as of the date of the delivery or sale.
----------------
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Prospectus Supplement Summary ........................................... S-1
Risk Factors ............................................................ S-12
Forward-looking Statements. ............................................. S-21
Use of Proceeds ......................................................... S-22
Capitalization .......................................................... S-23
Common Stock Price Range ................................................ S-24
Dividend Policy ......................................................... S-24
Selected Historical Financial Information ............................... S-25
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... S-28
Business ................................................................ S-47
Management .............................................................. S-63
Ownership of Capital Stock .............................................. S-65
Description of New Credit Facility, New Notes and New Preferred Stock ... S-68
Description of Capital Stock ............................................ S-72
Certain U.S. Federal Income Tax Consequences ............................ S-76
Underwriting ............................................................ S-79
Legal Matters ........................................................... S-81
Independent Auditors .................................................... S-81
Index to Financial Statements ........................................... F-1
Prospectus
About This Prospectus.................................................... 1
Forward-looking Statements............................................... 1
General Cable Corporation................................................ 2
Risk Factors............................................................. 3
Ratio of Earnings to Fixed Charges....................................... 9
Use of Proceeds.......................................................... 9
Plan of Distribution..................................................... 10
Description of Debt Securities We May Offer.............................. 11
Description of Preferred Stock We May Offer.............................. 21
Description of Common Stock We May Offer................................. 23
Legal Ownership and Book-Entry Issuance.................................. 27
Validity of Securities................................................... 28
Experts.................................................................. 29
Where You Can Find More Information...................................... 29
Incorporation of Certain Documents by Reference.......................... 29
i
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus supplement,
which describes the specific terms of this offering. The second part, the
accompanying prospectus, gives more general information, some of which may not
apply to this offering.
Generally, when we refer to this "prospectus" we are referring to both this
prospectus supplement and the accompanying prospectus combined. If the
description of the offering varies between this prospectus supplement and the
accompanying prospectus, you should rely on the information in this prospectus
supplement.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus supplement and the accompanying prospectus are part of a
registration statement on Form S-3 filed by us with the Securities and
Exchange Commission, or the SEC, under the Securities Act of 1933, as amended,
or the Securities Act. We also file annual, quarterly and special reports,
proxy statements and other information with the SEC pursuant to the Securities
Exchange Act of 1934, as amended, or the Exchange Act. You may read and copy
any document we file 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. Our SEC filings are
also available to the public at the SEC's web site at http://www.sec.gov.
Our common stock is quoted on the New York Stock Exchange under the symbol
"BGC." You may inspect reports and other information concerning us at the
offices of the New York Stock Exchange at 11 Wall Street, New York, New York
10005.
The SEC allows us to "incorporate by reference" the information we file with
it, which means that we can disclose important information to you by referring
you to documents containing that information. The information incorporated by
reference is considered to be part of this prospectus supplement, and later
information that we file with the SEC will automatically update and supersede
this information. The documents incorporated by reference are listed under the
heading "Incorporation of Certain Documents by Reference" of the accompanying
prospectus.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Investor Relations
General Cable Corporation
4 Tesseneer Drive
Highland Heights, Kentucky 41076
(859) 572-8000
You may also obtain copies of these filings, at no cost, by accessing our
website at http://www.generalcable.com; however, the information found on our
website is not considered part of this prospectus supplement.
You should rely only on the information provided in this prospectus
supplement, the accompanying prospectus or the documents incorporated by
reference. We have not authorized anyone else to provide you with different
information.
MARKET DATA
Market data and other statistical information used throughout this
prospectus supplement are based an independent industry publications,
government publications, reports by market research firms or other published
independent sources such as CRU International Limited, Cable Industry Analyst,
the United States Department of Commerce and the National Electrical
Manufacturers Association. Some data are also based on our good faith
estimates, which are derived from our review of internal surveys, as well as
the independent sources listed above, Although we believe these sources are
reliable, we have not independently verified the information and cannot
guarantee its accuracy and completeness.
ii
PROSPECTUS SUPPLEMENT SUMMARY
This 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 $58 billion in sales in 2002. 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 28
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 twelve-month period ended
September 30, 2003, we had net sales of $1.5 billion.
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 September 30,
2003 are summarized below:
[Pie Chart Omitted]
Products and Markets Percentage
-------------------- ----------
Energy 36%
Industrial & Specialty 35%
Communications 29%
S-1
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
Medium-Voltage Utility Companies;
Distribution; Bare State and Local
Overhead Conductor; Public Power
High-Voltage Companies; Rural
Transmission Cable Electric Associa-
tions; Contractors
Industrial & Specialty
Instrumentation, Rubber and Plastic- Industrial Power and Industrial Con-
Power, Control and Jacketed Wire and Cable; Control; sumers; Contractors;
Specialty Power and Industrial Cable; Utility/Marine/ OEMs; Military
Instrumentation and Transit; Military; Customers; Telecom-
Control Cable Mining; Oil and Gas munication System
Industrial; Power Operators
Generation;
Infrastructure;
Residential
Construction
Automotive Ignition Wire Sets; Automotive Consumers; OEMs
Booster Cables Aftermarket
Communications
Outside Voice and Data Outside Plant Telecom Local Loop Telecommunications
(Telecommunications) Telecommunications System Operators
Exchange Cable; Outside
Service Wire
Data Multi-Conductor/Multi-Pair; Computer Networking Contractors; OEMs;
Communications Fiber Optic; Shipboard; and Multimedia Systems Integrators;
Military Fiber Cable Applications Systems Operators;
Military
Customers
Electronics Multi-Conductor; Building Contractors;
Coaxial; Sound, Management; Consumers;
Security/Fire Alarm Cable Entertainment; Industrial
Equipment Control
Assemblies Cable Harnesses; Telecommunications; Communications and
Connector Cable Industrial Equipment; Industrial Equipment
Medical Equipment Manufacturers
We operate our business globally, with 74% of net sales in 2002 generated
from North America, 22% from Europe and 4% from Oceania. We estimate that we
sold our products and services to customers in more than 70 countries in 2002.
S-2
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:
o Consolidating our North American manufacturing and distribution
facilities, including closing three of seven plants that manufacture
communications products and four of six distribution centers.
o Reducing head count by 1,700 persons, or 22% of our work force employed
in our continuing operations, since September 30, 2000.
o 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.
o Reducing inventory levels related to continuing operations from
$296.4 million at September 30, 2000 to $247.0 million at September 30,
2003, a 17% decrease; this decrease is net of a $17.3 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 $66.7 million, or 23%.
o Reducing capital expenditures from continuing operations from
$35.8 million in 2000 to $31.4 million in 2002 and further to
$20.4 million in the twelve months ended September 30, 2003.
o Exiting less profitable, non-core businesses, such as building wire and
consumer cordsets.
o 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 recently announced the closure of one of our North American
manufacturing facilities for our industrial & specialty segment and we have
initiated studies at two of our other North American industrial & specialty
manufacturing facilities to determine the feasibility of continuing
manufacturing operations at those locations.
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 2002:
o 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;
o In the industrial & specialty segment, we were the number one producer in
North America and the number three producer in Oceania;
o In the communications segment, we were the number three producer in North
America and Oceania.
S-3
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 2002 domestic net sales by each category of
customers:
[Pie Chart Omitted]
2002 Domestic
Net Sales by
Each Category of Customers Percentage
-------------------------- ----------
Electric Utility 32%
OEMs & Electrical/Industrial Distributors 21%
Telco Utility 17%
Communication Distributors 15%
Automotive Retail 8%
Electrical Retail 6%
Other 1%
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 2002 accounted for 44% 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 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.
S-4
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 (see Note 4 to Notes to Audited Consolidated Financial
Statements) have declined from $226.6 million, or 10.5% of net sales, in 2000
to $123.1 million, or 8.5% of net sales, in 2002. 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. See "Risk Factors--Other Risks Relating to Our
Business--We may not be able to successfully identify, finance or integrate
acquisitions."
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
S-5
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%, since June 30, 2000 through a combination
of cash flow from operations and strategic divestitures. 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
This offering is 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 consists of the following transactions which we refer to as the
"refinancing transactions," which will be consummated concurrently: (i) a new
$240 million senior secured revolving credit facility, (ii) a private offering
of $285 million principal amount of senior notes, (iii) a private offering of
$90 million of Series A redeemable convertible preferred stock and (iv) a
public offering of approximately $41.4 million of common stock. We intend to
apply the net proceeds from these refinancing transactions to repay all
borrowings outstanding under our existing senior secured revolving credit
facility, existing senior secured term loans and outstanding amounts under our
existing accounts receivable asset-backed securitization facility and to pay
related fees and expenses. The table below sets forth the sources and uses of
funds from the refinancing transactions as if such transactions had occurred
on September 30, 2003.
Sources: Amount(1)
-------- ---------
(in millions)
Senior secured revolving credit facility ....................... $ 67.7(2)
9.5% Senior notes due 2010 ..................................... 285.0
5.75% Series A redeemable convertible preferred stock .......... 90.0
Common stock ................................................... 41.4
------
Total ....................................................... $484.1
======
Uses:
-----
Repayment of existing senior secured revolving credit facility . $ 64.9(3)
Repayment of existing senior secured term loan A ............... 56.4
Repayment of existing senior secured term loan B ............... 270.0
Repayment of accounts receivable asset-backed securitization
facility...................................................... 72.8(4)
Fees and expenses .............................................. 20.0
------
Total ....................................................... $484.1
======
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(1) In this prospectus, references to the amount of this offering and the
concurrent private offering of Series A redeemable convertible preferred
stock do not include any securities issuable upon exercise of the options
to purchase additional securities granted to the underwriters or the
initial purchasers, as the case may be, in connection therewith.
(2) Our new senior secured revolving credit facility will provide for aggregate
borrowings of up to $240.0 million (of which up to $50.0 million may be
used for letters of credit), subject to borrowing base limitations.
(3) In addition, as of September 30, 2003, we had $36.6 million of outstanding
letters of credit. Borrowings outstanding as of October 24, 2003 were
$21.9 million higher as a result of working capital changes since
September 30, 2003.
(4) Borrowings outstanding as of October 24, 2003 were $7.2 million higher as a
result of working capital changes since September 30, 2003.
In addition to the refinancing transactions, we are also seeking to obtain a
new (E)30 million to (E)50 million European credit facility. We anticipate
that proceeds from this facility, if any, would be used to reduce our then
outstanding obligations under our new senior secured revolving credit
facility. While we are actively pursuing this facility, we cannot assure you
that we will be able to obtain such a facility.
S-6
The Offering
Common Stock Offered by Us. . . . . 5,050,000 shares
Common Stock to Be Outstanding
After this Offering . . . . . . . 38,170,132 shares(1)
Over-allotment Option . . . . . . . We have granted the underwriters an
option to purchase up
to 757,500 shares to cover over-
allotments, if any. If the underwriters
exercise their over-allotment option in
full, we will sell an aggregate of
5,807,500 shares and we will have
approximately 38,927,632 million shares
of common stock outstanding.
Use of Proceeds . . . . . . . . . . The net proceeds from this offering
after deducting the underwriters'
discount and commissions and estimated
expenses will be approximately
$38.3 million. We intend to use the net
proceeds of this offering, together with
the net proceeds from the other
refinancing transactions, to repay our
existing senior secured credit
facilities and our existing accounts
receivable asset-backed securitization
facility and for other general corporate
purposes.
New York Stock Exchange Symbol. . . "BGC"
---------------
(1) Based on shares outstanding as of October 20, 2003. Excludes (1) 628,977
shares issuable upon the exercise of vested, in-the-money stock options
outstanding under employee benefit plans with a weighted average exercise
price of $8.52 per share, (2) 2,899,936 shares issuable upon exercise of
other stock options, (3) 140,530 matching restricted stock units and (4)
approximately 8,996,400 million shares issuable upon conversion of our
Series A redeemable convertible preferred stock being offered in the
concurrent private placement.
Except as otherwise indicated, all information in this prospectus supplement
assumes the underwriters' overallotment option is not exercised.
Risk Factors
See "Risk Factors" for a discussion of factors you should carefully consider
before deciding to invest in our common stock.
S-7
Summary Financial Information
The summary historical financial data for the years ended and as of
December 31, 2000, 2001 and 2002 were derived from our audited consolidated
financial statements. The summary financial data set forth for the nine months
ended September 30, 2002 and 2003 and as of September 30, 2003 were derived
from unaudited consolidated financial statements as filed with the SEC which,
in the opinion of our management, include all adjustments necessary for a fair
presentation of the results for the unaudited interim periods. 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.
The "pro forma" and "as adjusted" data give effect to (i) initial borrowings
of $67.7 million under our new senior secured revolving credit facility, (ii)
a private offering of $285 million of senior notes, (iii) a private offering
of $90 million of Series A redeemable convertible preferred stock, (iv) this
offering of approximately $41.4 million of common stock and (v) the use of
proceeds to repay $391.3 million of indebtedness under our existing senior
secured credit facilities and $72.8 million of borrowings under our existing
off-balance sheet accounts receivable asset-backed securitization facility, as
if each transaction were consummated on September 30, 2003 in the case of
balance sheet data and as of the beginning of the period for statement of
operations data. The as adjusted balance sheet data also give effect to (i)
pre-tax charges of approximately $5.3 million relating to the write-off of
unamortized bank fees related to the existing credit facility, (ii) pre-tax
charges of approximately $1.0 million related to the payoff of our existing
accounts receivable asset-backed securitization facility, (iii) a charge of
approximately $4.1 million resulting from a deemed dividend of the accumulated
earnings of certain of our guarantor subsidiaries under the new senior secured
revolving credit facility and senior notes and (iv) payment of $20.0 million for
transaction fees and expenses that we will incur related to this offering and
the other refinancing transactions.
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 Cavi e 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 have been restated to reflect this change.
S-8
Nine Months Ended Twelve Months
Year Ended December 31, September 30, Ended
------------------------------- ---------------------- September 30,
2000(1) 2001(1) 2002 2002 2003 2003
-------- -------- -------- -------- ----------- -------------
(in millions, except metal price and per share data)
Statement of Operations Data:
Net sales:
Energy .............................................. $ 733.6 $ 521.8 $ 516.0 $ 389.0 $ 413.5 $ 540.5
Industrial & specialty .............................. 796.7 537.6 499.4 383.1 395.1 511.4
Communications ...................................... 631.8 592.0 438.5 330.4 324.5 432.6
-------- -------- -------- -------- -------- --------
Total net sales ...................................... 2,162.1 1,651.4 1,453.9 1,102.5 1,133.1 1,484.5
Cost of sales ........................................ 1,870.4 1,410.7 1,287.3 972.1 998.7 1,313.9
-------- -------- -------- -------- -------- --------
Gross profit ......................................... 291.7 240.7 166.6 130.4 134.4 170.6
Selling, general and administrative
expenses............................................ 257.6 136.4 150.9 116.2 93.6 128.3
-------- -------- -------- -------- -------- --------
Operating income ..................................... 34.1 104.3 15.7 14.2 40.8 42.3
Other income ......................................... -- 8.1 -- -- -- --
Interest expense, net ................................ (59.8) (43.9) (42.6) (31.1) (32.8) (44.3)
Other financial costs ................................ (3.3) (10.4) (1.1) -- -- (1.1)
-------- -------- -------- -------- -------- --------
Income (loss) before taxes ........................... (29.0) 58.1 (28.0) (16.9) 8.0 (3.1)
Income tax benefit (provision) ....................... 10.3 (20.6) 9.9 6.0 (2.8) 1.1
-------- -------- -------- -------- -------- --------
Income (loss) from continuing operations ............. (18.7) 37.5 (18.1) (10.9) 5.2 (2.0)
Loss from discontinued operations .................... (7.7) (6.8) -- -- -- --
Loss on disposal of discontinued operations .......... -- (32.7) (5.9) (3.9) -- (2.0)
-------- -------- -------- -------- -------- --------
Net income (loss) .................................... $ (26.4) $ (2.0) $ (24.0) $ (14.8) $ 5.2 $ (4.0)
======== ======== ======== ======== ======== ========
Basic earnings (loss) of continuing operations per
common share........................................ $ (0.56) $ 1.14 $ (0.55) $ (0.33) $ 0.16 $ (0.06)
Diluted earnings (loss) of continuing operations per
common share........................................ $ (0.56) $ 1.13 $ (0.55) $ (0.33) $ 0.16 $ (0.06)
Basic loss of discontinued operations per common
share............................................... $ (0.23) $ (1.20) $ (0.18) $ (0.12) -- $ (0.06)
Diluted loss of discontinued
operations per common share......................... $ (0.23) $ (1.19) $ (0.18) $ (0.12) -- $ (0.06)
Basic earnings (loss) of total company per common
share............................................... $ (0.79) $ (0.06) $ (0.73) $ (0.45) $ 0.16 $ (0.12)
Diluted earnings (loss) of total company per common
share............................................... $ (0.79) $ (0.06) $ (0.73) $ (0.45) $ 0.16 $ (0.12)
Basic weighted average shares outstanding ............ 33.6 32.8 33.0 33.0 33.1 33.1
Diluted weighted average shares outstanding .......... 33.6 33.1 33.0 33.0 33.4 33.4
Dividends per common share ........................... $ 0.20 $ 0.20 $ 0.15 $ 0.15 -- --
December 31, September 30, 2003
------------------------------- ----------------------
2000 2001 2002 Actual As Adjusted
-------- -------- -------- -------- -----------
Balance Sheet Data:
Cash and cash equivalents ............................ $ 21.2 $ 16.6 $ 29.1 $ 24.2 $ 24.2
Working capital(2) ................................... 375.3 169.9 150.8 133.4 207.1
Property, plant and equipment, net ................... 379.4 320.9 323.3 326.8 326.8
Total assets ......................................... 1,319.2 1,005.3 973.3 977.9 1,054.5
Total debt(3) ........................................ 642.6 460.4 451.9 404.0 365.4
Net debt(3)(4) ....................................... 621.4 443.8 422.8 379.8 341.2
Shareholders' equity ................................. 128.5 104.9 60.9 83.6 200.1
S-9
Nine Months
Ended Twelve Months
Year Ended December 31, September 30, Ended
--------------------------- --------------- September 30,
2000(1) 2001(1) 2002 2002 2003 2003
------- ------- ------ ------ ------ -------------
Other Data:
Cash flows of operating activities .............................. $ 16.1 $ 83.2 $ 57.3 $ 75.9 $ 58.2 $ 39.6
Cash flows of investing activities .............................. 82.9 91.9 (28.6) (21.4) (10.2) (17.4)
Cash flows of financing activities .............................. (115.8) (179.7) (16.2) (47.8) (52.9) (21.3)
EBITDA from continuing operations(5) ............................ 81.3 133.1 46.3 37.0 64.0 73.3
Depreciation and amortization ................................... 56.0 35.0 30.6 22.8 23.2 31.0
Capital expenditures ............................................ (56.0) (54.9) (31.4) (22.8) (11.8) (20.4)
Average daily COMEX price per pound of copper cathode ........... $ 0.84 $ 0.73 $ 0.72 $ 0.72 $ 0.77 $ 0.75
Average daily selling price per pound of aluminum rod ........... $ 0.75 $ 0.69 $ 0.65 $ 0.65 $ 0.67 $ 0.67
Pro forma interest expense ...................................... $ 34.0
---------------
(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. 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) Working capital means current assets less current liabilities. The as-
adjusted amount for September 30, 2003 includes $72.8 million of accounts
receivable previously part of our accounts receivable asset-backed
securitization facility brought back on the balance sheet as a result of
the refinancing.
(3) Excludes off-balance sheet borrowings of $67.8 million, $48.5 million and
$72.8 million as of December 31, 2001 and 2002 and September 30, 2003 under
our accounts receivable asset-backed securitization facility. We had no
off-balance sheet borrowings as of December 31, 2000.
(4) Net debt means our total debt less cash and cash equivalents.
(5) EBITDA from continuing operations means earnings from continuing operations
before (i) interest expense, net (including other financial costs,
principally consisting of write-off of unamortized bank fees, costs
associated with the implementation of our accounts receivable asset-backed
securitization program and loss related to terminated interest rate
collars), (ii) income tax provision (benefit), (iii) continuing operations
depreciation and amortization and (iv) other income (principally consisting
of a foreign exchange gain on the extinguishment of long-term debt in the
United Kingdom). Other companies may define EBITDA differently and, as a
result, our measure of EBITDA may not be directly comparable to EBITDA of
other companies.
Management believes that the presentation of EBITDA included in this
prospectus provides useful information to investors regarding our results
of operations because they assist in analyzing and benchmarking the
performance and value of our business. Although we use EBITDA as a
financial measure to assess the performance of our business, the use of
EBITDA is limited because it does not include certain material costs, such
as interest and taxes, necessary to operate our business. EBITDA included
in this prospectus should be considered in addition to, and not as a
substitute for, net income in accordance with GAAP as a measure of
performance or cash flows from operating activities in accordance with GAAP
as a measure of liquidity.
S-10
EBITDA from continuing operations reconciles to net income (loss) as
follows:
Nine Months Nine Months Twelve Months
Year Ended December 31, Ended Ended Ended
------------------------- September 30, September 30, September 30,
2000 2001 2002 2002 2003 2003
------ ------ ------ ------------- ------------- -------------
(in millions)
Net income (loss) ................................ $(26.4) $ (2.0) $(24.0) $(14.8) $ 5.2 $(4.0)
Loss from operations of discontinued
operations (net of tax)........................ 7.7 6.8 -- -- -- --
Loss on disposal of discontinued
operations (net of tax)........................ -- 32.7 5.9 3.9 -- 2.0
------ ------ ------ ------ ----- -----
Income (loss) from continuing operations ......... (18.7) 37.5 (18.1) (10.9) 5.2 (2.0)
------ ------ ------ ------ ----- -----
Other income ..................................... -- (8.1) -- -- -- --
Interest expense (income):
Interest expense, net ........................... 59.8 43.9 42.6 31.1 32.8 44.3
Other financial costs ........................... 3.3 10.4 1.1 -- -- 1.1
Income tax (benefit) provision ................... (10.3) 20.6 (9.9) (6.0) 2.8 (1.1)
Continuing operations depreciation and
amortization .................................... 47.2 28.8 30.6 22.8 23.2 31.0
------ ------ ------ ------ ----- -----
EBITDA from continuing operations ................ $ 81.3 $133.1 $ 46.3 $ 37.0 $64.0 $73.3
====== ====== ====== ====== ===== =====
EBITDA from continuing operations has not been adjusted for the increases
(decreases) resulting from the following items:
For the year ended December 31, 2000, EBITDA loss from businesses divested
to Pirelli of $79.1 million.
For the year ended December 31, 2001, disposal of inventory of $7.0
million, income related to the divestiture to Pirelli of $(7.0) million,
gain from sale of Pyrotenax business of $(23.8) million, closure of
manufacturing plants of $4.8 million, divestiture of non-strategic
businesses of $5.5 million, severance and severance-related costs of $16.5
million and provision for other costs of $0.8 million.
For the year ended December 31, 2002, charge related to assets contributed
to joint venture of $3.6 million, closure of manufacturing plants of $21.2
million, divestiture of non-strategic businesses of $1.7 million, and
severance and severance-related costs of $6.9 million.
For the nine months ended September 30, 2002, charge related to assets
contributed to joint venture of $3.6 million, closure of manufacturing
plants of $20.5 million, divestiture of non-strategic businesses of $1.7
million and severance and severance-related costs of $2.9 million.
For the nine months ended September 30, 2003, severance and severance-
related costs of $1.7 million.
For the twelve months ended September 30, 2003, closure of manufacturing
plants of $0.7 million and severance and severance-related costs of $5.7
million.
S-11
RISK FACTORS
Investing in these securities involves a high degree of risk. You should
carefully consider the following risk factors and other information contained
in the prospectus before investing in these securities.
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.
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.
The markets for copper, aluminum and fiber optic wire and other 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 2002, approximately 26% 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 2002, our operations outside North America generated
approximately 24% of our 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.
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,
S-12
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 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 2002, our copper rod mill plant produced
approximately 50% of the copper rod used in our North American operations and
two suppliers provided an aggregate of approximately 36% 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.
S-13
Failure to negotiate extensions of our labor agreements as they expire may
result in a disruption of our operations.
Approximately 65% 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 covering approximately 18% of
our other employees expire prior to December 31, 2004. 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 sales of
our products.
During 2002, approximately 36% 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 2002,
approximately 14% of our domestic net sales were to retailers and the two
largest retailers, AutoZone and The Home Depot, accounted for approximately
3.3% and 3.1%, 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 throughout 2003 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 and debt service requirements could adversely affect our
business.
We have a significant amount of debt. As of September 30, 2003, assuming
that this offering and the other refinancing transactions had occurred on that
date and the use of proceeds was as outlined, we would have had $365.4 million
of debt outstanding, $80.4 million of which would have been secured
indebtedness and none of which would have been subordinated to the senior
notes, and would have had approximately $121 million of additional borrowing
available (which is calculated after giving effect to up to $36.6 million of
letters of credit outstanding) under our new senior secured revolving credit
facility. In addition, subject to the terms of the indenture governing the
notes, we will also be incurring additional indebtedness, including secured
debt, in the future.
S-14
The degree to which we are leveraged could have important adverse
consequences to us. For example, it could:
o make it difficult for us to make payments on or otherwise satisfy our
obligations with respect to our indebtedness;
o require us to dedicate a significant portion of our cash flows from
operations to debt service, thereby reducing the availability of cash
flow for other purposes;
o limit our ability to borrow additional amounts for working capital,
capital expenditures, potential acquisition opportunities and other
purposes;
o limit our ability to withstand competitive pressures and reduce our
flexibility in responding to changing business, regulatory and economic
conditions in our industry;
o place us at a competitive disadvantage against our less leveraged
competitors;
o subject us to increased costs, to the extent of the portion of our
indebtedness that is subject to floating interest rates; and
o 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 September 30, 2003, the arrangements had a maximum availability limit
of the equivalent of approximately $94 million of which approximately
$77 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 September 30, 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.
We will be required to take a charge in the current period in connection with
a plant closure and we may be required to take certain charges to our earnings
in future periods in connection with potential plant closures and our
inventory accounting practices.
We are in the process of closing one of our manufacturing facilities, which
we expect will result in approximately $7 million of costs in the quarter
ending December 31, 2003, of which approximately $4 million will be cash
costs. In addition, we are currently evaluating closures of two additional
facilities. We plan to announce the results of our evaluation either late this
quarter or early next year and would take additional charges over the period
the operations are wound down should we decide to rationalize these two
facilities. The cost to rationalize these facilities could approximate
$20 million, with cash costs of approximately one-third of this amount.
As a result of declining copper prices, the historic LIFO cost of our copper
inventory exceeded its replacement cost by approximately $16 million at
December 31, 2002 and $5 million at September 30, 2003. 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
S-15
recognize in our income statement all or a portion of the higher LIFO value of
the inventory. During 2002 and in the nine months ended September 30, 2003, we
recorded a $2.5 million and a $0.8 million charge, respectively, for the
liquidation of LIFO inventory in North America as we significantly reduced our
inventory levels. We expect to further reduce inventory quantities in the
fourth quarter of 2003 which is expected to result in an additional LIFO
liquidation charge. The amount of the charge to be incurred in the fourth
quarter of 2003 will be dependent upon the quantity of the inventory reduction
and the market price of the metals at the time of the inventory liquidation.
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.
We are subject to certain asbestos litigation.
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 can not 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.
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 and currently have identified one potential candidate with which we
are engaged in preliminary discussions. We believe that an acquisition of this
potential candidate would enhance our global business. However, we have no
agreement or understanding with respect to this potential candidate and we
cannot assure you that any such acquisition will be successfully completed. 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
S-16
may pose risks with respect to production, customer service and market share
of existing operations. 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
will increase our pension expense and require 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. We will experience an increase in our future pension
expense and in our cash contributions to our defined benefit pension plan.
Pension expense for our defined benefit plans is expected to increase from
$2.0 million in 2002 to approximately $7.7 million in 2003 and our required
cash contributions are expected to increase to $5.9 million in 2003 from
$3.0 million in 2002. In 2004, 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, 2002, we had net operating loss, or NOL, carryforwards of
approximately $177 million available to reduce taxable income in future years.
Specifically, we generated NOL carryforwards of $55.2 million in 2000 and
$68.4 million in 2002, which expire in 2020 and 2022, 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
S-17
are subject to an annual limitation under section 382 of the Internal Revenue
Code of 1986, as amended, or the "Code". These section 382 limited NOL
carryforwards expire in varying amounts from 2006-2009. 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 this offering and
our concurrent public offering of preferred 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 groups 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 November 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
our common stock, this offering, or our concurrent preferred stock offering,
we do not believe that we will experience a change in ownership as a result of
this offering and our concurrent preferred stock offering. 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
in this offering or our concurrent preferred stock offering 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.
Even if this offering and our concurrent preferred stock offering do not cause
an ownership change to occur immediately, we expect to use a large portion of
our available 50% ownership shift limitation in connection with this offering
and our concurrent preferred stock offering, 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.
If we are required to classify the preferred stock as debt, 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 Investments with
Characteristics of both Liabilities and Equity," or SFAS 150, since the
preferred stock contains a substantive conversion feature. Under SFAS 150, in
each fiscal period, we will be required to determine whether the conversion
feature remains substantive. If we determine the conversion feature becomes
nonsubstantive, as a result of a substantive decline in the market price of
our common stock or otherwise, we will be required to reclassify the preferred
stock as a liability on 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 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 senior notes or our new
senior secured revolving credit facility.
S-18
Risks Related to Our Common Stock
Our ability to pay dividends on our common stock may be limited.
Under the Delaware General Corporation Law, we may pay dividends, in cash or
otherwise, only if we have surplus in an amount at least equal to the amount
of the relevant dividend payment. Any payment of cash dividends will depend
upon our financial condition, capital requirements, earnings and other factors
deemed relevant by our board of directors. Further, our new senior secured
revolving credit facility and the indenture governing the senior notes will
restrict our ability to pay cash dividends. In addition, the certificate of
designations for the Series A redeemable convertible preferred stock will
prohibit us from the payment of any cash dividends on our common stock if we
are not current on dividend payments with respect to the preferred stock.
Agreements governing future indebtedness will likely contain restrictions on
our ability to pay cash dividends. We do not intend to pay dividends on our
common stock for the foreseeable future.
Our stock price has been and continues to be volatile.
The market price for our common stock could fluctuate due to various
factors. These factors include:
o announcements relating to significant corporate transactions;
o fluctuations in our quarterly and annual financial results;
o operating and stock price performance of companies that investors deem
comparable to us;
o changes in government regulation or proposals relating thereto;
o general industry and economic conditions; and
o sales or the expectation of sales of a substantial number of shares of
our common stock in the public market.
In addition, the stock markets have, in recent years, experienced
significant price fluctuations. These fluctuations often have been unrelated
to the operating performance of the specific companies whose stock is traded.
Market fluctuations, as well as economic conditions, have adversely affected,
and may continue to adversely affect, the market price of our common stock.
Fluctuations in the price of our common stock will affect the value of any
outstanding preferred stock.
Shares eligible for future sale may harm our common stock price.
Sales of substantial numbers of additional shares of our common stock or any
shares of our preferred stock, including sales of shares in connection with
future acquisitions, or the perception that such sales could occur, may have a
harmful effect on prevailing market prices for our common stock and our
ability to raise additional capital in the financial markets at a time and
price favorable to us. Our amended and restated certificate of incorporation
provides that we have authority to issue 75 million shares of common stock. As
of October 20, 2003, approximately 33.1 million shares of common stock were
outstanding and approximately 3.5 million shares of common stock were issuable
upon exercise of currently outstanding stock options. We, our directors and
officers have entered into the lock-up agreements described under the caption
"Underwriting."
Our issuance of additional series of preferred stock could adversely affect
holders of our common stock.
Our board of directors is authorized to issue additional series of preferred
stock without any action on the part of our shareholders. Our board of
directors also has the power, without shareholder approval, to set the terms
of any such series of preferred stock that may be issued, including voting
rights, conversion rights, dividend rights, preferences over our common stock
with respect to dividends or if we liquidate, dissolve or wind up our business
and other terms. If we issue preferred stock in the future that has preference
over our common stock with respect to the payment of dividends or upon our
liquidation, dissolution or winding-up, or if we issue preferred stock with
voting rights that dilute the voting power of our common stock, the rights of
holders of our common stock or the market price of our common stock could be
adversely affected.
Provisions in our charter documents could make it more difficult to acquire
our company.
Our amended and restated certificate of incorporation and amended and
restated by-laws contain provisions that may discourage, delay or prevent a
third party from acquiring us, even if doing so would be
S-19
beneficial to our shareholders. Under our amended and restated certificate of
incorporation, only our board of directors may call special meetings of
shareholders, and shareholders must comply with advance notice requirements for
nominating candidates for election to our board of directors or for proposing
matters that can be acted upon by shareholders at shareholder meetings.
Directors may be removed by shareholders only for cause and only by the
effective vote of at least 66 2/3% of the voting power of all shares of capital
stock then entitled to vote generally in the election of directors, voting
together as a single class. Additionally, agreements with certain of our
executive officers may have the effect of making a change of control more
expensive and, therefore, less attractive.
Pursuant to our amended and restated certificate of incorporation, our board
of directors may by resolution establish one or more series of preferred
stock, having such number of shares, designation, relative voting rights,
dividend rates, conversion rights, liquidation or other rights, preferences
and limitations as may be fixed by our board of directors without any further
shareholder approval. Such rights, preferences, privileges and limitations as
may be established could have the further effect of impeding or discouraging
the acquisition of control of our company.
S-20
FORWARD-LOOKING STATEMENTS
Certain of the matters we discuss in this prospectus may constitute forward-
looking statements. You can identify forward-looking statements because they
contain words such as "believes," "expects," "may," "will," "should," "seeks,"
"approximately," "intends," "plans," "estimates," or "anticipates" or similar
expressions which concern our 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
anticipated 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 described some of these factors in the
section entitled "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.
S-21
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the common stock offered
hereby will be approximately $38.3 million, $44.2 million if the underwriters
exercise their over-allotment option, in each case after deducting the
underwriting discounts and commissions and estimated expenses payable by us.
This offering is 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 consists of the following refinancing transactions, which will be
consummated concurrently: (i) a new $240 million senior secured revolving
credit facility, (ii) a private offering of $285 million principal amount of
senior notes, (iii) a private offering of $90 million of Series A redeemable
convertible preferred stock and (iv) a public offering of approximately
$41.4 million of common stock. We intend to apply the net proceeds from these
refinancing transactions to repay all borrowings outstanding under our
existing senior secured revolving credit facility, existing senior secured
term loans and outstanding amounts under our existing accounts receivable
asset-backed securitization facility and to pay related fees and expenses. The
table below sets forth the sources and uses of funds from the refinancing
transactions as if such transactions had occurred on September 30, 2003.
Sources: Amount(1)
-------- ---------
(in millions)
Senior secured revolving credit facility ....................... $ 67.7(2)
9.5% Senior notes due 2010 ..................................... 285.0
5.75% Series A redeemable convertible preferred stock .......... 90.0
Common stock ................................................... 41.4
------
Total ....................................................... $484.1
======
Uses:
-----
Repayment of existing senior secured revolving credit facility . $ 64.9(3)
Repayment of existing senior secured term loan A ............... 56.4
Repayment of existing senior secured term loan B ............... 270.0
Repayment of accounts receivable asset-backed securitization
facility...................................................... 72.8(4)
Fees and expenses .............................................. 20.0
------
Total ....................................................... $484.1
======
---------------
(1) In this prospectus, references to the amount of this offering and the
concurrent private offering of Series A redeemable convertible preferred
stock do not include any securities issuable upon exercise of the options
to purchase additional securities granted to the underwriters or the
initial purchasers, as the case may be, in connection therewith.
(2) Our new senior secured revolving credit facility will provide for aggregate
borrowings of up to $240.0 million (of which up to $50.0 million may be
used for letters of credit), subject to borrowing base limitations.
(3) In addition, as of September 30, 2003, we had $36.6 million of outstanding
letters of credit. Borrowings outstanding as of October 24, 2003 were
$21.9 million higher as a result of working capital changes since
September 30, 2003.
(4) Borrowings outstanding as of October 24, 2003 were $7.2 million higher as a
result of working capital changes since September 30, 2003.
Our existing senior secured revolving credit facility bore interest at 5.63%
and our existing senior secured term loan A bore interest at the rate of 6.14%
and both mature on May 27, 2005. Our existing senior secured term loan B bore
interest at the rate of 6.13% and matures on May 27, 2007. Our accounts
receivable asset-backed securitization facility bore interest at the rate of
1.69% and matures on April 28, 2006. The interest rates referred to above are
as of September 30, 2003. We were required under the terms of our existing
credit agreement to fix the interest rate on a portion of our floating rate
debt. As a result, the underlying LIBOR rate on $200.0 million of our debt was
fixed at approximately 4.67% under a swap transaction.
S-22
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 2003:
o on an actual basis; and
o as adjusted to reflect the refinancing transactions described under the
caption "Prospectus Supplement Summary -- The Refinancing," and the
application of the estimated net proceeds therefrom, as if these
transactions had occurred as of September 30, 2003.
This table should be read in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this prospectus.
As of
September 30,
2003
-----------------
As
Actual Adjusted
------ ------
(in millions)
Cash and cash equivalents ................................. $ 24.2 $ 24.2
====== ======
Debt(1):
Existing senior secured revolving credit facility(2) ..... $ 64.9 --
Existing senior secured term loan A ...................... 56.4 --
Existing senior secured term loan B ...................... 270.0 --
New senior secured revolving credit facility(3) .......... -- 67.7
New senior notes due 2010 ................................ -- 285.0
Other debt ............................................... 12.7 12.7
------ ------
Total debt.............................................. 404.0 365.4
====== ======
Shareholders' equity:
Preferred stock, $0.01 par value; 25,000,000 shares
authorized:
Series A redeemable convertible preferred stock;
2,070,000 authorized; issued and outstanding shares: no
shares actual; 1,800,000 as adjusted (4)................ $ -- $ 90.0
Common stock, $0.01 par value; 75,000,000 shares
authorized; issued and outstanding shares: 33,083,028
actual; 38,133,028 as adjusted (net of 4,828,225
treasury shares actual and as adjusted)(5).............. 0.4 0.4
Additional paid-in capital ............................... 100.2 134.8
Treasury stock ........................................... (50.4) (50.4)
Retained earnings ........................................ 65.1 54.7
Accumulated other comprehensive loss ..................... (28.4) (26.1)
Other shareholders' equity ............................... (3.3) (3.3)
------ ------
Total shareholders' equity.............................. 83.6 200.1
------ ------
Total capitalization .................................. $487.6 $565.5
====== ======
---------------
(1) Debt does not include $72.8 million of borrowings under our off-balance
sheet accounts receivable asset-backed securitization facility, which will
be terminated in connection with the refinancing transactions.
