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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2003
Commission File No. 1-12983
GENERAL CABLE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 06-1398235
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4 Tesseneer Drive
Highland Heights, KY 41076-9753
(Address of principal executive offices)
(859) 572-8000
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No _____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act).
Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at October 20, 2003
----- -------------------------------
Common Stock, $0.01 Par Value 33,120,132
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GENERAL CABLE CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
PART I Financial Information PAGE
----
Item 1. Consolidated Financial Statements
Statements of Operations -
For the three and nine months ended September 30, 2003 and 2002 3
Balance Sheets -
September 30, 2003 and December 31, 2002 4
Statements of Cash Flows -
For the nine months ended September 30, 2003 and 2002 5
Statements of Changes in Shareholders' Equity -
For the nine months ended September 30, 2003 and 2002 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 21
Item 3. Quantitative and Qualitative Disclosures About Market Risk 31
Item 4. Controls and Procedures 32
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K 32
Signature 33
2
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.
3
GENERAL CABLE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in millions, except share data)
ASSETS
- ------ September 30, December 31,
2003 2002
----------- ------
Current Assets: (unaudited)
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.
4
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.
5
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.
6
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.
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.
7
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
8
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended Nine Months 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.
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.
9
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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.
10
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. 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
====== ======
11
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 $5.2 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.
12
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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):
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%.
13
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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
14
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 period 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.
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
====== ======
15
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
---------------------------------------------------------------------------
Non-
Guarantor Guarantor
Net sales: Issuer Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ ------
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
====== ====== ====== ====== ======
For the Three Months Ended September 30, 2002
-------------------------------------------------------------------------------
Non-
Guarantor Guarantor
Net sales: Issuer Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ -------
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)
======= ======= ======= ======= =======
16
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental Consolidating Statements of Operations
(in millions)
For the Nine Months Ended September 30, 2003
----------------------------------------------------------------------------------
Non-
Guarantor Guarantor
Net sales: Issuer Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ --------
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 from operations of discontinued
operations (net of tax) - - - - -
-------- ------ ------- -------- --------
Net income (loss) $ 5.6 $(18.9) $ 18.5 $ - $ 5.2
======== ======= ======= ======== ========
For the Nine Months Ended September 30, 2002
--------------------------------------------------------------------------------
Non-
Guarantor Guarantor
Net sales: Issuer Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ --------
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)
======== ====== ====== ====== ========
17
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental Consolidating Balance Sheets
(in millions)
September 30, 2003
--------------------------------------------------------------------------------
Non-
Guarantor 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 receivable - 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
====== ====== ====== ======= ======
December 31, 2002
--------------------------------------------------------------------------------
Non-
Guarantor 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 liabilities and shareholders' equity $492.6 $1,014.5 $321.3 $(855.1) $973.3
====== ======== ====== ======== ======
18
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental Consolidating Cash Flows
(in millions)
For the Nine Months Ended September 30, 2003
--------------------------------------------------------------------------------
Non-
Guarantor Guarantor
Cash flows of operating activities: Issuer Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ -----
Net 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)
(Gain) 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 21.0 - 29.1
------ ------- ------- ------------ -----
Cash - end of period $ - $ 8.5 $ 15.7 $ - $ 24.2
====== ======= ======= ===== ======
19
GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental Consolidating Cash Flows
(in millions)
For the Nine Months Ended September 30, 2002
----------------------------------------------------------------------------------
Non-
Guarantor Guarantor
Cash flows of operating activities: Issuer Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ --------
Net income (loss) $ 4.6 $(32.0) $ 12.6 $ - $(14.8)
Adjustments to reconcile net 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
(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 - 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
====== ====== ====== ====== ======
20
GENERAL CABLE CORPORATION AND SUBSIDIARIES
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
General Cable Corporation is 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 and 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.
Statements in this report, including without limitation statements regarding
future financial results, performance and earnings growth and trends, future
product demand, market, industry and customer spending upturn, market size and
outlook, future expectations or operational results, industry inventory
situations, cost savings, litigation exposure, debt reduction and future orders
and their size, are considered forward-looking statements. Readers should take
notice and be aware of these forward-looking statements as they are not
statements of historical fact or events which will probably or certainly occur.
