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EX-31.1 - CEO 302 CERTIFICATION - WireCo WorldGroup Inc.exhibit311_q2x2014.htm
EX-10.1 - AMENDMENT NO.5 TO NOTE PURCHASE AGREEMENT - WireCo WorldGroup Inc.exhibit101-q2_2014.htm
EXCEL - IDEA: XBRL DOCUMENT - WireCo WorldGroup Inc.Financial_Report.xls
EX-32.2 - CFO 906 CERTIFICATION - WireCo WorldGroup Inc.exhibit322_q2x2014.htm
EX-31.2 - CFO 302 CERTIFICATION - WireCo WorldGroup Inc.exhibit312_q2x2014.htm
EX-32.1 - CEO 906 CERTIFICATION - WireCo WorldGroup Inc.exhibit321_q2x2014.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
Form 10-Q
 
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
OR 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission file number 333-174896

 
WireCo WorldGroup Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
27-0061302
 
 
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
 
 
12200 NW Ambassador Drive
Kansas City, Missouri
 
64163
 
 
(Address of registrant's executive offices)
 
(Zip Code)
 
 
(816) 270-4700
 
 
(Registrant's telephone number, including area code)
 


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  ¨   NO  x 
NOTE: While the Registrant is a voluntary filer not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), the Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
 
¨
  
Accelerated filer
 
¨
 
 
 
 
 
 
 
 
Non-accelerated filer
 
x
  
Smaller reporting company
 
¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    YES  ¨   NO  x
There is no market for the Registrant’s equity, all of which is held by affiliates of WireCo WorldGroup (Cayman) Inc. (the “Company”). As of August 1, 2014 the Registrant had 100 shares of common stock outstanding.




WireCo WorldGroup Inc.
Quarterly Report
For the period ended June 30, 2014
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



1


PART I – FINANCIAL INFORMATION
Item 1.Financial Statements (unaudited)

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
Assets
 
June 30, 2014
 
December 31, 2013
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
37,003

 
$
34,987

Restricted cash
 
2,429

 
2,887

Accounts receivable, less allowance for doubtful accounts of $2,414 and $3,458, at June 30, 2014 and December 31, 2013, respectively
 
159,652

 
148,564

Inventories, net
 
248,400

 
228,245

Current deferred income tax assets
 
7,690

 
5,468

Prepaid expenses and other current assets
 
15,776

 
12,657

Total current assets
 
$
470,950

 
$
432,808

Property, plant and equipment, less accumulated depreciation of $178,270 and $163,250, at June 30, 2014 and December 31, 2013, respectively
 
355,436

 
366,338

Intangible assets, net
 
143,640

 
150,287

Goodwill
 
196,758

 
198,329

Deferred financing fees, net
 
19,175

 
22,702

Non-current deferred income tax assets
 
1,723

 
8,078

Other non-current assets
 
16,300

 
20,673

Total assets
 
$
1,203,982

 
$
1,199,215

Liabilities and Stockholders’ Equity
 
 
 
 
Current liabilities:
 
 
 
 
Current maturities of long-term debt
 
$
11,801

 
$
14,933

Interest payable
 
6,638

 
6,731

Accounts payable
 
94,821

 
76,181

Accrued compensation and benefits
 
24,974

 
17,873

Current deferred income tax liabilities
 
2,047

 
742

Other current liabilities
 
14,612

 
16,260

Total current liabilities
 
$
154,893

 
$
132,720

Long-term debt, excluding current maturities
 
856,544

 
862,492

Non-current deferred income tax liabilities
 
68,578

 
75,763

Other non-current liabilities
 
30,651

 
32,007

Total liabilities
 
$
1,110,666

 
$
1,102,982

Commitments and contingencies
 


 


Stockholders’ equity:
 
 
 
 
Common stock, $0.01 par value. 3,000,000 shares authorized; 2,054,374 and 2,053,174 shares issued, respectively, 2,005,205 and 2,004,005 shares outstanding, respectively
 
$
21

 
$
21

Additional paid-in capital
 
228,637

 
225,106

Accumulated other comprehensive loss
 
(21,829
)
 
(18,527
)
Accumulated deficit
 
(97,365
)
 
(94,809
)
Treasury stock, at cost. 49,169 shares at June 30, 2014 and December 31, 2013
 
(14,465
)
 
(14,465
)
Total stockholders’ equity attributable to WireCo WorldGroup (Cayman) Inc.
 