(2) Borrowings outstanding as of October 24, 2003 were $21.9 million higher as
a result of working capital changes since September 30, 2003.
(3) Excludes $36.6 million of letters of credit expected to be outstanding
under the new senior secured revolving credit facility. The new senior
secured revolving credit facility will provide for aggregate borrowings of
up to $240 million, subject to borrowing base limitations. See "Description
of New Credit Facility, New Notes and New Preferred Stock--Description of
New Senior Secured Revolving Credit Facility."
(4) Excludes any shares of preferred stock that may be issued upon exercise of
the initial purchasers' option to purchase additional securities in the
concurrent preferred stock offering.
(5) Excludes (i) an aggregate of 3,535,580 shares of common stock issuable upon
exercise of outstanding stock options, (ii) 140,530 matching restricted
stock units, (iii) any shares of common stock that may be issuable upon
exercise of the underwriters' over-allotment option and (iv) approximately
8,996,400 shares of common stock issuable upon conversion of Series A
redeemable convertible preferred stock.
S-23
COMMON STOCK PRICE RANGE
Our common stock is listed on the New York Stock Exchange under the symbol
"BGC". The following table sets forth the high and low sales prices for our
common stock as reported on the New York Stock Exchange for the periods
indicated.
Price range
---------------
High Low
------ ------
Year ended December 31, 2001
1st Quarter ................................................ $12.10 $ 4.50
2nd Quarter ................................................ 18.98 8.75
3rd Quarter ................................................ 19.24 9.20
4th Quarter ................................................ 13.43 9.40
Year ended December 31, 2002
1st Quarter ................................................ $14.60 $11.55
2nd Quarter ................................................ 14.85 5.74
3rd Quarter ................................................ 6.41 2.10
4th Quarter ................................................ 4.95 2.35
Year ending December 31, 2003
1st Quarter ................................................ $ 4.25 $ 3.11
2nd Quarter ................................................ 6.36 3.65
3rd Quarter ................................................ 10.06 5.30
4th Quarter (through November 18, 2003) .................... 10.18 7.94
On November 18, 2003, the last reported sale price of our common stock on
the New York Stock Exchange was $8.20 per share. At October 20, 2003, there
were approximately 33,120,132 shares of common stock outstanding held by 2,266
holders of record.
DIVIDEND POLICY
We paid a $0.05 per share dividend on our common stock each quarter
beginning in the fourth quarter of 1997 and through the third quarter of 2002.
In October 2002, as a result of an amendment to our existing credit facility,
our board of directors suspended the payment of the quarterly cash dividends
on our common stock. The future payment of dividends on our common stock is
subject to the discretion of our board of directors, restrictions under the
Series A redeemable convertible preferred stock, restrictions under our new
senior secured revolving credit facility and the senior notes and the
requirements of Delaware General Corporation Law and will depend upon general
business conditions, our financial performance and other factors our board of
directors may consider relevant. We do not expect to pay cash dividends on our
common stock in the foreseeable future.
S-24
SELECTED HISTORICAL FINANCIAL INFORMATION
The selected financial data for the years ended and as of December 31, 1998,
1999, 2000, 2001 and 2002 were derived from our audited consolidated financial
statements. The selected financial data set forth in the following table for
the nine months ended September 30, 2002 and 2003 and as of September 30, 2003
were derived from unaudited consolidated financial statements which, in the
opinion of our management, include all adjustments necessary for a fair
presentation of the results for the unaudited interim periods. 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. 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 Cavi e 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 have been restated to reflect this change.
S-25
Nine Months Ended
Year Ended December 31, September 30,
---------------------------------------- -------------------------------
1998 1999 2000(1) 2001(1) 2002 2002 2003
------ -------- -------- -------- -------- -------- --------
(in millions, except ratio, per share and metal price data)
Statement of Operations Data:
Net sales:
Energy............................................. $ -- $ 505.3 $ 733.6 $ 521.8 $ 516.0 $ 389.0 $ 413.5
Industrial & specialty............................. 200.0 579.8 796.7 537.6 499.4 383.1 395.1
Communications..................................... 460.1 520.2 631.8 592.0 438.5 330.4 324.5
------ -------- -------- -------- -------- -------- --------
Total net sales..................................... 660.1 1,605.3 2,162.1 1,651.4 1,453.9 1,102.5 1,133.1
Cost of sales....................................... 519.9 1,312.8 1,870.4 1,410.7 1,287.3 972.1 998.7
Asset impairment charge............................. -- 24.5 -- -- -- -- --
------ -------- -------- -------- -------- -------- --------
Gross profit........................................ 140.2 268.0 291.7 240.7 166.6 130.4 134.4
Selling, general and administrative expenses........ 62.2 174.7 257.6 136.4 150.9 116.2 93.6
------ -------- -------- -------- -------- -------- --------
Operating income.................................... 78.0 93.3 34.1 104.3 15.7 14.2 40.8
Other income........................................ -- -- -- 8.1 -- -- --
Interest expense, net............................... (9.6) (38.0) (59.8) (43.9) (42.6) (31.1) (32.8)
Other financial costs............................... -- -- (3.3) (10.4) (1.1) -- --
------ -------- -------- -------- -------- -------- --------
Income (loss) before taxes.......................... 68.4 55.3 (29.0) 58.1 (28.0) (16.9) 8.0
Income tax benefit (provision)...................... (25.7) (19.6) 10.3 (20.6) 9.9 6.0 (2.8)
------ -------- -------- -------- -------- -------- --------
Income (loss) from continuing operations............ 42.7 35.7 (18.7) 37.5 (18.1) (10.9) 5.2
Income (loss) from discontinued operations.......... 28.5 (1.5) (7.7) (6.8) -- -- --
Loss on disposal of discontinued operations......... -- -- -- (32.7) (5.9) (3.9) --
------ -------- -------- -------- -------- -------- --------
Net income (loss)................................... $ 71.2 $ 34.2 $ (26.4) $ (2.0) $ (24.0) $ (14.8) $ 5.2
====== ======== ======== ======== ======== ======== ========
Per Share Data:
Basic earnings (loss) of continuing operations per
common share...................................... $ 1.16 $ 0.99 $ (0.56) $ 1.14 $ (0.55) $ (0.33) $ 0.16
Diluted earnings (loss) of continuing operations per
common stock...................................... $ 1.14 $ 0.99 $ (0.56) $ 1.13 $ (0.55) $ (0.33) $ 0.16
Basic earnings (loss) of discontinued operations per
common share...................................... $ 0.77 $ (0.04) $ (0.23) $ (1.20) $ (0.18) $ (0.12) --
Diluted earnings (loss) of discontinued operations
per common share.................................. $ 0.76 $ (0.04) $ (0.23) $ (1.19) $ (0.18) $ (0.12) --
Basic earnings (loss) of total company per common
share............................................. $ 1.93 $ 0.95 $ (0.79) $ (0.06) $ (0.73) $ (0.45) $ 0.16
Diluted earnings (loss) of total company per common
share............................................. $ 1.90 $ 0.95 $ (0.79) $ (0.06) $ (0.73) $ (0.45) $ 0.16
Basic weighted average shares outstanding........... 36.8 35.9 33.6 32.8 33.0 33.0 33.1
Diluted weighted average shares outstanding......... 37.5 35.9 33.6 33.1 33.0 33.0 33.4
Dividends per common share (annually)............... $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.15 $ 0.15 --
Other Data:
Depreciation and amortization....................... $ 18.5 $ 32.4 $ 56.0 $ 35.0 $ 30.6 $ 22.8 $ 23.2
Capital expenditures................................ (75.5) (97.6) (56.0) (54.9) (31.4) (22.8) (11.8)
Ratio of earnings to fixed charges(2)............... 6.5x 2.3x -- 2.1x -- -- 1.1x
Average daily COMEX price per pound of copper
cathode........................................... $ 0.75 $ 0.72 $ 0.84 $ 0.73 $ 0.72 $ 0.72 $ 0.77
Average daily selling price per pound of aluminum
rod............................................... $ 0.66 $ 0.66 $ 0.75 $ 0.69 $ 0.65 $ 0.65 $ 0.67
S-26
December 31,
----------------------------------------- September 30,
1998 1999 2000 2001 2002 2003
------ -------- -------- -------- -------- ------
Balance Sheet Data:
Cash and cash equivalents ................................... $ 3.4 $ 38.0 $ 21.2 $ 16.6 $ 29.1 $ 24.2
Working capital(3) .......................................... 233.8 468.2 375.3 169.9 150.8 133.4
Property, plant and equipment, net .......................... 210.8 438.7 379.4 320.9 323.3 326.8
Total assets ................................................ 651.0 1,568.3 1,319.2 1,005.3 973.3 977.9
Total debt(4) ............................................... 246.8 765.2 642.6 460.4 451.9 404.0
Net debt(4)(5) .............................................. 243.4 727.2 621.4 443.8 422.8 379.8
Shareholders' equity ........................................ 177.2 177.3 128.5 104.9 60.9 83.6
---------------
(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 and 2002 and the nine months ended
September 30, 2002, earnings were insufficient to cover fixed charge by
$28.9 million, $27.6 million and $10.3 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. Our earnings for the year ended December 31, 2002 would have
been insufficient to cover pro forma fixed charges and preferred stock
dividends by $24.6 million. Our pro forma ratio of earnings to fixed
charges and preferred stock dividends for the nine months ended
September 30, 2003 would have been 1.3x.
(3) Working capital means current assets less current liabilities.
(4) Excludes off-balance sheet borrowings of $67.8 million at December 31,
2001, $48.5 million at December 31, 2002 and $72.8 million at September 30,
2003. There were no off-balance sheet borrowings as of December 31, 1998,
1999 and 2000.
(5) Net debt means our total debt less cash and cash equivalents.
S-27
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, Nine Months Ended September 30,
--------------------------------------------------- --------------------------------
2000 2001 2002 2002 2003
-------------- --------------- -------------- -------------- --------------
Amount % Amount % Amount % Amount % Amount %
-------- --- --------- --- -------- --- -------- --- -------- ---
Net Sales:
North America ......................... $1,399.8 79% $1,267.7 77% $1,077.2 74% $ 825.9 75% $ 793.3 70%
Europe ................................ 323.9 18 322.2 19 314.7 22 232.0 21 277.9 25
Oceania ............................... 55.0 3 61.5 4 62.0 4 44.6 4 61.9 5
-------- --- --------- --- -------- --- -------- --- -------- ---
Subtotal............................. 1,778.7 100% 1,651.4 100% 1,453.9 100% 1,102.5 100% 1,133.1 100%
=== === === === ===
Divested businesses ................... 383.4 -- -- -- --
-------- --------- -------- -------- --------
Total net sales...................... $2,162.1 $ 1,65l.4 $1,453.9 $1,102.5 $1,133.1
======== ======== ======== ======== ========
Operating Income:
North America ......................... $ 100.5 78% $ 71.7 66% $ 15.0 31% $ 18.1 42% $ 8.1 19%
Europe ................................ 24.1 18 29.6 27 27.7 56 20.4 48 27.6 65
Oceania ............................... 5.8 4 6.8 6 6.4 13 4.4 10 6.8 16
-------- --- --------- --- -------- --- -------- --- -------- ---
Subtotal............................. 130.4 100% 108.1 100% 49.1 100% 42.9 100% 42.5 100%
=== === === === ===
Divested businesses ................... (96.3) -- -- -- --
Corporate charges ..................... -- (3.8) (33.4) (28.7) (1.7)
-------- --------- -------- -------- --------
Total operating income............... $ 34.1 $ 104.3 $ 15.7 $ 14.2 $ 40.8
======== ======== ======== ======== ========
Cash flow from operations in North America accounted for 80%, 76%, 83% and
94% of our total cash flow from operations for the years ended December 31,
2001 and 2002 and nine months ended September 30, 2002 and 2003. Aggregate
cash flow from operations in Europe and Oceania accounted for 20%, 24%, 17%
and 6% of our total cash flow from operations for the years ended December 31,
2001 and 2002 and nine months ended September 30, 2002 and 2003. For the year
ended December 31, 2000, we generated $60.1 million in cash flow from
operations in North America and used $44.0 million in cash flow from
operations outside North America.
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.
Our 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, with the daily selling price of
copper cathode on the COMEX averaging $0.77 per pound in the first nine months
of 2003, $0.72 per pound in 2002, $0.73 per pound in 2001 and $0.84 per pound
in 2000 and the daily selling price of aluminum rod averaging $0.67 per pound
in the first nine months of 2003, $0.65 per pound in 2002, $0.69 per pound in
2001 and $0.75 per pound in 2000. We generally pass changes in copper and
aluminum prices along to our customers, although there are timing delays of
varying lengths depending upon the type of
S-28
product, competitive conditions and particular customer arrangements. As a
result of this and a number of other practices intended to match copper and
aluminum purchases with sales, our profitability has generally not been
significantly affected by changes in copper and aluminum prices. We do not
engage in speculative metals trading or other speculative activities. Also, we
do not engage in activities to hedge the underlying value of our 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. 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. 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 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 cables plants.
We are in the process of closing one of our North American manufacturing
facilities, which we expect will result in approximately $7 million of costs
in the quarter ending December 31, 2003, of which approximately $4 million
will be cash costs. In addition, we are currently evaluating closures of two
additional North American facilities. We plan to announce the results of our
evaluation either late this quarter or early next year and would take
additional charges over the period the operations are wound down should we
decide to rationalize these two facilities. The cost to rationalize these
facilities could approximate $20 million, with cash costs of approximately
one-third of this amount.
We anticipate lower sales in the fourth quarter of 2003 compared to the
third quarter of 2003, which in part reflects our historic seasonality and the
unfavorable impact on earnings of expected lower production volumes as we
continue to reduce our inventories. Net income is expected to be approximately
breakeven for the fourth quarter of 2003 before giving effect to charges
relating to plant rationalizations and the financial impact of the refinancing
transactions. Our results in the fourth quarter could also be impacted by
variations in customer order patterns as a result of year-end budgetary
considerations.
S-29
Our expectations related to future financial results are forward looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act 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 the availability of, our supply of raw materials we
use in our manufacturing processes; 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 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 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
S-30
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
September 30, 2003, other non-current assets included an investment in the
joint venture of $3.8 million. The December 31, 2002 and September 30, 2003
balance sheets included a $10.2 million note receivable from the joint venture
in other non-current assets and a deferred gain from the initial joint venture
formation of $5.6 million in other liabilities.
Growth through acquisition has been, and is expected to continue to be, a
significant part of our strategy. We regularly evaluate possible acquisition
candidates and currently have identified one potential candidate with which we
are engaged in preliminary discussions. We believe that an acquisition of this
potential candidate would enhance our global business. However, we have no
agreement or understanding with respect to this potential candidate and we
cannot assure you that any such acquisition will be successfully completed. We
cannot assure you that we will be successful in identifying, financing and
closing acquisitions at favorable prices and terms. See "Risk Factors--Other
Risks Relating to Our Business--We may not be able to successfully identify,
finance or integrate acquisitions."
Significant Accounting Policies
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 and valuation allowances for deferred income taxes.
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 are
valued at historical costs as the LIFO layers were created. As a result of
declining copper prices, the historic LIFO cost of our copper inventory
exceeded its replacement cost by approximately $16 million at December 31,
2002 and $5 million at September 30, 2003. 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.
In 2002, we recorded a $2.5 million charge ($1.4 million in the third
quarter and $1.1 million in the fourth quarter of 2002) for the liquidation of
LIFO inventory in North America as we significantly reduced our inventory
levels. We have further reduced inventory quantities during the third quarter
of 2003 and as a result have recorded a $0.8 million charge. We expect to
further reduce inventory quantities in the fourth quarter of 2003 which is
expected to result in an additional LIFO liquidation charge. The LIFO
liquidation charge will adversely affect margins, however, the amount of the
charge to be incurred in the fourth quarter
S-31
of 2003 will be dependent upon the quantity of the inventory reduction for the
year and the market price of the metals during the period the inventory
liquidation occurred.
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 9.0%. 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 September 30, 2003 were 78% and 76%, respectively,
of equity investments and 22% and 24%, respectively, of fixed-income
investments. Management believes that our long-term asset allocation on
average will approximate our assumption and that a 9.0% long-term rate of
return is a reasonable assumption.
The determination of pension expense for defined benefit pension plans is
based on a market-related valuation of assets, which reduces year-to-year
volatility. This market-related valuation recognizes investment gains or
losses over a three-year period from the year in which they occur. Investment
gains and losses for this purpose are the difference between the expected
return calculated using the market-related value of assets and the actual
return based on the market-related value of assets. Since the market-related
value of assets recognizes gains or losses over a three-year period, the
future value of assets will be impacted as previously deferred gains or losses
are recorded.
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, 2002 was
6.5%.
We evaluate our actuarial assumptions, at least annually, and adjust them as
necessary. Due to the effect of the unrecognized actuarial losses based on an
expected rate of return on plan assets of 9.0%, a discount rate of 6.5% and
various other assumptions, our pension expense for our defined benefit plans
will be approximately $7.7 million in 2003. In 2004, pension expense is
expected to increase $0.6 million from 2003. A 1% decrease in the assumed
discount rate would increase pension expense by approximately $0.8 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.
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 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 2001, the
valuation allowance was $19.2 million and $5.6 million, respectively. At
September 30, 2003, the valuation allowance was $19.2 million.
S-32
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. For
the year ended December 31, 2000 the results of operations are split between
the ongoing businesses after the closing of the transaction with Pirelli and
those that have been divested. Percentages may not add due to rounding.
Ongoing Businesses Nine Months
Year Ended December 31, Ended September 30,
--------------------------------------------------------- -------------------------------------
2000 2001 2002 2002 2003
----------------- ----------------- ----------------- ----------------- ----------------
Amount % Amount % Amount % Amount % Amount %
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net sales ..................... $1,778.7 100.0% $1,651.4 100.0% $1,453.9 100.0% $1,102.5 100.0% $1,133.1 100.0%
Cost of sales ................. 1,486.8 83.6 1,410.7 85.4 1,287.3 88.5 972.1 88.2 998.7 88.1
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Gross profit .................. 291.9 16.4 240.7 14.6 166.6 11.5 130.4 11.8 134.4 11.9
Selling, general and
administrative expenses ...... 161.5 9.1 136.4 8.3 150.9 10.4 116.2 10.5 93.6 8.3
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Operating income .............. 130.4 7.3 104.3 6.3 15.7 1.1 14.2 1.3 40.8 3.6
Other income .................. -- -- 8.1 0.5 -- -- -- -- -- --
Interest expense, net ......... (45.8) (2.6) (43.9) (2.7) (42.6) (2.9) (31.1) (2.8) (32.8) (2.9)
Other financial costs ......... -- -- (10.4) (0.6) (1.1) (0.1) -- -- -- --
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Earnings (loss) from
continuing operations before
income taxes ................. 84.6 4.8 58.1 3.5 (28.0) (1.9) (16.9) (1.5) 8.0 0.7
Income tax (provision) benefit (30.1) (1.7) (20.6) (1.2) 9.9 0.7 6.0 0.5 (2.8) (0.2)
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income (loss) from continuing
operations ................... 54.5 3.1 37.5 2.3 (18.1) (1.2) (10.9) (1.0) 5.2 0.5
Loss from discontinued
operations (net of tax) ...... (7.7) (0.4) (6.8) (0.4) -- -- -- -- -- --
Loss on disposal of
discontinued operations (net
of tax) ...................... -- -- (32.7) (2.0) (5.9) (0.4) (3.9) (0.4) -- --
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net income (loss) ............. $ 46.8 2.6% $ (2.0) (0.1)% $ (24.0) (1.7)% $ (14.8) (1.4)% $ 5.2 0.5%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
Diluted earnings (loss) of
continuing operations per
common share ................. $ 1.62 $ 1.13 $ (0.55) $ (0.33) $ 0.16
======== ======== ======== ======== ========
Diluted loss of discontinued
operations per common share .. $ (0.23) $ (1.19) $ (0.18) $ (0.12) $ --
======== ======== ======== ======== ========
Diluted earnings (loss) of
ongoing businesses per common
share ........................ $ 1.39 $ (0.06) $ (0.73) $ (0.45) $ 0.16
======== ======== ======== ======== ========
Divested Businesses
Year Ended
December 31,
-------------------
2000
-------------------
Amount %
-------- -----
Net sales ..................... $ 383.4 100.0%
Cost of sales ................. 383.6 100.0
-------- -----
Gross profit (loss) ........... (0.2) --
Selling, general and
administrative expenses ...... 96.1 25.1
-------- -----
Operating loss ................ (96.3) (25.1)
Interest expense, net ......... (14.0) (3.7)
Other financial costs ......... (3.3) (0.9)
-------- -----
Loss before income taxes ...... (113.6) (29.6)
Income tax benefit ............ 40.4 10.5
-------- -----
Net loss ...................... $ (73.2) (19.1)%
======== =====
Diluted loss per common share . $ (2.18)
========
S-33
Total Company Nine Months
Year Ended December 31, Ended September 30,
--------------------------------------------------------- -------------------------------------
2000 2001 2002 2002 2003
----------------- ----------------- ----------------- ----------------- ----------------
Amount % Amount % Amount % Amount % Amount %
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net sales ..................... $2,162.1 100.0% $1,651.4 100.0% $1,453.9 100.0% $1,102.5 100.0% $1,133.1 100.0%
Cost of sales ................. 1,870.4 86.5 1,410.7 85.4 1,287.3 88.5 972.1 88.2 998.7 88.1
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Gross profit .................. 291.7 13.5 240.7 14.6 166.6 11.5 130.4 11.8 134.4 11.9
Selling, general and
administrative expenses ...... 257.6 11.9 136.4 8.3 150.9 10.4 116.2 10.5 93.6 8.3
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Operating income .............. 34.1 1.6 104.3 6.3 15.7 1.1 14.2 1.3 40.8 3.6
Other income .................. -- -- 8.1 0.5 -- -- -- -- -- --
Interest expense, net ......... (59.8) (2.8) (43.9) (2.7) (42.6) (2.9) (31.1) (2.8) (32.8) (2.9)
Other financial costs ......... (3.3) (0.2) (10.4) (0.6) (1.1) (0.1) -- -- -- --
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Earnings (loss) from
continuing operations before
income taxes ................. (29.0) (1.3) 58.1 3.5 (28.0) (1.9) (16.9) (1.5) 8.0 0.7
Income tax (provision) benefit 10.3 0.5 (20.6) (1.2) 9.9 0.7 6.0 0.5 (2.8) (0.2)
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income (loss) from continuing
operations ................... (18.7) (0.9) 37.5 2.3 (18.1) (1.2) (10.9) (1.0) 5.2 0.5
Loss from discontinued
operations (net of tax) ...... (7.7) (0.4) (6.8) (0.4) -- -- -- -- -- --
Loss on disposal of
discontinued operations (net
of tax) ...................... -- -- (32.7) (2.0) (5.9) (0.4) (3.9) (0.4) -- --
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net income (loss) ............. $ (26.4) (1.2)% $ (2.0) (0.1)% $ (24.0) (1.7)% $ (14.8) (1.4)% $ 5.2 0.5%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
Diluted earnings (loss) of
continuing operations per
common share ................. $ (0.56) $ 1.13 $ (0.55) $ (0.33) $ 0.16
======== ======== ======== ======== ========
Diluted loss of discontinued
operations per common share .. $ (0.23) $ (1.19) $ (0.18) $ (0.12) --
======== ======== ======== ======== ========
Diluted loss of total company
per common share ............. $ (0.79) $ (0.06) $ (0.73) $ (0.45) $ 0.16
======== ======== ======== ======== ========
Nine Months Ended September 30, 2003 Compared with Nine Months Ended
September 30, 2002
Net income was $5.2 million, or $0.16 on a per diluted share basis in the
first nine months of 2003 compared to a net loss of $(14.8) million, or
$(0.45) per diluted share, in the first nine months of 2002. The net income
for the first nine months of 2003 includes a pre-tax charge of $0.8 million
for the liquidation of LIFO inventory quantities in North America and a pre-
tax corporate charge of $1.7 million for severance related to our ongoing cost
cutting efforts in Europe. The first nine months of 2002 net loss of
$(14.8) million includes a pre-tax charge of $1.4 million for the liquidation
of LIFO inventories and pre-tax corporate charges of $20.5 million to close
two manufacturing plants in North America, $3.6 million to reduce to fair
value certain assets contributed to our Fiber Optic joint venture created in
the second quarter, a $2.9 million charge related to severance costs and
$1.7 million related to the sale of our small non-strategic, United Kingdom
based specialty cables business. The first nine months of 2002 net loss of
$(14.8) million also includes a $6.0 million discontinued operations pre-tax
charge principally related to an estimated lower net realizable value for real
estate remaining from our 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 first nine months of 2002 have been
adjusted to reflect the first nine months of 2003 copper COMEX average price
of $0.77 and the aluminum rod average price of $0.67 per pound.
S-34
Metal-Adjusted Net Sales
Nine Months Ended September 30,
---------------------------------
2002 2003
--------------- --------- ----
Amount % Amount %
-------- --- -------- ---
Energy ........................................................................................ $ 396.8 35% $ 413.5 36%
Industrial & specialty ........................................................................ 388.8 35 395.1 35
Communications ................................................................................ 335.0 30 324.5 29
-------- --- -------- ---
Total metal-adjusted net sales.............................................................. 1,120.6 100% 1,133.1 100%
=== ===
Metal adjustment (18.1) --
-------- --------
Total net sales............................................................................. $1,102.5 $1,133.1
======== ========
Net sales increased 3% to $1,133.1 million in the first nine months of 2003
from $1,102.5 million in the first nine months of 2002. The net sales increase
included $62.4 million favorable impact of foreign currency exchange rate
changes principally related to our European operations. After adjusting 2002
net sales to reflect the $0.05 increase in the average monthly COMEX price per
pound of copper and the $0.02 increase in the average aluminum rod price per
pound in the first nine months of 2003, net sales increased 1% to
$1,133.1 million, up from $1,120.6 million in 2002. The increase in metal-
adjusted net sales reflects a 4% increase in the energy segment, a 2% increase
in the industrial & specialty segment and 3% decrease in the communications
segment.
The 4% increase in metal-adjusted net sales for the energy segment reflects
a 24% increase in net sales in our international operations, partially offset
by a 3% decrease in net sales in North America. Our international operations
have benefited from increased sales resulting from new contract awards
throughout Europe and a favorable impact from changes in foreign currency
exchange rates. The North American net sales decrease reflects lower sales
volume, however, during the third quarter of 2003, customer demand
strengthened versus the same period in the prior year. We anticipate 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. However, in the first nine months of 2003 projects were not
released as quickly as expected. 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 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 our customers to install cables.
The 2% increase in metal-adjusted net sales in the industrial & specialty
segment was principally due to a 17% increase in our international operations,
growth in our domestic automotive aftermarket business and an increase in
sales of industrial cables utilized in repairs and maintenance. The increase
in net sales of our international operations includes a favorable impact from
changes in foreign currency exchange rates and 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 20% 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, which is expected to
continue through 2003.
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 sales of
telephone exchange cable were off 5% for the first nine months of 2003
compared to the same period in 2002. However, during the third quarter of
2003, customer demand strengthened compared to the same period in the prior
year. As a result of our position as a low cost producer, these products have
historically been one of our most profitable business segments. The timing of
the resumption of sales of telephone exchange cables to the telephone
operating companies to more historic levels is unknown and represents a
significant area of uncertainty with regard to our financial future
performance. The sales volume decrease in data communication cables is the
result of information technology infrastructure spending being constrained.
S-35
Selling, General and Administrative Expense
Selling, general and administrative expense decreased to $93.6 million in
the first nine months of 2003 from $116.2 million in the first nine months of
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. In addition, SG&A expense includes
$1.7 million of severance costs related to our European operations in the
first nine months of 2003 and $23.8 million of corporate charges, primarily
relating to the closure of manufacturing plants and severance costs, for the
same period in 2002.
Operating Income
The following table sets forth operating income by segment, in millions of
dollars.
Operating Income
Nine Months Ended September 30,
-------------------------------
2002 2003
------------- ------------
Amount % Amount %
------ --- ------ ---
Energy ........................................................................................... $ 28.7 67% $29.4 69%
Industrial & specialty ........................................................................... 7.5 17 7.8 18
Communications ................................................................................... 6.7 16 5.3 13
------ --- ------ ---
Subtotal excluding corporate charges........................................................... 42.9 100% 42.5 100%
=== ===
Corporate charges ................................................................................ (28.7) (1.7)
------ ------
Total operating income......................................................................... $ 14.2 $40.8
====== =====
Operating income of $40.8 million for the first nine months of 2003
increased from $14.2 million for the first nine months of 2002. This increase
is primarily the result of reduced corporate charges in 2003, as discussed
above. Operating income also increased due to our ongoing cost reduction
initiatives in SG&A and manufacturing, strong performance from our European
operations and the favorable impact of foreign currency exchange rate changes
and a $0.6 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 and, to a lesser extent, energy segments and
reduced North American sales volume. Additionally, increased raw material
costs (most notably polyethylene) which were not fully recovered during the
2003 nine month period and higher pension and employee fringe benefit costs
negatively impacted operating income.
Interest Expense
Net interest expense increased to $32.8 million in the first nine months of
2003 from $31.1 million in 2002. The increase in interest expense is primarily
the result of a higher credit spread for our borrowings due to the October
2002 credit facility amendment 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 our debt.
Tax Rates
Our effective tax rate for 2003 and 2002 was 35.5%.
Year Ended December 31, 2002 Compared with Year Ended December 31, 2001
The net loss was $(24.0) million, or $(0.73) per diluted share, in 2002
compared to a net loss of $(2.0) million, or $(0.06) per diluted share, in
2001. The 2002 net loss 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 (see Note 4 to Notes
S-36
to Audited Consolidated Financial Statements), $27.8 million was recorded in
selling, general and administrative expense (see Note 4 to Notes to Audited
Consolidated Financial Statements) 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 our fiber optic joint venture created in the second quarter,
$1.7 million related to the sale of our 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 our credit
facility. The 2002 net loss 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 our 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 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 (see Note 4 to Notes to
Audited Consolidated Financial Statements), a net of $3.2 million of income
reported in selling, general and administrative expense (see Note 4 to Notes
to Audited Consolidated Financial Statements), $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 our non-strategic business that designed and
manufactured extrusion tooling and accessories, $10.4 million in costs
associated with our accounts receivable asset-backed securitization program
and a restructuring of our 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 our
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.
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
S-37
1% increase in energy products, a 7% decrease in industrial & specialty
products and 26% decrease in communication products.
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.
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 we
realize 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, we 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. We also benefited from
our 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 our 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 our international operations.
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 (see Note 4 to Notes to Audited Consolidated
Financial Statements). 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%.
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, we changed our accounting method related to our 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.
S-38
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 our cost containment programs.
Other Financial Costs
In October 2002, we 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, we recorded other financial costs of $10.4 million as a result
of recognizing $4.2 million of costs associated with the implementation of our
accounts receivable asset-backed securitization program. We also wrote off
$2.0 million in unamortized bank fees as a result of a reduction in the
borrowing capacity of our credit facility due to the application of the
Pyrotenax proceeds and the accounts receivable asset-backed securitization
program proceeds against outstanding debt, and we 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 as to allow us
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 our 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
our April 2002 and October 2002 credit facility amendments.
Tax Rates
Our effective tax rate for 2002 and 2001 was 35.5%.
Year Ended December 31, 2001 Compared with Year Ended December 31, 2000
The total company comparison is a net loss of $(2.0) million and loss per
diluted share of $(0.06) in 2001 compared to a loss of $(26.4) million or
$(0.79) per share in 2000. As a result of the August 2000 sale to Pirelli, we
recognized a $34.3 million charge in 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 related to the write-
off of unamortized bank fees due to the prepayment of indebtedness which
resulted in a reduction in the borrowing capacity of our credit facility.
Results of Ongoing Businesses
The ongoing businesses comparison excludes from the 2000 results the losses
incurred in the businesses which were divested during 2000 to Pirelli Cavi e
Sistemi, S.p.A. The net loss was $(2.0) million, or $(0.06) per diluted share,
in 2001 compared to ongoing net income of $46.8 million, or $1.39 per diluted
share, for the ongoing businesses in 2000. The 2001 net loss of $(2.0) million
includes net pre-tax items 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
(see Note 4 to Notes to Audited Consolidated Financial Statements), a net
S-39
of $3.2 million of income reported in selling, general and administrative
expense (see Note 4 to Notes to Audited Consolidated Financial Statements),
$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 our non-strategic
business which designed and manufactured extrusion tooling and accessories,
$10.4 million in costs associated with our accounts receivable asset-backed
securitization program and a restructuring of our 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 our 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.
Net Sales
The following table sets forth metal-adjusted net sales by segment,
in millions of dollars. Net sales for the year 2000 have been adjusted to the
2001 copper COMEX average of $0.73 per pound and the aluminum rod average of
$0.69 per pound.
Metal-Adjusted Net Sales
Year Ended December 31,
---------------------------------
2000 2001
--------------- --------------
Amount % Amount %
-------- --- -------- ---
Energy ........................................................................................ $ 533.8 31% $ 521.8 32%
Industrial & specialty ........................................................................ 592.9 34 537.6 32
Communications ................................................................................ 615.3 35 592.0 36
-------- --- -------- ---
Total metal-adjusted net sales.............................................................. 1,742.0 100% 1,651.4 100%
=== ===
Metal adjustment .............................................................................. 36.7 --
-------- --------
Total net sales............................................................................. $1,778.7 $1,651.4
======== ========
Net sales decreased 7% to $1,651.4 million in 2001 from $1,778.7 million for
the ongoing businesses in 2000. After adjusting 2000 net sales to reflect the
$0.11 decrease in the average monthly COMEX price per pound of copper in 2001
and adjusting for the $0.06 decrease in the average aluminum rod price per
pound in 2001, net sales decreased 5% to $1,651.4 million, down from
$1,742.0 million in 2000. The decrease in metal-adjusted net sales reflects a
2% decrease in energy products, a 9% decrease in industrial & specialty
products and a 4% decrease in communication products.
The 4% decrease in communication products metal-adjusted net sales
principally relates to lower sales volume of high bandwidth networking cables
and outside plant telecommunications cable. Sales volume for both of these
products has decreased year over year with the largest decrease occurring in
the second half of 2001 as key customers reduced their capital spending. These
sales volume decreases were partially offset by improved selling prices during
2001 for outside plant telecommunications cable. Additionally, metal-adjusted
net sales in our international operations increased over 70% from the prior
year principally as a result of our entry into the Iberian communications
market in 2001.
The decrease of 2% in metal-adjusted net sales in the energy products
segment is the result of lower selling prices for certain segments of the
North American energy cable market. Sales volume in the North American energy
market was flat compared to the 2000 sales volume. Metal-adjusted net sales in
the international energy cable market were 5% greater than the prior year
primarily due to sales volume increases.
The 9% decrease in industrial & specialty products metal-adjusted net sales
includes the negative impact of the March 2001 divestiture of the Pyrotenax
business. Excluding the impact of the Pyrotenax divestiture,
S-40
industrial & specialty products metal-adjusted net sales decreased 2% from the
prior year. This decrease is primarily the result of continued weak demand in
many industrial sectors of the North American economy. This decrease is
partially offset by a 3% increase in metal-adjusted net sales for our
international operations.
Selling, General and Administrative Expense
Selling, general and administrative expense decreased to $136.4 million in
2001 from $161.5 million for the ongoing businesses in 2000 reflecting the
lower sales volume and a reduction in controllable spending in response to
general economic conditions. Selling, general and administrative expense as a
percent of metal-adjusted net sales decreased by approximately 80 basis
points, from 9.3% in 2000 to 8.5% in 2001.
Operating Income
The following table sets forth operating income by segment, in millions of
dollars:
Operating Income
Year Ended December 31,
-----------------------------
2000 2001
------------- ------------
Amount % Amount %
------ --- ------ ---
Energy ............................................................................................ $ 40.0 31% $ 35.3 33%
Industrial & specialty ............................................................................ 30.6 23 24.3 22
Communications .................................................................................... 59.8 46 48.5 45
------ --- ------ ---
Subtotal excluding corporate charges............................................................ 130.4 100% 108.1 100%
=== ===
Corporate charges ................................................................................. -- (3.8)
------ ------
Total operating income.......................................................................... $130.4 $104.3
====== ======
Operating income, excluding the corporate items of $3.8 million previously
discussed, decreased 17% to $108.1 in 2001 from $130.4 million for the ongoing
businesses in 2000. Operating income decreased principally as a result of
reduced volumes in the communications segment, increased manufacturing costs
in the industrial & specialty segment, primarily as a result of lower
production volumes, and lower pricing in the energy segment. These reductions
in operating income were partially offset by increased volume in European
energy cables, favorable pricing in communications cables and manufacturing
productivity particularly in the energy segment.
Other Income
Other income of $8.1 million in 2001 was principally comprised of a foreign
exchange gain on the extinguishment of long-term debt in the United Kingdom.
Interest Expense
Net interest expense, excluding the other financial costs of $10.4 million
previously discussed, was $43.9 million in 2001 compared to $45.8 million for
the ongoing businesses in 2000. The decrease reflects lower interest rates
under the credit facility in 2001 and interest savings from our accounts
receivable asset-backed securitization program partially offset by increased
borrowings during 2000 related to the funding of losses sustained during the
prolonged European Union approval process for the business units divested in
the third quarter 2000 Pirelli transaction, as well as higher credit spreads.
Interest expense for the ongoing businesses for the year ended 2000 was
computed as if the sale to Pirelli occurred on January 1, 2000 for
$216.0 million.
Other Financial Costs
During 2001, we recorded other financial costs of $10.4 million as a result
of recognizing $4.2 million of one-time costs associated with the
implementation of our accounts receivable asset-backed securitization program.
We also wrote off $2.0 million in unamortized bank fees as a result of a
reduction in the borrowing
S-41
capacity of our credit facility due to the application of the Pyrotenax
proceeds and the accounts receivable asset-backed securitization program
proceeds against outstanding debt, and we 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 as to allow us to more fully
benefit from the more favorable interest rate environment and future interest
rate reductions.
Tax Rates
Our effective tax rate for 2001 and 2000 was 35.5%.
Results of Divested Businesses
The results for the divested businesses reflect the actual operating results
of the businesses through the closing date of August 25, 2000, a $34.3 million
charge related to the sale of the businesses and allocated interest costs
incurred as if the sale to Pirelli occurred on January 1, 2000 for
$216.0 million. The net loss from the divested businesses was $73.2 million or
$2.18 per share.