We call your attention in this regard to important factors that could cause
actual results to differ materially from those discussed in the forward-looking
statements. These include: economic and political consequences resulting from
the September 2001 terrorist attack, the war with Iraq and any further terrorist
attacks or armed hostilities worldwide, domestic and local country price
competition, and other competitive pressures; general economic conditions,
particularly in construction; changes in customer purchase patterns in our
business segments; the Company's ability to retain key customers and
distributors; the Company's ability to increase manufacturing capacity and
productivity; the Company's ability to successfully complete and integrate
acquisitions and divestitures; the Company's ability to obtain credit facilities
and changes to facilities as market conditions warrant; interest rate changes;
the cost of raw materials, including copper and aluminum; foreign currency
exchange rate fluctuations; the level of demand, product mix and capital
spending for products serving various segments of the communications markets;
the Company's ability to successfully introduce new or enhanced products; the
impact of technological changes and the impact or threat of competing
technologies; the impact of changes in industry standards and the regulatory
environment; the outcome of any pending litigation against the Company; and the
effects and impacts of acts of terrorism carried out in domestic and foreign
countries, which relate to our personnel, facilities and businesses.
General Cable operates its 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.
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- ------------------------------------
2003 % 2002 % 2003 % 2002 %
------ --- ------ --- -------- --- -------- ---
Net sales
North America $272.4 71% $257.1 74% $ 793.3 70% $ 825.9 75%
Europe 89.1 23 74.4 21 277.9 25 232.0 21
Oceania 21.0 6 15.9 5 61.9 5 44.6 4
------ --- ------ --- -------- --- -------- ---
Total net sales $382.5 100% $347.4 100% $1,133.1 100% $1,102.5 100%
====== ====== ======== ========
Operating income
North America $ 1.2 9% $ (1.3) (17)% $ 8.1 19% $ 18.1 42%
Europe 10.8 77 7.3 94 27.6 65 20.4 48
Oceania 2.1 14 1.8 23 6.8 16 4.4 10
------ --- ------ --- -------- --- -------- ---
Subtotal excluding corporate charges 14.1 100% 7.8 100% 42.5 100% 42.9 100%
Corporate charges (0.6) (3.7) (1.7) (28.7)
------ ------ -------- --------
Total operating income $ 13.5 $ 4.1 $ 40.8 $ 14.2
====== ====== ======== ========
Cash flow from operations in North America accounted for 94% and 83% of our
total cash flow from operations for the nine months ended September 30, 2002 and
2003, respectively. Cash flow from operations in Europe and Oceania accounted
for 17% and 6% of our total cash flow from operations for the nine months ended
September 30, 2002 and 2003.
The change in net sales for the third quarter of 2003 compared to the same
quarter of 2002 includes the impact of foreign currency exchange rate changes.
The net impact of foreign currency exchange rate changes for the three months
ended September 30, 2003 in North America is $2.9 million favorable, $10.9
million favorable in Europe and $3.6 million favorable in Oceania. The impact of
foreign currency exchange rate changes for the nine months ended September 30,
2003 included $5.6 million favorable in North America, $46.6 million favorable
in Europe and $10.2 million favorable in Oceania.
Approximately ninety percent of net sales in Europe and Oceania are derived from
energy and industrial & specialty segment sales. As a result, these businesses
have not been significantly impacted by the global telecommunications spending
21
downturn and the European business specifically is currently benefiting from
medium voltage energy cable capacity shortage in Europe and a shift towards
environmentally friendly cables.
General Cable's reported net sales are directly influenced by the price of
copper and to a lesser extent aluminum. The price of copper and aluminum has
historically been subject to considerable volatility, with the daily selling
price of copper cathode on the COMEX averaging $0.80 per pound in the third
quarter of 2003 and $0.69 per pound in the third quarter of 2002 and the daily
selling price of aluminum rod averaging $0.68 per pound in the third quarter of
2003 and $0.62 per pound in the third quarter of 2002. The daily selling price
of copper cathode on the COMEX averaged $0.77 per pound in the first nine months
of 2003 and $0.72 per pound in the first nine months of 2002 and the daily
selling price of aluminum rod averaged $0.67 in the first nine months of 2003
and $0.65 in the first nine months of 2002. General Cable generally passes
changes in copper and aluminum prices along to its customers, although there are
timing delays of varying lengths depending upon the type of product, competitive
conditions and particular customer arrangements. As a result of this and a
number of practices intended to match copper and aluminum purchases with sales,
General Cable's profitability has generally not been significantly affected by
changes in copper and aluminum prices. General Cable does not engage in
speculative metals trading or other speculative activities. Also, the Company
does not engage in activities to hedge the underlying value of its copper and
aluminum inventory.