$
94,999

 
$
97,326

Non-controlling interests
 
(1,683
)
 
(1,093
)
Total stockholders’ equity
 
$
93,316

 
$
96,233

Total liabilities and stockholders’ equity
 
$
1,203,982

 
$
1,199,215

The accompanying notes are an integral part of the unaudited consolidated financial statements.

2

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands)
(unaudited)


 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Net sales
$
226,507

 
$
189,753

 
$
437,009

 
$
412,397

Cost of sales
(166,350
)
 
(145,890
)
 
(323,546
)
 
(313,907
)
Gross profit
60,157

 
43,863

 
113,463

 
98,490

Other operating expenses:

 

 

 

Selling expenses
(11,540
)
 
(10,273
)
 
(22,541
)
 
(21,802
)
Administrative expenses
(21,082
)
 
(21,044
)
 
(41,472
)
 
(41,563
)
Amortization expense
(2,591
)
 
(4,437
)
 
(5,739
)
 
(8,595
)
Total other operating expenses
(35,213
)
 
(35,754
)
 
(69,752
)
 
(71,960
)
Operating income
24,944

 
8,109

 
43,711

 
26,530

Other income (expense):

 

 

 

Interest expense, net
(20,116
)
 
(20,456
)
 
(39,974
)
 
(40,676
)
Foreign currency exchange gains (losses), net
(4,045
)
 
836

 
(3,094
)
 
(10,017
)
Other income (expense), net
(176
)
 
866

 
578

 
713

Total other expense, net
(24,337
)
 
(18,754
)
 
(42,490
)
 
(49,980
)
Income (loss) before income taxes
607

 
(10,645
)
 
1,221

 
(23,450
)
Income tax expense
(2,704
)
 
(2,792
)
 
(3,363
)
 
(1,353
)
Net loss
(2,097
)
 
(13,437
)
 
(2,142
)
 
(24,803
)
Less: Net income (loss) attributable to non-controlling interests
(73
)
 
(589
)
 
414

 
(355
)
Net loss attributable to WireCo WorldGroup (Cayman) Inc.
$
(2,024
)
 
$
(12,848
)
 
$
(2,556
)
 
$
(24,448
)
The accompanying notes are an integral part of the unaudited consolidated financial statements.



3

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)


 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Net loss
$
(2,097
)
 
$
(13,437
)
 
$
(2,142
)
 
$
(24,803
)
Other comprehensive loss:
 
 
 
 
 
 

Foreign currency translation gain (loss)
(1,212
)
 
390

 
(4,306
)
 
(168
)
Comprehensive loss
(3,309
)
 
(13,047
)
 
(6,448
)
 
(24,971
)
Less: Comprehensive income (loss) attributable to non-controlling interests
(179
)
 
(635
)
 
(590
)
 
(442
)
Comprehensive loss attributable to WireCo WorldGroup (Cayman) Inc.
$
(3,130
)
 
$
(12,412
)
 
$
(5,858
)
 
$
(24,529
)
The accompanying notes are an integral part of the unaudited consolidated financial statements.



4

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)


 
 
Six months ended
 
 
June 30,
 
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(2,142
)
 
$
(24,803
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 

 

Depreciation and amortization
 
25,948

 
28,316

Amortization of debt issuance costs, discounts and premium
 
4,177

 
4,322

Share-based compensation
 
3,570

 
1,726

Other non-cash items
 
(314
)
 
2,062

Unrealized foreign currency exchange losses, net
 
2,559

 
8,486

Provision for deferred income taxes
 
(1,364
)
 
(1,723
)
Changes in assets and liabilities, net of business acquired:
 

 

Accounts receivable
 
(9,814
)
 