A significant portion of the net loss from the divested businesses resulted
from the supertension and subsea cables operation. The supertension operation
was severely impacted by low pricing levels as a result of excess capacity in
the market and reduced project activity.
Operations in Italy and at the distribution cables business in the United
Kingdom also experienced significant losses in 2000. Operations in Italy
experienced demand that was significantly below the prior year and selling
prices that declined in response to changes in the competitive nature of the
market resulting from the partial privatization of the principal Italian
utility company. The distribution cables business experienced demand levels
below historical levels primarily due to lower orders from European utilities.
Liquidity and Capital Resources
In general, we require cash for working capital, capital expenditures, debt
repayment, interest and taxes. Our working capital requirements increase when
we experience strong incremental demand for products and/or significant copper
and aluminum price increases. Based upon historical experience and the
expected availability of funds under our existing credit facility, we believe
that our sources of liquidity will be sufficient to enable us to meet our cash
requirements for working capital, capital expenditures, debt repayment,
interest and taxes for at least the next twelve months. This belief is based
on our current outlook, which is not dependent upon a recovery for the next
twelve months in the communications or industrial markets which we serve.
This offering is 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 consists of the following refinancing transactions which will be
consummated concurrently: (i) a new $240 million senior secured revolving
credit facility, (ii) a private offering of $285 million principal amount of
senior notes, (iii) a private offering of $90 million of Series A redeemable
convertible preferred stock and (iv) a public offering of approximately
$41.4 million of common stock. We intend to apply the net proceeds from these
refinancing transactions to repay all amounts outstanding under our existing
senior secured revolving credit facility, existing senior secured term loans
and outstanding borrowings under our existing accounts receivable asset-backed
securitization facility and to pay related fees and expenses. See "Description
of New Credit Facility, New Notes and New Preferred Stock."
We are a holding company with no operations of our own. All of our
operations are conducted, and net sales are generated, by our subsidiaries and
investments. Accordingly, our cash flow depends on the cash flows of our
operations, in particular our North American operations upon which we have
historically depended most. However, our ability to use cash flow from our
European operations, if necessary, will likely be adversely affected by
limitations on our ability to repatriate such earnings tax efficiently.
Cash flow provided by operating activities in 2002 was $57.3 million. This
reflects net income before depreciation and amortization, deferred income
taxes and loss on sale of business of $22.7 million, a $61.5 million decrease
in inventories, and a $15.1 million decrease in accounts receivable. The
change in
S-42
deferred income taxes reflects a $37.0 million income tax refund received
during the second and third quarters of 2002. This income tax refund was
attributable to a 2002 U.S. tax law change that enabled us to carryback our
2001 NOL which was recorded as a deferred tax asset at December 31, 2001, to
obtain a refund of taxes previously paid. Inventories were reduced during the
year by $61.5 million through strong distribution logistics, improved plant
schedule attainment and a rebalancing of our production loads including the
furloughing of one plant for the entire fourth quarter. These cash flows were
partially offset by a decrease in accounts payable, accrued and other
liabilities of $34.0 million and an $8.0 million increase in other assets. Our
subsidiaries that will guarantee the senior notes represented 80%, 76% and 94%
of our total cash flow from operating activities for the years ended
December 31, 2001 and 2002 and nine months ended September 30, 2003.
Cash flow provided by operating activities in the first nine months of 2003
was $58.2 million. This reflects net income before depreciation and
amortization, deferred income taxes and a loss on sale of property of
$23.0 million, a $10.4 million increase in accounts payable, accrued and other
liabilities, a $19.5 million decrease in other assets which primarily reflects
a $13.9 million refund of income taxes paid in previous years received in the
first quarter of 2003 and a decrease in inventory of $22.2 million.
Inventories were reduced through strong distribution logistics, improved plant
schedule attainment and a rebalancing of our production loads with net sales
results. These cash flows were partially offset by an increase in accounts
receivable of $16.9 million due to the normal seasonality of our business
reflecting increased construction activity in the spring and summer. In the
comparable period in the prior year, we had a decrease in receivables which
primarily reflected the benefit from the collection of receivables from our
former building wire business.
Cash flow used by investing activities was $28.6 million in 2002,
principally reflecting $31.4 million of capital expenditures. This level of
capital spending is 43% below 2001 and reflects management's decision to limit
capital spending given current general economic conditions. This cash outflow
was partially offset by $1.7 million of proceeds received from the divestiture
of a non strategic business during the second quarter of 2002 and $1.6 million
of proceeds from the sale of properties, principally closed manufacturing
locations.
Cash flow used by investing activities was $10.2 million in the first nine
months of 2003, principally reflecting $11.8 million of capital expenditures.
This level of capital spending is approximately 50% below the first nine
months of 2002 and reflects an intentional effort to limit capital spending
given current general economic conditions. We anticipate capital spending to
be approximately $8 million in the fourth quarter of 2003 and $30 million in
2004. Additionally, $1.9 million of proceeds were received from the sale of a
former manufacturing facility and $1.0 million of cash was received in partial
payment of loans plus interest from shareholders.
Cash flow used by financing activities in 2002 was $16.2 million, primarily
reflecting a reduction in long-term debt of $15.4 million, a net decrease in
revolving credit borrowings of $2.2 million and $5.0 million of dividends paid
to shareholders of common stock during 2002. The cash flow used was partially
offset by proceeds from the exercise of stock options of $2.4 million and a
net increase in other debt of $4.0 million.
Cash flow used by financing activities in the first nine months of 2003 was
$52.9 million, reflecting the repayment of long-term debt of $14.1 million, a
net decrease in revolving credit borrowings of $13.3 million and a
$25.5 million net decrease in other debt, principally related to our European
operations short-term borrowings.
Our current credit facility was entered into in 1999 with one lead bank as
administrative agent, and a syndicate of lenders. The facility, as amended and
reduced by prepayments, consists of: term loans in dollars in an aggregate
amount up to $297.5 million, term loans in dollars and foreign currencies in
an aggregate amount up to $28.9 million and revolving loans and letters of
credit in dollars and foreign currencies in an aggregate amount up to
$200.0 million. In April 2002, we amended the credit facility to permit
increased financial flexibility through March 2003. Fees and expenses
associated with the amendment were $2.0 million and were being amortized over
the one-year period of the amendment. In October 2002, we further amended our
credit facility through March 2004. As part of the amendment, we suspended our
quarterly cash dividend of $0.05 per common share for the term of the
amendment. Fees and expenses of approximately $4 million were incurred for the
amendment and will be amortized over the life of the amendment. As a result of
the
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completion of the October 2002 amendment, we recorded $1.1 million of other
financial costs for the write-off of unamortized bank fees. 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 the reduction in borrowing capacity of
the revolving portion of the credit facility. Borrowings under the credit
facility were $415.6 million and $391.3 million at December 31, 2002 and
September 30, 2003, respectively. Loans under the credit facility bear
interest, at our option, at (i) a spread over LIBOR or (ii) a spread over the
Alternate Base Rate, which is defined as the higher of (a) the agent's prime
rate, (b) the secondary market rate for certificates of deposit (adjusted for
reserve requirements) plus 1% or (c) the Federal Funds Effective Rate plus 1/2
of 1%. This facility will be repaid and terminated in connection with the
financing transactions.
Our European operations participate in arrangements with several European
financial institutions who provide extended accounts payable terms to us on an
uncommitted basis. In general, the arrangements provide for accounts payable
terms of up to 180 days. At December 31, 2002, the arrangements had a maximum
availability limit of the equivalent of approximately $105 million, of which
approximately $88 million was drawn. At September 30, 2003, the arrangements
had a maximum availability limit of the equivalent of approximately
$94 million, of which approximately $77 million was drawn. Should the
availability under these arrangements be reduced or terminated, we would be
required to negotiate longer payment terms or repay the outstanding
obligations with our suppliers under this arrangement over 180 days and seek
alternative financing arrangements which could increase our interest expense.
There can be no assurance that we will be able to obtain such financing if
needed. 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. Under our
current credit facility, borrowings under this facility are limited to $20
million. At September 30, 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 our defined benefit pension plan, we were required to
record a minimum pension liability equal to the underfunded status of our
plan. At December 31, 2002, we recorded an after-tax charge of $29.2 million
to accumulated other comprehensive income in the equity section of our balance
sheet. We will experience an increase in our future pension expense and in our
cash contributions to our defined benefit pension plan. Pension expense is
expected to increase by approximately $5.7 million in 2003 compared to 2002
and our required cash contributions are expected to increase by $2.9 million
in 2003 from $3.0 million in 2002. In 2004, pension expense is expected to
increase $0.6 million from 2003 and cash contributions are expected to
increase an additional $6.6 million from 2003.
Summarized information about our contractual obligations and commercial
commitments as of September 30, 2003 is, after giving effect to this offering
and the other refinancing transactions and the use of proceeds therefrom, as
follows (in millions of dollars):
Payments Due by Period
----------------------------------------------
Less than 1 - 3 4 - 5 After 5
Total 1 Year Years Years Years
------ --------- ----- ----- -------
Contractual Obligations
Long-term debt.................................................................. $365.4 $ 3.7 $ -- $ -- $361.7
Operating leases................................................................ 25.0 8.0 16.2 0.8 --
Commodity futures and forward pricing agreements................................ 47.7 47.1 0.6 -- --
Foreign currency contracts...................................................... 33.1 30.0 3.1 -- --
------ ----- ----- ---- ------
Total......................................................................... $471.2 $88.8 $19.9 $0.8 $361.7
====== ===== ===== ==== ======
We anticipate being able to meet our obligations as they come due.
Off Balance Sheet Assets and Obligations
In May 2001, we completed an accounts receivable asset-backed securitization
financing transaction. The securitization financing provides for certain
domestic trade receivables to be sold to a wholly owned, special purpose,
bankruptcy-remote subsidiary without recourse. This subsidiary in turn
transfers the receivables to a
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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 will fluctuate
based on the amount of eligible receivables. Sales of receivables under this
program result in a reduction of total accounts receivable reported on our
consolidated balance sheet. Our retained interest in the receivables is
carried at their fair value, which is estimated as the net realizable value.
The net realizable value considers the relatively short liquidation period and
includes an estimated provision for credit losses. The five-year certificates
bear 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 September 30, 2003 and December 31, 2002, the off balance sheet debt, net
of cash held in the trust, was $72.8 million and $48.5 million, respectively.
This off balance sheet debt is fully collateralized by accounts receivable and
cash held in the trust. This securitization financing will be terminated in
connection with the refinancing transactions.
Environmental Matters
Our expenditures for environmental compliance and remediation amounted to
approximately $0.8 million for the nine months ended September 30, 2003 and
$0.6 million, $0.9 million and $0.5 million for the years ended December 31,
2002, 2001 and 2000, respectively. In addition, certain of our subsidiaries
have been named as potentially responsible parties in proceedings that involve
environmental remediation. We had accrued $5.2 million at September 30, 2003
for all environmental liabilities. In the Wassall acquisition of General Cable
from American Premier Underwriters, American Premier indemnified us against
certain environmental liabilities arising out of our or our 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 us against environmental liabilities existing at the
date of the closing of the purchase of the business. We have agreed to
indemnify Pirelli and Southwire Company against certain environmental
liabilities arising out of the operation of the divested businesses prior to
the sale. However, the indemnity we 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,
we do not currently anticipate any material adverse effect on our 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.
Quantitative and Qualitative Disclosures About Market Risk
We are 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, we enter into interest rate,
commodity and foreign currency derivative agreements as well as copper and
aluminum forward purchase agreements. We do not purchase or sell derivative
instruments for trading purposes. We do not engage in trading activities
involving commodity contracts for which a lack of marketplace quotations would
necessitate the use of fair value estimation techniques.
S-45
The notional amounts and fair values of these financial instruments at
September 30, 2003 and December 31, 2002, are shown below (in millions). The
carrying amount of the financial instruments was a liability of $(5.3) million
at September 30, 2003 and $(6.8) million at December 31, 2002.
September 30, 2003 December 31, 2002
------------------ -----------------
Notional Fair Notional Fair
Amount Amount Amount Amount
-------- ------ -------- ------
Interest rate swaps ..................................................................... $209.0 $(4.4) $ 9.0 $(0.9)
Forward starting interest rate swaps .................................................... -- -- 200.0 (6.5)
Foreign currency forward exchange ....................................................... 33.1 (0.6) 29.5 0.7
Commodity futures ....................................................................... 11.4 (0.3) 9.2 (0.1)
----- -----
$(5.3) $(6.8)
===== =====
S-46
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 $58 billion in sales in 2002. 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 aluminum, copper 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 28
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 twelve-month period ended
September 30, 2003, we had net sales of $1.5 billion, EBITDA from continuing
operations of $73.3 million and a net loss of $(4.0) million. See footnote 5
to "Prospectus Supplement Summary--Summary Financial Information" for a
description of EBITDA from continuing operations and a reconciliation of
EBITDA from continuing operations to net income.
Products and Markets
The net sales and EBITDA from continuing operations generated by each of our
three main segments (as a percentage of our total company results) over the
twelve-month period ended September 30, 2003 are summarized below:
[Pie Chart Omitted] [Pie Chart Omitted]
EBITDA from
Net Sales Percentage Continuing Operations Percentage
--------- ---------- --------------------- ----------
Energy 36% Energy 57%
Industrial & Specialty 35% Industrial & Specialty 25%
Communications 29% Communications 18%
Our energy and industrial & specialty segments accounted for 84.2% and 18.0%
of our operating income, after allocating corporate charges, for the twelve-
month period ended September 30, 2003, while our communications segment
reduced our operating income, after allocating corporate charges, for such
period.
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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 Local
Distribution; Bare Public Power Companies; Rural
Overhead Conductor; Electric Associations;
High-Voltage Contractors
Transmission Cable
Industrial & Specialty
Instrumentation, Power, Rubber and Plastic-Jacketed Industrial Power and Control; Industrial Consumers;
Control and Specialty Wire and Cable; Power and Utility/Marine/ Contractors; OEMs; Military
Industrial Cable; Transit; Military; Mining; Customers; Telecommunication
Instrumentation and Control Oil and Gas Industrial; Power System Operators
Cable Generation;
Infrastructure; Residential
Construction
Automotive Ignition Wire Sets; Automotive Consumers; OEMs
Booster Cables Aftermarket
Communications
Outside Voice and Data Outside Plant Telecom Local Loop Telecommunications
(Telecommunications) Telecommunications Exchange System Operators
Cable; Outside Service Wire
Data Communications Multi-Conductor/Multi- Computer Networking Contractors; OEMs;
Pair; Fiber Optic; and Multimedia Systems Integrators;
Shipboard; Military Applications Systems Operators;
Fiber Cable Military Customers
Electronics Multi-Conductor; Building Contractors;
Coaxial; Sound, Management; Consumers;
Security/Fire Alarm Cable Entertainment; Industrial
Equipment Control
Assemblies Cable Harnesses; Telecommunications; Communications and
Connector Cable Industrial Equipment; Industrial Equipment
Medical Equipment Manufacturers
We operate our business globally, with 74% of net sales in 2002 generated
from North America, 22% from Europe and 4% from Oceania. We estimate that we
sold our products and services to customers in more than 70 countries in 2002.
S-48
Strategic Initiatives
Due to a decrease in net sales resulting from the global economic downturn
in 2000 and 2001 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:
o Consolidating our North American manufacturing and distribution
facilities, including closing three of seven plants that manufacture
communications products and four of six distribution centers.
o Reducing head count by 1,700 persons, or 22% of our work force employed
in our continuing operations since September 30, 2000.
o 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.
o Reducing inventory levels related to continuing operations from
$296.4 million at September 30, 2000 to $247.0 million at September 30,
2003, a 17% decrease; this decrease is net of a $17.3 million impact from
foreign exchange rate fluctuations on our reported inventory
international levels. On a consistent foreign exchange basis, the
decrease in inventory levels was $66.7 million, or 23%.
o Reducing capital expenditures from continuing operations from
$35.8 million in 2000 to $31.4 million in 2002 and further to
$20.4 million in the twelve months ended September 30, 2003.
o Exiting less profitable, non-core businesses, such as building wire and
consumer cordsets.
o 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 recently announced the closure of one of our North American
manufacturing facilities for our industrial & specialty segment and we have
initiated studies at two of our other North American industrial & specialty
manufacturing facilities to determine the feasibility of continuing
manufacturing operations at those locations.
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 2002:
o 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;
o In the industrial & specialty segment, we were the number one producer in
North America and the number three producer in Oceania;
o In the communications segment, we were the number three producer in North
America and Oceania.
S-49
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 2002 domestic net sales by each category of
customers:
[Pie Chart Omitted]
2002 Domestic
Net Sales by
Each Category of Customers Percentage
-------------------------- ----------
Electric Utility 32%
OEMs & Electrical/Industrial Distributors 21%
Telco Utility 17%
Communication Distributors 15%
Automotive Retail 8%
Electrical Retail 6%
Other 1%
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 2002 accounted for 44% 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 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.
S-50
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 (see Note 4 to Notes to Audited Consolidated Financial
Statements) have declined from $226.6 million, or 10.5% of net sales, in 2000
to $123.1 million, or 8.5% of net sales, in 2002. 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. See "Risk Factors--Other Risks Relating to Our
Business--We may not be able to successfully identify, finance or integrate
acquisitions."
S-51
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%, since June 30,
2000 through a combination of cash flow from operations and strategic
divestitures. 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.
Industry and Market Overview
The global wire and cable market was estimated to have had $58 billion in
sales in 2002 by CRU International Limited. This marks a 12% and 19% decline
from the $66 billion and $72 billion in sales in 2001 and 2000, respectively.
The decline in the North American and European markets was even greater. The
decline in the wire and cable market is directly related to the global
economic slowdown in 2001 and 2002 which has 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.
Beginning in the third quarter of 2001, we have reported the building wire
and cordsets segment as discontinued operations for financial reporting
purposes. The prior periods have been restated to reflect this change. For
year 2000, the financial information has been shown for the total company on
an as reported basis and for the ongoing businesses after the closing of the
sale of certain businesses to Pirelli on a pro forma basis. The pro forma
presentation is provided as it provides the reader of our financial statements
with a consistent basis of presentation when comparing our results in 2000 to
the results for 2001, 2002 and 2003. The following table sets forth summarized
financial information by reportable segment for the years ended December 31,
2000, 2001 and 2002 and the nine months ended September 30, 2002 and 2003
(in millions of dollars).
S-52
Pro Forma Nine Months Ended
Ongoing September 30,
Total Company Businesses -------------------
2000 2000 2001 2002 2002 2003
------------- ---------- -------- -------- -------- --------
Net Sales:
Energy ............................................... $ 733.6 $ 544.9 $ 521.8 $ 516.0 $ 389.0 $ 413.5
Industrial & specialty ............................... 796.7 602.0 537.6 499.4 383.1 395.1
Communications ....................................... 631.8 631.8 592.0 438.5 330.4 324.5
-------- -------- -------- -------- -------- --------
$2,162.1 $1,778.7 $1,651.4 $1,453.9 $1,102.5 $1,133.1
======== ======== ======== ======== ======== ========
Operating Income:
Energy ............................................... $ (24.4) $ 40.0 $ 35.3 $ 36.9 $ 28.7 $ 29.4
Industrial & specialty ............................... 29.7 30.6 24.3 9.7 6.7 7.8
Communications ....................................... 59.8 59.8 48.5 2.5 7.5 5.3
-------- -------- -------- -------- -------- --------
65.1 130.4 108.1 49.1 42.9 42.5
Corporate and other operating items ................... (31.0) -- (3.8) (33.4) (28.7) (1.7)
-------- -------- -------- -------- -------- --------
$ 34.1 $ 130.4 $ 104.3 $ 15.7 $ 14.2 $ 40.8
======== ======== ======== ======== ======== ========
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 a slight increase
in sales in 2002 of 2.0% to $14.6 billion from $14.3 billion in 2001. 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 which 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. In the first half of 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 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 2002.
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
S-53
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 34% of our net sales in 2002.
The North America market for the industrial & specialty cable products for
which we compete was approximately $3.0 billion in 2002.
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.
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,
S-54
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:
o outside voice and data products -- wire and cable products for voice,
data and video transmission applications;
o 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;
o electronics -- specialty products for use in machinery and
instrumentation interconnection, audio, computer, security and other
applications; and
o OEM products -- harnesses and assemblies for telecommunication,
industrial and medical equipment manufacturers.
Sales of communications wire and cable products in the global market were
$18.1 billion in 2002, a decline of 32% from the 2001 market of $26.7 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 2001 period, respectively. This reduction in capital
spending by these RBOCs has resulted in a 50% reduction in their spending for
exchange cables compared to 1990s averages.
S-55
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 is 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 21% of our net
sales in 2002.
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 8% of our net sales in 2002.
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 70%, 74%
and 77% of our total consolidated net sales for the nine months ended
September 30, 2003 and for the years ended December 31, 2002 and 2001. Net
sales for our European business represented approximately 25%, 22% and 19% of
our total consolidated net sales for the nine months ended September 30, 2003
and for the years ended December 31, 2002 and 2001. Net sales for our Oceania
business represented approximately 5%, 4% and 4%
S-56
of our total consolidated net sales for the nine months ended September 30,
2003 and for the years ended December 31, 2002 and 2001.
North America
Sales in the North American wire and cable market were approximately
$14.3 billion in 2002 or approximately 25% of the global market. Sales in the
North American market experienced a 20% decline in 2002 from $18.0 billion in
2001, 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 $14.4 billion
in 2002 or approximately 25% of the global market. Sales in Europe declined
12% in 2002 from $16.2 billion in 2001.
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 Company, Nexans, The Okonite, Marmon and Alcan in energy
products; Leviton, Coleman Cable, Belden, Nexans, Pirelli, Marmon and Okonite
for instrumentation, power control and specialty cable products; American
Insulated Wire Corporation for cord products; Prestolite for automotive
products; Superior Telecom Inc. and Belden for outside voice & data products;
and Belden, Nexans, Cable Design Technologies, CommScope, and Avaya for data
communications products.
S-57
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 2002, our two
largest suppliers of copper each accounted for approximately 18% of our North
American copper purchases. For the nine months ended September 30, 2003, our
two largest suppliers of copper accounted for approximately 36% and 34% 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 64% and 59% of our bare wire strand and
PVC compound requirements for 2002 and 63% and 64% of our bare wire strand and
PVC compound requirements for the first nine months of 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.
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
S-58
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 September 30,
2003, we had an accrued liability of approximately $5.2 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.
S-59
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.
Location Square Use/Product Owned
-------- 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 Communications Owned
Products
Bonham, TX 364,000 Outside Voice and Data Products Owned
Lincoln, RI 350,000 Industrial & Specialty Cables and Automotive Products Owned
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(1) 150,000 Bare Wire Fabricating Owned
Taunton, MA(2) 131,000 Bare Wire Fabricating Leased
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 Center Owned
Plano, TX 60,000 Rod Mill Owned
Europe and Oceania
Barcelona, Spain(3) 1,080,000 Power Transmission and Distribution, Owned
Industrial & Specialty Cables
New Zealand(3) 314,000 Power Distribution, Industrial & Owned
Specialty and Communications Cables
Lisbon, Portugal 255,000 Power Distribution, Industrial & Owned
Specialty and Communications Cables
---------------
(1) We have initiated feasibility studies to determine whether to continue
operations at this facility or move the product lines to other facilities.
(2) We are in the process of closing this facility.
(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.
S-60
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 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.
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 shipboard cable manufactured by our
predecessors. In addition to our subsidiaries, numerous other wire and cable
manufacturers have been named as defendants in these cases. In addition, our
subsidiaries have 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 dismissed without prejudice for failure to plead
sufficient facts. Under that order of dismissal, all future MARDOC cases filed
by the plaintiff's attorney are required to be accompanied by a filing fee for
each new complaint. These cases can only be removed from the inactive docket
if the plaintiff is able to prove an asbestos-related injury, and show
specific product identification as to each defendant against whom the
plaintiff chooses to proceed. Based upon our experience to date, we do not
believe that the outcome of the pending non-maritime and/or MARDOC asbestos
cases will have a material adverse effect on our results of operation, cash
flows or financial position. At September 30, 2003, we had an accrued
liability
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of approximately $1.3 million for these lawsuits. During 2002, costs of
defense, judgments and settlements of asbestos litigation (before contribution
from insurers) was $0.1 million.
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. 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, we can not 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.
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 September 30, 2003, approximately 6,000 persons were employed by us, and
collective bargaining agreements covered approximately 3,900 employees at
various locations around the world. During the last five years, we have
experienced one strike in Oceania which was settled on satisfactory terms.
There have been no other major strikes at any of our facilities during the
last five years. In North America, union contracts will expire at one facility
in 2003 and at eight facilities in 2004. In Europe and Oceania, labor
agreements are generally negotiated on an annual or bi-annual basis. We
believe that our relationships with our employees are good.
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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................ 52 Class I Director; Chairman of the Board
Jeffrey Noddle.................... 57 Class I Director
Robert L. Smialek................. 59 Class II Director
Gregory E. Lawton................. 52 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.
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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 as do its standing
committees, which are the audit committee, the compensation committee and the
corporate governance committee. In 2002, 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. In 2002, the board of directors held six
regular meetings and two special meetings.
Audit Committee
The audit committee consists of Robert L. Smialek (Chairman), Gregory E.
Lawton, Jeffrey Noddle and John E. Welsh, III. This committee generally
reviews and makes recommendations to the board of directors on our auditing,
financial reporting and internal control functions. This committee also
determines the firm that we should retain as our independent auditors. None of
the members are officers or employees of our company.
Compensation Committee
This compensation committee consists of Jeffrey Noddle (Chairman), Gregory
E. Lawton, Robert L. Smialek and John E. Welsh, III. The committee reviews and
acts on our 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 our company.
Corporate Governance Committee
The corporate governance committee consists of Gregory E. Lawton (Chairman),
Jeffrey Noddle, Robert L. Smialek and John E. Welsh, III. This 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. This committee also reviews management
development and succession policies and practices. None of the members are
officers or employees of our company.
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OWNERSHIP OF CAPITAL STOCK
The following table summarizes, as of September 30, 2003, the number and
percentage of outstanding shares of our common stock beneficially owned by the
following:
o each person or group management knows to beneficially own more than 5% of
such stock;
o each of our directors and executive officers; and
o all directors and executive officers as a group.
Shares Beneficially
Owned(1)
-----------------------
Percent
Before this
Name and Address of Beneficial Owner Number Offering(2)
------------------------------------ --------- -----------
Pzena Investment Management ......................... 3,922,175(3) 11.8%
830 Third Avenue
New York, NY 10022
Fidelity Management & Research Co. .................. 3,412,500(4) 10.3%
82 Devonshire Street
Boston, MA 02109
Cannell Capital LLC ................................. 3,388,800(5) 10.2%
150 California Street
San Francisco, CA 94111
Putnam Investments, Inc. ............................ 3,042,234(6) 9.2%
Putnam Investment Management, Inc.
The Putnam Advisory Company, Inc.
One Post Office Square
Boston, MA 02109
Zesiger Capital ..................................... 2,735,500(7) 8.3%
320 Park Avenue
New York, NY 10022
Barclays Bank PLC ................................... 2,171,638(8) 6.6%
12 East 49th Street
New York, NY 10017
Fuller & Thaler Asset Management Inc. ............... 1,931,600(9) 5.8%
411 Borel Avenue - Suite 402
San Mateo, CA 94402
Gregory B. Kenny .................................... 350,942(10)(171.1%
Gregory E. Lawton ................................... 10,877(11)(17)*
Jeffrey Noddle ...................................... 10,877(12)(17)*
Robert J. Siverd .................................... 191,587(13)(17)*
Robert L. Smialek ................................... 13,877(14)(17)*
Christopher F. Virgulak ............................. 136,510(15)(17)*
John E. Welsh, III .................................. 67,561(16)(17)*
All directors and executive officers
as a group (7 persons)............................. 782,231 2.3%
---------------
* 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 September 30, 2003 (33,083,028
shares).
(3) These shares of common stock are owned by Pzena Investment Management.
Pzena has sole voting power with respect to 3,544,800 shares and sole
dispositive power with respect to 3,922,175 shares.
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(4) These shares of our common stock are owned by FMR Corp. as a parent
holding company, Fidelity Management and Research Company, Fidelity
Management Trust Company and Edward C. Johnson 3d and members of his
family. Fidelity Management and Research Company beneficially owns
3,301,000 shares of our common stock by reason of its acting as
investment advisor to various registered investment companies. Edward C.
Johnson 3d, FMR Corp., through its control of Fidelity Management and
Research Company, has sole power to dispose of 3,301,000 shares of our
common stock and Edward C. Johnson 3d and FMR Corp. each has sole
disposition power over 111,500 shares. 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.
(5) These shares of our common stock are owned as follows: (i) 868,000 shares
by The Anegada Fund Limited, (ii) 871,700 shares by the Cuttyhunk Fund
Limited, (iii) 1,239,300 shares by Tonga Partners, L.P., (iv) 229,300
shares by GS Cannell Portfolio, LLC and (v) 180,500 shares by Pleiadas
Investment Partners, L.P. Cannell Capital LLC is an investment advisor
and has discretionary authority to buy, well and vote these shares for
its investment advisory clients. J. Carlo Cannell is the managing member
of Cannell Capital LLC.
(6) These shares of our common stock are owned by a variety of investment
advisory clients of Putnam Investment Management, LLC and The Putnam
Advisory Company, LLC, both of which are wholly-owned subsidiaries of
Putnam Investments, LLC. No client of either investment adviser is known
to beneficially own more than 5% of the outstanding shares of our common
stock. Putnam Investments, LLC has shared voting power with respect to
1,335,636 shares and shared dispostive power with respect to 3,042,234
shares. The Putnam Advisory Company, LLC has shared voting power with
respect to 1,335,636 shares and shared dispositive power with respect to
2,802,334 shares. Putnam Investment Management, LLC is the investment
adviser to the Putnam family of mutual funds, and the funds' trustees
have voting power over the shares held by each fund. Putnam Investment
Management, LLC has no voting power and shared dispositive power with
respect to 239,900 shares.
(7) These shares of our common stock are owned by a variety of investment
advisory clients of Zesiger Capital Corporation LLC. Zesiger Capital
Corporation, LLC has sole voting power with respect to 1,769,000 shares
and sole dispositive power with respect to 2,735,500 shares.
(8) These shares of our common stock are owned by Barclays Bank PLC and
affiliated members of its group, including Barclays Global Fund Advisors,
Barclays Global Investors, Ltd., Barclays Trust and Banking Company
(Japan) Limited, Barclays Life Assurance Company Limited, Barclays
Capital Securities Limited, Barclays Capital Investments, Barclays
Private Bank & Trust (Isle of Man) Limited, Barclays Private Bank and
Trust (Jersey) Limited, and Barclays Private Bank and Trust Limited
(Sussie). Barclays Global Investors, Ltd. has sole voting and dispositive
power with respect to 1,965,979 shares. Barclays Private Bank and Trust
Limited (Sussie) has sole voting power with respect to 2,171,638 shares
and sole dispositive power with respect to 2,171,678 shares of our common
stock.
(9) These shares of our common stock are owned by Fuller & Thaler Asset
Management, Inc., an investment advisor and Russell J. Fuller, President
of Fuller & Thaler. Fuller & Thaler Asset Management, Inc. has sole
voting power and sole dispositive power with respect to 1,931,600 shares
of our common stock. Russell Fuller has sole voting power with respect to
1,436,400 shares and sole dispositive power with respect to 1,931,600
shares.
(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 September 30, 2003. Excludes 248,576 shares of
restricted and unrestricted common stock deferred under the General Cable
Deferred Compensation Plan.
(11) Includes 9,000 shares covered by stock options which may be exercised by
Mr. Lawton within sixty days of September 30, 2003. Excludes 17,769
shares of common stock deferred under the General Cable Deferred
Compensation Plan.
(12) Includes 9,000 shares covered by stock options which may be exercised by
Mr. Noddle within sixty days of September 30, 2003. Excludes 17,769
shares of common stock deferred under the General Cable Deferred
Compensation Plan.
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(13) Includes 133,000 shares covered by stock options, which may be exercised
by Mr. Siverd within sixty days of September 30, 2003. Excludes 32,935
shares of restricted and unrestricted common stock deferred under the
General Cable Deferred Compensation Plan.
(14) Includes 9,000 shares covered by stock options, which may be exercised by
Mr. Smialek within sixty days of September 30, 2003. Excludes 17,769
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 September 30, 2003. Excludes 78,675
shares of restricted and unrestricted common stock deferred under the
General Cable Deferred Compensation Plan.
(16) Includes 27,001 shares covered by stock options which may be exercised by
Mr. Welsh within sixty days of September 30, 2003. Excludes 45,537 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.
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DESCRIPTION OF NEW CREDIT FACILITY, NEW NOTES AND NEW PREFERRED STOCK
Description of New Senior Secured Revolving Credit Facility
Concurrent with this offering and as described under "Prospectus Supplement
Summary--The Refinancing," our wholly owned subsidiary, General Cable
Industries, Inc., a Delaware corporation ("Borrower"), will enter into a new
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 expected
terms of the new senior secured revolving credit facility. As the final amount
and terms of the new senior secured revolving credit facility have not been
agreed upon, the final amount and terms may differ from those set forth herein
and, in certain cases, such differences may be significant. After the issue
date we will file with the SEC the new senior secured revolving credit
facility, which will contain all of such final terms.
The 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 new 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.
We anticipate that the fixed asset component of the borrowing base will be
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 new 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, will be used as described under "Use of Proceeds."
Availability for cash advances under the new 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 revolving credit facility
at any time, of which approximately $36.6 million of letters of credit are
likely to be issued at closing either to support or replace existing letters
of credit issued pursuant to the existing senior credit facility and
industrial revenue bond financing. Proceeds of the new senior secured
revolving credit facility will be used after the closing date of the offering
to provide financing for general corporate and working capital purposes.
Collateral and Guarantors
Indebtedness under the new senior secured revolving credit facility will be
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 will be 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.
We presently anticipate that except for our Canadian and Mexican operating
subsidiaries no foreign subsidiary will be required to guarantee or pledge its
assets to secure the new senior secured revolving credit facility.
Interest and Fees
The interest rates per annum applicable to loans under the new senior
secured revolving credit facility will be, at Borrower's option, equal to
either an alternate base rate or an adjusted LIBOR rate plus an applicable
margin percentage.
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The applicable margin percentage will initially be 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 six months after
the closing, the applicable margin percentage under the new senior secured
revolving credit facility will be subject to adjustments based upon
consolidated fixed charge coverage ratio.
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 new senior secured revolving credit
facility.
Borrower will be required to pay customary fees in connection with the
issuance of letters of credit.
Prepayments
Subject to exceptions, the new senior secured revolving credit facility will
require mandatory prepayments of the loans in amounts equal to:
o 100% of the insurance or condemnation proceeds received in connection
with a casualty event, condemnation or other loss,
o 100% of the net proceeds from issuance of debt securities, and
o 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 new senior secured revolving credit facility.
Voluntary prepayments of loans under the new 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 new senior secured revolving credit facility will require 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 new senior secured revolving credit facility will
include negative covenants which, among other things, limit:
o dispositions of assets,
o changes of business and ownership,
o mergers and acquisitions and other business combinations, subject to
permitted acquisitions,
o dividends and restricted payments,
o indebtedness (including guarantees and other contingent obligations),
o sale and leaseback transactions,
o loans and investments,
o liens and further negative pledges,
o transaction with affiliates, and
o other matters customarily restricted in such agreements.
Such covenants will apply to us, certain of our subsidiaries, Borrower and
Borrower's parent. Such negative covenants will be subject to exceptions. We
will be permitted to declare and pay dividends or distributions on the
convertible preferred stock so long as there is no default under the new
senior secured revolving credit facility and we meet certain financial
conditions. There will be no limitation on dividend payments by the Borrower
to us to fund interest payments on the notes.
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The new senior secured revolving credit facility will contain 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 new 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 new senior secured revolving credit facility
would be entitled to take various actions, including the acceleration of
amounts outstanding under the new senior secured revolving credit facility and
all actions permitted to be taken by a secured creditor. The representations
and warranties and affirmative covenants will apply to us, certain of our
subsidiaries, Borrower and Borrower's parent.
Description of Senior Notes
Concurrent with this offering and as described under "Prospectus Supplement
Summary--The Refinancing," we are offering to sell $285 million aggregate
principal amount of 9.5% senior notes due 2010 in a concurrent private
placement. The notes will be our senior unsecured obligations and will be
guaranteed, on a senior unsecured basis, by all of our subsidiaries that will
guarantee our new senior secured revolving credit facility. The notes will
mature on November 15, 2010. There will be no sinking fund payments.
Interest will accrue at the rate of 9.5% per annum and be payable
semiannually in arrears. We may, at our option, after the fourth anniversary
of the issue date redeem all or part of the outstanding notes. The redemption
premium will initially equal one-half the coupon on the notes and decline
ratably to par on the sixth anniversary. In addition, prior to the third
anniversary of the issue date, we may redeem up to 35% of the original
principal amount of notes with the net cash proceeds of certain equity
offerings, at a redemption premium equal to the coupon on the notes. In the
event of a change of control as defined in the indenture for the notes, we
will be required to offer to purchase all of the notes for cash at a premium
equal to 101%.
The indenture for the notes will limit our ability and the ability of our
restricted subsidiaries to, among other things, (i) make dividends, repurchase
our stock, prepay subordinated indebtedness and make certain investments;
(ii) incur indebtedness for borrowed money and issue certain redeemable
capital stock; (iii) permit dividend and other payment restrictions affecting
restricted subsidiaries; (iv) incur liens; (v) enter into transactions with
affiliates; and (vi) enter into sale/leaseback transactions. The covenant
limiting our ability to pay dividends will permit us to pay dividends on the
Series A redeemable convertible preferred stock we are concurrently offering
in a private placement for a period of two years following the issue date, and
thereafter if certain financial conditions are met.
Certain events will permit the holders of the notes or the trustee on their
behalf to accelerate the maturity of the principal of the notes. These
include, subject to certain grace periods and dollar thresholds, (i) failure
to pay interest or principal when due, including upon optional redemption,
(ii) failure to comply with covenants in the indenture, (iii) failure to pay
at final maturity, or acceleration of, the principal of other indebtedness;
(iv) certain judgments against us or our restricted subsidiaries,
(v) invalidity of any guarantee and (vi) certain events of bankruptcy,
insolvency or reorganization affecting us or any of our significant
subsidiaries.
This is a summary of the terms of the notes. It does not contain all of the
terms of the notes. After the issue date, we will file with the SEC the
indenture for the notes, which will contain all of the terms.