General Cable generally experiences 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
General Cable is 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 last ten-years' peak level. However, this segment is
also experiencing stable demand for cables utilized in industrial repairs and
maintenance and in the automotive aftermarket business. 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
the Company's communications wire and cable customers are insufficient to
maintain their network infrastructures. In addition, the 2003 power outages in
the United States, Canada and Europe emphasized the need to upgrade the power
transmission infrastructure used by electric utilities, which may, over time
cause an increase in demand for the Company's products.
The Company believes its investment in Lean Six Sigma training, coupled with
effectively utilized manufacturing assets, provides a cost advantage compared to
many of its competitors and generates costs savings which help offset rising raw
material prices and other general economic cost increases. In addition, the
Company's customer and supplier integration capabilities, one-stop selling and
geographic and product diversity are sources of competitive advantage. As a
result, General Cable believes it is well positioned, relative to its
competitors, in the current difficult business environment.
As part of its ongoing efforts to reduce its total operating costs, the Company
continuously evaluates its ability to more efficiently utilize its 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, the Company closed one of its
communication cable plants and incurred a pre-tax charge of approximately $4.8
million in that quarter. In the second quarter of 2002, the Company incurred a
pre-tax charge of $19.2 million in conjunction with the closure of two
additional communication cables plants.
The Company is currently in the process of closing one of its North American
manufacturing facilities, which is expected to result in approximately $7
million of costs in the fourth quarter of 2003, of which approximately $4
million will be cash costs. In addition, the Company is evaluating closures of
two additional North American facilities. The Company plans to announce the
results of these evaluations either in the fourth quarter of 2003 or early next
year and would take additional charges over the period the operations are wound
down should the Company decide to rationalize these two facilities. The costs to
rationalize these facilities could approximate $20 million, with cash costs of
approximately one-third this amount.
The Company anticipates lower sales in the fourth quarter of 2003 compared to
the third quarter, which in part reflects historical seasonality, and also
expects an unfavorable impact on earnings of expected lower production volumes
as the Company continues to
22
reduce inventories. Net income is expected to be approximately breakeven for the
fourth quarter of 2003 before giving effect to plant rationalizations and the
refinancing described under liquidity and capital resources. Our results in the
fourth quarter of 2003 could also be impacted by variations in customer order
patterns as a result of year end budgeting considerations.
The Company's 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 above with respect to forward-looking statements. We caution you not
to place undue reliance on 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 price or availability of, our supply of raw materials used in
our manufacturing process; changes in our expectations relating to inventory
reductions; and other risks identified in the above discussion of
forward-looking statements.
Acquisitions and Divestitures
General Cable actively seeks to identify key trends in the industry, which
allows the Company to migrate its businesses to capitalize on expanding and new
niche markets or exit declining or non-strategic markets in order to achieve
better returns. The Company also sets aggressive performance targets for its
businesses and will refocus or divest those which fail to meet targets or do not
fit the Company's long-term strategies.
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.
Significant Accounting Policies
Management's Discussion and Analysis of the Financial Condition and Results of
Operations are based on the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. Significant accounting policies are summarized
in Note 1 to the Consolidated Financial Statements. The application of these
policies requires management to make estimates and judgements that affect the
amounts reflected in the financial statements. Management based its estimates
and judgements 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.
General Cable utilizes the last-in first-out (LIFO) method of inventory
accounting for its metals inventory. The Company's use of the LIFO method
results in its income statement reflecting the current costs of metals, while
metals inventories in the balance sheet are valued at historical costs as the
LIFO layers were created. As a result of declining copper prices, the historic
LIFO cost of the Company's copper inventory exceeded its replacement cost by
approximately $5 million at September 30, 2003. If the Company were not able to
recover the LIFO value of its inventory at a profit in some future period when
replacement costs were lower than the LIFO value of the inventory, the Company
would be required to take a charge to recognize in its income statement all or a
portion of the higher LIFO value of the inventory. Additionally, if LIFO
inventory quantities were reduced in a period when replacement costs were lower
than the LIFO value of the inventory, the Company would experience a decline in
reported earnings. 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
23
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 General Cable
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 the Company's 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% allocated to 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 September 30, 2003 was 76% of equity investments and 24%
of fixed-income investments. Management believes that their long-term asset
allocation on average will approximate the actuarial 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 commencing in the year after 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 benefit obligations, and input from
the Company's actuaries. The discount rate used at December 31, 2002 was 6.5%.