(21,200
)
Inventories
 
(20,175
)
 
1,600

Prepaids and other assets
 
241

 
(313
)
Interest payable
 
(117
)
 
254

Accounts payable
 
18,620

 
557

Other accrued liabilities
 
4,533

 
2,364

Net cash provided by operating activities
 
$
25,722

 
$
1,648

Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(9,624
)
 
(18,290
)
Acquisition of business
 
(4,573
)
 

Other investing activities
 

 
(34
)
Net cash used in investing activities
 
$
(14,197
)
 
$
(18,324
)
Cash flows from financing activities:
 
 
 
 
Principal payments on long-term debt
 
(4,792
)
 
(10,205
)
Borrowings under revolving credit agreement
 
87,000

 
86,930

Repayments under revolving credit agreement
 
(91,750
)
 
(73,380
)
Repayments of short-term borrowings
 

 
(1,586
)
Other financing activities
 
(39
)
 

Net cash provided by (used in) financing activities
 
$
(9,581
)
 
$
1,759

Effect of exchange rates on cash and cash equivalents
 
72

 
(610
)
Increase (decrease) in cash and cash equivalents
 
$
2,016

 
$
(15,527
)
Cash and cash equivalents, beginning of period
 
34,987

 
49,244

Cash and cash equivalents, end of period
 
$
37,003

 
$
33,717

Supplemental Disclosure of Cash Flow Information:
 
 
 
 
Cash paid for interest, net of interest capitalized
 
$
35,541

 
$
36,132

Cash paid for income taxes, net of refunds
 
5,616

 
4,027

Debt issuance costs and amendment fees
 

 
2,427

The accompanying notes are an integral part of the unaudited consolidated financial statements.


5

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(unaudited)


(1) Interim Financial Statement Presentation
The financial information included in this quarterly report on Form 10-Q are those of WireCo WorldGroup (Cayman) Inc., its wholly-owned subsidiaries, including WireCo WorldGroup Inc., and subsidiaries in which it has a controlling interest (collectively, the “Company”). The consolidated financial statements include the activity of Lankhorst Euronete - Indústria e Comércio Ltda and WireCo WorldGroup US Holdings, Inc., both indirect subsidiaries of the Company that are not wholly-owned, but over which the Company has control. The Company reports the non-controlling interests in these consolidated subsidiaries as a component of equity separate from the Company's equity. The Company's ownership interest in certain other entities are accounted for under the equity method and are not consolidated. All intercompany transactions and balances have been eliminated in consolidation.
The accompanying unaudited interim consolidated financial statements included herein have been prepared in United States ("U.S.") dollars and in accordance with U.S. generally accepted accounting principles (“GAAP”) by the Company without audit in accordance with the U.S. Securities and Exchange Commission (“SEC”) requirements for quarterly reports on Form 10-Q and, accordingly, do not include all of the annual disclosures required by GAAP. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2013.
In the opinion of management, the unaudited interim consolidated financial statements reflect all normal, recurring adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented using management’s best estimates and assumptions where appropriate. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of certain assets, liabilities, revenue and expenses. Actual results could differ from those estimates. Certain reclassifications, not affecting net income, have been made to prior year amounts on the Consolidated Statement of Operations to conform to the current year presentation.
Out-of-period Errors
During the first quarter of 2014, the Company identified certain prior period accounting entries, which were not recorded in the proper functional currency. The Company corrected this error in the first quarter of 2014 resulting in an increase to Other Comprehensive Loss of $3,351 on the Consolidated Statement of Comprehensive Income (Loss). This error was not material to the first quarter of 2014 and any previously reported periods.
The Company uses the percentage-of-completion method of accounting to recognize revenues and associated costs as work progresses for certain contracts. During the second quarter of 2013, the Company determined that certain projects, for which production occurred in the first quarter of 2013, did not meet the thresholds established to recognize revenue and costs using the percentage-of-completion method. As a result, the Company recorded an entry in the second quarter of 2013 that decreased Net sales and Cost of sales by $5,776 and $4,340, respectively, to correct the untimely recognition of revenue and costs. This error was not material to the second quarter of 2013 and any previously reported periods.
Accounting Pronouncement Adopted During 2014
In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 requires the netting of unrecognized tax benefits against all same-jurisdiction deferred tax assets for a loss or other carryforward that would apply in settlement of the uncertain tax positions. The Company adopted ASU 2013-11 prospectively on January 1, 2014, which only affected presentation on the Consolidated Balance Sheet. There was no impact on the Company's operating results.
Accounting Pronouncement Issued During 2014
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP. The new standard is effective on January 1, 2017 and early adoption is not permitted. ASU 2014-09 allows the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect of ASU 2014-09 and has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.