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Description of Series A Redeemable Convertible Preferred Stock
Concurrent with this offering and as described under "Prospectus Supplement
Summary--The Refinancing," we are offering to sell 1,800,000 shares of 5.75%
Series A redeemable convertible preferred stock in a private placement. The
initial purchasers will be entitled, at their option, to purchase an
additional 270,000 shares of convertible preferred stock.
Each share will have a liquidation preference of $50.00 per share. Dividends
will accrue on the convertible preferred stock at the rate of 5.75% per annum
and will be payable quarterly in arrears on February 24, May 24, August 24 and
November 24 of each year, starting on February 24, 2004. Dividends will be
payable in cash, shares of our common stock or a combination.
Holders of the convertible preferred stock will be 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 will be 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 will 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 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 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 will be 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 new senior secured revolving credit facility will prohibit
us from paying, and the indenture governing the senior notes will restrict 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. It does
not contain all of the terms of the convertible preferred stock. After the
issue date, we will file with the SEC the certificate of designations of
Series A redeemable convertible preferred stock, which will contain all of the
terms.
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DESCRIPTION OF CAPITAL STOCK
Authorized Capital Stock
Our authorized capital stock consists of 75,000,000 shares of common stock,
par value $0.01 per share, and 25,000,000 shares of preferred stock, $0.01 par
value per share, of which 2,070,000 shares will be designated as Series A
Redeemable Convertible Preferred Stock prior to the closing of this offering.
As of October 20, 2003, there were approximately 33,120,132 shares of common
stock outstanding held of record by 2,266 shareholders and no shares of
preferred stock outstanding. The following description of our capital stock
and provisions of our amended and restated certificate of incorporation and
amended and restated by-laws are only summaries, and we encourage you to
review complete copies of our amended and restated certificate of
incorporation and amended and restated by-laws, which we have filed previously
with the SEC.
Common Stock
Holders of our common stock are entitled to receive, as, when and if
declared by our board of directors, dividends and other distributions in cash,
stock or property from our assets or funds legally available for those
purposes subject to any dividend preferences that may be attributable to
preferred stock, if any. Holders of common stock are entitled to one vote for
each share held of record on all matters on which shareholders may vote.
Holders of common stock are not entitled to cumulative voting for the election
of directors. There are no preemptive, conversion, redemption or sinking fund
provisions applicable to our common stock. All outstanding shares of common
stock are fully paid and non-assessable. In the event of our liquidation,
dissolution or winding up, holders of common stock are entitled to share
ratably in the assets available for distribution, subject to any prior rights
of any holders of preferred stock, if any, then outstanding.
Preferred Stock
Our amended and restated certificate of incorporation authorizes our board
of directors, without any vote or action by the holders of common stock, to
issue up to 25,000,000 shares of preferred stock from time to time in one or
more series. Our board of directors is authorized to determine the number of
shares and designation of any additional series of preferred stock and the
dividend rights, dividend rate, conversion rights and terms, voting rights,
redemption rights and terms, liquidation preferences, sinking fund terms and
other rights, preferences, privileges and restrictions of any series of
preferred stock. Issuances of preferred stock would be subject to the
applicable rules of the NYSE or other organizations whose systems the stock
may then be quoted or listed. Depending upon the terms of preferred stock
established by our board of directors, any or all series of preferred stock
could have preferences over the common stock with respect to dividends and
other distributions and upon liquidation. Issuance of any such shares with
voting powers, or issuance of additional shares of common stock, would dilute
the voting power of the outstanding common stock.
Series A Redeemable Convertible Preferred Stock
There are currently no shares of Series A redeemable convertible preferred
stock outstanding. The rights, preferences, privileges and restrictions of the
Series A redeemable convertible preferred stock are set forth under
"Description of New Credit Facility, New Notes and New Preferred Stock."
Certain Provisions of Our Amended and Restated Certificate of Incorporation
and Amended and Restated By-Laws
Classification of Board of Directors
The amended and restated certificate of incorporation divides our board of
directors into three classes of directors serving staggered three-year terms.
As a result, approximately one-third of our board of directors will be elected
each year.
We believe that a classified board helps to assure the continuity and
stability of our board of directors, and our business strategies and policies
as determined by our board of directors, because a majority of the directors
at any given time will have prior experience as directors. This provision
should also help to ensure
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that our board of directors, if confronted with an unsolicited proposal from a
third party that has acquired a block of our common stock, will have
sufficient time to review the proposal, to consider appropriate alternatives
and to seek the best available result for all shareholders.
This provision could prevent a party who acquires control of a majority of
the outstanding common stock from obtaining control of our board of directors
until the second annual shareholders' meeting following the date the acquiror
obtains the controlling stock interest and could have the effect of
discouraging a potential acquiror from making a tender offer or otherwise
attempting to obtain control of our company and could thus increase the
likelihood that incumbent directors will retain their positions.
Number of Directors; Removal; Vacancies
The amended and restated certificate of incorporation and the amended and
restated by-laws provide that the number of directors shall not be less than
three nor more than nine and shall be determined from time to time exclusively
by a vote of a majority of our board of directors then in office. The amended
and restated certificate of incorporation also provides that our board of
directors shall have the exclusive right to fill vacancies, including
vacancies created by expansion of our board of directors. Furthermore, except
as may be provided in a resolution or resolutions of our board of directors
providing for any class or series of preferred stock with respect to any
directors elected by the holders of such class or series, directors may be
removed by shareholders only for cause and only by the affirmative vote of at
least 66 2/3% of the voting power of all of the shares of our capital stock
then entitled to vote generally in the election of directors, voting together
as a single class. These provisions, in conjunction with the provision of the
amended and restated certificate of incorporation authorizing our board of
directors to fill vacant directorships, could prevent shareholders from
removing incumbent directors without cause and filling the resulting vacancies
with their own nominees.
No Shareholder Action by Written Consent; Special Meetings
The amended and restated certificate of incorporation provides that, except
as may be provided in a resolution or resolutions of our board of directors
providing for any class or series of preferred stock, shareholder action can
be taken only at an annual or special meeting of shareholders and cannot be
taken by written consent in lieu of a meeting. The amended and restated
certificate of incorporation also provides that special meetings of the
shareholders can only be called pursuant to a resolution approved by a
majority of our board of directors then in office. Shareholders are not
permitted to call a special meeting of shareholders.
Advance Notice for Raising Business or Making Nominations at Meetings
The amended and restated by-laws establish an advance notice procedure for
shareholder proposals to be brought before a meeting of our shareholders and
for nominations by shareholders of candidates for election as directors at an
annual meeting or a special meeting at which directors are to be elected.
Subject to any other applicable requirements, including, without limitation,
Rule 14a-8 under the Exchange Act, only such business may be conducted at a
meeting of shareholders as has been brought before the meeting by, or at the
direction of, our board of directors, or by a shareholder who has given to our
secretary timely written notice, in proper form, of the shareholder's
intention to bring that business before the meeting. The presiding officer at
such meeting has the authority to make such determinations. Only persons who
are nominated by, or at the direction of, our board of directors, or who are
nominated by a shareholder who has given timely written notice, in proper
form, to the Secretary prior to a meeting at which directors are to be elected
will be eligible for election as directors.
To be timely, notice of nominations or other business to be brought before
an annual meeting must be received by our secretary at the principal executive
office no later than 60 days prior to the date of such annual meeting.
Similarly, notice of nominations or other business to be brought before a
special meeting must be delivered to our Secretary at the principal executive
office no later than the close of business on the 15th day following the day
on which notice of the date of a special meeting of shareholders was given.
The notice of any nomination for election as a director must set forth the
name, date of birth, business and residence address of the person or persons
to be nominated; the business experience during the past five years of such
person or persons; whether such person or persons are or have ever been at any
time directors,
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officers or owners of 5% or more of any class of capital stock, partnership
interest or other equity interest of any corporation, partnership or other
entity; any directorships held by such person or persons in any company with a
class of securities registered pursuant to Section 12 of the Exchange Act or
subject to the requirements of Section 15(d) of such Act or any company
registered as an investment company under the Investment Company Act of 1940,
as amended; and whether, in the last five years, such person or persons are or
have been convicted in a criminal proceeding or have been subject to a
judgment, order, finding or decree of any federal, state or other governmental
entity, concerning any violation of federal, state or other law, or any
proceeding in bankruptcy, which conviction, order, finding, decree or
proceeding may be material to an evaluation of the ability or integrity of the
nominee; and, the consent of each such person to be named in a proxy statement
as a nominee and to serve as a director if elected. The person submitting the
notice of nomination, and any person acting in concert with such person, must
provide their names and business addresses, the name and address under which
they appear on our books (if they so appear), and the class and number of
shares of our capital stock that are beneficially owned by them.
Amendments to By-Laws
The amended and restated certificate of incorporation provides that our
board of directors or the holders of at least 66 2/3% of the voting power of
all shares of our capital stock then entitled to vote generally in the
election of directors, voting together as a single class, have the power to
amend or repeal our amended and restated by-laws.
Amendment of the Certificate of Incorporation
Any proposal to amend, alter, change or repeal any provision of the amended
and restated certificate of incorporation, except as may be provided in a
resolution or resolutions of our board of directors providing for any class or
series of preferred stock and which relate to such class or series of
preferred stock, requires approval by the affirmative vote of both a majority
of the members of our board of directors then in office and a majority vote of
the voting power of all of the shares of our capital stock entitled to vote
generally in the election of directors, voting together as a single class.
Notwithstanding the foregoing, any proposal to amend, alter, change or repeal
the provisions of the amended and restated certificate of incorporation
relating to (i) the classification of our board of directors, (ii) removal of
directors, (iii) the prohibition of shareholder action by written consent or
shareholder calls for special meetings, (iv) amendment of amended and restated
by-laws, or (v) amendment of the amended and restated certificate of
incorporation requires approval by the affirmative vote of 66 2/3% of the
voting power of all of the shares of our capital stock entitled to vote
generally in the election of directors, voting together as a single class.
Preferred Stock and Additional Common Stock
Under the amended and restated certificate of incorporation, our board of
directors has the authority to provide by board resolution for the issuance of
shares of one or more series of preferred stock. Our board of directors is
authorized to fix by resolution the terms and conditions of each such other
series.
We believe that the availability of our preferred stock, in each case
issuable in series, and additional shares of common stock could facilitate
certain financings and acquisitions and provide a means for meeting other
corporate needs which might arise. The authorized shares of our preferred
stock, as well as authorized but unissued shares of common stock will be
available for issuance without further action by our shareholders, unless
shareholder action is required by applicable law or the rules of any stock
exchange on which any series of our capital stock may then be listed.
These provisions give our board of directors the power to approve the
issuance of a series of preferred stock, or an additional series of common
stock, that could, depending on its terms, either impede or facilitate the
completion of a merger, tender offer or other takeover attempt. For example,
the issuance of new shares of preferred stock might impede a business
combination if the terms of those shares include voting rights which would
enable a holder to block business combinations; the issuance of new shares
might facilitate a business combination if those shares have general voting
rights sufficient to cause an applicable percentage vote requirement to be
satisfied.
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Delaware Business Combination Statute
Certain provisions in our amended and restated certificate of incorporation
and amended and restated by-laws and of Delaware law could make it harder for
someone to acquire us through a tender offer, proxy contest or otherwise. We
are governed by the provisions of Section 203 of the Delaware General
Corporate Law, which defines a person who owns (or within three years, did
own) 15% or more of a company's voting stock as an "interested stockholder."
Section 203 prohibits a public Delaware corporation from engaging in a
business combination with an interested shareholder for a period commencing
three years from the date in which the person became an interested
shareholder, unless:
o the board of directors approved the transaction which resulted in the
shareholder becoming an interested shareholder;
o upon consummation of the transaction which resulted in the shareholder
becoming an interested shareholder, the interested shareholder owns at
least 85% of the voting stock of the corporation (excluding shares owned
by officers, directors, or certain employee stock purchase plans); or
o at or subsequent to the time the transaction is approved by the board of
directors, there is an affirmative vote of at least 66 2/3% of the
outstanding voting stock approving the transaction.
Section 203 could prohibit or delay mergers or other takeover attempts
against us, and accordingly, may discourage attempts to acquire us through
tender offer, proxy contest or otherwise.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Mellon Investor
Services, LLC.
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
General
The following discussion summarizes the material U.S. federal income tax
consequences of the purchase, ownership, and disposition of our common stock.
The discussion is included for general information only and may not be
applicable depending upon a holder's particular situation.
This summary is based upon the provisions of the Code, the final, temporary
and proposed Treasury Regulations promulgated thereunder, and administrative
pronouncements and rulings and judicial decisions, as they currently exist as
of the date of this prospectus supplement, all of which are subject to change
(possibly with retroactive effect) or different interpretations.
Unless otherwise stated, this summary deals only with common stock held as
capital assets (within the meaning of section 1221 of the Code) by holders who
purchase the common stock for cash in this offering.
This summary does not purport to address all aspects of U.S. federal income
taxation that may be relevant to an investor's decision to purchase the common
stock, nor, except as expressly provided below, any tax consequences arising
under other federal tax laws (e.g. estate and gift tax) or under the laws of
any state, local or foreign jurisdiction. This summary is not intended to be
applicable to special categories of investors, such as dealers in securities,
banks, insurance companies, real estate investment trusts, regulated
investment companies, tax-exempt organizations, U.S. expatriates, persons that
hold the common stock as part of a straddle or conversion transaction,
partnerships or other pass-through entities that purchase, own or dispose of
our common stock, and holders subject to the alternative minimum tax.
Each investor is urged to consult his tax advisor as to the particular tax
consequences of purchasing, owning and disposing of our common stock,
including the application and effect of U.S. federal, state, local and foreign
tax laws.
Tax Considerations for U.S. Holders
U.S. Holders
As used herein, the term "U.S. holder" means a holder of common stock that
for U.S. federal income tax purposes is any of the following:
o An individual who is a citizen or resident of the U.S.;
o A corporation or other entity treated as a corporation created or
organized in or under the laws of the U.S. or of any political
subdivision thereof or therein;
o An estate, the income of which is subject to U.S. federal income taxation
regardless of its source; or
o A trust that either is subject to the supervision of a court within the
U.S. and which has one or more U.S. persons with authority to control all
substantial decisions, or has a valid election in effect under applicable
U.S. Treasury Regulations to be treated as a U.S. person.
Distributions
The amount of any distribution with respect to our common stock will
generally be treated as a dividend, taxable as ordinary income to the U.S.
holder, to the extent of our current or accumulated earnings and profits as
determined under U.S. federal income tax principles. Distributions in excess
of our current and accumulated earnings and profits are applied against and
reduce the U.S. holder's tax basis in our common stock. Amounts in excess of
the U.S. holder's tax basis are treated as capital gain. For the tax years
2003 through 2008, non-corporate U.S. holders generally should qualify for a
maximum tax rate of 15% with respect to dividend income provided the U.S.
holder satisfies holding period and other applicable requirements.
Generally, a dividend distribution to a corporate U.S. holder will qualify
for a 70% dividends-received deduction if the U.S. holder owns less than 20%
of the voting power or value of our stock. However, section
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246(c) of the Code disallows the dividends-received deduction in its entirety
if the U.S. holder does not satisfy the applicable minimum holding period
required for the stock for a period immediately before or immediately after
such holder becomes entitled to receive each dividend on the stock. The length
of time that a corporate U.S. holder is deemed to have held the stock for
these purposes is reduced for periods during which the U.S. holder's risk of
loss with respect to the stock is diminished by reason of the existence of
certain options, contracts to sell, short sales or other similar transactions.
Section 246A of the Code reduces the amount of the dividends-received
deduction for a corporate U.S. holder that has incurred indebtedness directly
attributable to its investment in the common stock.
Sale, Exchange or Other Disposition
A U.S. holder of common stock will generally recognize gain or loss on the
sale, exchange or other taxable disposition of common stock in an amount equal
to the difference between the proceeds of such sale, exchange or other
disposition and such holder's tax basis in such stock (generally the purchase
price paid by the U.S. holder). This gain or loss will be long-term gain or
loss if the U.S. holder's holding period for the common stock is more than one
year. The deductibility of losses may be limited. Non-corporate U.S. holders
generally should qualify for a maximum tax rate of 15% with respect to long-
term capital gain (20% for tax years after 2008).
Backup Withholding and Information Reporting
Information reporting requirements generally will apply to certain U.S.
holders with respect to dividends paid on, or, under certain circumstances,
the proceeds of a sale, exchange or other disposition of, common stock. Under
the Code and applicable Treasury Regulations, a U.S. holder of common stock
may be subject to backup withholding at a 28% rate with respect to dividends
paid on, or the proceeds of a sale, exchange or disposition of, common stock
unless such holder (a) is a corporation or comes within certain other exempt
categories and, when required demonstrates this fact in the manner required,
or (b) within a reasonable period of time, provides a correct taxpayer
identification number, certifies that it is not subject to backup withholding
and otherwise complies with applicable requirements of the backup withholding
rules. The amount of any backup withholding from a payment to a U.S. holder
will be allowed as a credit against the U.S. holder's U.S. federal income tax
liability (and may entitle the U.S. holder to a refund) provided that the
required information is furnished to the Internal Revenue Service.
Tax Considerations for Non-U.S. Holders
Non-U.S. Holders
As used herein, the term Non-U.S. holder means a holder of common stock that
is, for U.S. federal income tax purposes, a nonresident alien or a
corporation, trust or estate that is not a U.S. holder.
Distributions
Distributions that are dividends as described above generally will be
subject to withholding of U.S. Federal income tax at a 30% rate (or at such
lower rate that an applicable income tax treaty may specify). However,
dividends that are effectively connected with a Non-U.S. holder's conduct of a
trade or business in the U.S. are generally subject to U.S. federal income tax
on a net income basis at regular graduated income tax rates (unless an
applicable income tax treaty provides otherwise), but are not generally
subject to the 30% withholding tax if the Non-U.S. holder files an IRS Form W-
8ECI (or successor form) with the withholding agent. In addition, if a Non-
U.S. holder receiving effectively connected dividends is a foreign
corporation, such Non-U.S. holder may also be subject to the branch profits
tax equal to 30% of its "effectively connected earnings and profits" as
defined in the Code unless such Non-U.S. holder qualifies for a lower rate or
an exemption under an applicable income tax treaty.
A Non-U.S. holder that claims the benefit of an income tax treaty rate
generally will be required to satisfy applicable certification and other
requirements, including filing an IRS Form W-8BEN (or successor form) with the
withholding agent. In addition, a Non-U.S. holder that claims the benefit of
an income tax treaty rate may be required, in certain instances, to obtain a
U.S. taxpayer identification number.
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Payments made through certain foreign intermediaries may be subject to
additional rules.
Sale, Exchange or Other Disposition
A Non-U.S. holder generally will not be subject to U.S. federal income tax
or withholding tax on the sale, exchange or other taxable disposition of
common stock unless:
(1) the gain is effectively connected with a U.S. trade or business of the
Non-U.S. holder;
(2) the Non-U.S. holder is an individual who is present in the U.S. for 183
or more days in the taxable year of the disposition and meets other
requirements; or
(3) we are or have been a "United States real property holding corporation"
(a "USRPHC") for U.S. federal income tax purposes at any time during the
shorter of the five-year period ending on the date of the sale or other
disposition and the Non-U.S. holder's holding period (the shorter period
hereinafter referred to as the "lookback period"); provided that if our common
stock is regularly traded on an established securities market, this rule
generally will not cause any gain on the common stock to be taxable unless the
Non-U.S. holder owned more than 5% of our common stock at some time during the
lookback period. We do not believe that we currently are a USRPHC and do not
currently expect to become one in the future. However, we could become a
USRPHC as a result of future changes in assets or operations.
If a Non-U.S. holder falls under clause (1) above, such holder will be taxed
on the net gain derived from a disposition under regular graduated U.S.
Federal income tax rates (unless an applicable income tax treaty provides
otherwise), and if such holder is a corporation, may also be subject to the
branch profits tax equal to 30% of its "effectively connected earnings and
profits" as defined in the Code (unless an applicable income tax treaty
provides otherwise).
If a Non-U.S. holder falls under clause (2) above, such holder may be
subject to a flat 30% tax on the gain derived from the disposition.
If a Non-U.S. holder falls under clause (3) above, such holder generally
will be taxed in the same manner described in clause (1), except the branch
profits tax will not apply.
U.S. Federal Estate Tax
Common stock that is owned or treated as owned by an individual who is a
Non-U.S. holder at the time of death will be included in the individual's
gross estate for U.S. federal estate tax purposes and may be subject to U.S.
federal estate tax, unless an applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding
A Non-U.S. holder of common stock that fails to certify its Non-U.S. holder
status under applicable U.S. Treasury Regulations or otherwise fails to
establish an exemption under applicable U.S. Treasury Regulations may be
subject to information reporting and backup withholding at a rate of 28% on
payments of dividends and the proceeds from the sale, exchange or other
disposition of common stock.
Any amounts withheld under the backup withholding rules will be refunded or
credited against the Non-U.S. holder's U.S. federal income tax liability, if
any, if the Non-U.S. holder provides the required information to the Internal
Revenue Service.
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UNDERWRITING
We and the underwriters for this offering named below have entered into an
underwriting agreement concerning the common stock being offered. Subject to
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Merrill Lynch, Pierce, Fenner & Smith
Incorporated and UBS Securities LLC are the joint book-running managers of
this offering and are acting as the representatives of the underwriters.
Underwriters Number of Shares
------------ ----------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated .................................... 2,297,750
UBS Securities LLC .......................................... 2,297,750
Hibernia Southcoast Capital, Inc. ........................... 151,500
Morgan Joseph & Co. Inc. .................................... 151,500
Stifel, Nicolaus & Company, Incorporated .................... 151,500
---------
Total .................................................... 5,050,000
=========
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have a 30-day option to purchase up to an
additional 757,500 shares from us at the public offering price, less the
underwriting discounts and commission to cover these sales. If any shares are
purchased under this option, the underwriters will severally purchase shares
in approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase up
to 757,500 additional shares.
No exercise Full exercise
----------- -------------
Per share ....................................... $ 0.451 $ 0.451
Total ........................................... $2,277,550 $2,619,183
We estimate that the total offering expenses we will pay, excluding
underwriting discounts and commissions, will be approximately $0.8 million.
Shares sold by the underwriters to the public will initially be offered at
the public offering price set forth on the cover of this prospectus
supplement. Any shares sold by the underwriters to securities dealers may be
sold at a discount of up to $0.27 per share from the public offering price.
Any of these securities dealers may resell any shares purchased from the
underwriters to other brokers or dealers at a discount of up to $0.10 per
share from the public offering price. If all the shares are not sold at the
public offering price, the representatives of the underwriters may change the
offering price and the other selling terms.
We and each of our directors and executive officers have agreed with the
underwriters not to, directly or indirectly, offer, pledge, sell, hedge,
contract to sell, purchase or sell any option or contract to purchase or sell,
or otherwise transfer or dispose of or file any registration statement under
the Securities Act with respect to any shares of our common stock or any
securities convertible into or exercisable or exchangeable for our common
stock or enter into any other agreement or any transaction that transfers, in
whole or in part, directly or indirectly, the economic consequence of
ownership of the common stock during the period from the date of this
prospectus supplement continuing through the date 90 days after the date of
this prospectus supplement, subject to certain permitted exceptions, without
the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated and UBS Securities LLC.
In connection with this offering certain of the underwriters or securities
dealers may distribute prospectuses electronically.
Our common stock is currently listed on the New York Stock Exchange under
the symbol "BGC."
In connection with this offering, the underwriters may purchase and sell our
common stock in the open market. These transactions may include stabilizing
transactions, short sales and purchases to cover positions
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created by short sales. Stabilizing transactions consist of bids or purchases
made for the purpose of preventing or retarding a decline in the market price
of our common stock while the offering is in progress. These transactions may
also include the short sales and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a number of shares
greater than that which the underwriters are required to purchase in the
offering. Short sales may be either "covered short sales" or "naked short
sales." Covered short sales are sales made in an amount not greater than the
underwriters' over-allotment option to purchase additional shares in this
offering. The underwriters may close out any covered short position by either
exercising their over-allotment option or purchasing shares in the open
market. In determining the sources of shares to close out a covered short
position, the underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to the price at
which they may purchase shares through the over-allotment option. Naked short
sales are sales in excess of the over-allotment option. The underwriters must
close out any naked short position by purchasing shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of the shares in
the open market after pricing that could adversely affect investors who
purchase in the offering.
The underwriters also may impose a penalty bid. This ocurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives of the underwriters have
repurchased shares sold by or for the account of that underwriter in
stabilizing or short-covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of our common stock. As a result, the price of our
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by
the underwriters at any time in their sole discretion. These transaction may
be effected on the New York Stock Exchange or otherwise.
We have agreed to indemnify the underwriters against some liabilities,
including liabilities under the Securities Act of 1933, as amended, and to
contribute to payments that the underwriters may be required to make in
respect thereof.
In the ordinary course of their respective businesses, the underwriters and
certain of their affiliates have in the past and may in the future engage in
investment and commercial banking or other transactions of a financial nature
with us or our affiliates, including the provision of certain advisory
services and the making of loans to us and our affiliates. Affiliates of the
underwriters will be lenders under our new senior secured revolving credit
facility, will act as initial purchasers and underwriters, as applicable, in
connection with the concurrent offerings of our Series A redeemable
convertible preferred stock and our senior notes.
S-80
LEGAL MATTERS
The legality of the common stock will be passed upon by Blank Rome LLP,
Philadelphia, Pennsylvania. Cahill Gordon & Reindel LLP, New York, New York
will pass on certain legal matters for the underwriters.
INDEPENDENT AUDITORS
The consolidated financial statements as of December 31, 2002 and 2001 and
for the three years ended December 31, 2002, included herein have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report
(which report expresses an unqualified opinion and includes an explanatory
paragraph referring to a change in our method of accounting for certain
inventory) appearing herein.
S-81
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report ............................................ F-2
Consolidated Statements of Operations for the Years Ended December 31,
2002, 2001 and 2000.................................................... F-3
Consolidated Balance Sheets at December 31, 2002 and 2001 ............... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31,
2002, 2001 and 2000.................................................... F-5
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 2002, 2001 and 2000................................. F-6
Notes to Audited Consolidated Financial Statements ...................... F-7
Consolidated Statements of Operations for the Three Months Ended and
Nine Months Ended September 30, 2003 and 2002.......................... F-41
Consolidated Balance Sheets at September 30, 2003 and December 31, 2002 . F-42
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2003 and 2002............................................ F-43
Consolidated Statements of Changes in Shareholders' Equity for the Nine
Months Ended September 30, 2003 and 2002............................... F-44
Notes to Unaudited Consolidated Financial Statements .................... F-45
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, 2002 and 2001, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
2002. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements 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 General Cable Corporation and
subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 2 to the financial statements, the Company changed its
method of accounting for its non-North American metals inventory from the
first-in first-out (FIFO) method to the last-in first-out method (LIFO)
effective January 1, 2001. Also as discussed in Note 2 to the financial
statements, the Company changed its accounting for its North American non-
metals inventory from the first-in, first-out (FIFO) method to the last-in,
first-out (LIFO) method effective January 1, 2000.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
January 29, 2003 (November 4, 2003 as to Note 25)
F-2
GENERAL CABLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
Year Ended December 31,
-------------------------------
2002 2001 2000
-------- -------- --------
Net sales....................................................................................... $1,453.9 $1,651.4 $2,162.1
Cost of sales................................................................................... 1,287.3 1,410.7 1,870.4
-------- -------- --------
Gross profit.................................................................................... 166.6 240.7 291.7
Selling, general and administrative expenses.................................................... 150.9 136.4 257.6
-------- -------- --------
Operating income................................................................................ 15.7 104.3 34.1
Other income.................................................................................... -- 8.1 --
Interest income (expense):......................................................................
Interest expense............................................................................... (43.5) (45.6) (62.3)
Interest income................................................................................ 0.9 1.7 2.5
Other financial costs.......................................................................... (1.1) (10.4) (3.3)
-------- -------- --------
(43.7) (54.3) (63.1)
-------- -------- --------
Income (loss) from continuing operations before income taxes.................................... (28.0) 58.1 (29.0)
Income tax (provision) benefit.................................................................. 9.9 (20.6) 10.3
-------- -------- --------
Income (loss) from continuing operations........................................................ (18.1) 37.5 (18.7)
Loss from operations of discontinued operations (net of tax).................................... -- (6.8) (7.7)
Loss on disposal of discontinued operations (net of tax)........................................ (5.9) (32.7) --
-------- -------- --------
Net loss..................................................................................... $ (24.0) $ (2.0) $ (26.4)
======== ======== ========
EPS of Continuing Operations
----------------------------
Earnings (loss) per common share................................................................ $ (0.55) $ 1.14 $ (0.56)
======== ======== ========
Weighted average common shares.................................................................. 33.0 32.8 33.6
======== ======== ========
Earnings (loss) per common share-assuming dilution.............................................. $ (0.55) $ 1.13 $ (0.56)
======== ======== ========
Weighted average common shares-assuming dilution................................................ 33.0 33.1 33.6
======== ======== ========
EPS of Discontinued Operations
------------------------------
Loss per common share........................................................................... $ (0.18) $ (1.20) $ (0.23)
======== ======== ========
Loss per common share-assuming dilution......................................................... $ (0.18) $ (1.19) $ (0.23)
======== ======== ========
EPS of Total Company
--------------------
Loss per common share........................................................................... $ (0.73) $ (0.06) $ (0.79)
======== ======== ========
Loss per common share-assuming dilution......................................................... $ (0.73) $ (0.06) $ (0.79)
======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
F-3
GENERAL CABLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
December 31,
-----------------
2002 2001
------ --------
Assets
Current Assets:
Cash ..................................................... $ 29.1 $ 16.6
Receivables, net of allowances of $11.6 million in 2002
and $11.4 million in 2001............................... 105.9 105.8
Retained interest in accounts receivable ................. 84.8 83.1
Inventories .............................................. 258.3 315.4
Deferred income taxes .................................... 12.2 27.5
Prepaid expenses and other ............................... 42.6 23.9
------ --------
Total current assets.................................... 532.9 572.3
Property, plant and equipment, net ........................ 323.3 320.9
Deferred income taxes ..................................... 68.3 65.0
Other non-current assets .................................. 48.8 47.1
------ --------
Total assets............................................ $973.3 $1,005.3
====== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable ......................................... $242.1 $ 249.4
Accrued liabilities ...................................... 99.2 113.6
Current portion of long-term debt ........................ 40.8 39.4
------ --------
Total current liabilities............................... 382.1 402.4
Long-term debt ............................................ 411.1 421.0
Deferred income taxes ..................................... 2.1 2.9
Other liabilities ......................................... 117.1 74.1
------ --------
Total liabilities....................................... 912.4 900.4
------ --------
Shareholders' Equity:
Common stock, $0.01 par value:
Issued and outstanding shares:
2002 - 33,135,002 (net of 4,754,425 treasury shares)
2001 - 32,838,227 (net of 4,745,425 treasury shares).... 0.4 0.4
Additional paid-in capital ............................... 100.0 96.4
Treasury stock ........................................... (50.0) (50.0)
Retained earnings ........................................ 59.9 88.9
Accumulated other comprehensive loss ..................... (44.6) (25.7)
Other shareholders' equity ............................... (4.8) (5.1)
------ --------
Total shareholders' equity.............................. 60.9 104.9
------ --------
Total liabilities and shareholders' equity ............ $973.3 $1,005.3
====== ========
See accompanying Notes to Consolidated Financial Statements.
F-4
GENERAL CABLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Year Ended December 31,
2002 2001 2000
------ ------- -------
Cash flows of operating activities:
Net loss........................................................................................... $(24.0) $ (2.0) $ (26.4)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization.................................................................... 30.6 35.0 56.0
Foreign currency translation adjustment.......................................................... -- (8.5) --
Deferred income taxes............................................................................ 14.4 (16.7) (0.8)
(Gain) loss on sale of businesses................................................................ 1.7 (18.3) --
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
Sale of receivables, net of transaction costs paid at closing................................... -- 145.0 --
(Increase) decrease in receivables.............................................................. 15.1 16.6 (34.0)
(Increase) decrease in inventories.............................................................. 61.5 37.3 (52.1)
(Increase) decrease in other assets............................................................. (8.0) 3.9 (0.3)
Increase (decrease) in accounts payable, accrued and other liabilities.......................... (34.0) (109.1) 73.7
------ ------- -------
Net cash flows of operating activities.............................................................. 57.3 83.2 16.1
------ ------- -------
Cash flows of investing activities:
Capital expenditures............................................................................... (31.4) (54.9) (56.0)
Acquisitions, net of cash acquired................................................................. -- -- (19.0)
Proceeds from sale of businesses, net of cash sold................................................. 1.7 141.8 158.1
Proceeds from properties sold...................................................................... 1.6 6.7 0.8
Other, net......................................................................................... (0.5) (1.7) (1.0)
------ ------- -------
Net cash flows of investing activities........................................................... (28.6) 91.9 82.9
------ ------- -------
Cash flows of financing activities:
Dividends paid..................................................................................... (5.0) (6.6) (6.7)
Net change in revolving credit borrowings.......................................................... (2.2) 33.2 47.2
Net change in other debt........................................................................... 4.0 3.2 (14.1)
Issuance of long-term debt......................................................................... -- -- 7.4
Repayment of long-term debt........................................................................ (15.4) (209.4) (139.5)
Acquisition of treasury stock...................................................................... -- (2.2) (10.1)
Proceeds from exercise of stock options............................................................ 2.4 2.1 --
------ ------- -------
Net cash flows of financing activities........................................................... (16.2) (179.7) (115.8)
------ ------- -------
Increase (decrease) in cash......................................................................... 12.5 (4.6) (16.8)
Cash - beginning of period.......................................................................... 16.6 21.2 38.0
------ ------- -------
Cash - end of period................................................................................ $ 29.1 $ 16.6 $ 21.2
====== ======= =======
Supplemental Information
Income taxes paid, net of (refunds)................................................................ $(27.0) $ 6.2 $ 7.8
====== ======= =======
Interest paid...................................................................................... $ 44.1 $ 58.3 $ 70.7
====== ======= =======
See accompanying Notes to Consolidated Financial Statements.
F-5
GENERAL CABLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in millions, except share amounts)
Accumulated
Common Stock Additional Other Other
------------------- Paid-In Treasury Retained Comprehensive Shareholders'
Shares Amount Capital Stock Earnings Income(Loss) Equity Total
---------- ------ ---------- -------- -------- ------------- ------------- ------
Balance, December 31, 1999 .. 33,999,633 $0.4 $ 90.5 $(37.7) $130.6 $ 1.6 $(8.1) $177.3
Comprehensive loss:
Net loss.................. (26.4) (26.4)
Foreign currency
translation adjustment .. (9.0) (9.0)
------
Comprehensive loss ......... (35.4)
Dividends .................. (6.7) (6.7)
Purchase of treasury shares (1,370,225) (10.1) (10.1)
Issuance of restricted
stock .................... 9,257 0.1 (0.1) --
Amortization of restricted
stock and other .......... 1.1 2.0 3.1
Other ...................... 10,634 (0.3) 0.6 0.3
---------- ---- ------ ------ ------ ------ ----- ------
Balance, December 31, 2000 .. 32,649,299 0.4 91.4 (47.8) 97.5 (7.4) (5.6) 128.5
Comprehensive loss:
Net loss.................. (2.0) (2.0)
Foreign currency
translation
adjustment .............. (12.9) (12.9)
Loss on change in fair
value of financial
instruments, net of tax . (3.7) (3.7)
Pension adjustments, net
of tax .................. (1.4) (1.4)
Unrealized investment
losses .................. (0.3) (0.3)
------
Comprehensive loss ......... (20.3)
Dividends .................. (6.6) (6.6)
Purchase of treasury shares (354,800) (2.2) (2.2)
Issuance of restricted
stock...................... 357,500 2.7 (2.7) --
Amortization of restricted
stock and other .......... 0.2 2.1 2.3
Exercise of stock options .. 183,876 2.1 2.1
Other ...................... 2,352 1.1 1.1
---------- ---- ------ ------ ------ ------ ----- ------
Balance, December 31, 2001 .. 32,838,227 0.4 96.4 (50.0) 88.9 (25.7) (5.1) 104.9
Comprehensive loss:
Net loss.................. (24.0) (24.0)
Foreign currency
translation adjustment .. 11.2 11.2
Loss on change in fair
value of financial
instruments, net of tax . (0.5) (0.5)
Pension adjustments, net
of tax .................. (29.2) (29.2)
Unrealized investment
losses .................. (0.4) (0.4)
------
Comprehensive loss ......... (42.9)
Dividends .................. (5.0) (5.0)
Amortization of restricted
stock and other .......... 0.9 0.1 1.0
Exercise of stock options .. 265,359 2.4 2.4
Other ...................... 31,416 0.3 0.2 0.5
---------- ---- ------ ------ ------ ------ ----- ------
Balance, December 31, 2002 .. 33,135,002 $0.4 $100.0 $(50.0) $ 59.9 $(44.6) $(4.8) $ 60.9
========== ==== ====== ====== ====== ====== ===== ======
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), are engaged in
the development, design, manufacture, marketing and distribution of copper,
aluminum and fiber optic wire and cable products for the energy, industrial
and specialty and communications markets. As of December 31, 2002, 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
$3.8 million at December 31, 2002. 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 earnings (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.
Inventories
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 2002 or 2001. 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.
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. As of January 1, 2001, General
Cable changed its accounting method for its 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. The Company believes
that the change to the LIFO accounting method for its non-North American metal
inventories more accurately reflects the impact of volatile raw material
prices and conforms the accounting for all metal inventories. Because the
December 31, 2000 non-North American metal inventories valued at FIFO is the
opening LIFO inventory, there is neither a cumulative effect to January 1,
2001 nor proforma amounts of retroactively applying the change to LIFO. As of
January 1, 2000, General Cable changed its accounting method for its 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.
Because the December 31, 1999 North American non-metal inventories valued at
FIFO is the opening LIFO inventory, there is neither a cumulative effect to
January 1, 2000 nor proforma amounts of retroactively applying the change to
LIFO. Previously General Cable had valued only the copper and aluminum
components of its North American inventories using LIFO. The Company believes
that the change to the LIFO accounting method for its North American non-metal
inventories more accurately reflects the impact of both volatile raw material
prices and ongoing cost
F-7
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. Summary of Accounting Policies -- (Continued)
productivity initiatives, conforms the accounting for all North American
inventories and provides a more comparable basis of accounting with direct
competitors in North America who are on LIFO for the majority of their
inventories.
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.