The Company evaluates its actuarial assumptions, at least annually, and adjusts
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, the Company estimates that pension expense for
the Company's 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.
General Cable records a valuation allowance to reduce its deferred tax assets to
the amount that it believes is more likely than not to be realized. While the
Company has considered future taxable income and ongoing prudent and feasible
tax planning strategies in assessing the need for the valuation allowance, in
the event the Company were to determine that it would not be able to realize all
or part of its 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 the Company determine that it would be able to
realize its deferred tax assets in the future in an amount that was in excess of
its net recorded amount, an adjustment to the deferred tax assets would increase
income in the period such determination was made. At September 30, 2003 and
December 31, 2002, the valuation allowance was $19.2 million.
Results of Operations
Three Months Ended September 30, 2003 Compared with Three Months Ended
September 30, 2002
Net income was $2.1 million, or $0.06 on a per diluted share basis in the third
quarter of 2003 compared to a net loss of $(4.0) million, or $(0.12) per diluted
share, in the third quarter of 2002. The net income for the third quarter of
2003 includes a pre-tax charge of $0.8 million for the liquidation of LIFO
inventories and a pre-tax corporate charge of $0.6 million for severance related
to the Company's ongoing cost cutting efforts in Europe. The net loss of $(4.0)
million for the third quarter of 2002 includes a pre-tax charge of $1.4 million
for the liquidation of LIFO inventories and a pre-tax corporate charge of $0.8
million related to the closure of two manufacturing plants in North America and
$2.9 million related to severance costs.
24
Net Sales
The following table sets forth metal-adjusted net sales by segment, in millions
of dollars. Net sales for the third quarter of 2002 have been adjusted to
reflect the 2003 third quarter copper COMEX average of $0.80 per pound and the
aluminum rod average of $0.68 per pound.
Metal-Adjusted Net Sales
Three Months Ended September 30,
--------------------------------------------------
% of % of
2003 Net Sales 2002 Net Sales
------ --------- ------ ---------
Energy $138.2 36% $128.7 36%
Industrial & specialty 128.5 34 120.4 33
Communications 115.8 30 110.0 31
------ --- ------ ---
Total metal-adjusted net sales 382.5 100% 359.1 100%
Metal adjustment - (11.7)
------ ------
Total net sales $382.5 $347.4
====== ======
Net sales increased 10% to $382.5 million in the third quarter of 2003 from
$347.4 million in the third quarter of 2002. The net sales increase included an
approximately $17.4 million favorable impact of foreign currency exchange rate
changes from the third quarter of 2002 to the third quarter of 2003, principally
related to the Company's European operations. After adjusting 2002 net sales to
reflect the $0.11 increase in the average COMEX price per pound of copper and
the $0.06 increase in the average aluminum rod price per pound in the third
quarter of 2003, net sales increased 7% to $382.5 million, from $359.1 million
in 2002. The increase in metal-adjusted net sales reflects a 7% increase in the
energy segment, a 7% increase in the industrial & specialty segment and a 5%
increase in the communications segment.
The 7% increase in metal-adjusted net sales for the energy segment reflects a
20% increase in net sales in the Company's international operations and a 2%
increase in net sales in the North American business. The increase in the
international business is due in part to the favorable impact of foreign
currency exchange rate changes and increased sales from new contract awards
throughout Europe. Demand from North American customers for bare overhead cables
and medium voltage distribution cables began to strengthen in the third quarter
of 2003 versus the same period in the prior year. The Company anticipates that
sales volume should 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, the
release of projects has not occurred as quickly as expected. Management believes
the timing of these projects has slowed in anticipation of pending energy
legislation which is being discussed 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 7% increase in metal-adjusted net sales in the industrial & specialty
segment was primarily due to a 14% increase in sales in the Company's
international operations due to the ongoing rollout of the environmentally
friendly, flexible zero-halogen cables in Europe and the favorable impact of
foreign currency exchange rate changes. Additionally, net sales of the Company's
domestic automotive aftermarket business increased 20% from the third quarter of
2002. These increases were partially offset by a 5% decrease in net sales of
cables utilized primarily in new industrial construction in North America, a
result of continued weak demand in the general industrial sector. Net sales in
North America of industrial cables utilized in repairs and maintenance were flat
in total compared to the third quarter of 2002 primarily the result of a
decrease in outsourced low-margin products which offset an 8% increase in cord
products.