6

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
(unaudited)

(2) Inventories, net
The major classes of inventories were as follows as of the dates indicated:
 
 
June 30, 2014
 
December 31, 2013
Raw materials, net
 
$
80,733

 
$
74,486

Work in process
 
22,989

 
18,612

Finished goods, net
 
144,678

 
135,147

Inventories, net
 
$
248,400

 
$
228,245


(3) Intangible Assets and Goodwill
The components of intangible assets were as follows as of the dates indicated:
 
 
June 30, 2014
 
December 31, 2013
 
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net
carrying
amount
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net
carrying
amount
Finite-lived Assets
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
 
$
132,240

 
$
(87,102
)
 
$
45,138

 
$
132,397

 
$
(82,569
)
 
$
49,828

Patented and unpatented technology
 
24,209

 
(10,303
)
 
13,906

 
24,320

 
(9,508
)
 
14,812

Other
 
7,110

 
(6,849
)
 
261

 
7,193

 
(6,966
)
 
227

Total finite-lived intangible assets
 
$
163,559

 
$
(104,254
)
 
$
59,305

 
$
163,910

 
$
(99,043
)
 
$
64,867


Using the exchange rates in effect at period end, estimated amortization of intangible assets as of June 30, 2014 was as follows:
Remainder of 2014
 
$
5,172

2015
 
10,253

2016
 
9,976

2017
 
8,176

2018
 
4,165

Thereafter
 
21,563

Total
$
59,305


Intangible assets with indefinite lives are not amortized. The carrying values of trade names as of June 30, 2014 and December 31, 2013 were $84,335 and $85,420, respectively.
The change in the carrying value of goodwill was as follows as of the dates indicated:
 
 
Total
December 31, 2013
 
$
198,329

Foreign currency translation
 
(1,571
)
June 30, 2014
 
$
196,758


7

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
(unaudited)

(4) Borrowings
Long-term debt consisted of the following as of the dates indicated:
 
 
June 30, 2014
 
December 31, 2013
Borrowings under Revolving Loan Facility
 
$
27,250

 
$
32,000

Polish Debt due 2014
 
8,756

 
8,860

Term Loan due 2017
 
326,021

 
330,813

9.50% Senior Notes due 2017
 
425,000

 
425,000

11.75% Senior Notes due 2017
 
82,500

 
82,500

Other indebtedness
 
594

 
688

Total debt at face value
 
870,121

 
879,861

Less: Unamortized discount, net
 
(1,776
)
 
(2,436
)
Less: Current maturities of long-term debt
 
(11,801
)
 
(14,933
)
Total long-term debt
 
$
856,544

 
$
862,492

As of June 30, 2014, the Company was in compliance with all restrictive and financial covenants associated with its borrowings. For a detailed discussion of the Company's borrowings, see Note 8—“Borrowings” to the Company's audited consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of the annual report on Form 10-K for the year ended December 31, 2013.

Senior Secured Credit Facilities - Revolving Loan Facility and Term Loan due 2017
The Company's maximum borrowing capacity under the Revolving Loan Facility is $145,000. As of June 30, 2014, availability under the Revolving Loan Facility was $117,163. Availability is based upon the maximum borrowing capacity, less outstanding borrowings and letters of credit, and if applicable, further restricted by certain covenants in the Company's credit agreements. Outstanding letters of credit were $587 at June 30, 2014. The interest rate on the Revolving Loan Facility and Term Loan due 2017 at June 30, 2014 was 5.48% and 6.00%, respectively.