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, 2002 and 2001, General Cable had $89.9 million
and $40.1 million, respectively, of future copper and aluminum purchases that
were under forward pricing agreements. The fair market value of the forward
pricing agreements was $87.1 million and $38.7 million at December 31, 2002
and 2001, 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.
F-8
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. Summary of Accounting Policies -- (Continued)
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 13.
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.
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 recorded into income which generally will
occur over periods less than one year.
Accounts Receivable Securitization
The Company accounts 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 are sold, the balances are
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, are
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, modifies certain standards for the accounting of
transfers of financial assets and also requires expanded financial statement
disclosures related to securitization activities. See further discussion in
Note 7.
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,
-------------------------
2002 2001 2000
------ ------ ------
Net loss, as reported................................................................................. $(24.0) $ (2.0) $(26.4)
Deduct: Total stock-based employee compensation expense determined under fair value based method for
all awards, net of related tax effects.............................................................. (2.4) (5.7) (4.9)
------ ------ ------
Pro forma net loss.................................................................................... $(26.4) $ (7.7) $(31.3)
====== ====== ======
Loss per share:
Basic -- as reported................................................................................ $(0.73) $(0.06) $(0.79)
Basic -- pro forma.................................................................................. $(0.80) $(0.23) $(0.93)
Diluted -- as reported.............................................................................. $(0.73) $(0.06) $(0.79)
Diluted -- pro forma................................................................................ $(0.80) $(0.23) $(0.93)
F-9
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. Summary of Accounting Policies -- (Continued)
New Standards
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141
"Business Combinations", SFAS No. 142 "Goodwill and Other Intangible Assets"
and SFAS No. 143 "Accounting for Asset Retirement Obligations". SFAS No. 141
requires that all business combinations be accounted for under the purchase
accounting method and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. SFAS No. 142 requires
that ratable amortization of goodwill be replaced with periodic tests of the
goodwill's carrying value and that intangible assets other than goodwill
should be amortized over their useful lives. SFAS No. 143 requires entities to
establish liabilities for legal obligations associated with the retirement of
tangible long-lived assets. In August 2001, SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" was issued. SFAS No. 144
addresses financial accounting and reporting for impairment of long-lived
assets to be held and used, and of long-lived assets and components of an
entity to be disposed of. The Company adopted SFAS 141, SFAS No. 142 and SFAS
No. 144 as of January 1, 2002, as required. Additionally, SFAS No. 143 was
adopted as of January 1, 2002, although it was not required until fiscal 2003.
The adoption of these standards did not have a material impact on the
consolidated financial condition, results of operations or cash flows of
General Cable. In April 2002, SFAS No. 145 "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" was issued. SFAS No. 145 addresses financial accounting and
reporting for the extinguishment of debt and accounting for leases. In June
2002, 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. Implementation of SFAS
No. 145 and SFAS No. 146 is required for fiscal 2003. Management does not
believe the impact of adopting SFAS No. 145 and SFAS No. 146 will have a
material impact on the consolidated financial condition, results of operations
or cash flows of General Cable.
In December of 2002, SFAS No. 148 "Accounting for Stock-Based Compensation
-- Transition and Disclosure -- an amendment of FASB No. 123" was issued. SFAS
No. 148 provides alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee
compensation. SFAS No. 148 also requires additional disclosure about the
method of accounting for stock-based employee compensation and the effect of
the method used on reported results. General Cable has elected to not
implement the voluntary change to the fair value based method of accounting
for stock-based employee compensation, however, the disclosure requirements
have been implemented as required.
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 Company does not
believe that the adoption of FIN 45 will have a material affect on its
financial position, results of operations or cash flows.
In January 2003, FIN No. 46 "Consolidation of Variable Interest Entities"
was issued. FIN 46 is intended to achieve more consistent application of
consolidation policies to variable interest entities. FIN 46 applies to all
variable interest entities created after January 31, 2003 and it applies in
the first fiscal period beginning after June 15, 2003 to variable interest
entities acquired or created before February 1, 2003. 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.
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 (the Acquisition). The Acquisition was completed in three phases
F-10
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. Acquisitions and Divestitures -- (Continued)
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, 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. The businesses sold
reported net sales of $383.4 million and a net loss of $73.2 million for 2000.
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 the 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.
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
datacommunication 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 have been used to reduce
the Company's outstanding debt.
F-11
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. Acquisitions and Divestitures -- (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 2002, other non-current assets included an
investment in the joint venture of $3.9 million and a $10.2 million note
receivable from the joint venture and other liabilities included a deferred
gain from the initial joint venture formation of $5.6 million.
4. Corporate Operating Items
Cost of sales and selling, general and administrative expense in the
consolidated statement of operations included the following (in millions):
Year Ended December 31,
-------------------------------
2002 2001 2000
-------- -------- --------
Cost of sales, excluding corporate items........................................................ $1,281.7 $1,403.7 $1,870.4
Closure of manufacturing plants................................................................ 2.0 -- --
Disposal of inventory.......................................................................... -- 7.0 --
Charge related to assets contributed to joint venture.......................................... 3.6 -- --
-------- -------- --------
Corporate items................................................................................ 5.6 7.0 --
-------- -------- --------
Cost of sales................................................................................ $1,287.3 $1,410.7 $1,870.4
======== ======== ========
Selling, general and administrative expenses, excluding corporate items......................... $ 123.1 $ 139.6 $ 226.6
Loss (income) related to the divestiture to Pirelli............................................ -- (7.0) 31.0
Gain from sale of Pyrotenax business........................................................... -- (23.8) --
Closure of manufacturing plants................................................................ 19.2 4.8 --
Divestiture of non-strategic business.......................................................... 1.7 5.5 --
Severance and severance related costs.......................................................... 6.9 16.5 --
Provision for other costs...................................................................... -- 0.8 --
-------- -------- --------
Corporate items................................................................................ 27.8 (3.2) 31.0
-------- -------- --------
Selling, general and administrative expenses................................................... $ 150.9 $ 136.4 $ 257.6
-------- -------- --------
Total Corporate Operating Items................................................................. $ 33.4 $ 3.8 $ 31.0
======== ======== ========
During 2002, the Company incurred $33.4 million of corporate charges,
$5.6 million in cost of sales and $27.8 million in selling, general and
administrative expense. These corporate charges included $21.2 million
($2.0 million in cost of sales and $19.2 million in selling, general and
administrative expense) related to the closure of two of its seven North
American plants that manufactured communications cables. In addition,
$6.9 million was incurred for severance and related costs resulting from
worldwide headcount reductions, $3.6 million was incurred to reduce to fair
value certain assets contributed to the Company's fiber optic joint venture,
and a $1.7 million loss was incurred on the sale of a non-strategic United
Kingdom-based specialty cables business.
During 2001, the Company incurred $3.8 million of corporate charges
($7.0 million in cost of sales and $3.2 million of income in selling, general
and administrative expense). During the third quarter of 2001, the
F-12
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. Corporate Operating Items -- (Continued)
Company agreed with Pirelli on the final post-closing adjusted purchase price
of the business sold in the third quarter of 2000. As a result of the final
settlement, the Company recognized a $7.0 million pre-tax gain for the
difference in the actual settlement and the amount provided for in the
Company's balance sheet. The Company also completed the sale of its Pyrotenax
business to Raychem HTS Canada, Inc., a business unit of Tyco International,
Ltd. for proceeds of $60 million, subject to closing adjustments. After
adjusting for the net cost of the assets sold and for the expenses associated
with the transaction, the Company realized a pre-tax gain of $23.8 million.
The Company also incurred charges for the closure of a manufacturing plant
($4.8 million), charges for severance and related costs resulting from a plan
to reduce headcount throughout its worldwide operations ($16.5 million), a
loss related to the sale of a non-strategic business which designs and
manufactures extrusion tooling and accessories ($5.5 million), a charge
related to the disposal of inventory as part of the Company's optimization of
its distribution network ($7.0 million recorded in cost of sales) and a charge
to provide for certain other costs ($0.8 million).
During 2000, as a result of the sale of certain businesses to Pirelli, the
Company recognized a $31.0 million charge. This charge was related to
severance, transaction costs, warranty and other claims and the realization of
the foreign exchange translation loss on the divested businesses that was
previously charged directly to equity.
5. Other Income
During the second quarter of 2001, the Company recognized a non-recurring
pre-tax 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.
6. Discontinued Operations
On September 5, 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,
------------------------
2002 2001 2000
----- ------ ------
Net Sales.............................................................................................. $ -- $352.9 $526.5
===== ====== ======
Pre-tax loss from discontinued operations.............................................................. $ -- $(10.7) $(11.9)
Income tax benefit..................................................................................... -- 3.9 4.2
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) $ (7.7)
===== ====== ======
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.
F-13
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. Discontinued Operations -- (Continued)
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.
7. Accounts Receivable Asset-backed Securitization
In May 2001, the Company completed an Accounts Receivable Asset-backed
Securitization Financing transaction ("Securitization Financing"). The
Securitization Financing provides 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 will 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 are 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 continues to service the transferred receivables and
receives 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 results in a
servicing asset equal to zero. The Company's retained interest in the
receivables are carried at their fair value, which is estimated as the net
realizable value. The net realizable value considers the relatively short
liquidation period and an estimated provision for credit losses. The provision
for credit losses is determined based on specific identification of
uncollectible accounts and the application of historical collection
percentages by aging category. The receivables are 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 and 2001, key assumptions and the sensitivity of the current
fair value of the retained interest are as follows:
Key Impact on Fair Value of Impact on Fair Value of
Assumptions 20% Adverse Change 50% Adverse Change
----------- ----------------------- -----------------------
December 31, 2002:
Days sales outstanding........................................ 49 days $0.3 million $0.3 million
Interest rate................................................. 2.0% $0.3 million $0.3 million
December 31, 2001:
Days sales outstanding........................................ 51 days $0.1 million $0.3 million
Interest rate................................................. 2.5% $0.1 million $0.3 million
These sensitivities are hypothetical and should be used with caution.
Changes in fair value based on a 20% and 50% variation in assumptions
generally cannot be extrapolated because the relationship of the change in
assumption to the change in fair value may not be linear. Also, in this table,
the effect of a variation in a particular assumption on the fair value of the
retained interest is calculated without changing any other assumption; in
reality, changes in one factor may result in changes in another, which might
magnify or counteract sensitivities.
F-14
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. Accounts Receivable Asset-backed Securitization -- (Continued)
At December 31, 2002 and 2001, the Company's retained interest in accounts
receivable and off balance sheet financing, net of cash held in the trust, was
$84.8 million and $48.5 million; and $83.1 million and $67.8 million,
respectively. The effective interest rate in the Securitization Financing was
approximately 2.0% and 2.5% at December 31, 2002 and 2001, respectively. In
2002, proceeds from new sales totaled $1,067.6 million and cash collections
reinvested totaled $1,030.8 million. In 2001, proceeds from new sales totaled
$1,258.6 million and cash collections reinvested totaled $1,044.4 million. The
portfolio of accounts receivable that the Company services totaled
approximately $130 million and $150 million at December 31, 2002 and 2001,
respectively.
8. Inventories
Inventories consisted of the following (in millions):
December 31,
---------------
2002 2001
------ ------
Raw materials ............................................... $ 26.1 $ 36.7
Work in process ............................................. 33.2 41.9
Finished goods .............................................. 199.0 236.8
------ ------
$258.3 $315.4
====== ======
At December 31, 2002 and December 31, 2001, $214.3 million and
$274.1 million, respectively, of inventories were valued using the LIFO
method. Approximate replacement costs of inventories valued using the LIFO
method totaled $198.1 million at December 31, 2002 and $248.7 million at
December 31, 2001.
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 reduced its inventory by approximately
$62 million resulting in a $2.5 million LIFO charge since LIFO inventory
quantities were reduced in a period when replacement costs were lower than the
LIFO value of inventory.
9. Property, Plant and Equipment
Property, plant and equipment consisted of the following (in millions):
December 31,
-----------------
2002 2001
------- -------
Land ...................................................... $ 25.1 $ 22.8
Buildings and leasehold improvements ...................... 53.2 53.4
Machinery, equipment and office furnishings ............... 348.5 302.7
Construction in progress .................................. 32.5 49.6
------- -------
459.3 428.5
Less accumulated depreciation and amortization ............ (136.0) (107.6)
------- -------
$ 323.3 $ 320.9
======= =======
Depreciation expense totaled $28.1 million, $31.7 million and $52.0 million
for the years ended December 31, 2002, 2001 and 2000, respectively.
F-15
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. Accrued Liabilities
Accrued liabilities consisted of the following (in millions):
December 31,
--------------
2002 2001
----- ------
Payroll related accruals ..................................... $16.7 $ 22.3
Accrued restructuring costs .................................. 15.2 13.3
Customers' deposits and prepayments .......................... 10.1 11.4
Customer rebates ............................................. 6.6 8.5
Insurance claims and related expenses ........................ 8.0 8.4
Current deferred tax liability ............................... 1.8 1.8
Other accrued liabilities .................................... 40.8 47.9
----- ------
$99.2 $113.6
===== ======
11. 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
====== ====== ======
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 employees 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).
During 2002, an additional $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 employees 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.
F-16
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
12. Long-Term Debt
Long-term debt consisted of the following (in millions):
December 31,
---------------
2002 2001
------ ------
Term loans................................................ $337.4 $348.6
Revolving loans........................................... 78.2 80.4
Other..................................................... 36.3 31.4
------ ------
451.9 460.4
Less current maturities................................... 40.8 39.4
------ ------
$411.1 $421.0
====== ======
Weighted average interest rates were as follows:
Term loans................................................ 6.5% 5.1%
Revolving loans........................................... 6.3% 4.9%
Other..................................................... 6.0% 6.0%
The estimated fair value of the Company's long-term debt at December 31,
2002 and 2001 was approximately equal to the carrying value at those dates
because the majority of the Company's debt has variable interest rates.
The Company's current credit facility was entered into in 1999 with one lead
bank as administrative agent, and a syndicate of lenders. The facility, as
amended and reduced by prepayments, consists 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
and letters of credit in Dollars and foreign currencies in an aggregate amount
up to $200.0 million. Borrowings are secured by assets of the Company's North
American operations and a portion of the stock of its non-North American
subsidiaries and are also guaranteed by the Company's principal operating
subsidiaries. The credit facility, as amended, restricts certain corporate
acts and contains required financial ratios and other covenants. 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.
Loans under the credit facility bear interest, at the Company's option, at
(i) a spread over LIBOR or (ii) a spread over the Alternate Base Rate, which
is defined as the higher of (a) the agent's Prime Rate, (b) the secondary
market rate for certificates of deposit (adjusted for reserve requirements)
plus 1% or (c) the Federal Funds Effective Rate plus 1/2 of 1%.
A commitment fee accrues on the unused portion of the credit facility. The
commitment fee is 50 basis points per annum and the spread over LIBOR on all
loans under the facility ranges between 450 and 500 basis points per annum.
Both the commitment fee and the spread over LIBOR are fixed for the life of
the facility as a result of the October 2002 amendment (discussed below).
In April 2002, the Company amended the credit facility to permit increased
financial flexibility through March 2003. As a result of the amendment, the
Company's spread over LIBOR increased by 25 basis points across all levels of
its leverage-based pricing grid and a new leverage level was added to the
pricing grid. One time fees and expenses associated with the amendment were
$2.0 million and were being amortized over the one-year period of the
amendment.
In October 2002, the Company further amended its credit facility through
March 2004. The amendment substantially relaxed the Company's financial
covenants primarily in response to the ongoing weakness in the Communications
segment. Among other provisions, the amendment adjusted the size of the
Company's revolving credit facility to $200 million from $250 million, added a
new financial covenant tied to minimum
F-17
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
12. Long-Term Debt -- (Continued)
quarterly earnings levels and established a contingent payment of
approximately $5.5 million to lenders if the total facility commitments are
not reduced by at least $100 million by December 15, 2003. As part of the
amendment, the Company suspended its quarterly cash dividend of $0.05 per
common share for the term of the amendment. One-time costs of approximately
$4 million were incurred for the amendment and will be amortized over the life
of the amendment. The Company will also incur incremental annualized interest
costs of approximately $4 million during the amendment period as a result of
increased credit spreads. Future compliance with financial covenants will be
dependent upon a number of factors, including overall economic activity,
future conditions in the Company's principal end markets and the Company's
future borrowing requirements. As a result of the completion of the October
2002 amendment, the Company wrote-off the remaining unamortized fees
($1.1 million) associated with the April 2002 amendment in the fourth quarter
of 2002. The Company also wrote-off $0.5 million of unamortized bank fees in
the fourth quarter of 2002 as a result of the $50 million reduction in the
size of the revolving credit facility.
At December 31, 2002, maturities of long-term debt during each of the years
2003 through 2007 are $40.8 million, $32.9 million, $71.6 million,
$134.4 million and $163.2 million, respectively, and $9.0 million thereafter.
13. 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
will typically pay a fixed rate while the counterparty pays to General Cable
the difference between the fixed rate and the three-month LIBOR rate.
During 1999, the Company entered into certain interest rate derivative
contracts for hedging of the credit facility floating interest rate risk
covering $375.0 million of the Company's debt. The net effect of the hedging
program was to provide a collar between approximately 5.4% and 8.5% within
which the Company's LIBOR rates on a portion of the credit facility could move
and which was at no cost to the Company. The Company entered into these three-
year agreements with members of the lending group. 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 credit facility and
other debt. At December 31, 2001, General Cable had interest rate swaps, which
effectively fixed interest rates for $425.0 million of borrowings under the
credit facility and $9.0 million of other debt. The swaps outstanding as of
December 31, 2002 were as follows (dollars in millions):
Notional Interest
Interest Rate Derivatives Period Amounts Rate Range
------------------------- ------ ------- ----------
Interest Rate Swap..................................................... December 2001 to October 2011 $ 9.0 4.49%
Forward Starting Interest Rate Swaps................................... January 2003 to December 2004 $200.0 4.60 - 4.74%
The Company does not provide or receive any collateral specifically for
these contracts. However, all counterparties are members of the lending group
and as such participate in the collateral of the credit agreement and are
significant financial institutions.
F-18
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
13. Financial Instruments -- (Continued)
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, 2002 and 2001, the carrying value was
$7.4 million and $5.7 million, respectively.
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, 2002 and 2001, the net unrealized gain
(loss) on the net foreign currency contracts was $0.7 million and
$(0.2) million, respectively. However, since these contracts hedge forecasted
foreign currency denominated transactions, and have been designated cash flow
hedges, 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 which is generally expected to occur in less than one year.
Outside of North America, General Cable enters into commodity futures for
purchase of copper and aluminum for delivery in a future month to match
certain sales transactions. At December 31, 2002 and 2001, General Cable had
an unrealized loss of $0.1 million and $0.2 million, respectively, on the
commodity futures, which have been designated as cash flow hedges, and have
been recorded in other comprehensive income until the hedged transaction is
reflected in the income statement, which is generally expected to occur in
less than one year.
The notional amounts and fair values of these financial instruments at
December 31, 2002 and 2001, are shown below (in millions). The carrying amount
of the financial instruments was a liability of $(6.8) million at December 31,
2002 and $(6.1) million at December 31, 2001.
2002 2001
----------------- ----------------
Notional Fair Notional Fair
Amount Value Amount Value
-------- ----- -------- -----
Interest rate swaps ....................................................................... $ 9.0 $(0.9) $284.0 $(5.7)
Forward starting interest rate swaps ...................................................... 200.0 (6.5) 625.0 --
Foreign currency contracts ................................................................ 29.5 0.7 28.5 (0.2)
Commodity futures ......................................................................... 9.2 (0.1) 8.0 (0.2)
----- -----
$(6.8) $(6.1)
===== =====
In the normal course of business, General Cable enters into forward pricing
agreements for the purchase of copper and aluminum for delivery in a future
month to match certain sales transactions. At December 31, 2002 and 2001,
General Cable had an unrealized loss of $2.8 million and $1.4 million,
respectively. General Cable expects to recover the unrealized loss under these
agreements as a result of firm sales price commitments with customers.
F-19
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
14. Income Taxes
The provision (benefit) for income taxes attributable to continuing
operations consisted of the following (in millions):
Year Ended December 31,
------------------------
2002 2001 2000
------ ----- ------
Current tax expense (benefit):
Federal............................................................................................. $(13.8) $ 4.1 $(18.8)
State............................................................................................... 0.1 0.1 (1.1)
Foreign............................................................................................. 6.8 11.3 9.4
Deferred tax expense (benefit):
Federal............................................................................................. (6.9) 0.5 (6.0)
State............................................................................................... 2.9 1.0 (0.7)
Foreign............................................................................................. 1.0 3.6 6.9
------ ----- ------
$ (9.9) $20.6 $(10.3)
====== ===== ======
The income tax benefit attributable to the operations and disposal of
discontinued operations was $3.2 million, $21.8 million, and $4.2 million for
2002, 2001 and 2000 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,
-----------------------
2002 2001 2000
----- ----- ------
Statutory federal income tax............................................................................ $(9.8) $20.3 $(10.1)
State, foreign and Foreign Sales Corporation income tax differential.................................... 0.8 (0.3) (0.6)
Other, net.............................................................................................. (0.9) 0.6 0.4
----- ----- ------
$(9.9) $20.6 $(10.3)
===== ===== ======
The components of deferred tax assets and liabilities were as follows (in
millions):
December 31,
---------------
2002 2001
------ ------
Deferred tax assets:
Net operating loss carryforwards ........................... $ 74.7 $ 76.5
Pension and retiree benefits accruals..................... 18.1 2.3
Asset and rationalization reserves........................ 5.1 5.1
Inventory reserves........................................ 4.0 5.1
Capital loss carryforwards................................ 1.1 4.1
Tax credit carryforwards.................................. 7.7 3.8
Other liabilities......................................... 14.4 19.9
Valuation allowance....................................... (19.2) (5.6)
------ ------
Total deferred tax assets ............................... 105.9 111.2
Deferred tax liabilities:
Inventory................................................. 6.1 1.5
Depreciation and fixed assets............................. 23.2 21.9
------ ------
Net deferred tax assets ..................................... $ 76.6 $ 87.8
====== ======
F-20
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
14. Income Taxes -- (Continued)
As of December 31, 2002, the Company has recorded a valuation allowance for
its U.S. foreign tax credit and capital loss 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, 2002 valuation allowance
of $19.2 million increased $13.6 million from the prior year. The December 31,
2001 valuation allowance of $5.6 million decreased $4.7 million from
December 31, 2000.
A portion of the Company's 2002 U.S. net operating loss will be carried back
to obtain a tax refund of $13.8 million in 2003. The $13.8 million tax refund
is included within prepaid expenses and other in the December 31, 2002
consolidated balance sheet. The Company also generated U.S. net operating loss
carryforwards of $55.2 million in 2000 and $57.9 million in 2002, which expire
in 2020 and 2022, respectively. The 2001 U.S. net operating loss, which was
reflected as a carryforward in the 2001 financial statements, was carried back
instead to obtain a $37.0 million tax refund in 2002 as a result of a 2002
U.S. tax law change enabling a five year carryback of net operating losses.
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 $22.3 million of net operating loss
carryforwards in various foreign jurisdictions. A valuation allowance has been
established against $20.7 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 $77 million.
15. 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,
-------------------------
2002 2001 2000
------ ------ ------
Service cost.......................................................................................... $ 2.1 $ 2.6 $ 2.8
Interest cost......................................................................................... 9.1 8.4 8.7
Expected return on plan assets........................................................................ (10.2) (10.9) (11.1)
Net amortization and deferral......................................................................... 1.0 0.7 0.8
------ ------ ------
Net defined benefit pension expense................................................................ 2.0 0.8 1.2
Net defined contribution pension expense.............................................................. 5.7 7.2 6.9
------ ------ ------
Total pension expense.............................................................................. $ 7.7 $ 8.0 $ 8.1
====== ====== ======
F-21
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
15. Pension Plans -- (Continued)
The changes in the benefit obligation and plan assets, the funded status of
the plan and the amounts recognized in the Consolidated Balance Sheets at
December 31, 2002 and 2001 were as follows (in millions):
2002 2001
------ ------
Changes in Benefit Obligation:
Beginning benefit obligation ............................... $124.1 $122.1
Acquisitions (divestitures) ................................ 6.3 (2.4)
Service cost ............................................... 2.1 2.6
Interest cost .............................................. 9.1 8.4
Curtailment gain ........................................... (1.9) (1.3)
Special termination benefits ............................... 0.1 1.1
Benefits paid .............................................. (12.3) (10.8)
Amendments ................................................. 0.1 2.3
Assumption change .......................................... 10.3 4.8
Actuarial (gain) loss ...................................... 3.1 (2.7)
------ ------
Ending benefit obligation................................. $141.0 $124.1
====== ======
Changes in Plan Assets:
Beginning fair value of plan assets ........................ $111.9 $116.6
Acquisitions (divestitures) ................................ 6.9 (2.4)
Actual return (loss) on plan assets ........................ (20.6) 5.9
Company contributions ...................................... 3.0 2.6
Benefits paid .............................................. (12.3) (10.8)
------ ------
Ending fair value of plan assets.......................... $ 88.9 $111.9
====== ======
Reconciliation of Funded Status:
Funded status of the plan .................................. $(52.1) $(12.2)
Unrecognized net transition obligation ..................... 0.5 0.5
Unrecognized actuarial (gain) loss ......................... 49.3 7.6
Unrecognized prior service cost ............................ 10.1 11.3
------ ------
Prepaid pension cost...................................... $ 7.8 $ 7.2
====== ======
Amounts Recognized in Consolidated Balance Sheet:
Prepaid pension cost ....................................... $ 0.6 $ 11.5
Accrued pension liability .................................. (44.6) (10.9)
Intangible asset ........................................... 5.1 4.3
Accumulated other comprehensive income ..................... 46.7 2.3
------ ------
Net amount recognized..................................... $ 7.8 $ 7.2
====== ======
The curtailment gain and special termination benefits in 2002 and 2001 were
the result of closing and selling certain manufacturing locations. The
divestitures in 2001 are related to the sale of the Pyrotenax business to Tyco
International, Ltd. 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.
F-22
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
15. Pension Plans -- (Continued)
The weighted average rate assumptions used in determining pension costs and
the benefit obligations were:
2002 2001 2000
---- ---- ----
Discount rate..................................................................................... 6.5% 7.25% 7.75%
Expected rate of increase in future compensation levels........................................... 4.0% 4.0% 4.5%
Long-term rate of return on plan assets........................................................... 9.0% 9.5% 9.5%
The projected benefit obligation and accumulated benefit obligation for the
pension plans with accumulated benefit obligations in excess of plan assets
were $136.5 million and $129.9 million at December 31, 2002, and $15.6 million
and $11.9 million at December 31, 2001.
16. 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,
-----------------------
2002 2001 2000
----- ----- -----
Service cost............................................................................................. $ 0.3 $ 0.3 $ 0.3
Interest cost............................................................................................ 0.7 0.7 0.7
Amortization of prior service cost....................................................................... (0.7) (0.8) (0.8)
Curtailment loss (gain).................................................................................. 0.2 (0.4) (1.2)
----- ----- -----
Net post-retirement benefit expense (income).......................................................... $ 0.5 $(0.2) $(1.0)
===== ===== =====
The curtailment loss (gain) was the result of closing certain manufacturing
locations in 2002 and 2001 and the result of the elimination of certain
retiree benefits in 2000.
The change in the accrued post-retirement benefit liability was as follows
(in millions):
2002 2001
----- -----
Beginning benefit obligation balance .......................... $11.4 $12.8
Divestiture ................................................... -- (0.4)
Net periodic benefit expense (income) ......................... 0.5 (0.2)
Benefits paid ................................................. (1.1) (0.8)
----- -----
Ending benefit obligation balance ............................. $10.8 $11.4
===== =====
The discount rate used in determining the accumulated post-retirement
benefit obligation was 6.5% for the year ended December 31, 2002, 7.25% for
the year ended December 31, 2001 and 7.75% for the year ended December 31,
2000. The assumed health-care cost trend rate used in measuring the
accumulated post-retirement benefit obligation was 9.0%, decreasing gradually
to 4.75% in year 2008 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 2002. The effect of this change would
affect net post-retirement benefit expense by $0.1 million.
F-23
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
17. Equity Compensation Plans
The following table sets forth information about General Cable's equity
compensation plans as of December 31, 2002 (in thousands, except per share
price):
Number of Securities
Number of Remaining Available for
Securities to be Weighted-Average Future Issuance Under
Issued Upon Exercise Exercise Price Equity Compensation Plans
of Outstanding of Outstanding (Excluding Securities
Options Options Reflected in First Column)
-------------------- ---------------- --------------------------
Shareholder approved plans:
1997 Stock Incentive Plan (a)........................... 1,977 $14.76 1,107
Non-shareholder approved plans:
2000 Stock Option Plan.................................. 766 10.45 676
----- ------ -----
Total..................................................... 2,743 $13.55 1,783
===== ====== =====
---------------
(a) Excludes matching restricted stock units (MRSU) and restricted stock of
214,707 and 1,024,000, respectively, awarded through December 31, 2002.
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.
See further discussion in Note 19.
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.
F-24
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
18. 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. 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,
-------------------------
2002 2001 2000
------ ------ ------
Net loss, as reported................................................................................. $(24.0) $ (2.0) $(26.4)
Deduct: Total stock-based employee compensation expense determined under fair value based method for
all awards, net of related tax effects.............................................................. (2.4) (5.7) (4.9)
------ ------ ------
Pro forma net loss.................................................................................... $(26.4) $ (7.7) $(31.3)
====== ====== ======
Loss per share:
Basic -- as reported.............................................................................. $(0.73) $(0.06) $(0.79)
Basic -- pro forma................................................................................ $(0.80) $(0.23) $(0.93)
Diluted -- as reported............................................................................ $(0.73) $(0.06) $(0.79)
Diluted -- pro forma.............................................................................. $(0.80) $(0.23) $(0.93)
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:
2002 2001 2000
---------- ---------- ----------
Risk-free interest rate................................................................... 3.2% 5.1% 6.3%
Expected dividend yield................................................................... 1.5% 3.0% 3.0%
Expected option life...................................................................... 6.5 years 6.5 years 6.5 years
Expected stock price volatility........................................................... 95.7% 66.1% 69.5%
Weighted average fair value of options granted............................................ $ 9.58 $ 6.09 $ 4.92
A summary of option information for the years ended December 31, 2002, 2001
and 2000 follows (options in thousands):
Weighted
Average
Options Exercise
Outstanding Price
----------- --------
Balance at December 31, 1999 ......................... 2,567 $16.75
Granted ............................................. 885 9.00
Forfeited ........................................... (248) 15.03
----- ------
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
===== ======
F-25
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
18. Stock Options -- (Continued)
The following table summarizes information about stock options outstanding
at December 31, 2002 (options in thousands):
Weighted
Average
Weighted Remaining Weighted
Range of Options Average Contractual Options Average
Option Prices Outstanding Exercise Price Life Exercisable Exercise Price
------------- ----------- -------------- ----------- ----------- --------------
$ 7 - $14 2,126 $11.50 6.9 1,020 $11.96
$14 - $21 175 $14.31 6.6 163 $14.17
$21 - $28 443 $23.11 5.6 429 $23.08
As of December 31, 2002, 2001 and 2000, there were 1,612,000, 2,120,000 and
1,706,000 exercisable stock options, respectively.
19. Shareholders' Equity
General Cable is authorized to issue 75 million shares of common stock and
25 million shares of preferred stock.
The table below summarizes information about restricted stock awarded during
the following years:
2001 2000
-------- ------
Number of shares awarded .................................. 357,500 9,257
Fair value of shares at date issued (in millions) ......... $ 2.7 $ 0.1
There was no restricted stock awarded during 2002.
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 (the
"Plan"). Under the terms of the 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.
Restrictions on the majority of the shares issued during 2000 will expire
ratably over a three-year period. Amortization of all outstanding restricted
stock awards was $0.1 million, $2.1 million and $2.0 million during 2002, 2001
and 2000, 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. The loans are evidenced by notes that bear interest at 5.12% and
mature in November 2003. A matching restricted stock unit (MRSU) was issued
for each share of stock purchased under the SLIP. The MRSUs generally vest
after five years of continuous employment. If the vesting requirements are
met, one share of General Cable Common Stock will be issued in exchange for
each MRSU. The fair value of the MRSUs at the grant date of $6.0 million,
adjusted for subsequent forfeitures, is being amortized to expense over the
five-year vesting period. There are 214,707 MRSUs outstanding as of
December 31, 2002. Amortization expense related to the MRSUs was $0.9 million,
$0.2 million and $1.1 million during 2002, 2001 and 2000 respectively.
F-26
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
19. Shareholders' Equity -- (Continued)
The components of accumulated other comprehensive income (loss) consisted of
the following (in millions):
December 31,
---------------
2002 2001
------ ------
Foreign currency translation adjustment ..................... $ (9.5) $(20.7)
Pension adjustments, net of tax ............................. (30.6) (1.4)
Change in fair value of derivatives, net of tax ............. (4.2) (3.7)
Unrealized investment (losses) gains ........................ (0.3) 0.1
------ ------
$(44.6) $(25.7)
====== ======
20. 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 for the years ended December 31, is as
follows (in millions):
2002 2001 2000
------ ----- ------
Earnings (loss) from continuing operations per common share:
Income (loss) from continuing operations (1).......................................................... $(18.1) $37.5 $(18.7)
Weighted average shares outstanding (2)............................................................... 33.0 32.8 33.6
Earnings (loss) from continuing operations per common share............................................ $(0.55) $1.14 $(0.56)
Earnings (loss) from continuing operations per common share -- assuming dilution:
Income (loss) from continuing operations (1).......................................................... $(18.1) $37.5 $(18.7)
Weighted average shares outstanding................................................................... 33.0 32.8 33.6
Dilutive effect of stock options and restricted stock units -- 0.3 --
------ ----- ------
Total shares (2)...................................................................................... 33.0 33.1 33.6
Earnings (loss) from continuing operations per common share -- assuming dilution....................... $(0.55) $1.13 $(0.56)
---------------
(1) Numerator
(2) Denominator
The earnings (loss) per common share -- assuming dilution computation
excludes the impact of 2.7 million, 3.0 million and 2.3 million stock options
and restricted stock units in 2002, 2001 and 2000, respectively, because their
impact was anti-dilutive.
21. Segment Information
General Cable has three reportable operating segments: the Energy Group, the
Industrial & Specialty Group and the Communications Group. 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 Group manufactures and sells wire and cable products that include
low-, medium- and high-voltage power distribution and power transmission
products. The Industrial & Specialty Group manufactures and sells wire and
cable products that conduct electrical current for industrial and commercial
power and control applications. The Communications Group manufactures and
sells wire and cable products that transmit low-voltage signals for voice,
data, video and control applications.
F-27
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
21. Segment Information -- (Continued)
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 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 employees 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, $4.8 million 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 employees, $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. The corporate operating loss for 2000 represents the loss
on the sale of certain businesses to Pirelli. See further discussion of
corporate charges in Note 4. 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 in Note 4 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, property, certain
prepaid expenses and other current and non-current assets as well as the
identifiable assets of the discontinued operations. Capital expenditures and
depreciation expense included in the corporate column represent the
discontinued operations.
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.
Energy Industrial & Communications
Group Specialty Group Corporate Total
------ ------------ -------------- --------- --------
Net Sales:
2002......................................................... $516.0 $499.4 $438.5 $ -- $1,453.9
2001......................................................... 521.8 537.6 592.0 -- 1,651.4
2000......................................................... 733.6 796.7 631.8 -- 2,162.1
Operating Income:
2002......................................................... 36.9 9.7 2.5 (33.4) 15.7
2001......................................................... 35.3 24.3 48.5 (3.8) 104.3
2000......................................................... (24.4) 29.7 59.8 (31.0) 34.1
Identifiable Assets:
2002......................................................... 229.1 289.9 318.3 136.0 973.3
2001......................................................... 210.3 287.7 370.6 136.7 1,005.3
2000......................................................... 183.6 374.4 340.1 421.1 1,319.2
Capital Expenditures:
2002......................................................... 9.9 13.4 8.1 -- 31.4
2001......................................................... 17.0 12.1 24.0 1.8 54.9
2000......................................................... 27.3 12.0 13.0 3.7 56.0
Depreciation Expense:
2002......................................................... 3.8 8.5 15.8 -- 28.1
2001......................................................... 3.5 7.5 15.1 5.6 31.7
2000......................................................... 17.7 9.4 17.1 7.8 52.0
F-28
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
21. Segment Information -- (Continued)
The following table presents revenues by geographic region based on the
location of the use of the product or services for the years ended December 31
(in millions):
2002 2001 2000
-------- -------- --------
United States......................................................................... $1,023.3 $1,146.9 $1,287.2
Europe................................................................................ 314.7 321.2 615.4
Rest of World......................................................................... 115.9 183.3 259.5
-------- -------- --------
$1,453.9 $1,651.4 $2,162.1
======== ======== ========
The following table presents property, plant and equipment by geographic
region based on the location of the asset as of December 31 (in millions):
2002 2001 2000
------ ------ ------
United States.......................................................................... $220.3 $245.5 $279.9
Europe................................................................................. 66.8 44.8 45.0
Rest of World.......................................................................... 36.2 30.6 54.5
------ ------ ------
$323.3 $320.9 $379.4
====== ====== ======
22. 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.
At December 31, 2002 and 2001, General Cable had an accrued liability of
approximately $4.6 million and $4.8 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 66 2/3% 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, 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
F-29
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
22. Commitments and Contingencies -- (Continued)
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.
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.
In addition, Company subsidiaries have been named as defendants in lawsuits
alleging exposure to asbestos in products manufactured by the Company. At
December 31, 2002, there were approximately 11,400 non-maritime claims and
33,000 maritime asbestos claims outstanding. During 2002, some 300 new non-
maritime claims and 550 maritime claims were filed; 35 non-maritime claims and
no maritime claims were dismissed, settled or otherwise disposed of in that
period. At December 31, 2002 and 2001, General Cable had accrued approximately
$1.3 million and $1.2 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.
As part of the October 2002 amendment to its credit facility, a contingent
payment to the lenders was established of approximately $5.5 million if the
total facility commitments are not reduced by at least $100 million by
December 15, 2003. The Company is actively pursuing other financing
arrangements in excess of the $100 million target in addition to generating
cash from operations in 2003 and currently believes this contingent payment
will not be required.
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, 2002 were as
follows: 2003 - $10.6 million, 2004 - $7.9 million, 2005 - $5.0 million, 2006
- $4.0 million and 2007 - $1.3 million. Rental expense recorded under
operating leases was $10.3 million, $16.2 million and $9.2 million for the
years ended December 31, 2002, 2001 and 2000, respectively.