The 5% increase in the communications segment metal-adjusted net sales primarily
relates to a 16% increase in telephone exchange cable sales. In addition, the
Company's international operations net sales increased 22% and the electronics
business increased 11% compared to the third quarter of 2002. Customer demand
for telephone exchange cable strengthened during the third quarter of 2003
compared to the third quarter of 2002 and remained at a consistent level with
the second quarter of 2003. As a result of the Company's position as a low cost
producer, these products have historically been one of the Company's most
profitable businesses. 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 the
Company's future financial performance. These sales increases were partially
offset by a 17% decrease in net sales of data communication cables as
information technology infrastructure spending in North America continues to be
constrained.
Selling, General and Administrative Expense
Selling, general and administrative expense decreased to $31.9 million in the
third quarter of 2003 from $33.5 million in the third quarter of 2002. The
decrease primarily reflects the impact of actions taken to reduce fixed SG&A
expense and controllable spending, partially offset by increased medical and
pension related costs experienced in 2003 and the impact of
25
increased SG&A expense in the Company's European operations as a result of
foreign currency exchange rate changes. In addition, SG&A expense includes $0.6
million and $2.9 million for the third quarter of 2003 and 2002, respectively,
for severance charges related principally to the Company's European operations.
Operating Income
The following table sets forth operating income by segment, in millions of
dollars.
Operating Income (Loss)
Three Months Ended September 30,
--------------------------------------------------
% of % of
Operating Operating
2003 Income 2002 Income
------ --------- ------ ---------
Energy $11.6 82% $8.6 110%
Industrial & specialty 0.7 5 1.3 17
Communications 1.8 13 (2.1) (27)
----- --- ---- ---
Subtotal excluding corporate charges 14.1 100% 7.8 100%
Corporate charges (0.6) (3.7)
----- ----
Total operating income $13.5 $4.1
===== ====
Operating income of $13.5 million in the third quarter of 2003 increased from
operating income of $4.1 million in the third quarter of 2002. Operating income
increased primarily as a result of the Company's cost containment programs,
strong performance from the Company's European operations and the favorable
impact of foreign currency exchange rate changes. These increases were partially
offset by unrecovered increased raw material costs (primarily polyethylene) and
higher pension and employee fringe benefit costs. Reduced corporate charges (as
discussed above) and a $0.6 million reduction in the LIFO liquidation charge
year over year also contributed to the increase in operating income in the third
quarter of 2003. Operating income was also negatively impacted during both
quarters as a result of unabsorbed overhead costs as the Company reduced its
inventory levels during both periods.
Interest Expense
Net interest expense was $10.3 million in the third quarter of 2003 and the
third quarter of 2002. Lower average net borrowings under the Company's credit
facility and lower interest rates on the floating rate portion of debt were
offset by a higher credit spread for the Company's borrowings due to an October
2002 credit facility amendment and the amortization of bank fees related to the
amendment.
Tax Rates
The Company's effective tax rate for 2003 and 2002 was 35.5%.
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 the Company's 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 the Company's 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 the Company's 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 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.
26
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.
Metal-Adjusted Net Sales
Nine Months Ended September 30,
----------------------------------------------------
% of % of
2003 Net Sales 2002 Net Sales
-------- --------- -------- ---------
Energy $ 413.5 36 $ 396.8 35
Industrial & specialty 395.1 35 388.8 35
Communications 324.5 29 335.0 30
-------- --- -------- ---
Total metal-adjusted net sales 1,133.1 100% 1,120.6 100%
Metal adjustment - (18.1)
-------- --------
Total net sales $1,133.1 $1,102.5
======== ========
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 the Company's 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 the Company's international operations, partially
offset by a 3% decrease in net sales in North America. The Company's
international operations have benefited from increased sales resulting from new
contract awards throughout Europe and a favorable impact from changes in foreign
currency exchange rates. The North American net sales decrease reflects lower
sales volume, however, during third quarter of 2003, customer demand
strengthened versus the same period in the prior year. The Company anticipates
that sales volume for North American customers should continue to improve over
time as utility customers address capital projects that were previously
deferred. These capital projects include enhancements to the power transmission
and distribution grid. 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 Company's customers
ability to install cables.