Recent Developments - 11.75% Senior Notes due 2017
On July 16, 2014, WireCo WorldGroup Inc. entered into an Amendment to the Note Purchase Agreement governing the 11.75% Senior Notes that reduced the interest rate from 11.75% to 9.00% and provided a waiver for the notice of redemption. On July 17, 2014, the Company redeemed $26,500 of the $82,500 aggregate principal amount of the 11.75% Senior Notes, using cash drawn under the Revolving Loan Facility. As a result of redeeming earlier than the stated maturity of May 15, 2017, the Company paid a call premium of approximately $400. Giving effect to this transaction, the Company's availability under the Revolving Loan Facility was $90,263.

Interest expense, net
Net interest expense consists of:
 
 
Three months ended
 
Six months ended
 
 
June 30,
 
June 30,
 
 
2014
 
2013
 
2014
 
2013
Interest on long-term debt
 
$
18,070

 
$
18,749

 
$
36,114

 
$
37,095

Amortization of debt issuance costs, discounts and premium
 
2,099

 
2,163

 
4,177

 
4,322

Capitalized interest
 
(123
)
 
(538
)
 
(370
)
 
(813
)
Other
 
70

 
82

 
53

 
72

Interest expense, net
 
$
20,116

 
$
20,456

 
$
39,974

 
$
40,676



8

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
(unaudited)

(5) Fair Value Measurements
The Company’s short-term financial instruments include cash and cash equivalents, accounts receivable, accounts payable and the Polish Debt due 2014. The carrying amounts reported on the consolidated balance sheets for these items approximate fair market value due to their relative short-term nature.
The carrying amounts and estimated fair values of the Company’s long-term debt at June 30, 2014 were as follows:
 
 
Carrying
amount
 
Estimated
fair value
Revolving Loan Facility
 
$
27,250

 
$
27,250

Term Loan due 2017
 
324,122

 
328,466

9.50% Senior Notes due 2017
 
425,518

 
435,625

11.75% Senior Notes due 2017
 
82,500

 
82,500

As the Revolving Loan Facility is a revolving credit agreement, the carrying amount approximates fair value. The estimated fair value of the Term Loan due 2017 is based on rates currently available for obligations with similar terms and maturities (Level 2 inputs). The estimated fair value of the 9.50% Senior Notes is based on current market rates in inactive markets (Level 2 inputs) and the estimated fair value of the privately placed 11.75% Senior Notes is based on a model that incorporates assumptions a market participant would use in pricing the liability (Level 3 inputs).

(6) Share-based Compensation
Changes in the Company's outstanding service-based stock option awards since December 31, 2013 were as follows:
Options
 
Number of
options
 
Weighted
average
exercise price
 
Weighted
average
remaining
contractual term
(years)
Outstanding at December 31, 2013
 
481,970

 
$
163.19

 
 
Granted
 
40,000

 
288.68

 
 
Exercised
 
(1,200
)
 
190.00

 
 
Expired
 
(346
)
 
294.18

 
 
Other
 
(3,933
)
 
100.00

 
 
Outstanding at June 30, 2014
 
516,491

 
$
173.24

 
5.51
Vested and expected to vest as of June 30, 2014
 
516,491

 
173.24

 
5.51
Exercisable at June 30, 2014
 
348,591

 
128.93

 
3.75
The fair value of the service-based stock option awards granted during 2014 were estimated on the date of grant using the Black-Scholes option-pricing model. Since there were multiple grant dates, the range of assumptions used in the model are noted in the following table.
 
2014
Expected volatility (1)
44.56% - 45.36%
Risk-free interest rate (2)
1.99% - 2.24%
Expected term of the option (years) (3)
6.50
Expected dividend yield
—%
Grant-date fair value
$129.37 - $138.42
(1) 
Based on the average historical volatility of similar entities with publicly traded shares since the Company's shares are privately held.
(2) 
Based on the U.S. Treasury interest rate whose term is consistent with the expected term of the stock options.
(3) 
Based on the expected term considering vesting and contractual terms.