23. Related Party Transactions
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. General Cable owns 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
2002, General Cable purchased approximately $12.2 million from the joint
venture company. At December 31, 2002, General Cable had a $3.0 million
payable to the joint venture company for these purchases.
F-30
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
23. Related Party Transactions -- (Continued)
General Cable sells fiber, a primary raw material used by the joint venture
Company, to the joint venture company. During 2002, General Cable sold
approximately $6.8 million to the joint venture company. At December 31, 2002,
General Cable had a receivable of $2.6 million from the joint venture company
for these transactions.
For the year 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.
24. 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 2002 and
2001 are set forth below (in millions, except per share data):
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)
EPS of Continuing Operations
----------------------------
Earning (loss) per common share ......................................................... $ 0.15 $(0.36) $(0.12) $(0.22)
Earnings (loss) dilution per common share--assuming dilution ............................ $ 0.15 $(0.36) $(0.12) $(0.22)
EPS of Discontinued Operations
------------------------------
Loss per common share ................................................................... -- $(0.12) -- $(0.06)
Loss per common share--assuming dilution ................................................ -- $(0.12) -- $(0.06)
EPS of Total Company
--------------------
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)
F-31
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
24. Quarterly Operating Results (Unaudited) -- (Continued)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
2001
----
Net sales ............................................................................... $451.7 $449.9 $389.5 $360.3
Gross profit ............................................................................ 70.7 73.5 52.3 44.2
Other income ............................................................................ -- 8.1 -- --
Income from continuing operations ....................................................... 14.9 17.8 1.4 3.4
Loss from operations of discontinued businesses (net of tax) ............................ (3.4) (2.6) (0.8) --
Loss on disposal of discontinued operations (net of tax) ................................ -- -- (32.7) --
Net income (loss) ....................................................................... 11.5 15.2 (32.1) 3.4
EPS of Continuing Operations
----------------------------
Earnings per common share ............................................................... $ 0.46 $ 0.55 $ 0.04 $ 0.10
Earnings dilution per common share--assuming dilution ................................... $ 0.46 $ 0.54 $ 0.04 $ 0.10
EPS of Discontinued Operations
------------------------------
Loss per common share ................................................................... $ (0.11) $ (0.08) $(1.02) --
Loss per common share--assuming Dilution ................................................ $ (0.11) $ (0.08) $(1.02) --
EPS of Total Company
--------------------
Earnings (loss) per common share ........................................................ $ 0.35 $ 0.47 $(0.98) $ 0.10
Earnings (loss) per common share--assuming dilution ..................................... $ 0.35 $ 0.46 $(0.98) $ 0.10
F-32
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
25. Supplemental Guarantor Information
General Cable Corporation (the Issuer) intends to issue and sell
$275.0 million of Senior Notes due 2010. General Cable Corporation and its
material North American wholly-owned subsidiaries will fully and
unconditionally guarantee the notes 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. Initially, all
of the Company's subsidiaries will be "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, 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-33
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
25. Supplemental Guarantor Information -- (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-34
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
25. Supplemental Guarantor Information -- (Continued)
Supplemental Consolidating Statements of Operations
(in millions)
Year Ended December 31, 2000
-----------------------------------------------------------------
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------- ------------ --------
Net Sales:
Customers.................................................... $ -- $1,367.6 $794.5 $ -- $2,162.1
Intercompany................................................. 39.9 -- 26.5 (66.4) --
------ -------- ------ ------ --------
39.9 1,367.6 821.0 (66.4) 2,162.1
Cost of sales................................................. -- 1,190.2 746.6 (66.4) 1,870.4
------ -------- ------ ------ --------
Gross profit.................................................. 39.9 177.4 74.4 -- 291.7
Selling, general and administrative expenses.................. 36.3 118.9 102.4 -- 257.6
------ -------- ------ ------ --------
Operating income.............................................. 3.6 58.5 (28.0) -- 34.1
Interest income (expense):
Interest expense............................................. (53.4) (71.7) (15.5) 78.3 (62.3)
Interest income.............................................. 68.3 11.4 1.1 (78.3) 2.5
Other financial costs........................................ (3.3) -- -- -- (3.3)
------ -------- ------ ------ --------
11.6 (60.3) (14.4) -- (63.1)
------ -------- ------ ------ --------
Income (loss) from continuing operations before income taxes.. 15.2 (1.8) (42.4) -- (29.0)
Income tax (provision) benefit................................ (5.4) 0.6 15.1 -- 10.3
------ -------- ------ ------ --------
Income (loss) from continuing operations...................... 9.8 (1.2) (27.3) -- (18.7)
Loss from operations of discontinued Operations (net of tax).. -- (7.7) -- -- (7.7)
------ -------- ------ ------ --------
Net income (loss)............................................ $ 9.8 $ (8.9) $(27.3) $ -- $ (26.4)
====== ======== ====== ====== ========
F-35
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
25. Supplemental Guarantor Information -- (Continued)
Supplemental Consolidating Balance Sheets
(in millions)
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-36
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
25. Supplemental Guarantor Information -- (Continued)
December 31, 2001
-----------------------------------------------------------------
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------- ------------ --------
Assets
Current assets:
Cash......................................................... $ -- $ 6.8 $ 9.8 $ -- $ 16.6
Receivables, net of allowances............................... -- 17.4 88.4 -- 105.8
Retained interest in accounts receivable..................... -- 83.1 -- -- 83.1
Inventories.................................................. -- 221.8 93.6 -- 315.4
Deferred income taxes........................................ -- 27.5 -- -- 27.5
Prepaid expenses and other................................... 3.2 20.0 0.7 -- 23.9
------ -------- ------ ------- --------
Total current assets....................................... 3.2 376.6 192.5 -- 572.3
Property, plant and equipment, net........................... 0.4 277.1 43.4 -- 320.9
Deferred income taxes........................................ (3.4) 71.0 (2.6) -- 65.0
Intercompany accounts........................................ 444.9 -- 33.8 (478.7) --
Investment in subsidiaries................................... 33.9 345.3 -- (379.2) --
Other non-current assets..................................... 11.2 33.6 2.3 -- 47.1
------ -------- ------ ------- --------
Total assets............................................... $490.2 $1,103.6 $269.4 $(857.9) $1,005.3
====== ======== ====== ======= ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable............................................. $ -- $ 137.5 $111.9 $ -- $ 249.4
Accrued liabilities.......................................... 7.5 96.2 9.9 -- 113.6
Current portion of long-term debt............................ -- 17.9 21.5 -- 39.4
------ -------- ------ ------- --------
Total current liabilities.................................. 7.5 251.6 143.3 -- 402.4
Long-term debt................................................ 304.3 84.7 32.0 -- 421.0
Deferred income taxes......................................... -- 0.7 2.2 -- 2.9
Intercompany accounts......................................... -- 478.7 -- (478.7) --
Other liabilities............................................. 32.9 30.5 10.7 -- 74.1
------ -------- ------ ------- --------
Total liabilities.......................................... 344.7 846.2 188.2 (478.7) 900.4
Total shareholders' equity.................................... 145.5 257.4 81.2 (379.2) 104.9
------ -------- ------ ------- --------
Total liability and shareholders' equity...................... $490.2 $1,103.6 $269.4 $(857.9) $1,005.3
====== ======== ====== ======= ========
F-37
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
25. Supplemental Guarantor Information -- (Continued)
Supplemental Consolidating Cash Flows
(in millions)
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, accrued 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-38
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
25. Supplemental Guarantor Information -- (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 of effect
of acquisitions and divestitures:
Sale of receivables, net of transaction costs paid at
closing.................................................... -- 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 changes 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-39
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
25. Supplemental Guarantor Information -- (Continued)
Supplemental Condensed Consolidating Cash Flows
(in millions)
Year Ended December 31, 2000
----------------------------------------------------------------
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------- ------------ -------
Cash flows of operating activities:
Net income (loss)............................................. $ 9.8 $ (8.9) $(27.3) -- $ (26.4)
Adjustment to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................... 3.2 36.1 16.7 -- 56.0
Deferred income taxes....................................... 5.4 3.4 (9.6) -- (0.8)
Changes in operating assets and liabilities, net of effect
of acquisitions and divestitures:
(Increase) decrease in receivables......................... -- (11.7) (22.3) -- (34.0)
(Increase) decrease in inventories......................... -- (4.8) (47.3) -- (52.1)
(Increase) decrease in other assets........................ 4.9 11.1 (16.3) -- (0.3)
Increase (decrease) in accounts payable, accrued and other
liabilities.............................................. 24.4 (12.8) 62.1 -- 73.7
------ ------- ------ --- -------
Net cash flows of operating activities...................... 47.7 12.4 (44.0) -- 16.1
------ ------- ------ --- -------
Cash flows of investing activities:
Capital expenditures.......................................... -- (26.6) (29.4) -- (56.0)
Acquisitions, net of cash acquired............................ -- (19.0) -- -- (19.0)
Proceeds from sale of businesses, net of cash sold............ -- 158.1 -- -- 158.1
Proceeds from properties sold................................. -- 0.6 0.2 -- 0.8
Other, net -- (1.0) -- -- (1.0)
------ ------- ------ --- -------
Net cash flows of investing activities...................... -- 112.1 (29.2) -- 82.9
------ ------- ------ --- -------
Cash flows of financing activities:
Dividends paid................................................ (6.7) -- -- (6.7)
Intercompany accounts......................................... 1.1 (101.8) 100.7 -- --
Net changes in revolving credit borrowings.................... 20.5 26.7 -- -- 47.2
Net change in other debt...................................... -- (0.2) (13.9) -- (14.1)
Issuance of long-term debt.................................... -- 7.4 -- -- 7.4
Repayment of long-term debt................................... (69.4) (49.9) (20.2) -- (139.5)
Acquisition of treasury stock................................. (10.1) -- -- -- (10.1)
Proceeds from exercise of stock options....................... -- -- -- -- --
------ ------- ------ --- -------
Net cash flows of financing activities...................... (64.6) (117.8) 66.6 -- (115.8)
------ ------- ------ --- -------
Increase (decrease) in cash.................................... (16.9) 6.7 (6.6) -- (16.8)
Cash - beginning of period..................................... 16.9 3.0 18.1 -- 38.0
------ ------- ------ --- -------
Cash - end of period........................................... $ -- $ 9.7 $ 11.5 $-- $ 21.2
====== ======= ====== === =======
F-40
GENERAL CABLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
Three Months
Ended Nine Months Ended
September 30, September 30,
--------------- -------------------
2003 2002 2003 2002
------ ------ -------- --------
Net sales ............................................................................... $382.5 $347.4 $1,133.1 $1,102.5
Cost of sales ........................................................................... 337.1 309.8 998.7 972.1
Gross profit ............................................................................ 45.4 37.6 134.4 130.4
Selling, general and administrative expenses ............................................ 31.9 33.5 93.6 116.2
------ ------ -------- --------
Operating income ........................................................................ 13.5 4.1 40.8 14.2
Interest income (expense):
Interest expense ....................................................................... (10.4) (10.5) (33.1) (31.9)
Interest income ........................................................................ 0.1 0.2 0.3 0.8
------ ------ -------- --------
(10.3) (10.3) (32.8) (31.1)
------ ------ -------- --------
Income (loss) from continuing operations
before income taxes.................................................................... 3.2 (6.2) 8.0 (16.9)
Income tax (provision) benefit .......................................................... (1.1) 2.2 (2.8) 6.0
------ ------ -------- --------
Income (loss) from continuing operations ................................................ 2.1 (4.0) 5.2 (10.9)
Loss on disposal of discontinued operations (net of tax) ................................ -- -- -- (3.9)
------ ------ -------- --------
Net income (loss) ....................................................................... $ 2.1 $ (4.0) $ 5.2 $ (14.8)
====== ====== ======== ========
EPS of Continuing Operations
----------------------------
Earnings (loss) per common share ........................................................ $ 0.06 $(0.12) $ 0.16 $ (0.33)
====== ====== ======== ========
Weighted average common shares .......................................................... 33.1 33.1 33.1 33.0
====== ====== ======== ========
Earnings (loss) per common share-assuming dilution ...................................... $ 0.06 $(0.12) $ 0.16 $ (0.33)
====== ====== ======== ========
Weighted average common shares-assuming dilution ........................................ 33.6 33.1 33.4 33.0
====== ====== ======== ========
EPS of Discontinued Operations
------------------------------
Loss per common share ................................................................... $ -- $ -- $ -- $ (0.12)
====== ====== ======== ========
Loss per common share - assuming dilution ............................................... $ -- $ -- $ -- $ (0.12)
====== ====== ======== ========
EPS of Total Company
--------------------
Earnings (loss) per common share ........................................................ $ 0.06 $(0.12) $ 0.16 $ (0.45)
====== ====== ======== ========
Earnings (loss) per common share -- assuming dilution ................................... $ 0.06 $(0.12) $ 0.16 $ (0.45)
====== ====== ======== ========
See accompanying Notes to Consolidated Financial Statements.
F-41
GENERAL CABLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
September 30, December 31,
2003 2002
------------- ------------
(unaudited)
Assets
Current Assets:
Cash.......................................... $ 24.2 $ 29.1
Receivables, net of allowances of $14.3
million at September 30, 2003 and $11.6
million at December 31, 2002................. 141.4 105.9
Retained interest in accounts receivable...... 80.9 84.8
Inventories................................... 247.0 258.3
Deferred income taxes......................... 12.3 12.2
Prepaid expenses and other.................... 24.6 42.6
------ ------
Total current assets......................... 530.4 532.9
Property, plant and equipment, net ............. 326.8 323.3
Deferred income taxes .......................... 74.7 68.3
Other non-current assets ....................... 46.0 48.8
------ ------
Total assets................................. $977.9 $973.3
====== ======
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable .............................. $260.0 $242.1
Accrued liabilities ........................... 103.5 99.2
Current portion of long-term debt ............. 33.5 40.8
------ ------
Total current liabilities.................... 397.0 382.1
Long-term debt ................................. 370.5 411.1
Deferred income taxes .......................... 2.7 2.1
Other liabilities .............................. 124.1 117.1
------ ------
Total liabilities............................ 894.3 912.4
------ ------
Shareholders' Equity:
Common stock, $0.01 par value:
Issued and outstanding shares:
September 30, 2003 - 33,083,028 (net of
4,828,225 treasury shares)
December 31, 2002 - 33,135,002 (net of
4,754,425 treasury shares)................ 0.4 0.4
Additional paid-in capital.................... 100.2 100.0
Treasury stock................................ (50.4) (50.0)
Retained earnings............................. 65.1 59.9
Accumulated other comprehensive loss.......... (28.4) (44.6)
Other shareholders' equity.................... (3.3) (4.8)
------ ------
Total shareholders' equity............... 83.6 60.9
------ ------
Total liabilities and shareholders' equity.... $977.9 $973.3
====== ======
See accompanying Notes to Consolidated Financial Statements.
F-42
GENERAL CABLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions, unaudited)
Nine Months
Ended
September 30,
---------------
2003 2002
------ ------
Cash flows of operating activities:
Net income (loss).......................................... $ 5.2 $(14.8)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 23.2 22.8
Deferred income taxes..................................... (5.8) 20.0
Loss on sale of property and business..................... 0.4 1.7
Changes in operating assets and liabilities:
(Increase) decrease in receivables ...................... (16.9) 17.8
Decrease in inventories ................................. 22.2 28.3
Decrease in other assets ................................ 19.5 3.4
Increase (decrease) in accounts payable, accrued and
other liabilities...................................... 10.4 (3.3)
------ ------
Net cash flows of operating activities................. 58.2 75.9
------ ------
Cash flows of investing activities:
Proceeds from properties sold.............................. 1.9 0.5
Proceeds from sale of business, net of cash sold........... -- 1.7
Capital expenditures....................................... (11.8) (22.8)
Repayment of loans from shareholders....................... 1.0 --
Other, net................................................. (1.3) (0.8)
------ ------
Net cash flows of investing activities................. (10.2) (21.4)
------ ------
Cash flows of financing activities:
Dividends paid............................................. -- (5.0)
Net change in revolving credit borrowings.................. (13.3) (36.1)
Net change in other debt................................... (25.5) (0.1)
Repayment of long-term debt................................ (14.1) (9.0)
Proceeds from exercise of stock options.................... -- 2.4
------ ------
Net cash flows of financing activities .................. (52.9) (47.8)
------ ------
Increase (decrease) in cash ................................. (4.9) 6.7
Cash-beginning of period .................................... 29.1 16.6
------ ------
Cash-end of period .......................................... $ 24.2 $ 23.3
====== ======
Supplemental Information
Cash paid (received) during the period for:
Income tax refunds, net.................................... $(13.3) $(32.8)
====== ======
Interest paid.............................................. $ 26.0 $ 30.5
====== ======
See accompanying Notes to Consolidated Financial Statements.
F-43
GENERAL CABLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in millions, except share amounts)
(unaudited)
Accumulated
Common Stock Additional Other Other
------------------- Paid-In Treasury Retained Comprehensive Shareholders'
Shares Amount Capital Stock Earnings Income(Loss) Equity Total
---------- ------ ---------- -------- -------- ------------- ------------- ------
Balance, December 31, 2001 .. 32,838,227 $0.4 $ 96.4 $(50.0) $ 88.9 $(25.7) $(5.1) $104.9
Comprehensive loss:
Net loss .................. (14.8) (14.8)
Foreign currency
translation adjustment... 5.0 5.0
Change in fair value of
financial instruments,
net of tax............... (1.4) (1.4)
Comprehensive loss ......... (11.2)
Dividends .................. (5.0) (5.0)
Amortization of restricted
stock and other........... 0.6 0.1 0.7
Exercise of stock options .. 265,359 2.4 2.4
Other ...................... 27,545 0.2 0.1 0.3
---------- ---- ------ ------ ------ ------ ----- ------
Balance, September 30, 2002 . 33,131,131 $0.4 $ 99.6 $(50.0) $ 69.1 $(22.1) $(4.9) $ 92.1
========== ==== ====== ====== ====== ====== ===== ======
Balance, December 31, 2002 .. 33,135,002 $0.4 $100.0 $(50.0) $ 59.9 $(44.6) $(4.8) $ 60.9
Comprehensive income:
Net income ................ 5.2 5.2
Foreign currency
translation adjustment... 15.2 15.2
Change in fair value of
financial instruments,
net of tax............... 1.0 1.0
------
Comprehensive income ...... 21.4
Amortization of restricted
stock and other.......... 0.4 0.1 0.5
Repayment of loans from
shareholders............. (74,177) (0.4) (0.4) 1.5 0.7
Other ..................... 22,203 0.2 (0.1) 0.1
---------- ---- ------ ------ ------ ------ ----- ------
Balance, September 30,
2003..................... 33,083,028 $0.4 $100.2 $(50.4) $ 65.1 $(28.4) $(3.3) $ 83.6
========== ==== ====== ====== ====== ====== ===== ======
See accompanying Notes to Consolidated Financial Statements.
F-44
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. 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 joint ventures of
$3.8 million at September 30, 2003 and December 31, 2002. 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.
Basis of Presentation
The accompanying unaudited consolidated financial statements of General
Cable Corporation and Subsidiaries have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Results of operations for the three and nine months ended September 30, 2003
are not necessarily indicative of results that may be expected for the full
year. These financial statements should be read in conjunction with the
audited financial statements and notes thereto in General Cable's 2002 Annual
Report on Form 10-K filed with the Securities and Exchange Commission on
March 28, 2003.
Revenue Recognition
Revenue is recognized when goods are shipped and title passes to the
customer.
Earnings Per Share
Earnings per common share 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.
Inventories
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 for the first nine months of
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 the date of acquisition. 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.
F-45
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. Summary of Accounting Policies -- (Continued)
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.
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 sale
transactions. 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 primarily throughout the
United States, Canada, Europe and Asia Pacific. 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 rates,
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. 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 shareholders' equity
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 8.
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 recorded into income which generally will
occur over periods less than one year.
F-46
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. Summary of Accounting Policies -- (Continued)
Accounts Receivable Securitization
The Company accounts 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." The securitization provides for certain domestic trade
receivables to be sold to a wholly owned, special purpose, bankruptcy-remote
subsidiary without recourse. This subsidiary in turn transfers the receivables
to a trust which has issued floating rate five year certificates. At the time
the receivables are sold, the balances are removed from the Consolidated
Balance Sheet. Costs associated with the transaction, primarily related to the
discount, are included in interest income (expense) in the Consolidated
Statement of Operations. At September 30, 2003 and December 31, 2002 the
Company's retained interest in accounts receivable and off balance sheet debt,
net of cash held in the trust was $80.9 million and $72.8 million; and
$84.8 million and $48.5 million, respectively. See further discussion in
Note 4.
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.
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------- --------------
2003 2002 2003 2002
----- ------ ----- ------
Net income (loss) as reported ................................................................. $ 2.1 $ (4.0) $ 5.2 $(14.8)
Deduct: Total stock-based employee compensation expense under fair value based method for all
awards, net of related tax effects........................................................... 0.5 0.5 1.2 1.3
----- ------ ----- ------
Pro forma net income (loss) ................................................................... $ 1.6 $ (4.5) $ 4.0 $(16.1)
===== ====== ===== ======
Earnings (loss) per share:
Basic - as reported .......................................................................... $0.06 $(0.12) $0.16 $(0.45)
Basic - pro forma ............................................................................ $0.05 $(0.14) $0.12 $(0.49)
Diluted - as reported ........................................................................ $0.06 $(0.12) $0.16 $(0.45)
Diluted - pro forma .......................................................................... $0.05 $(0.14) $0.12 $(0.49)
New Standards
In December 2002, SFAS No. 148 "Accounting for Stock-Based Compensation -
Transition and Disclosure - an amendment of FASB No. 123" was issued. SFAS
No. 148 provides alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee
compensation. SFAS No. 148 also requires additional disclosure about the
method of accounting for stock-based employee compensation and the effect of
the method used on reported results. General Cable has elected to not
implement the voluntary change to the fair value based method of accounting
for stock-based employee compensation, however, the disclosure requirements
have been implemented as required.
F-47
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. Summary of Accounting Policies -- (Continued)
In November 2002, FASB Interpretation (FIN) No. 45 "Guarantor's Accounting
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
has not had a material affect on the Company's financial position, results of
operations or cash flows.
In January 2003, FIN No. 46 "Consolidation of Variable Interest Entities"
was issued. FIN 46 is intended to achieve more consistent application of
consolidation policies to variable interest entities. FIN 46 applies
immediately to all variable interest entities created after January 31, 2003.
As directed by FASB Staff Position No. FIN 46-6, the effective date for
variable interest entities acquired or created before February 1, 2003 is
deferred until December 31, 2003. The adoption of FIN 46 is not expected to
have a material affect on the Company's financial position, results of
operations or cash flows.
In April 2003, SFAS No. 149 "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities" was issued. This statement amends and
clarifies financial accounting and reporting for derivative instruments and
for hedging activities under Statement 133. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003. The adoption of SFAS
No. 149 has not had material affect on the Company's financial position,
results of operations or cash flows.
In May 2003, SFAS No. 150 "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity" was issued. This statement
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 financial instruments entered into or modified
after May 31, 2003. The adoption of SFAS No. 150 has not had a material affect
on the Company's financial position, results of operations or cash flows.
2. Acquisitions and Divestitures
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.
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 September 30, 2003 and December 31, 2002, other non-current assets
included an investment in the joint venture of $3.8 million. The September 30,
2003 and December 31, 2002 balance sheets included a $10.2 million note
receivable from the joint venture in other non-current assets and a deferred
gain from the initial joint venture formation of $5.6 million in other
liabilities.
3. Discontinued Operations
During the second quarter of 2002, the Company recorded a $6.0 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
F-48
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. Discontinued Operations -- (Continued)
than anticipated holding period for three distribution centers with unexpired
lease commitments and certain other costs.
4. Accounts Receivable Asset Backed Securitization
In May 2001, the Company completed an Accounts Receivable Asset Backed
Securitization Financing transaction ("Securitization Financing"). The
Securitization Financing provides 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 a 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 will 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 are treated as a sale and result
in a reduction of total accounts receivable reported on the Company's
consolidated balance sheet. The Company continues to service the transferred
receivables and receives annual servicing fees from the special purpose
subsidiary of approximately 1% of the average receivable balance. The market
cost of servicing the receivables offsets the servicing fee income and results
in a servicing asset equal to zero. The Company's retained interest in the
receivables are carried at their fair value which is estimated as the net
realizable value. The net realizable value considers the relatively short
liquidation period and an estimated provision for credit losses. The provision
for credit losses is determined based on specific identification of
uncollectible accounts and the application of historical collection
percentages by aging category. The receivables are 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 borrowings of 4.92%. At
September 30, 2003 and December 31, 2002, key assumptions were receivables
days outstanding of 52 and 49, respectively, and interest rates on LIBOR based
borrowings of 1.7% and 2.0%, respectively.
At September 30, 2003 and December 31, 2002, the Company's retained interest
in accounts receivable and off balance sheet financing, net of cash held in
the trust, was $80.9 million and $72.8 million; and $84.8 million and
$48.5 million, respectively. The effective interest rate in the Securitization
Financing was approximately 1.7% at September 30, 2003 and 2.0% at December 31,
2002.
5. Inventories
Inventories consisted of the following (in millions):
September 30, December 31,
2003 2002
------------- ------------
Raw materials .................................. $ 24.1 $ 26.1
Work in process ................................ 33.3 33.2
Finished goods ................................. 189.6 199.0
------ ------
Total......................................... $247.0 $258.3
====== ======
At September 30, 2003 and December 31, 2002, $201.5 million and
$214.3 million, respectively, of inventories were valued using the LIFO
method. Approximate replacement cost of inventories valued using the LIFO
method totaled $196.8 million at September 30, 2003 and $198.1 million at
December 31, 2002.
F-49
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
5. Inventories -- (Continued)
If in some future period, the Company were 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. In 2002, the Company recorded a $2.5 million charge
($1.4 million in the third quarter and $1.1 million in the fourth quarter of
2002) for the liquidation of LIFO inventory in North America as the Company
significantly reduced its inventory levels. The Company has further reduced
inventory quantities during the third quarter of 2003 and as a result has
recorded a $0.8 million charge. The Company expects to further reduce
inventory quantities in the fourth quarter of 2003 which is expected to result
in an additional LIFO liquidation charge. The LIFO liquidation charge will
adversely affect margins, however, the amount of the charge to be incurred in
the fourth quarter of 2003 will be dependent upon the quantity of the
inventory reduction for the year and the market price of the metals during the
period the inventory liquidation occurred.
6. Restructuring Charges
During 2001 and 2002, provisions were recorded for various restructuring
activities. These provisions related to costs for the closure of manufacturing
facilities, worldwide headcount reductions, the elimination of regional
distribution centers and certain other costs. The balance of these accrued
restructuring costs were $15.2 million at December 31, 2002. During the first
nine months of 2003 an additional $1.7 million provision for severance costs
related to cost cutting efforts in Europe was recorded. Restructuring provisions
of $7.8 million were utilized during the first nine months of 2003.
Changes in accrued restructuring costs were as follows (in millions):
Severance Facility
And Related Closing
Costs Costs Total
----------- -------- -----
Balance - December 31, 2002..................... $ 4.4 $10.8 $15.2
Provision..................................... 1.7 -- 1.7
Utilization................................... (3.1) (4.7) (7.8)
----- ----- -----
Balance - September 30, 2003.................... $ 3.0 $ 6.1 $ 9.1
===== ===== =====
7. Long-term Debt
Long-term debt consisted of the following (in millions):
September 30, December 31,
2003 2002
------------- ------------
Term loans ..................................... $326.4 $337.4
Revolving loans ................................ 64.9 78.2
Other .......................................... 12.7 36.3
------ ------
404.0 451.9
Less current maturities......................... 33.5 40.8
------ ------
$370.5 $411.1
====== ======
The Company's current credit facility was entered into in 1999 with one lead
bank as administrative agent, and a syndicate of lenders. The facility, as
amended and reduced by prepayments, consists of: 1) term loans in Dollars in
an aggregate amount up to $297.5 million, 2) term loans in Dollars and foreign
currencies in an aggregate amount up to $28.9 million and 3) revolving loans
and letters of credit in Dollars and foreign currencies in an aggregate amount
up to $200.0 million. Borrowings are secured by assets of the Company's North
American operations and a portion of the stock of its non-North American
subsidiaries and are also
F-50
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. Long-term Debt -- (Continued)
guaranteed by the Company's principal operating subsidiaries. The credit
facility, as amended, restricts certain corporate acts and contains required
financial ratios and other covenants.
Loans under the credit facility bear interest, at the Company's option, at
(i) a spread over LIBOR or (ii) a spread over the Alternate Base Rate, which
is defined as the higher of (a) the agent's Prime Rate, (b) the secondary
market rate for certificates of deposit (adjusted for reserve requirements)
plus 1% or (c) the Federal Funds Effective Rate plus 1/2 of 1%. A commitment
fee accrues on the unused portion of the credit facility. The commitment fee
is 50 basis points per annum and the spread over LIBOR on all loans under the
facility ranges between 450 and 500 basis points per annum. Both the
commitment fee and the spread over LIBOR are fixed for the life of the
facility as a result of the October 2002 amendment (discussed below).
In April 2002, the Company amended the credit facility to permit increased
financial flexibility through March 2003. As a result of the amendment, the
Company's spread over LIBOR increased by 25 basis points across all levels of
its leverage-based pricing grid and a new leverage level was added to the
pricing grid. One time fees and expenses associated with the amendment were
$2.0 million and were being amortized over the one year period of the
amendment.
In October 2002, the Company further amended its credit facility through
March 2004. The amendment substantially relaxed the Company's financial
covenants primarily in response to the ongoing weakness in the Communications
segment. Among other provisions, the amendment adjusted the size of the
Company's revolving credit facility to $200 million from $250 million, added a
new financial covenant tied to minimum quarterly earnings levels and
established a contingent payment of approximately $5.5 million to lenders if
the total facility commitments are not reduced by at least $100 million by
December 15, 2003. As part of the amendment, the Company suspended its
quarterly cash dividend of $0.05 per common share for the term of the
amendment. One time costs of approximately $4 million were incurred for the
amendment and are being amortized over the life of the amendment. The Company
will also incur incremental annualized interest costs of approximately
$4 million during the amendment period as a result of increased credit
spreads. As a result of the completion of the October 2002 amendment, the
Company recorded $1.1 million of other financial costs for the write-off of
unamortized bank fees. 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 the reduction in
borrowing capacity of the revolving portion of the credit facility.
Future compliance with financial covenants will be dependent upon a number
of factors, including overall economic activity, future conditions in the
Company's principal end markets and the Company's future borrowing
requirements.
Scheduled repayments of the term loans began in December 2000 with final
maturity in June 2007.
8. 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
will typically pay a fixed rate while the counterparty pays to General Cable
the difference between the fixed rate and the three-month LIBOR rate.
During 2001, the Company entered into several interests rate swaps which
effectively fixed the LIBOR portion of the interest rates for borrowings under
the credit facility and other debt. The swaps outstanding as of September 30,
2003 were as follows (dollars in millions):
F-51
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. Financial Instruments -- (Continued)
Notional Interest
Interest Rate Derivatives Period Amounts Rate Range
------------------------- ----------------------------- -------- ------------
Interest rate swaps.................................................... December 2001 to October 2011 9.0 4.49%
Interest rate swaps.................................................... January 2003 to December 2003 200.0 4.60 - 4.74%
The Company does not provide or receive any collateral specifically for
these contracts. However, all counterparties are members of the lending group
and as such participate in the collateral of the credit agreement and are
significant financial institutions.
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.
Outside of North America, General Cable enters into commodity futures for the
purchase of copper and aluminum for delivery in a future month to match certain
sales transactions. In North America, General Cable enters into forward pricing
agreements for the purchase of copper and aluminum for delivery in a future
month to match certain sales transactions. General Cable expects to recover the
unrealized loss under these agreements as a result of firm sale price
commitments with customers.
9. Other Shareholders' Equity
Other shareholders' equity consisted of the following (in millions):
September 30, December 31,
2003 2002
------------- ------------
Loans to shareholders .......................... $(2.8) $(4.3)
Restricted stock ............................... (0.5) (0.5)
----- -----
Other shareholders' equity .................... $(3.3) $(4.8)
===== =====
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. The loans are evidenced by notes that bear interest at 5.12% and
mature in November 2003. A matching restricted stock unit (MRSU) was issued
for each share of stock purchased under the SLIP. The MRSUs generally vest
after five years of continuous employment. If the vesting requirements are
met, one share of General Cable common stock will be issued in exchange for
each MRSU. The fair value of the MRSUs at the grant date of $6.0 million,
adjusted for subsequent forfeitures, is being amortized to expense over the
five-year vesting period.
In June 2003, all executive officers repaid loans plus interest originally
granted 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%.
F-52
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. 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, except per
share amounts):
Three Months Ended September 30,
---------------------------------------------------------------------
2003 2002
---------------------------------- --------------------------------
Per Share Per Share
Income(1) Shares(2) Amount Loss(1) Shares(2) Amount
--------- --------- --------- ------- --------- ---------
Earnings (loss) per common share ......................... $ 2.1 33.1 $0.06 $ (4.0) 33.1 $(0.12)
Dilutive effect of stock options
and restricted stock units.............................. -- 0.5 -- -- -- --
----- ---- ----- ------ ---- ------
Earnings per common share - assuming
dilution................................................ $ 2.1 33.6 $0.06 $ (4.0) 33.1 $(0.12)
===== ==== ===== ====== ==== ======
Nine Months Ended September 30,
---------------------------------------------------------------------
2003 2002
---------------------------------- --------------------------------
Per Share Per Share
Income(1) Shares(2) Amount Loss(1) Shares(2) Amount
--------- --------- --------- ------- --------- ---------
Earnings (loss) per common share ......................... $ 5.2 33.1 $0.16 $(10.9) 33.0 $(0.33)
Dilutive effect of stock options
and restricted stock units.............................. -- 0.3 -- -- -- --
----- ---- ----- ------ ---- ------
Earnings per common share - assuming
dilution................................................ $5.2 33.4 $0.16 $(10.9) 33.0 $(0.33)
===== ==== ===== ====== ==== ======
---------------
(1) Numerator
(2) Denominator
The earnings per common share-assuming dilution computation excludes the
impact of 2.4 million and 2.5 million stock options and restricted stock units
in the third quarter and first nine months of 2003, respectively, because
their impact was anti-dilutive. In the third quarter and first nine months of
2002, the earnings (loss) per common share-assuming dilution computation also
excludes the impact of 3.0 million stock options and restricted stock units
for the same reason.
11. Segment Information
The energy segment manufactures and sells wire and cable products which
include low-, medium- and high-voltage power distribution and power
transmission products for overhead and buried applications. The industrial &
specialty segment manufactures and sells products which conduct electrical
current for industrial, OEM, commercial and residential power and control
applications. The communications segment manufactures and sells wire and cable
products which transmit low-voltage signals for voice, data, video and control
applications.
F-53
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. Segment Information -- (Continued)
Summarized financial information for the Company's operating segments for
the three months and nine months ended September 30, 2003 and 2002 is as
follows (in millions). Certain reclassifications have been made to the prior
year to conform to the current year segment presentation.
Three Months Ended September 30,
-------------------------------------------------------------
Industrial &
Energy Specialty Communications Corporate Total
------ ------------ -------------- --------- ------
Net sales:
2003............................................................. $138.2 $128.5 $115.8 $ -- $382.5
2002............................................................. 123.8 116.7 106.9 -- 347.4
Operating income (loss):
2003............................................................. 11.6 0.7 1.8 (0.6) 13.5
2002............................................................. 8.6 1.3 (2.1) (3.7) 4.1
Nine Months Ended September 30,
---------------------------------------------------------------
Industrial &
Energy Specialty Communications Corporate Total
------ ------------ -------------- --------- --------
Net sales:
2003........................................................... $413.5 $395.1 $324.5 $ -- $1,133.1
2002........................................................... 389.0 383.1 330.4 -- 1,102.5
Operating income (loss):
2003........................................................... 29.4 7.8 5.3 (1.7) 40.8
2002........................................................... 28.7 7.5 6.7 (28.7) 14.2
For the three month and nine month periods ended September 30, 2003, the
corporate operating loss of $0.6 million and $1.7 million consist of charges
for severance related to the Company's ongoing cost cutting efforts in Europe.
The corporate operating loss of $3.7 million for the three month period
ended September 30, 2002, included a $0.8 million charge related to the
closure of two manufacturing plants in North America and a $2.9 million charge
for severance costs. For the nine month period ended September 30, 2002, the
corporate operating loss of $28.7 million included a $20.5 million charge
related to the closure of two manufacturing plants in North America, a
$3.6 million charge to write-down to fair value certain assets contributed to
the Company's newly formed fiber optic joint venture, a $2.9 million charge
related to severance and severance related costs, and $1.7 million related to
the sale of the Company's small, non-strategic United Kingdom based specialty
cable business.
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.
F-54
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. Segment Information -- (Continued)
Identifiable assets of the Company's operating segments are summarized in
the following table (in millions). Corporate assets include cash, deferred
income taxes, property, certain prepaid expenses and other non-current assets.