The 2% increase in metal-adjusted net sales in the industrial & specialty
segment was principally due to a 17% increase in the Company's international
operations, growth in the Company's domestic automotive aftermarket business and
an increase in sales of industrial cables utilized in repairs and maintenance.
The increase in net sales of the Company's 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 the
Company's 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 the Company's position as a low cost producer, these products have
historically been one of the Company's 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 the Company's future financial
performance. The sales volume decrease in data communication cables is the
result of information technology infrastructure spending being constrained.
27
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 the Company's 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 the Company's 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,
-----------------------------------------------
% of % of
Operating Operating
2003 Income 2002 Income
----- --------- ----- ---------
Energy $29.4 69% $28.7 67%
Industrial & specialty 7.8 18 7.5 17
Communications 5.3 13 6.7 16
------ --- ----- ---
Subtotal excluding corporate charges 42.5 100% 42.9 100%
Corporate charges (1.7) (28.7)
------- -----
Total operating income $40.8 $14.2
===== =====
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 the Company's ongoing cost reduction initiatives in
SG&A and manufacturing, strong performance from the Company's European
operations, 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 the Company's 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 the Company's debt.
Tax Rates
The Company's effective tax rate for 2003 and 2002 was 35.5%.
Liquidity and Capital Resources
In general, General Cable requires cash for working capital, capital
expenditures, debt repayment, interest and taxes. General Cable's working
capital requirements increase when it experiences strong incremental demand for
product and/or significant copper and aluminum price increases. Based upon
historical experience and the expected availability of funds under the credit
facility, the Company believes that its sources of liquidity will be sufficient
to enable it to meet its cash requirements for working capital, capital
expenditures, debt repayment, interest and taxes for at least the next twelve
months. This belief is based on the Company's current outlook which is not
dependent upon a recovery for the next twelve months in the communications or
industrial markets we serve.
The Company intends to refinance its existing credit facility and its
Securitization Financing. The refinancing is expected to be comprised of (1) a
$240.0 million Senior Secured Revolving Credit Facility, (2) $275.0 million of
Senior Notes, (3) $75.0 million of redeemable convertible preferred stock and
(4) $50.0 million of common stock. The exact amount raised in each of the
financings above will depend on the market conditions and will be determined at
the time of the pricing of the transactions. All of the transactions are planned
to be executed concurrently and will be contingent on the successful completion
of each component of the refinancing. There can be no assurance that these
transactions will be consummated.
General Cable Corporation is a holding company with no operations of its own.
All of the Company's operations are conducted, and net sales are generated, by
subsidiaries and investments of the Company. Accordingly, the Company's cash
flows depend on the cash flows of the operations, in particular the North
American operations upon which the Company has
28
historically depended most. However, the Company's ability to use cash flow from
its European operations, if necessary, will likely be adversely affected by
limitations on the Company's ability to repatriate such earnings tax
efficiently.
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 loss on the 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 includes 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 the Company's business reflecting increased construction activity
in the summer. In the comparable period in the prior year, the Company had a
decrease in receivables which primarily reflected the benefit from the
collection of receivables from the Company's former building wire business.
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 about 50% below the same period of 2002 and
reflects an intentional effort to limit capital spending given current general
economic conditions. The Company anticipates 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 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 the Company's European
operations' short term borrowings.
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 guaranteed by the Company's principal domestic operating subsidiaries.
The credit facility, as amended, restricts certain corporate acts and contains
required minimum financial ratios and other covenants.
Borrowings under the credit facility were $391.3 million at September 30, 2003.
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 which is
effective 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 earnings levels and established a
contingent 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. 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. However, no
assurance can be given that such contingent payment will not be required. 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
29
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.
The Company's European operations participate in arrangements with several
European financial institutions who provide extended accounts payable terms on
an uncommitted basis. 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. 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. Should the availability under these
arrangements be reduced or terminated, the Company would be required to
negotiate longer payment terms or repay the outstanding obligations with its
suppliers under this arrangement over 180 days and seek alternative financing
arrangements which could increase interest expense. There can be no assurance
that the Company will be able to obtain such financing if needed. The Company
also has an approximately $25 million uncommitted facility in Europe, which
allows it to sell at a discount, with limited recourse, a portion of its
accounts receivable to a financial institution. Under the Company's 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 its defined benefit pension plan, the Company was
required to record a minimum pension liability equal to the under funded status
of its plan. At December 31, 2002, the Company recorded an after-tax charge of
$29.2 million to accumulated other comprehensive income in the equity section of
its balance sheet. The Company will experience an increase in its future pension
expense and in its cash contributions to its defined benefit pension plan.