9

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
(unaudited)

At June 30, 2014, total unrecognized compensation cost related to the unvested portion of the Company's service-based stock option awards that remains to be expensed was $19,576, with the weighted average remaining years to vest of approximately 2.13 years. There were 26,779 awards available for future grants under the 2008 Long Term Incentive Plan at June 30, 2014.

(7) Restructuring
During 2013, the Company formalized a restructuring plan, which included changes in certain executive management positions and headcount reductions at certain manufacturing facilities due to lower than expected sales volumes. As a result of these actions, the Company recorded restructuring charges related to employee termination and related benefits in Administrative expenses in the consolidated statement of operations during the year ended December 31, 2013. The accrual balances are included in Other current liabilities on the consolidated balance sheets.

A rollforward of these restructuring activities is set forth below:
Balance at December 31, 2013
$
2,812

Payments made in 2014
(1,925
)
Balance at June 30, 2014
$
887


(8) Income Taxes
The Company determines the interim tax provision by applying an estimate of the annual effective tax rate to the year-to-date pretax book income (loss) and adjusts for discrete items during the reporting period, if any. Tax jurisdictions with losses for which tax benefits cannot be realized are excluded.
The effective income tax rate for the three months ended June 30, 2014 and 2013 was 445.5% and (26.2)%, respectively. The effective income tax rate for the six months ended June 30, 2014 and 2013 was 275.4% and (5.8)%, respectively. The Company's effective tax rates differ from the applicable statutory tax rate primarily due to a full valuation allowance on U.S. deferred tax assets, the mix of taxable income (loss) by jurisdiction, and the effects of foreign tax rate differential.

(9) Contingencies
The Company is involved in various claims and legal actions arising in the ordinary course of business, which are incidental to its operations. Insurance coverage is maintained for certain risks, such as product liability and workers’ compensation. The Company is not currently a party to any legal proceedings that it believes would have a material adverse effect on its financial position, results of operations, or cash flows.


10

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
(unaudited)

(10) Segment Reporting
The Company reports the manufacturing, marketing, selling and distribution of wire and synthetic ropes, specialty wire and engineered products as one operating and one reportable segment. The Company's chief operating decision maker is its Chief Executive Officer, who reviews financial information on a consolidated basis for purposes of making operating decisions and assessing financial performance. The Company's net sales by product line for the periods presented was as follows:
 
Three months ended June 30,
 
Six months ended June 30,
 
2014
 
2013
 
2014
 
2013
Product line net sales
($)
(%)
 
($)
(%)
 
($)
(%)
 
($)
(%)
Rope
$
161,915

72
%
 
$
145,397

76
%
 
$
321,543

74
%
 
$
306,041

74
%
Specialty Wire
35,459

16
%
 
31,256

16
%
 
68,567

16
%
 
63,256

15
%
Engineered Products
29,133

12
%
 
13,100

8
%
 
46,899

10
%
 
43,100

11
%
 
$
226,507

100
%
 
$
189,753

100
%
 
$
437,009

100
%
 
$
412,397

100
%
 
 
 
 
 
 
 
(11) Condensed Consolidating Financial Statements
Guarantees of the 9.50% Senior Notes
WireCo WorldGroup Inc. has registered 9.50% Senior Notes, which are unsecured obligations. These obligations are jointly and severally and fully and unconditionally guaranteed by WireCo WorldGroup (Cayman) Inc. Certain entities controlled by WireCo WorldGroup (Cayman) Inc. (collectively referred to as the “Guarantor Subsidiaries”) also jointly and severally and fully and unconditionally guarantee these obligations, subject to customary release provisions. All voting shares for the entities presented in the “Guarantor Subsidiaries” column are 100% owned directly or indirectly by the Company. Certain subsidiaries with locations primarily in the Netherlands, Brazil and France do not guarantee the debt (collectively referred to as the “Non-Guarantor Subsidiaries”). The adjustments eliminate investments in subsidiaries, related stockholders’ equity and other intercompany balances and transactions. There are currently no significant restrictions on the ability of WireCo WorldGroup Inc. or any guarantor to obtain funds from its subsidiaries by dividend or loan.
The following condensed consolidating financial statements are prepared with each entity’s investment in subsidiaries accounted for under the equity method. During the fourth quarter of 2013, Royal Lankhorst Euronete Group B.V., an indirect subsidiary of the Company, became a guarantor. This change in the guarantor pool has been retroactively reflected in all condensed consolidating financial statements presented.