September 30, December 31,
2003 2002
------------- ------------
Energy ......................................... $260.3 $229.1
Industrial & specialty ......................... 325.4 289.9
Communications ................................. 309.6 318.3
Corporate ...................................... 82.6 136.0
------ ------
Total......................................... $977.9 $973.3
====== ======
12. Supplemental Guarantor Information
General Cable Corporation (the Issuer) intends to issue and sell
$275.0 million of Senior Notes due 2010. General Cable Corporation and its
material North American wholly-owned subsidiaries will fully and
unconditionally guarantee the notes 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. Initially, all of
the Company's subsidiaries will be "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)
For the Three Months Ended September 30, 2003
---------------------------------------------------------------
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------- ------------ ------
Net sales:
Customers...................................................... $ -- $272.4 $110.1 $ -- $382.5
Intercompany................................................... 6.7 -- -- (6.7) --
----- ------ ------ ------ ------
6.7 272.4 110.1 (6.7) 382.5
Cost of sales................................................... -- 254.7 89.1 (6.7) 337.1
----- ------ ------ ------ ------
Gross profit.................................................... 6.7 17.7 21.0 -- 45.4
Selling, general and administrative expenses.................... 4.5 18.7 8.7 -- 31.9
----- ------ ------ ------ ------
Operating income................................................ 2.2 (1.0) 12.3 -- 13.5
Interest income (expense):
Interest expense............................................... (9.4) (16.5) (1.0) 16.5 (10.4)
Interest income................................................ 11.1 5.5 -- (16.5) 0.1
----- ------ ------ ------ ------
1.7 (11.0) (1.0) -- (10.3)
----- ------ ------ ------ ------
Income (loss) from continuing operations before income taxes.... 3.9 (12.0) 11.3 -- 3.2
Income tax (provision) benefit.................................. (1.4) 4.3 (4.0) -- (1.1)
----- ------ ------ ------ ------
Income (loss) from continuing operations........................ 2.5 (7.7) 7.3 -- 2.1
Loss on disposal of discontinued operations (net of tax)........ -- -- -- -- --
----- ------ ------ ------ ------
Net income (loss)............................................ $ 2.5 $ (7.7) $ 7.3 $ -- $ 2.1
===== ====== ====== ====== ======
F-55
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
12. Supplemental Guarantor Information -- (Continued)
For the Three Months Ended September 30, 2002
---------------------------------------------------------------
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------- ------------ ------
Net sales:
Customers...................................................... $ -- $257.1 $90.3 $ -- $347.4
Intercompany................................................... 7.0 -- -- (7.0) --
----- ------ ----- ------ ------
7.0 257.1 90.3 (7.0) 347.4
Cost of sales................................................... -- 242.1 74.7 (7.0) 309.8
----- ------ ----- ------ ------
Gross profit.................................................... 7.0 15.0 15.6 -- 37.6
Selling, general and administrative expenses.................... 6.3 20.2 7.0 -- 33.5
----- ------ ----- ------ ------
Operating income................................................ 0.7 (5.2) 8.6 -- 4.1
Interest income (expense):
Interest expense............................................... (9.4) (16.1) (1.5) 16.5 (10.5)
Interest income................................................ 11.1 5.6 -- (16.5) 0.2
----- ------ ----- ------ ------
1.7 (10.5) (1.5) -- (10.3)
----- ------ ----- ------ ------
Income (loss) from continuing operations before income taxes.... 2.4 (15.7) 7.1 -- (6.2)
Income tax (provision) benefit.................................. (0.9) 5.6 (2.5) -- 2.2
----- ------ ----- ------ ------
Income (loss) from continuing operations........................ 1.5 (10.1) 4.6 -- (4.0)
Loss on disposal of discontinued operations (net of tax)....... -- -- -- -- --
----- ------ ----- ------ ------
Net income (loss)............................................ $ 1.5 $(10.1) $ 4.6 $ -- $ (4.0)
===== ====== ===== ====== ======
F-56
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
12. Supplemental Guarantor Information -- (Continued)
Supplemental Consolidating Statements of Operations
(in millions)
For the Nine Months Ended September 30, 2003
-----------------------------------------------------------------
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------- ------------ --------
Net Sales:
Customers.................................................... $ -- $793.3 $339.8 $ -- $1,133.1
Intercompany................................................. 19.7 -- -- (19.7) --
------ ------ ------ ------ --------
19.7 793.3 339.8 (19.7) 1,133.1
Cost of sales................................................. -- 740.0 278.4 (19.7) 998.7
------ ------ ------ ------ --------
Gross profit.................................................. 19.7 53.3 61.4 -- 134.4
Selling, general and administrative expenses.................. 16.2 48.7 28.7 -- 93.6
------ ------ ------ ------ --------
Operating income.............................................. 3.5 4.6 32.7 -- 40.8
Interest income (expense):
Interest expense............................................. (28.1) (50.4) (4.0) 49.4 (33.1)
Interest income.............................................. 33.3 16.4 -- (49.4) 0.3
------ ------ ------ ------ --------
5.2 (34.0) (4.0) -- (32.8)
------ ------ ------ ------ --------
Income (loss) from continuing operations before income taxes.. 8.7 (29.4) 28.7 -- 8.0
Income tax (provision) benefit................................ (3.1) 10.5 (10.2) -- (2.8)
------ ------ ------ ------ --------
Income (loss) from continuing operations...................... 5.6 (18.9) (18.5) -- 5.2
Loss on disposal of discontinued operations (net of tax)...... -- -- -- -- --
------ ------ ------ ------ --------
Net income (loss).......................................... $ 5.6 $(18.9) $ 18.5 $ -- $ 5.2
====== ====== ====== ====== ========
F-57
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
12. Supplemental Guarantor Information -- (Continued)
For the Nine Months Ended September 30, 2002
-----------------------------------------------------------------
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------- ------------ --------
Net Sales:
Customers.................................................... $ -- $825.9 $276.6 $ -- $1,102.5
Intercompany................................................. 18.9 -- -- (18.9) --
------ ------ ------ ------ --------
18.9 825.9 276.6 (18.9) 1,102.5
Cost of sales................................................. -- 760.2 230.8 (18.9) 972.1
------ ------ ------ ------ --------
Gross profit.................................................. 18.9 65.7 45.8 -- 130.4
Selling, general and administrative expenses.................. 16.9 77.8 21.5 -- 116.2
------ ------ ------ ------ --------
Operating income.............................................. 2.0 (12.1) 24.3 -- 14.2
Interest income (expense):
Interest expense............................................. (28.1) (48.4) (4.8) 49.4 (31.9)
Interest income.............................................. 33.3 16.8 0.1 (49.4) 0.8
------ ------ ------ ------ --------
5.2 (31.6) (4.7) -- (31.1)
------ ------ ------ ------ --------
Income (loss) from continuing operations before income taxes.. 7.2 (43.7) 19.6 -- (16.9)
Income tax (provision) benefit................................ (2.6) 15.6 (7.0) -- 6.0
------ ------ ------ ------ --------
Income (loss) from continuing operations...................... 4.6 (28.1) 12.6 -- (10.9)
Loss on disposal of discontinued operations (net of tax)...... -- (3.9) -- -- (3.9)
------ ------ ------ ------ --------
Net income (loss).......................................... $ 4.6 $(32.0) $ 12.6 $ -- $ (14.8)
====== ====== ====== ====== ========
F-58
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
12. Supplemental Guarantor Information -- (Continued)
Supplemental Consolidating Balance Sheets
(in millions)
September 30, 2003
---------------------------------------------------------------
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------- ------------ ------
Assets
------
Current assets:
Cash........................................................... $ -- $ 8.5 $ 15.7 $ -- $ 24.2
Receivables, net of allowances................................. -- 9.4 132.0 -- 141.4
Retained interest in accounts receivables...................... -- 80.9 -- -- 80.9
Inventories.................................................... -- 135.6 111.4 -- 247.0
Deferred income taxes.......................................... -- 12.2 0.1 -- 12.3
Prepaid expenses and other..................................... 1.3 22.6 0.7 -- 24.6
------ ------ ------ ------- ------
Total current assets......................................... 1.3 269.2 259.9 -- 530.4
Property, plant and equipment, net............................. 0.4 237.0 89.4 -- 326.8
Deferred income taxes.......................................... (3.1) 81.5 (3.7) -- 74.7
Intercompany accounts.......................................... 462.4 -- 3.9 (466.3)
Investment in subsidiaries..................................... 33.8 345.2 -- (379.0) --
Other non-current assets....................................... 7.3 37.6 1.1 -- 46.0
------ ------ ------ ------- ------
Total assets................................................. $502.1 $970.5 350.6 $(845.3) $977.9
====== ====== ====== ======= ======
Liabilities and shareholders' equity
------------------------------------
Current liabilities:
Accounts payable............................................... $ -- $117.6 $142.4 $ -- $260.0
Accrued liabilities............................................ 12.1 75.3 16.1 -- 103.5
Current portion of long-term debt.............................. -- 18.3 15.2 -- 33.5
------ ------ ------ ------- ------
Total current liabilities.................................... 12.1 211.2 173.7 -- 397.0
Long-term debt.................................................. 297.9 49.8 22.8 -- 370.5
Deferred income taxes........................................... -- 2.4 0.3 -- 2.7
Intercompany accounts........................................... 0.5 465.8 -- (466.3) --
Other liabilities............................................... 32.9 78.0 13.2 -- 124.1
------ ------ ------ ------- ------
Total liabilities............................................ 343.4 807.2 210.0 (466.3) 894.3
------ ------ ------ ------- ------
Total shareholders' equity...................................... 158.7 163.3 140.6 (379.0) 83.6
------ ------ ------ ------- ------
Total liabilities and shareholders' equity...................... $502.1 $970.5 $350.6 $(845.3) $977.9
====== ====== ====== ======= ======
F-59
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
12. Supplemental Guarantor Information -- (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 receivables...................... -- 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 liabilities and shareholders' equity...................... $492.6 $1,014.5 $321.3 $(855.1) $973.3
====== ======== ====== ======= ======
F-60
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
12. Supplemental Guarantor Information -- (Continued)
Supplemental Consolidating Cash Flows
(in millions)
For the Nine Months Ended September 30, 2003
---------------------------------------------------------------
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------- ------------ ------
Cash flows of operating activities:
Net income income (loss)....................................... $ 5.6 $(18.9) $ 18.5 -- $ 5.2
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization................................ 0.6 21.3 1.3 -- 23.2
Deferred income taxes........................................ (0.5) (2.8) (2.5) -- (5.8)
Loss on sale of business..................................... -- 0.3 0.1 -- 0.4
Changes in operating assets and liabilities, net of effect of
acquisitions and divestitures:
(Increase) decrease in receivables.......................... -- 1.9 (18.8) -- (16.9)
(Increase) decrease in inventories.......................... -- 14.8 7.4 -- 22.2
(Increase) decrease in other assets......................... 1.5 17.6 (0.4) -- 19.5
Increase (decrease) in accounts payable, accrued and other
liabilities............................................... 8.1 5.2 (2.9) -- 10.4
------ ------ ------ --- ------
Net cash flows of operating activities.......................... 15.3 39.4 3.5 -- 58.2
------ ------ ------ --- ------
Cash flows of investing activities:
Capital expenditures........................................... -- (6.1) (5.7) -- (11.8)
Proceeds from properties sold.................................. -- 1.9 -- -- 1.9
Repayment of loans from shareholders........................... 1.0 -- -- -- 1.0
Other, net..................................................... -- (1.3) -- -- (1.3)
------ ------ ------ --- ------
Net cash flows of investing activities....................... 1.0 (5.5) (5.7) -- (10.2)
------ ------ ------ --- ------
Cash flows of financing activities:
Intercompany accounts.......................................... (10.1) (8.1) 18.2 -- --
Net changes in revolving credit borrowings..................... (6.2) (7.1) -- -- (13.3)
Net change in other debt....................................... -- (6.6) (18.9) -- (25.5)
Repayment of long-term debt.................................... -- (11.7) (2.4) -- (14.1)
------ ------ ------ --- ------
Net cash flows of financing activities....................... (16.3) (33.5) (3.1) -- (52.9)
------ ------ ------ --- ------
Increase (decrease) in cash..................................... -- 0.4 (5.3) -- (4.9)
Cash -- beginning of period..................................... -- 8.1 22.6 -- 29.1
------ ------ ------ --- ------
Cash -- end of period........................................... $ -- $ 8.5 $ 15.7 $-- $ 24.2
====== ====== ====== === ======
F-61
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
12. Supplemental Guarantor Information -- (Continued)
Supplemental Consolidating Cash Flows
(in millions)
For the Nine Months Ended September 30, 2002
---------------------------------------------------------------
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------- ------------ ------
Cash flows of operating activities:
Net income loss................................................ $ 4.6 $(32.0) $12.6 $-- $(14.8)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization................................ 0.7 21.9 0.2 -- 22.8
Deferred income taxes........................................ (0.8) 22.0 (1.2) -- 20.0
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.......................... -- 17.6 0.2 -- 17.8
(Increase) decrease in inventories.......................... -- 37.0 (8.7) -- 28.3
(Increase) decrease in other assets......................... 0.5 2.2 0.7 -- 3.4
Increase (decrease) in accounts payable, accrued and other
liabilities............................................... (0.9) (11.8) 9.4 -- (3.3)
------ ------ ----- --- ------
Net cash flows of operating activities......................... 4.1 58.6 13.2 -- 75.9
------ ------ ----- --- ------
Cash flows of investing activities:
Capital expenditures........................................... -- (13.4) (9.4) -- (22.8)
Proceeds from sale of businesses, net of cash sold............. -- 1.7 -- -- 1.7
Proceeds from properties sold.................................. -- 0.1 0.4 -- 0.5
Other, net..................................................... -- (0.8) -- -- (0.8)
------ ------ ----- --- ------
Net cash flows of investing activities....................... -- (12.4) (9.0) -- (21.4)
------ ------ ----- --- ------
Cash flows of financing activities:
Dividends paid................................................. (5.0) -- -- -- (5.0)
Intercompany accounts.......................................... 11.7 (16.5) 4.8 -- --
Net changes in revolving credit borrowings..................... (13.1) (23.0) -- -- (36.1)
Net change in other debt....................................... -- (0.1) -- -- (0.1)
Repayment of long-term debt.................................... -- (4.6) (4.4) -- (9.0)
Proceeds from exercise of stock options........................ 2.4 -- -- -- 2.4
------ ------ ----- --- ------
Net cash flows of financing activities....................... (4.0) (44.2) 0.4 -- (47.8)
------ ------ ----- --- ------
Increase (decrease) in cash..................................... 0.1 2.0 4.6 -- 6.7
Cash -- beginning of period..................................... -- 6.8 9.8 -- 16.6
------ ------ ----- --- ------
Cash -- end of period........................................... $ 0.1 $ 8.8 $14.4 $-- $ 23.3
====== ====== ===== === ======
F-62
GENERAL CABLE CORPORATION
[General Cable LOGO]
$100,000,000
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
----------------
General Cable Corporation from time to time may offer to sell debt
securities, preferred stock or common stock, including common stock issuable
upon the conversion of debt securities or preferred stock or as payment of
dividends on, or redemption or repurchase of, preferred stock, or any
combination of the foregoing. We may also offer common stock issuable upon the
conversion of debt securities or preferred stock. The total amount of these
securities will have an initial aggregate offering price of up to
$100,000,000, or the equivalent amount in other currencies, currency units or
composite currencies. Our common stock is listed on the New York Stock
Exchange and trades under the symbol "BGC".
We may offer and sell these securities to or through one or more
underwriters, dealers and agents, or directly to purchasers, on a continuous
or delayed basis.
This prospectus describes some of the general terms that may apply to these
securities and the general manner in which they may be offered. The specific
terms of any securities to be offered, and the specific manner in which they
may be offered, will be described in the applicable prospectus supplement. You
should read this prospectus and the applicable prospectus supplement carefully
before you invest.
An investment in the debt securities, preferred stock or common stock
involves a high degree of risk. You should carefully consider the risk factors
beginning on page 3 of this prospectus and any other information in this
prospectus or any prospectus supplement before deciding to purchase the debt
securities, preferred stock or common stock.
----------------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
This prospectus is dated October 27, 2003.
TABLE OF CONTENTS
Page
----
About This Prospectus ................................................... 1
Forward-Looking Statements .............................................. 1
General Cable Corporation ............................................... 2
Risk Factors ............................................................ 3
Ratio of Earnings to Fixed Charges ...................................... 9
Use of Proceeds ......................................................... 9
Plan of Distribution .................................................... 10
Description of Debt Securities We May Offer ............................. 11
Description of Preferred Stock We May Offer ............................. 21
Description of Common Stock We May Offer ................................ 23
Legal Ownership and Book-Entry Issuance ................................. 27
Validity of Securities .................................................. 28
Experts ................................................................. 29
Where You Can Find More Information ..................................... 29
Incorporation of Certain Documents by Reference ......................... 29
i
ABOUT THIS PROSPECTUS
This document is called a prospectus and is part of a registration statement
that we filed with the Securities and Exchange Commission, or SEC, using a
"shelf" registration or continuous offering process. Under this shelf process,
we may from time to time sell any combination of the securities described in
this prospectus in one or more offerings up to a total U.S. dollar equivalent
of $100,000,000.
This prospectus provides you with a general description of the securities we
may offer. Each time we sell securities, we will provide a prospectus
supplement containing specific information about the terms of the securities
being offered. That prospectus supplement may include a discussion of any risk
factors or other special considerations that apply to those securities. The
prospectus supplement may also add, update or change information in this
prospectus. If there is any inconsistency between the information in this
prospectus and a prospectus supplement, you should rely on the information in
that prospectus supplement. You should read both this prospectus and any
prospectus supplement together with the additional information described under
the heading "Where You Can Find More Information."
The registration statement containing this prospectus, including exhibits to
the registration statement, provides additional information about us and the
securities offered under this prospectus. The registration statement can be
read at the SEC web site or at the SEC office mentioned under the heading
"Where You Can Find More Information".
When acquiring any securities discussed in this prospectus, you should rely
only on the information provided in this prospectus and the prospectus
supplement, including the information incorporated by reference. Neither we,
nor any underwriters or agents, have authorized anyone to provide you with
different information. We are not offering the securities in any state where
such an offer is prohibited. You should not assume that the information in
this prospectus, any prospectus supplement, or any document incorporated by
reference, is truthful or complete at any date other than the date mentioned
on the cover page of those documents.
Unless otherwise mentioned or unless the context requires otherwise, all
references in this prospectus to "General Cable", "we", "us", "our", or
similar references mean General Cable Corporation together with its
subsidiaries.
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.
1
GENERAL CABLE CORPORATION
We are a leader in the development, design, manufacture, marketing and
distribution of copper, aluminum and fiber optic wire and cable products for
the communications, energy, industrial and specialty markets. Communications
wire and cable transmit low-voltage signals for voice, data, video and control
applications. Energy cables include low-, medium- and high-voltage power
distribution and power transmission products. Industrial and specialty wire
and cable products conduct electrical current for industrial & commercial
power and control applications. We believe that our principal competitive
strengths include our breadth of product line; brand recognition; distribution
and logistics; service and operating efficiency.
2
RISK FACTORS
Investing in our securities involves a high degree of risk. You should
carefully consider the following risk factors and other information contained
in this prospectus and any applicable prospectus supplement before investing
in our securities.
Risks Related to Business
Our net sales, net income and growth depend largely on the economies in the
geographic markets that we serve.
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, on building,
maintaining or reconfiguring their communications network, industrial
manufacturing assets and power transmission and distribution infrastructures
and on new construction. 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 revenues 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.
The markets for copper, aluminum and fiber optic wire and other 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 into our markets 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 fiscal 2002, 30% of our sales and 40% of our assets were in markets
outside the United States. 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 2002, our Spanish operations generated 42% of our 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.
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,
3
the Electronics Industries Association and the Canadian Standards Association.
In addition, in many markets, 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 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 material 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 2002, our copper rod mill plant produced
approximately 50% of the copper rod used in our North American operations and
two suppliers provided an aggregate of approximately 36% 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.
4
Failure to negotiate extensions of our labor agreements as they expire may
result in a disruption of our operations.
Approximately 65% 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. The labor agreement covering our Taunton,
Massachusetts facility, which employs 1.1% of our employees, expired on
August 1, 2003 but was extended through October 31, 2003. In addition, labor
agreements covering 18% of our other employees expire prior to December 31,
2004. 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 sales of
our products.
During 2002, approximately 44% of our net sales were to independent
distributors and four of our ten largest customers were distributors.
Distributors accounted for approximately 40% of sales of our communications
products and 59% of our industrial & specialty products. During 2002,
approximately 9% of our net sales were to retailers and the two largest
retailers, AutoZone and The Home Depot, accounted for approximately 3.3% and
3.1%, 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 throughout 2003 and for the
foreseeable future. Further declines in prices, without offsetting cost-
reductions, will adversely affect our financial results.
Other Risks Relating to Our Business
Our substantial debt and debt service requirements could adversely affect our
business.
We have a significant amount of debt outstanding. As of June 30, 2003, we
had $493.9 million of debt outstanding including $74.2 million of indebtedness
under our asset-backed securitization facility. Of our total debt,
$470.6 million was secured indebtedness. As of August 31, 2003, our total debt
increased by $17.6 million to $511.5 million. Under our credit facility, we
will be required to make a payment of approximately $5.2 million to the
lenders if the total facility commitments are not reduced by at least
$100 million by December 15, 2003. We will be required to raise additional
financing to make this reduction,
5
as cash flow from operations will not be sufficient. We cannot assure you that
we will be able to obtain the necessary financing.
In addition, the degree to which we are leveraged could have important
adverse consequences to you and to us. For example, it could:
o make it difficult for us to make payments on or otherwise satisfy our
obligations with respect to our indebtedness;
o require us to dedicate a significant portion of our cash flows from
operations to debt service, thereby reducing the availability of cash
flow for other purposes;
o limit our ability to borrow additional amounts for working capital,
capital expenditures, potential acquisition opportunities and other
purposes;
o limit our ability to withstand competitive pressures and reduce our
flexibility in responding to changing business, regulatory and economic
conditions in our industry;
o place us at a competitive disadvantage against our less leveraged
competitors;
o subject us to increased interest costs, to the extent of the portion of
our indebtedness that is subject to floating interest rates; and
o could 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 our accounts payable financing for our European operations is cancelled by
our lenders, our cash flow will be negatively impacted.
Our European operation participates in an arrangement with several European
financial institutions which provide extended accounts payable terms to us. In
general, the arrangement provides for accounts payable terms of up to 180
days. At June 30, 2003, the arrangement had a maximum availability limit of
the equivalent of approximately $99 million of which approximately $86 million
was drawn. We do not have a firm commitment from these European financial
institutions requiring them to continue to extend credit and they may decline
to advance additional funding. Should the availability under this arrangement
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 this arrangement over 180 days and 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 cash flows.
We may be required to take certain charges to our earnings in future periods
in connection with potential plant closures and our inventory accounting
practices.
We are currently evaluating additional closures of certain of our
facilities. Should we decide to rationalize one or more manufacturing
locations in some future period, financial results and cash flows will be
negatively impacted as the one-time costs relating to such action, which could
be substantial, are recognized in our income statement.
As a result of declining copper prices, the historic last-in first-out
("LIFO") cost of our copper inventory exceeded its replacement cost by
approximately $16 million at December 31, 2002 and $10.9 million at June 30,
2003. 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, we recorded a $2.5 million charge for the liquidation
of LIFO inventory in North America as we significantly reduced our inventory
levels. We expect to further reduce inventory quantities in the second
6
half of 2003 which is expected to result in an additional LIFO liquidation
charge. The amount of the charge to be incurred in 2003 will be dependent upon
the quantity of the inventory reduction and the market price of the metals at
the time of the inventory liquidation. Additionally, if LIFO inventory
quantities were reduced in a period when replacement costs were lower than the
LIFO value of the inventory, we would experience a decline in reported
earnings.
We are subject to certain asbestos litigation.
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 US 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. There can be no assurance 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.
Environmental liabilities could potentially adversely impact us and our
affiliates.
We are subject to federal, state and local 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 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.
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 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 common
or preferred shares may dilute the value of shares held by our shareholders.
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. 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
7
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 revenues 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
will increase our pension expense and require 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. We will experience an increase in our future pension
expense and in our cash contributions to our defined benefit pension plan.
Pension expense for our defined benefit plans is expected to increase from
$2.0 million in 2002 to approximately $7.0 million in 2003 and our required
cash contributions are expected to increase to $5.9 million in 2003 from
$3.0 million in 2002. In 2004, 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 against
earnings and increase our required cash contributions.
Our stock price has been and continues to be volatile.
The market price for our common stock could fluctuate due to various
factors. These factors include:
o announcements relating to significant corporate transactions;
o fluctuations in our quarterly and annual financial results;
o operating and stock price performance of companies that investors deem
comparable to us;
o changes in government regulation or proposals relating thereto;
o general industry and economic conditions; and
o sales or the expectation of sales of a substantial number of shares of
our common stock in the public market.
In addition, the stock markets have, in recent years, experienced
significant price fluctuations. These fluctuations often have been unrelated
to the operating performance of the specific companies whose stock is
8
traded. Market fluctuations, as well as economic conditions, have adversely
affected, and may continue to adversely affect, the market price of our common
stock. Fluctuations in the price of our common stock will affect the value of
any outstanding preferred stock.
Provisions in our charter documents could make it more difficult to acquire
our company.
Our amended and restated certificate of incorporation and amended and
restated by-laws contain provisions that may discourage, delay or prevent a
third party form acquiring us, even if doing so would be beneficial to our
stockholders. Under our amended and restated certificate of incorporation only
our board of directors may call special meetings of stockholders, and
stockholders must comply with advance notice requirements for nominating
candidates for election to our board of directors or for proposing matters
that can be acted upon by stockholders at stockholder meetings. Directors may
be removed by stockholders only for cause and only by the effective vote of at
least 66 2/3% of the voting power of all shares of capital stock then entitled
to vote generally in the election of directors, voting together as a single
class. Additionally, agreements with certain of our executive officers may
have the effect of making a change of control more expensive and, therefore,
less attractive.
Pursuant to our amended and restated certificate of incorporation, our board
of directors may by resolution establish one or more series of preferred
stock, having such number of shares, designation, relative voting rights,
dividend rates, conversion rights, liquidation or other rights, preferences
and limitations as maybe fixed by our board of directors without any further
shareholder approval. Such rights, preferences, privileges and limitations as
may be established could have the further effect of impeding or discouraging
the acquisition of control of our company.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth General Cable's consolidated ratio of
earnings to fixed charges for each of the periods indicated.
For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of pretax income from continuing operations before minority interest
and before equity method earnings or losses adjusted for fixed charges. Fixed
charges include: (i) interest expense; (ii) amortization of debt issuance
cost; and (iii) an estimate of the interest component of rent expense. As of
the date of this prospectus, we have no preferred stock outstanding. The ratio
of earnings to fixed charges and preferred stock dividends is the same as the
ratio of earnings to fixed charges in all periods as we have not had any
preferred stock outstanding.
Six Months
Ended
Year Ended December 31, June 30,
---------------------------------- -----------
1998 1999 2000 2001 2002 2002 2003
---- ---- ---- ---- ---- ---- ----
Ratio of Earnings to Fixed Charges (1)........................................ 6.5 2.3 0.6 2.1 0.4 0.5 1.2
---------------
(1) For the years ended December 31, 2000 and 2002 and the six months ended
June 30, 2002, earnings were insufficient to cover fixed charges by
$28.9 million, $27.6 million and $10.5 million, respectively.
USE OF PROCEEDS
Except as we may specifically state in any prospectus supplement, we intend
to use the net proceeds from the sale of the securities for general corporate
purposes, which may include repayment of indebtedness.
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PLAN OF DISTRIBUTION
We may sell securities to or through underwriters or dealers and may also
sell securities directly to other purchasers or through agents. The prospectus
supplement will set forth the terms of the offering of such securities,
including
o the name or names of any underwriters, dealers or agents and the amounts
of securities underwritten or purchased by each of them,
o the initial public offering price of the securities and the proceeds to
us and any discounts, commissions or concessions allowed or reallowed or
paid to dealers, and
o any securities exchanges on which the securities may be listed.
Any initial public offering price and any discounts or concessions allowed
or reallowed or paid to dealers may be changed from time to time.
The securities may be distributed from time to time in one or more
transactions at:
o a fixed price or prices, which may be changed;
o market prices prevailing at the time of sale;
o prices related to the prevailing market prices; or
o negotiated prices.
If underwriters are used in the sale of any securities, the securities will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions. The securities may be either offered
to the public through underwriting syndicates represented by managing
underwriters, or directly by underwriters. Generally, the underwriters'
obligations to purchase the securities will be subject to certain conditions
precedent. The underwriters will be obliged to purchase all of the securities
if they purchase any of the securities. In connection with the sale of
securities, underwriters may receive compensation from us or from purchasers
of securities for whom they may act as agents. This compensation may be in the
form of discounts, concessions or commissions.
Underwriters may sell securities to or through dealers, and these dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agents. Underwriters, dealers and agents that participate in the
distribution of securities could be considered underwriters, and any discounts
or commissions received by them from us and any profit on the resale of
securities by them could be considered underwriting discounts and commissions,
under the Securities Act.
Under agreements entered into by us for the purchase or sale of securities,
these underwriters and agents may be entitled to indemnification by us against
certain liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which the agents or underwriters may be
required to make in respect thereof. Agents and underwriters may be customers
of, engage in transactions with, or perform services for us in the ordinary
course of business.
If so indicated in the prospectus supplement, we will authorize underwriters
or other persons acting as our agents to solicit offers by institutional
investors to purchase securities from us under contracts requiring payment and
delivery on a future date. Institutions with which these contracts may be made
include, among others:
o commercial and savings banks;
o insurance companies;
o pension funds;
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o investment companies; and
o educational and charitable institutions.
but in all cases we must approve these institutions. The obligations of any
purchaser under these contracts will be subject to the condition that the
purchase of the offered securities shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which that purchaser is
subject. The underwriters and other agents will not have any responsibility in
respect of the validity or performance of these contracts.
One or more firms, referred to as "remarketing firms," may also offer or
sell the securities, if the prospectus supplement so indicates, in connection
with a remarketing arrangement upon their purchase. Remarketing firms will act
as principals for their own accounts or as agents for us. These remarketing
firms will offer or sell the securities in accordance with a redemption or
repayment pursuant to the terms of the securities. The prospectus supplement
will identify any remarketing firm and the terms of its agreement, if any,
with us and will describe the remarketing firm's compensation. Remarketing
firms may be deemed to be underwriters in connection with the securities they
remarket. Remarketing firms may be entitled under agreements that may be
entered into with us to indemnification by us against certain civil
liabilities, including liabilities under the Securities Act and may be
customers of, engage in transactions with or perform services for us in the
ordinary course of business.
DESCRIPTION OF DEBT SECURITIES WE MAY OFFER
This section outlines some of the provisions of the indentures and the debt
securities. This information may not be complete in all respects and is
qualified entirely by reference to the indentures under which the debt
securities are issued. These indentures are incorporated by reference as
exhibits to the registration statement of which this prospectus is a part.
This information relates to terms and conditions that generally apply to the
debt securities. The specific terms of any series of debt securities will be
described in the prospectus supplement. If so described in a prospectus
supplement, the terms of that series may differ from the general description
of the terms presented below.
Debt Securities May Be Senior or Subordinated
We may issue senior or subordinated debt securities. The senior debt
securities and the subordinated debt securities may or may not be secured by
any of our property or assets.
The senior debt securities will constitute part of our senior indebtedness,
will be issued under our senior debt indenture described below and will rank
equally with all of our other unsecured and unsubordinated debt.
The subordinated debt securities will constitute part of our subordinated
debt, will be issued under our subordinated debt indenture described below and
will be subordinated in right of payment to all of our "senior indebtedness",
as defined in the subordinated debt indenture. The prospectus supplement for
any series of subordinated debt securities will indicate the approximate
amount of senior indebtedness outstanding as of the end of our most recent
fiscal quarter. Neither indenture limits our ability to incur additional
senior indebtedness.
When we refer to "debt securities" in this prospectus, we mean both the
senior debt securities and the subordinated debt securities.
The Senior Debt Indenture and the Subordinated Debt Indenture
The senior debt securities and the subordinated debt securities are each
governed by a document called an indenture--the senior debt indenture, in the
case of the senior debt securities, and the subordinated debt indenture, in
the case of the subordinated debt securities. Each indenture is a contract
between us and a trustee that will be named therein. The indentures are
substantially identical, except for the provisions relating to subordination,
which are included only in the subordinated indenture.
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The trustee under each indenture has two main roles:
o First, the trustee can enforce your rights against us if we default.
There are some limitations on the extent to which the trustee acts on
your behalf, which we describe later under "--Events of Default"; and
o Second, the trustee performs administrative duties for us, such as
sending you interest payments and notices.
When we refer to the indenture or the trustee with respect to any debt
securities, we mean the indenture under which those debt securities are issued
and the trustee under that indenture.
The indentures permit us to issue different series of securities from time
to time. We may issue securities in such amounts, at such times and on such
terms as we wish. The debt securities may differ from one another in their
terms. Neither indenture limits the aggregate amounts of debt securities that
we may issue or the aggregate amount of any particular series.
The indentures and the debt securities are governed by New York law.
This Section is Only a Summary
Because this section is a summary, it does not describe every aspect of the
debt securities. The indentures, any supplemental indentures and the debt
securities contain the full legal text of the matters described in this
section. This summary is subject to and qualified in its entirety by reference
to all the provisions of the indentures, including definitions of some of the
terms used in the indentures. We also include references in parentheses to
some sections and articles of the indentures. Whenever we refer to particular
sections, articles or defined terms of the indentures in this prospectus or in
the prospectus supplement, those sections, articles or defined terms are
incorporated by reference here or in the prospectus supplement. The indentures
are exhibits to our registration statement. See "Where You Can Find More
Information" for information on how to obtain a copy. This summary is also
subject to and qualified by reference to the description of the particular
terms of your series of debt securities described in any prospectus
supplement.
Specific Terms of a Series of Debt Securities
In this section we summarize only the more important terms of the indentures
that will apply generally to the debt securities. Each particular debt
security will have financial, legal and other terms specific to it, and the
specific terms of each debt security will be described in the applicable
prospectus supplement. Those terms may vary from the terms described here. As
you read this section, therefore, please remember that the specific terms of
your debt security as described in your prospectus supplement will supplement
and, if applicable, may modify or replace the general terms described in this
section. The statements we make in this section may not apply to your debt
security.
We may issue the debt securities as original issue discount securities,
which are debt securities that are offered and sold at a substantial discount
to their stated principal amount. The debt securities may also be issued as
indexed securities or securities denominated in foreign currencies or currency
units, as well as composite currencies or composite currency units, as
described in more detail in the prospectus supplement relating to any of these
types of debt securities.
The prospectus supplement relating to a series of debt securities will
specify whether the securities are senior or subordinated debt securities and
will describe the following terms of the series:
o the title of the series
o the aggregate principal amount (or any limit on the aggregate principal
amount) of the series and, if any debt securities of a series are to be
issued at a discount from their face amount, the method of computing the
accretion of such discount.
o the interest rate or rates, if any, or method of calculating the interest
rate;
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o the date or dates from which interest will accrue;
o the record dates for interest payable on registered debt securities;
o the dates when principal and interest are payable;
o the manner of paying principal and interest;
o the places where principal and interest are payable;
o the registrar, transfer agent and paying agent;
o in the case of subordinated debt securities, any subordination provisions
in addition to or in lieu of those set forth in the indenture;
o the terms of any mandatory (including any sinking fund requirements) or
optional redemption by us;
o the terms of any repayment at the option of holders;
o the denominations in which debt securities are issuable;
o whether debt securities will be issuable as registered securities or
bearer securities;
o whether and upon what terms registered securities and bearer securities
may be exchanged;
o whether any debt securities will be represented by a debt security in
global form;
o the terms of any global debt security;
o the terms of any tax indemnity;
o the currencies (including any composite currency) in which principal or
interest may be paid;
o if payments of principal or interest may be made in a currency other than
that in which debt securities are denominated, the manner for determining
such payments;
o if amounts of principal or interest may be determined by reference to an
index, formula or other method, the manner for determining such amounts;
o provisions for electronic issuance of debt securities or for debt
securities in uncertificated form;
o the portion of principal payable upon acceleration of a discounted debt
security;
o any events of default or covenants in addition to or in lieu of those set
forth in the applicable indenture;
o whether and upon what terms debt securities may be defeased, if different
from the provisions set forth in the base indenture;
o the forms of the debt securities;
o any terms that may be required by or advisable under U.S. or other
applicable laws;
o the percentage of the principal amount of the debt securities which is
payable if the maturity of the debt securities is accelerated in the case
of debt securities issued at a discount from their face amount;
o whether and upon what terms the debt securities will be convertible into
or exchangeable for our common stock; and
o any other terms not inconsistent with the indenture.
Special U.S. Federal income tax considerations may apply to a series of debt
securities issued as original issue discount securities. These tax
considerations will be discussed in the related prospectus supplement. In
addition, if any special U.S. Federal income tax considerations apply to a
series of debt securities denominated in a currency or currency unit other
than U.S. dollars, the related prospectus supplement will describe those
considerations.
13
Conversion Rights
If debt securities of any series are convertible into our common stock, the
related prospectus supplement will discuss the conversion terms. Those terms
will include provisions as to whether the conversion is mandatory or at the
option of the holder and may also include provisions for calculating the
number of shares of common stock to be delivered upon conversion.
Subordination of Subordinated Debt Securities
Holders of subordinated debt securities should recognize that contractual
provisions in the subordinated debt indenture may prohibit us from making
payments on those securities. Subordinated debt securities are subordinate in
right of payment, to the extent and in the manner stated in the subordinated
debt indenture, to all our senior debt, including all debt securities we have
issued that constitute senior debt and all debt securities we will issue under
the senior debt indenture.
The subordinated debt indenture defines "senior indebtedness" as all our
indebtedness and other payment obligations relating to our debt, as defined
below, including:
o all obligations under credit facilities (whether for principal, interest,
fees, expenses or indemnities);
o all indebtedness for borrowed money or under any reimbursement obligation
relating to a letter of credit or other similar instruments or evidenced
by a bond, note, debenture or similar instrument, or such indebtedness of
others which we guarantee (to the extent of the guarantee) and
capitalized lease obligations, including principal, premium, if any, and
interest on such indebtedness, unless the instrument under which such
indebtedness is incurred expressly provides that such indebtedness is not
senior or superior in right of payment to the subordinated debt
securities;
o all obligations under interest protection agreements; and
o all obligations under currency agreements.
All amendments, renewals, extensions, modifications and refundings of these
obligations will also be included in senior indebtedness. Senior indebtedness
excludes the subordinated debt securities and any other indebtedness or
obligations specifically designated as being subordinate, or not superior, in
right of payment to the subordinated debt securities.
The subordinated debt indenture provides that, unless all principal of and
any premium or interest on the senior debt has been paid in full, no payment
or other distribution may be made in respect of any subordinated debt
securities in the following circumstances:
o if there exists a default in the payment of all or any portion of the
obligations on any senior indebtedness, whether at maturity, on account
of mandatory redemption or prepayment or purchase, acceleration or
otherwise, that continues beyond any applicable period of grace, and such
default shall not have been cured or waived or the benefits of the
subordination provisions in the subordinated debt indenture is waived by
or on behalf of the holders of such senior indebtedness; or
o after receipt by the trustee of written notice from the holder or holders
of certain designated senior indebtedness or the trustee or agent acting
on behalf of such designated senior indebtedness and for 179 days
thereafter, during the continuance of any non-payment event of default
with respect to any designated senior indebtedness pursuant to which the
maturity thereof may be immediately accelerated, and, then, unless and
until such event of default has been cured or waived or has ceased to
exist or such designated senior indebtedness has been discharged or
repaid in full in cash or the benefits of the subordination provisions in
the subordinated debt indenture have been waived by the holders of such
designated senior indebtedness.