Pension expense in 2003 is expected to increase by approximately $5.7 million
compared to 2002 and the Company's required cash contributions are expected to
increase by $2.9 million 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 the Company's contractual obligations and
commercial commitments as of September 30, 2003 is as follows (in millions) of
dollars:
Payments Due by Period
-----------------------------------------------------------
Less than 1 - 3 4 - 5 After 5
Contractual Obligations Total 1 year Years Years Years
----------------------- ----- --------- ----- ----- -------
Long-term debt $404.0 $ 33.5 $166.5 $195.0 $9.0
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 $509.8 $118.6 $186.4 $195.8 $9.0
====== ====== ====== ====== ====
The Company anticipates being able to meet its obligations as they come due.
Off Balance Sheet Assets and Obligations
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
sold to a wholly-owned, special purpose, bankruptcy-remote subsidiary without
recourse. This subsidiary in turn transfers the receivables to a trust which
issued floating rate five-year certificates in an initial amount of $145
million. The proceeds from the initial transfer were utilized to reduce term
debt. The Company can utilize this facility to finance any future growth in
eligible receivables. In addition, a variable certificate component of up to $45
million for seasonal borrowings was established as 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 the
30
Company's consolidated balance sheet. The Company's 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
General Cable is exposed to various market risks, including changes in interest
rates, foreign currency and commodity prices. To manage risk associated with the
volatility of these natural business exposures, General Cable enters into
interest rate, commodity and foreign currency derivative agreements as well as
copper and aluminum forward purchase agreements. General Cable does not purchase
or sell derivative instruments for trading purposes. General Cable does not
engage in trading activities involving commodity contracts for which a lack of
marketplace quotations would necessitate the use of fair value estimation
techniques.
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, December 31,
2003 2002
------------------- --------------------
Notional Fair Notional Fair
Amount Value Amount Value
-------- ------ -------- -------
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)
===== =====
31
GENERAL CABLE CORPORATION AND SUBSIDIARIES
Item 4. Controls and Procedures
Quarterly evaluation of the Company's Disclosure Controls and Internal Controls.
Within the 90 days prior to the date of this Quarterly Report on Form 10-Q, the
Company evaluated the effectiveness of the design and operation of its
"disclosure controls and procedures" ("Disclosure Controls"). This evaluation
("Controls Evaluation") was done under the supervision and with the
participation of management, including the Chief Executive Officer ("CEO") and
Chief Financial Officer ("CFO").
Limitations on the Effectiveness of Controls. The Company's management,
including the CEO and CFO, does not expect that its Disclosure Controls or its
"internal controls and procedures for financial reporting" ("Internal Controls")
will prevent all error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgements in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions;
over time, control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
Conclusions. Based upon the Controls Evaluation, the CEO and CFO have concluded
that, subject to the limitations noted above, the Disclosure Controls provide
reasonable assurance that the objectives of the control system are met and that
the Disclosure Controls are effective to timely alert management to material
information relating to the Company during the period when its periodic reports
are being prepared.
In accordance with SEC requirements, the CEO and CFO note that, since the date
of the Controls Evaluation to the date of this Quarterly Report, there have been
no significant changes in Internal Controls or in other factors that could
significantly affect Internal Controls, including any corrective actions with
regard to significant deficiencies and material weakness.
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
31.1 Certification of Chief Executive Officer under Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer under Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to 18 U.S.C.ss.1350, as adopted under
Section 906 of the Sarbanes-Oxley Act of 2002.
b) Reports on Form 8-K
(i) Form 8-K filed on October 22, 2003 including the Company's
third quarter 2003 earnings release.
(ii) Form 8-K filed on October 28, 2003 including a press release
announcing a plant closure and other feasibility studies.
32
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, General
Cable Corporation has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GENERAL CABLE CORPORATION
Date: November 4, 2003 By: /s/ CHRISTOPHER F. VIRGULAK
-------------------------------------
Christopher F. Virgulak
Executive Vice President,
Chief Financial Officer and Treasurer
33