As defined in the subordinated debt indenture, "designated senior
indebtedness" means any senior indebtedness (a) under a credit facility or (b)
which, at the time of determination, has an aggregate commitment or principal
amount outstanding of at least $10.0 million if the instrument governing such
senior indebtedness expressly states that such indebtedness is "designated
senior indebtedness" for purposes of the
14
subordinated debt indenture and a resolution of our board of directors setting
forth such designation by us has been filed with the trustee.
For the purposes of the subordination provisions, the payment of cash or
delivery of property or securities upon conversion of a subordinated debt
security, excluding delivery of our common stock and certain of our
subordinated securities, will be deemed a payment of the principal of that
subordinated debt security.
Legal Ownership
Street Name and Other Indirect Holders
Investors who hold debt securities in accounts at banks or brokers will
generally not be recognized by us as legal holders of debt securities. This is
called holding in street name. Instead, we would recognize only the bank or
broker, or the financial institution the bank or broker uses to hold its debt
securities. These intermediary banks, brokers and other financial institutions
pass along principal, interest and other payments on the debt securities,
either because they agree to do so in their customer agreements or because
they are legally required to do so. If you hold debt securities in street
name, you should check with your own institution to find out:
o how it handles debt securities payments and notices;
o whether it imposes fees or charges;
o how it would handle voting, if it were ever required;
o whether and how you can instruct it to send you debt securities
registered in your own name so you can be a direct holder as described
below; and
o how it would pursue rights under the debt securities if there were a
default or other event triggering the need for holders to act to protect
their interests.
Direct Holders
Our obligations, as well as the obligations of the trustee and those of any
third parties employed by us or the trustee, under the debt securities run
only to persons who are registered as holders of debt securities. As noted
above, we do not have obligations to you if you hold in street name or other
indirect means, either because you choose to hold debt securities in that
manner or because the debt securities are issued in the form of global
securities as described below. For example, once we make payment to the
registered holder we have no further responsibility for the payment even if
that holder is legally required to pass the payment along to you as a street
name customer but does not do so.
Global Securities
What is a Global Security? A global security is a special type of indirectly
held security, as described above under "--Street Name and Other Indirect
Holders". If we choose to issue debt securities in the form of global
securities, the ultimate beneficial owners of global securities can only be
indirect holders. We require that the global security be registered in the
name of a financial institution we select.
We also require that the debt securities included in the global security not
be transferred to the name of any other direct holder unless the special
circumstances described in the section "Legal Ownership and Book-Entry
Issuance" below occur. The financial institution that acts as the sole direct
holder of the global security is called the depositary. Any person wishing to
own a security must do so indirectly by virtue of an account with a broker,
bank or other financial institution that in turn has an account with the
depositary. The prospectus supplement indicates whether your series of debt
securities will be issued only in the form of global securities.
Further details of legal ownership are discussed in the section "Legal
Ownership and Book-Entry Issuance".
15
In the remainder of this description "you" means direct holders and not
street name or other indirect holders of debt securities. Indirect holders
should read the previous subsection entitled "Street Name and Other Indirect
Holders".
Overview of Remainder of This Description
The remainder of this description summarizes:
o Additional mechanics relevant to the debt securities under normal
circumstances, such as how you transfer ownership and where we make
payments.
o Your rights under several special situations, such as if we merge with
another company or if we want to change a term of the debt securities.
o Covenants contained in the indentures that require us, or limit our
ability to perform various acts. A particular series of debt securities
may have additional covenants.
o Your rights if we default or experience other financial difficulties.
o Our relationship with the trustee.
Additional Mechanics
Exchange and Transfer
Unless otherwise provided in the prospectus supplement, debt securities will
have a minimum denomination of $1,000. You may have your debt securities
divided into more debt securities of smaller denominations, but not below the
minimum denomination, or combined into fewer debt securities of larger
denominations, as long as the total principal amount is not changed. This is
called an exchange.
You may exchange or transfer your debt securities at the office of the
trustee. The trustee acts as our agent for registering debt securities in the
names of holders and transferring debt securities. We may change this
appointment to another entity or perform the service ourselves. The entity
performing the role of maintaining the list of registered holders is called
the security registrar. It will also register transfers of the debt
securities.
You will not be required to pay a service charge to transfer or exchange
debt securities, but you may be required to pay for any tax or other
governmental charge associated with the exchange or transfer. The transfer or
exchange of a debt security will only be made if the security registrar is
satisfied with your proof of ownership.
If we designate additional transfer agents, they will be named in the
prospectus supplement. We may cancel the designation of any particular
transfer agent. We may also approve a change in the office through which any
transfer agent acts.
If the debt securities are redeemable and we redeem less than all of the
debt securities of a particular series, we may block the transfer or exchange
of debt securities during a specified period of time in order to freeze the
list of holders to prepare the mailing. The period begins 15 days before the
day we mail the notice of redemption and ends on the day of that mailing. We
may also refuse to register transfers or exchanges of debt securities selected
for redemption. However, we will continue to permit transfers and exchanges of
the unredeemed portion of any security being partially redeemed.
Payment and Paying Agents
We will pay interest to you if you are a direct holder listed in the
trustee's records at the close of business on a particular day in advance of
each due date for interest, even if you no longer own the security on the
interest due date. That particular day, usually about two weeks in advance of
the interest due date, is called the regular record date and is stated in the
prospectus supplement.
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We will pay interest, principal and any other money due on the debt
securities at the corporate trust office of the trustee in New York City. You
must make arrangements to have your payments picked up at or wired from that
office. We may also choose to pay interest by mailing checks.
Interest on global securities will be paid to the holder of the securities
by wire transfer of same-day funds.
Holders buying and selling debt securities must work out between them how to
compensate for the fact that we will pay all the interest for an interest
period to the one who is the registered holder on the regular record date. The
most common manner is to adjust the sales price of the debt securities to pro
rate interest fairly between buyer and seller. This pro rated interest amount
is called accrued interest.
Street name and other indirect holders should consult their banks or brokers
for information on how they will receive payments.
We may also arrange for additional payment offices, and may cancel or change
these offices, including our use of the trustee's corporate trust office.
These offices are called paying agents. We may also choose to act as our own
paying agent. We must notify the trustee of changes in the paying agents for
any particular series of debt securities.
Notices
We and the trustee will send notices only to direct holders, using their
addresses as listed in the trustee's records.
Regardless of who acts as paying agent, all money that we pay to a paying
agent that remains unclaimed at the end of two years after the amount is due
to direct holders will be repaid to us. After that two-year period, you may
look only to us for payment and not to the trustee, any other paying agent or
anyone else.
Special Situations
Mergers and Similar Events
We will generally not be permitted to consolidate with or merge into, or
transfer all or substantially all of our assets to, any person unless:
o either (a) we survive the transaction or (b) the person that survived the
transaction (if other than us) is organized under the laws of the United
States of America or a State thereof or the District of Columbia;
o the person that survives the transaction (if other than us) assumes by
supplemental indenture all our obligations under and the performance and
observance of every covenant of the indenture, the debt securities and
any other agreements entered into in connection therewith; and
o immediately after giving effect to the transaction, no default or event
of default under the indenture exists.
We will also be required to deliver to the trustee prior to the consummation
of the proposed transaction an officers' certificate to the foregoing effect
and an opinion of counsel stating that the proposed transaction and such
supplemental indenture comply with the indenture.
The successor shall be substituted for us, and thereafter all our
obligations under the indenture and the debt securities shall terminate.
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Modification and Waiver
There are three types of changes we can make to the indentures and the debt
securities.
Changes Requiring Your Approval. First, there are changes that cannot be
made to your debt securities without your specific approval. Following is a
list of those types of changes that require the approval of each holder of
debt securities:
o reduce the amount of debt securities whose holders must consent to an
amendment;
o reduce the interest on or change the time for payment of interest on any
debt security;
o change the fixed maturity of any debt security;
o reduce the principal of any non-discounted debt security or reduce the
amount of principal of any discounted debt security that would be due
upon an acceleration thereof;
o change the currency in which principal or interest on a debt security is
payable;
o make any change in provisions relating to waivers of defaults and
amendments, except to increase the amount of debt securities whose
holders must consent to an amendment or waiver or to provide that other
provisions of the indenture cannot be amended or waived without the
consent of each holders of debt securities affected thereby;
o impair your right to sue for payment; or
o in the case of subordinated debt securities, modify the subordination
provisions in a manner adverse to the holders.
Changes Requiring a Majority Approval. The second type of change to the
indentures and the debt securities is the kind that requires an approval by
holders of debt securities owning a majority of the principal amount of the
particular series affected. Most changes fall into this category. Majority
approval would be required for us to obtain a waiver of all or part of certain
covenants or a waiver of a past default. However, we cannot obtain a waiver of
a payment default or any other aspect of the indentures or the debt securities
listed in the first category described above under "--Changes Requiring Your
Approval" unless we obtain your individual consent to the waiver.
Changes Not Requiring Approval. The third type of change does not require
any approval by holders of debt securities. This type is limited to
clarifications and other changes that would not adversely affect holders of
the debt securities in any material respect.
Further Details Concerning Votes and Consents
When seeking approval, we will use the following rules to determine whether
the holders of the requisite principal amount of the outstanding securities
have given, made or taken any action under the indenture as of any date:
o For original issue discount securities, we will use the amount of
principal that would be due as of the date of such determination if
payment of the debt security were accelerated on that date.
o For debt securities whose principal amount is not known (for example,
because it is based on an index), we will use a special rule for that
security described in the prospectus supplement.
o For debt securities denominated in one or more foreign currencies or
currency units, we will use the U.S. dollar equivalent determined as
described in the prospectus supplement.
o Debt securities will not be considered outstanding, and therefore not
eligible to vote, if we have deposited or set aside in trust for you
money for their payment or redemption, if they have been fully defeased
as described later under "--Defeasance and Discharge" or if they are
owned by us or any of our affiliates.
o We will generally be entitled to set any day as a record date to
determine the holders of outstanding debt securities that are entitled to
vote or take other action under the indentures. In limited
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circumstances, the trustee will be entitled to set a record date for
action by holders. If we or the trustee set a record date for a vote or
other action to be taken by holders of a particular series, that vote or
action may be taken only by persons who are holders of outstanding debt
securities of that series on the record date and must be taken within 180
days following the record date or another period that we may specify, or
as the trustee may specify if it set the record date. We may shorten or
lengthen, but not beyond 180 days, this period from time to time.
Street name and other indirect holders should consult their banks or brokers
for information on how approval may be granted or denied if we seek to change
the indentures or the debt securities or request a waiver.
Defeasance and Discharge
The following discussion of full defeasance and discharge will apply to your
series of debt securities only if we choose to have them apply to that series.
If we do so choose, we will say so in the prospectus supplement.
The indentures provide that if we choose to have the defeasance and
discharge provision applied to the debt securities, we can legally release
ourselves from any payment or other obligations on the debt securities, except
for the ministerial obligations described below, if we put in place the
following arrangements for you to be repaid and comply with other requirements
set forth in the indentures:
o we irrevocably deposit in trust with the trustee or another trustee money
or U.S. government obligations;
o we deliver to the trustee a certificate from a nationally recognized firm
of independent accountants expressing their opinion that the payments of
principal and interest when due on the deposited U.S. government
obligations without reinvestment plus any deposited money without
investment will provide cash at such times and in such amounts as will be
sufficient to pay principal and interest when due on all the debt
securities of the series to maturity or redemption, as the case may be:
o immediately after the deposit no default exists under the indenture;
o the deposit does not constitute a default under any other agreement
binding on us; and
o we deliver to the trustee an opinion of counsel to the effect that
holders of the debt securities will not recognize income, gain or loss
for Federal income tax purposes as a result of the defeasance and, in the
case of legal defeasance, such opinion must be based on a U.S. Internal
Revenue Service ruling or a change in U.S. Federal income tax law.
In addition, the subordinated debt indenture provides that if we choose to
have the defeasance and discharge provision applied to the subordinated debt
securities, the subordination provisions of the subordinated debt indenture
will become ineffective.
However, even if we make the deposit in trust and opinion delivery
arrangements discussed above, a number of our obligations relating to the debt
securities will remain. These include our obligations:
o to register the transfer and exchange of debt securities;
o to replace mutilated, destroyed, lost or stolen debt securities;
o to maintain paying agencies; and
o to hold money for payment in trust.
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Events of Default
You will have special rights if an event of default occurs and is not cured,
as described later in this subsection.
What Is an Event of Default?
The term "event of default" means any of the following:
o we default in the payment of interest on the debt security when the same
becomes due and payable and the default continues for a period of 30
days;
o we default in the payment of the principal of the debt security when the
same becomes due and payable at maturity, upon redemption or otherwise,
or in the making of any sinking fund payment, if any, required by the
terms of such series;
o we fail to comply with any of our other covenants, conditions or
agreements in the debt securities or the indenture and the default
continues for the period and after the notice specified below;
o we, pursuant to or within the meaning of any bankruptcy law:
(a) commence a voluntary case,
(b) consent to the entry of an order for relief against us in an
involuntary case,
(c) consent to the appointment of a custodian of our or for all or
substantially all of our property, or
(d) make a general assignment for the benefit of our creditors;
o a court of competent jurisdiction enters an order or decree under any
bankruptcy law that:
(a) is for the relief against us in an involuntary case,
(b) appoints a custodian for us or all or substantially all of our
property, or
(c) orders our liquidation, and the order or decree remains unstayed
and in effect for 90 days.
o If we default under any indebtedness for money borrowed if:
(a) that default either (1) results from the failure to pay the principal
of that indebtedness at its stated maturity or (2) relates to an obligation
other than the obligation to pay the principal of that indebtedness at its
stated maturity and results in that indebtedness becoming or being declared
due and payable prior to the date on which it would otherwise have become
due and payable,
(b) the principal amount of that indebtedness, together with the
principal amount of any other indebtedness in default for failure to pay
principal at stated maturity or the maturity of which has been so
accelerated, aggregates $20,000,000 or more at any one time outstanding.
o we are subject to a final judgment or judgments in an amount of
$20,000,000 or more, individually or in the aggregate, for the payment of
money having been entered by a court or courts of competent jurisdiction
and such judgment or judgments is not satisfied, stayed, annulled or
rescinded within 60 days of being entered; or
o any other event of default described in the prospectus supplement occurs.
Remedies If an Event of Default Occurs. If an event of default other than
those described in the fourth or fifth bullet point above has occurred and has
not been cured, the trustee or the holders of at least 25% in principal amount
of the debt securities of the affected series may declare the entire principal
amount of all the debt securities of that series to be due and immediately
payable. This is called a declaration of acceleration of maturity. A
declaration of acceleration of maturity may be canceled by the holders of at
least a majority in principal amount of the debt securities of the affected
series. If any event of default described in the fourth or fifth bullet point
above occurs, the entire principal amount of all the debt securities of that
series shall automatically, and without any declaration or other action on the
part of the trustee or any holder, become immediately due and payable.
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Except in cases of default, where the trustee has some special duties, the
trustee is not required to take any action under the indentures at the request
of any holders unless the holders offer the trustee reasonable protection from
expenses and liability. This protection is called an indemnity. If reasonable
indemnity is provided, the holders of a majority in principal amount of the
outstanding debt securities of the relevant series may direct the time, method
and place of conducting any lawsuit or other formal legal action seeking any
remedy available to the trustee. These majority holders may also direct the
trustee in performing other actions under the indentures.
Before you bypass the trustee and bring your own lawsuit or other formal
legal action or take other steps to enforce your rights or protect your
interests relating to the debt securities, the following must occur:
o You must give to the trustee written notice of a continuing event of
default with respect to such series;
o The holders of at least 25% in principal amount of the outstanding debt
securities of the relevant series must make a written request to the
trustee to pursue the remedy with respect to such series;
o You must offer to the trustee indemnity satisfactory to the trustee
against any loss, liability or expense;
o The trustee must not have complied with the request within 60 days after
receipt of the request and the offer of indemnity; and
o No inconsistent direction must have been given to the trustee during the
60 day period from the holders of a majority in principal amount of the
outstanding debt securities of the relevant series.
Street name and other indirect holders should consult their banks or brokers
for information on how to give notice or direction to or make a request of the
trustee and to make or cancel a declaration of acceleration.
We will furnish to the trustee every year a written statement from some of
our designated officers certifying that, to their knowledge, we are in
compliance with the indentures and the debt securities, or else specifying any
default.
DESCRIPTION OF PREFERRED STOCK WE MAY OFFER
This section describes the general terms and provisions of the preferred
stock we may offer. This information may not be complete in all respects and
is qualified entirely by reference to our amended and restated certificate of
incorporation. The specific terms of any series will be described in a
prospectus supplement. Those terms may differ from the terms discussed below.
Any series of preferred stock we issue will be governed by our amended and
restated certificate of incorporation, and by the certificate of designations
relating to that series. We will file the certificate of designations with the
SEC and incorporate it by reference as an exhibit to our registration
statement at or before the time we issue any preferred stock of that series.
For information on how to obtain copies of our amended and restated
certificate of incorporation and amended and restated bylaws, see "Where You
Can Obtain More Information".
Authorized Preferred Stock
Our amended and restated certificate of incorporation authorizes our board
of directors, without any vote or action by the holders of common stock, to
issue up to 25,000,000 shares of preferred stock from time to time in one or
more series. Our board of directors is authorized to determine the number of
shares and designation of any additional series of preferred stock and the
dividend rights, dividend rate, conversion rights and terms, voting rights,
redemption rights and terms, liquidation preferences, sinking fund terms and
other rights, preferences, privileges and restrictions of any series of
preferred stock. Issuances of preferred stock would be subject to the
applicable rules of the NYSE or other organizations whose systems the stock
may then be quoted or listed. Depending upon the terms of preferred stock
established by our board of directors, any or all series of preferred stock
could have preferences over the common stock with respect to dividends and
other distributions and upon liquidation. Issuance of any such shares with
voting powers, or issuance of additional shares of common stock, would dilute
the voting power of the outstanding common stock. There are currently no
shares of preferred stock outstanding.
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Specific Terms of a Series of Preferred Stock
The preferred stock we may offer will be issued in one or more series.
Shares of preferred stock, when issued against full payment of its purchase
price, will be fully paid and non-assessable. Their par value or liquidation
preference, however, will not be indicative of the price at which they will
actually trade after their issue. If necessary, the prospectus supplement will
provide a description of U.S. Federal income tax consequences relating to the
purchase and ownership of the series of preferred stock offered by that
prospectus supplement.
The preferred stock will have the dividend, liquidation, redemption and
voting rights discussed below, unless otherwise described in a prospectus
supplement relating to a particular series. A prospectus supplement will
discuss the following features of the series of preferred stock to which it
relates:
o the designations and stated value per share;
o the number of shares offered;
o the amount of liquidation preference per share;
o the initial public offering price at which the preferred stock will be
issued;
o the dividend rate, the method of its calculation, the form of payment of
dividends, the dates on which dividends would be paid and the dates, if
any, from which dividends would cumulate;
o any redemption or sinking fund provisions;
o any conversion or exchange rights; and
o any additional voting, dividend, liquidation, redemption, sinking fund
and other rights, preferences, privileges, limitations and restrictions.
Rank
Unless otherwise stated in the prospectus supplement, the preferred stock
will have priority over our common stock with respect to dividends and
distribution of assets, but will rank junior to all our outstanding
indebtedness for borrowed money. Any series of preferred stock could rank
senior, equal or junior to our other capital stock, as may be specified in a
prospectus supplement, as long as our amended and restated certificate of
incorporation so permits.
Dividends
Holders of each series of preferred stock shall be entitled to receive
dividends to the extent and in the form specified in the prospectus
supplement, when, as and if declared by our board of directors, from funds
legally available for the payment of dividends. The rates, form and dates of
payment of dividends of each series of preferred stock will be stated in the
prospectus supplement. Dividends will be payable to the holders of record of
preferred stock as they appear on our books on the record dates fixed by our
board of directors. Dividends on any series of preferred stock may be
cumulative or non-cumulative, as discussed in the prospectus supplement.
Convertibility
Shares of a series of preferred stock may be exchangeable or convertible
into shares of our common stock, another series of preferred stock or other
securities or property. The conversion or exchange may be mandatory or
optional. The prospectus supplement will specify whether the preferred stock
being offered has any conversion or exchange features, and will describe all
the related terms and conditions.
Redemption
The terms, if any, on which shares of preferred stock of a series may be
redeemed will be discussed in the prospectus supplement.
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Liquidation
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of General Cable, holders of each series of preferred stock will
be entitled to receive distributions upon liquidation in the amount described
in the related prospectus supplement plus an amount equal to any accrued and
unpaid dividends for the then-current dividend period (including any
accumulation in respect of unpaid dividends for prior dividend periods, if
dividends on that series of preferred stock are cumulative). These
distributions will be made before any distribution is made on any securities
ranking junior to the preferred stock with respect to liquidation, including
our common stock. If the liquidation amounts payable relating to the preferred
stock of any series and any other securities ranking on a parity regarding
liquidation rights are not paid in full, the holders of the preferred stock of
that series will share ratably in proportion to the full liquidation
preferences of each security. Holders of our preferred stock will not be
entitled to any other amounts from us after they have received their full
liquidation preference.
Voting Rights
The holders of shares of preferred stock will have no voting rights, except:
o as otherwise stated in the applicable prospectus supplement;
o as otherwise stated in the certificate of designations establishing the
series; or
o as required by applicable law.
No Other Rights
The shares of a series of preferred stock will not have any preferences,
voting powers or relative, participating, optional or other special rights
except:
o as discussed above or in the prospectus supplement;
o as provided in our amended and restated certificate of incorporation and
in the certificate of designations; and
o as otherwise required by law.
Transfer Agent
The transfer agent for each series of preferred stock will be named and
described in the prospectus supplement for that series.
DESCRIPTION OF COMMON STOCK WE MAY OFFER
The following summary description of our common stock is based on the
provisions of our amended and restated certificate of incorporation and
amended and restated bylaws and the applicable provisions of the Delaware
General Corporation Law. This information may not be complete in all respects
and is qualified entirely by reference to the provisions of our amended and
restated certificate of incorporation, amended and restated bylaws and the
Delaware General Corporation Law. For information on how to obtain copies of
our amended and restated certificate of incorporation, and amended and
restated bylaws, see "Where you Can Obtain More Information".
We may offer common stock, including common stock issuable upon the
conversion of debt securities or preferred stock or as payment of dividends
on, or redemption or repurchase of, preferred stock.
General
The following description of our capital stock is subject to our amended and
restated certificate of incorporation and amended and restated bylaws and the
provisions of Delaware General Corporation Law.
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Common Stock
Our authorized capital stock consists of 75,000,000 shares of common stock,
par value $0.01 per share. As of September 15, 2003, there were approximately
33,114,767 shares of common stock outstanding held of record by 523
stockholders. The following description of our capital stock and provisions of
our amended and restated certificate of incorporation and amended and restated
by-laws are only summaries, and we encourage you to review complete copies of
our amended and restated certificate of incorporation and amended and restated
by-laws, which we have filed previously with the SEC.
Holders of our common stock are entitled to receive, as, when and if
declared by our board of directors, dividends and other distributions in cash,
stock or property from our assets or funds legally available for those
purposes subject to any dividend preferences that may be attributable to
preferred stock, if any. Holders of common stock are entitled to one vote for
each share held of record on all matters on which stockholders may vote.
Holders of common stock are not entitled to cumulative voting for the election
of directors. There are no preemptive, conversion, redemption or sinking fund
provisions applicable to our common stock. All outstanding shares of common
stock are fully paid and non-assessable. In the event of our liquidation,
dissolution or winding up, holders of common stock are entitled to share
ratably in the assets available for distribution, subject to any prior rights
of any holders of preferred stock, if any, then outstanding.
Certain Provisions of Our Amended and Restated Certificate of Incorporation
and Amended and Restated By-laws
Classification of Board of Directors
The amended and restated certificate of incorporation divides our board of
directors into three classes of directors serving staggered three-year terms.
As a result, approximately one-third of our board of directors will be elected
each year.
We believe that a classified board helps to assure the continuity and
stability of our board of directors, and our business strategies and policies
as determined by our board of directors, because a majority of the directors
at any given time will have prior experience as directors. This provision
should also help to ensure that our board of directors, if confronted with an
unsolicited proposal from a third party that has acquired a block of our
common stock, will have sufficient time to review the proposal, to consider
appropriate alternatives and to seek the best available result for all
stockholders.
This provision could prevent a party who acquires control of a majority of
the outstanding common stock from obtaining control of our board of directors
until the second annual stockholders' meeting following the date the acquiror
obtains the controlling stock interest and could have the effect of
discouraging a potential acquiror from making a tender offer or otherwise
attempting to obtain control of our company and could thus increase the
likelihood that incumbent directors will retain their positions.
Number of Directors; Removal; Vacancies
The amended and restated certificate of incorporation and the amended and
restated by-laws provide that the number of directors shall not be less than
three nor more than nine and shall be determined from time to time exclusively
by a vote of a majority of our board of directors then in office. The amended
and restated certificate of incorporation also provides that our board of
directors shall have the exclusive right to fill vacancies, including
vacancies created by expansion of our board of directors. Furthermore, except
as may be provided in a resolution or resolutions of our board of directors
providing for any class or series of preferred stock with respect to any
directors elected by the holders of such class or series, directors may be
removed by stockholders only for cause and only by the affirmative vote of at
least 66 2/3% of the voting power of all of the shares of our capital stock
then entitled to vote generally in the election of directors, voting together
as a single class. These provisions, in conjunction with the provision of the
amended and restated certificate of incorporation authorizing our board of
directors to fill vacant directorships, could prevent stockholders from
removing incumbent directors without cause and filling the resulting vacancies
with their own nominees.
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No Stockholder Action by Written Consent; Special Meetings
The amended and restated certificate of incorporation provides that, except
as may be provided in a resolution or resolutions of our board of directors
providing for any class or series of preferred stock, stockholder action can
be taken only at an annual or special meeting of stockholders and cannot be
taken by written consent in lieu of a meeting. The amended and restated
certificate of incorporation also provides that special meetings of the
stockholders can only be called pursuant to a resolution approved by a
majority of our board of directors then in office. Stockholders are not
permitted to call a special meeting of stockholders.
Advance Notice for Raising Business or Making Nominations at Meetings
The amended and restated bylaws establish an advance notice procedure for
stockholder proposals to be brought before a meeting of our stockholders and
for nominations by stockholders of candidates for election as directors at an
annual meeting or a special meeting at which directors are to be elected.
Subject to any other applicable requirements, including, without limitation,
Rule 14a-8 under the Securities Exchange Act of 1934, only such business may
be conducted at a meeting of stockholders as has been brought before the
meeting by, or at the direction of, our board of directors, or by a
stockholder who has given to our Secretary timely written notice, in proper
form, of the stockholder's intention to bring that business before the
meeting. The presiding officer at such meeting has the authority to make such
determinations. Only persons who are nominated by, or at the direction of, our
board of directors, or who are nominated by a stockholder who has given timely
written notice, in proper form, to the Secretary prior to a meeting at which
directors are to be elected will be eligible for election as directors.
To be timely, notice of nominations or other business to be brought before
an annual meeting must be received by our Secretary at the principal executive
office no later than 60 days prior to the date of such annual meeting.
Similarly, notice of nominations or other business to be brought before a
special meeting must be delivered to our Secretary at the principal executive
office no later than the close of business on the 15th day following the day
on which notice of the date of a special meeting of stockholders was given.
The notice of any nomination for election as a director must set forth the
name, date of birth, business and residence address of the person or persons
to be nominated; the business experience during the past five years of such
person or persons; whether such person or persons are or have ever been at any
time directors, officers or owners of 5% or more of any class of capital
stock, partnership interest or other equity interest of any corporation,
partnership or other entity; any directorships held by such person or persons
in any company with a class of securities registered pursuant to Section 12 of
the Exchange Act or subject to the requirements of Section 15(d) of such Act
or any company registered as an investment company under the Investment
Company Act of 1940, as amended; and whether, in the last five years, such
person or persons are or have been convicted in a criminal proceeding or have
been subject to a judgment, order, finding or decree of any federal, state or
other governmental entity, concerning any violation of federal, state or other
law, or any proceeding in bankruptcy, which conviction, order, finding, decree
or proceeding may be material to an evaluation of the ability or integrity of
the nominee; and, the consent of each such person to be named in a proxy
statement as a nominee and to serve as a director if elected. The person
submitting the notice of nomination, and any person acting in concert with
such person, must provide their names and business addresses, the name and
address under which they appear on our books (if they so appear), and the
class and number of shares of our books (if they so appear), and the class and
the number of shares of our capital stock that are beneficially owned by them.
Amendments to By-Laws
The amended and restated certificate of incorporation provides that our
Board of Directors or the holders of at least 66 2/3% of the voting power of
all shares of our capital stock then entitled to vote generally in the
election of directors, voting together as a single class, have the power to
amend or repeal our amended and restated by-laws.
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Amendment of the Amended and Restated Certificate of Incorporation
Any proposal to amend, alter, change or repeal any provision of the amended
and restated certificate of incorporation, except as may be provided in a
resolution or resolutions of our Board of Directors providing for any class or
series of preferred stock and which relate to such class or series of
preferred stock, requires approval by the affirmative vote of both a majority
of the members of our Board of Directors then in office and a majority vote of
the voting power of all of the shares of our capital stock entitled to vote
generally in the election of directors, voting together as a single class.
Notwithstanding the foregoing, any proposal to amend, alter, change or repeal
the provisions of the amended and restated certificate of incorporation
relating to (i) the classification of our Board of Directors, (ii) removal of
directors, (iii) the prohibition of stockholder action by written consent or
stockholder calls for special meetings, (iv) amendment of amended and restated
bylaws, or (v) amendment of the amended and restated certificate of
incorporation requires approval by the affirmative vote of 66 2/3% of the
voting power of all of the shares of our capital stock entitled to vote
generally in the election of directors, voting together as a single class.
Preferred Stock and Additional Common Stock
Under the amended and restated certificate of incorporation, our Board of
Directors will have the authority to provide by board resolution for the
issuance of shares of one or more series of preferred stock. Our Board of
Directors is authorized to fix by resolution the terms and conditions of each
such other series.
We believe that the availability of our preferred stock, in each case
issuable in series, and additional shares of common stock could facilitate
certain financings and acquisitions and provide a means for meeting other
corporate needs which might arise. The authorized shares of our preferred
stock, as well as authorized but unissued shares of common stock will be
available for issuance without further action by our stockholders, unless
stockholder action is required by applicable law or the rules of any stock
exchange on which any series of our capital stock may then be listed.
These provisions give our Board of Directors the power to approve the
issuance of a series of preferred stock, or an additional series of common
stock, that could, depending on its terms, either impede or facilitate the
completion of a merger, tender offer or other takeover attempt. For example,
the issuance of new shares of preferred stock might impede a business
combination if the terms of those shares include voting rights which would
enable a holder to block business combinations; the issuance of new shares
might facilitate a business combination if those shares have general voting
rights sufficient to cause an applicable percentage vote requirement to be
satisfied.
Delaware Business Combination Statue
Certain provisions in our amended and restated certificate of incorporation
and amended and restated by-laws and of Delaware law could make it harder for
someone to acquire us through a tender offer, proxy contest or otherwise. We
are governed by the provisions of Section 203 of the Delaware General
Corporate Law, which defines a person who owns (or within three years, did
own) 15% or more of a company's voting stock as an "interested stockholder."
Section 203 prohibits a public Delaware corporation from engaging in a
business combination with an interested stockholder for a period commencing
three years from the date in which the person became an interested
stockholder, unless:
o the board of directors approved the transaction which resulted in the
stockholder becoming an interested stockholder;
o upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at
least 85% of the voting stock of the corporation (excluding shares owned
by officers, directors, or certain employee stock purchase plans); or
o at or subsequent to the time the transaction is approved by the board of
directors, there is an affirmative vote of at least 66 2/3% of the
outstanding voting stock approving the transaction.
Section 203 could prohibit or delay mergers or other takeover attempts
against us, and accordingly, may discourage attempts to acquire us through
tender offer, proxy contest or otherwise.
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Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, LLC, OverPeck Centre, 85 Challenger Road, Ridgefield
Park, New Jersey 07660, and its telephone number at this location is (201)
296-4000.
LEGAL OWNERSHIP AND BOOK-ENTRY ISSUANCE
Unless otherwise mentioned in the prospectus supplement, securities will be
issued in the form of one or more global certificates, or global securities,
registered in the name of a depositary or its nominee. Unless otherwise
mentioned in the prospectus supplement, the depositary will be The Depository
Trust Company, commonly referred to as DTC. DTC has informed us that its
nominee will be Cede & Co. Accordingly, we expect Cede & Co. to be the initial
registered holder of all securities that are issued in global form. No person
that acquires a beneficial interest in those securities will be entitled to
receive a certificate representing that person's interest in the securities
except as mentioned below or in the prospectus supplement. Unless definitive
securities are issued under the limited circumstances described below,
o all references in this prospectus to actions by holders of securities
issued in global form refer to actions taken by DTC upon instructions
from its participants; and
o all references to payments and notices to holders refer to payments and
notices to DTC or Cede & Co., as the registered holder of these
securities.
DTC has informed us that it is a limited purpose trust company organized
under the New York Banking Law, a banking organization within the meaning of
the New York Banking Law, a member of the Federal Reserve System, a clearing
corporation within the meaning of the New York Uniform Commercial Code, and a
clearing agency registered under Section 17A of the Securities Exchange Act of
1934, as amended, and that it was created to hold securities for its
participating organizations and to facilitate clearance and settlement of
securities transactions among its participants through electronic book-entry.
This eliminates the need for physical movement of certificates. DTC's
participants include securities brokers and dealers, banks, trust companies
and clearing corporations. Indirect access to the DTC system also 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.
Persons that are not participants or indirect participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in,
securities may do so only through participants and indirect participants.
Under a book-entry format, holders may experience some delay in their receipt
of payments, as these payments will be forwarded by our designated agent to
Cede & Co., as nominee for DTC. DTC will forward these payments to its
participants, who will then forward them to indirect participants or holders.
Holders will not be recognized by the relevant registrar, transfer agent,
warrant agent or unit agent as registered holders of the securities entitled
to the benefits of our amended and restated certificate of incorporation and/
or the applicable indenture, deposit agreement, warrant agreement, purchase
contract agreement or unit agreement. Beneficial owners that are not
participants will be permitted to exercise their rights only indirectly
through and according to the procedures of participants and, if applicable,
indirect participants.
Under the rules, regulations and procedures governing DTC and its operations
as currently in effect, DTC will be required to make book-entry transfers of
securities among participants and to receive and transmit payments to
participants. DTC rules require participants and indirect participants with
which beneficial securities owners have accounts to make book-entry transfers
and receive and transmit payments on behalf of their respective account
holders.
Because DTC can act only on behalf of participants, the ability of a
beneficial owner of securities issued in global form to pledge those
securities to non-participants may be limited due to the unavailability of
physical certificates for these securities. Beneficial owners may also be
unable to sell interests in their securities to some insurance companies and
other institutions that are required by law to own their securities in the
form of physical certificates.
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DTC has advised us that it will take any action permitted to be taken by a
registered holder of any securities under its certificate of incorporation or
the relevant indenture, deposit agreement, warrant agreement, purchase
contract agreement or unit agreement only at the direction of one or more
participants to whose accounts with DTC those securities are credited.
Unless otherwise mentioned in the prospectus supplement, a global security
will be exchangeable for definitive securities registered in the names of
persons other than DTC or its nominee only if:
o DTC notifies us that it is unwilling or unable to continue as depositary
for that global security or if DTC ceases to be a clearing agency
registered under the Exchange Act when it is required to be so
registered;
o We execute and deliver to the relevant registrar, transfer agent,
trustee, depositary, warrant agent and/or unit agent an order complying
with the requirements of our amended and restated certificate of
incorporation and amended and restated bylaws or the relevant indenture,
deposit agreement, warrant agreement, purchase contract agreement and/or
unit agreement that this global security shall be so exchangeable; or
o there has occurred and is continuing a default in the payment of any
amount due in respect of the securities or, in the case of debt
securities, an event of default or an event that, with the giving of
notice or lapse of time, or both, would constitute an event of default
with respect to those debt securities.
In these circumstances, the global security will be exchangeable for
securities registered in the names that DTC directs.
DTC will generally not be required to notify its participants of the
availability of definitive securities. When DTC surrenders the global security
and delivers instructions for re-registration, the registrar, transfer agent,
trustee, depositary, warrant agent or unit agent, as the case may be, will
reissue the securities as definitive securities.
Except as described above, a global security may not be transferred except
as a whole to DTC or another nominee of DTC, or to a successor depositary we
appoint. Except as described above, DTC may not sell, assign, transfer or
otherwise convey any beneficial interest in a global security unless the
beneficial interest is in an amount equal to an authorized denomination for
those securities.
None of General Cable, the trustees, any registrar and transfer agent, any
depositary, any warrant agent, any purchase contract agent or any unit agent,
or any of their agents, will have any responsibility for any aspect of DTC's
or any participant's records relating to, or for payments made on account of,
beneficial interests in a global security, or for maintaining, supervising or
reviewing any records relating to those beneficial interests.
VALIDITY OF SECURITIES
The validity of any securities will be passed upon for us by Blank Rome LLP.
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EXPERTS
The consolidated financial statements as of December 31, 2002 and 2001, and
for each of the three years in the period ended December 31, 2002, included in
this prospectus and the related financial statement schedule incorporated by
reference have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report (which report expresses an unqualified opinion and
includes an explanatory paragraph referring to a change in our accounting for
certain inventories) appearing herein, and have been so included in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
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-3 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.
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 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 into this prospectus the following documents
filed with the SEC:
o Our Annual Report on Form 10-K for the year ended December 31, 2002, as
amended by Amendment No. 1 filed on August 29, 2003.
o Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003,
as amended by Amendment No. 1 to our Quarterly Report on Form 10-Q for
the quarter ended March 31, 2001 filed on August 29, 2003.
o Our Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, as
amended by Amendment No. 1 to our Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003 filed on August 29, 2003.
o Our Current Report on Form 8-K dated April 22, 2003 (except for the
information contained in Item 9 or any related exhibits).
o Our Current Report on Form 8-K dated July 11, 2003.
o Our Current Report on Form 8-K dated July 22, 2003 (except for the
information contained in Item 9 or any related exhibits).
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o Our Current Report on Form 8-K dated October 21, 2003 (except for the
information contained in Item 9 or any related exhibits).
o The description of our common stock, filed in our Form 8-A (File No. 1-
1983), as filed with the SEC on May 13, 1997, pursuant to Section 12(b)
of the Exchange Act of 1934 as incorporated by reference from our
registration statement on Form S-1 (File No. 333-22961) initially filed
with the SEC on March 7, 1997, and any amendment or report for the
purpose of updating such description.
o All documents filed by General Cable 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 thereof) 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.
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