11

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
(unaudited)

Condensed Consolidating Balance Sheets
 
June 30, 2014
 
WireCo
WorldGroup
(Cayman) Inc.
(Parent)
 
WireCo
WorldGroup
Inc.
(Issuer)
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Elimination
Adjustments
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
29

 
$
5,071

 
$
22,646

 
$
9,257

 
$

 
$
37,003

Restricted cash

 

 
2,429

 

 

 
2,429

Accounts receivable, net

 
44,086

 
81,022

 
34,544

 

 
159,652

Intercompany accounts receivable
23,945

 
31,837

 
118,416

 
9,036

 
(183,234
)
 

Inventories, net

 
77,614

 
139,575

 
31,211

 

 
248,400

Current deferred income tax assets

 
3,139

 
4,412

 
139

 

 
7,690

Prepaid expenses and other current assets

 
2,698

 
9,807

 
3,271

 

 
15,776

Total current assets
$
23,974

 
$
164,445

 
$
378,307

 
$
87,458

 
$
(183,234
)
 
$
470,950

Long-term intercompany notes receivable

 
455,172

 
4,780

 
3,111

 
(463,063
)
 

Property, plant and equipment, net

 
56,158

 
251,173

 
48,105

 

 
355,436

Intangible assets, net

 
35,867

 
82,191

 
25,582

 

 
143,640

Goodwill

 
117,124

 
55,461

 
24,173

 

 
196,758

Investments in subsidiaries
77,407

 

 
40,154

 
6,704

 
(124,265
)
 

Deferred financing fees, net

 
19,175

 

 

 

 
19,175

Non-current deferred income tax assets

 
(4,798
)
 
5,598

 
923

 

 
1,723

Other non-current assets

 
153

 
16,137

 
10

 

 
16,300

Total assets
$
101,381

 
$
843,296

 
$
833,801

 
$
196,066

 
$
(770,562
)
 
$
1,203,982

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
Current maturities of long-term debt
$

 
$
3,318

 
$
8,460

 
$
23

 
$

 
$
11,801

Interest payable

 
6,447

 
181

 
10

 

 
6,638

Accounts payable

 
16,781

 
55,177

 
22,863

 

 
94,821

Accrued compensation and benefits

 
5,984

 
14,723

 
4,267

 

 
24,974

Intercompany accounts payable
1,365

 
68,098

 
37,477

 
76,426

 
(183,366
)
 

Current deferred income tax liabilities

 

 
(37
)
 
1,733

 
351

 
2,047

Other current liabilities

 
3,163

 
7,606

 
3,843

 

 
14,612

Total current liabilities
$
1,365

 
$
103,791

 
$
123,587

 
$
109,165

 
$
(183,015
)
 
$
154,893

Long-term debt, excluding current maturities

 
856,072

 
472

 

 

 
856,544


12

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
(unaudited)

Long-term intercompany notes payable
6,700

 

 
448,956

 
7,418

 
(463,074
)
 

Non-current deferred income tax liabilities

 
1,920

 
56,268

 
10,390

 

 
68,578

Other non-current liabilities

 
7,371

 
21,276

 
2,004

 

 
30,651

Total liabilities
$
8,065

 
$
969,154

 
$
650,559

 
$
128,977

 
$
(646,089
)
 
$
1,110,666

Stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
Total stockholders’ equity attributable to WireCo WorldGroup (Cayman) Inc.
94,999

 
(121,669
)
 
184,925

 
64,583

 
(127,839
)
 
94,999

Non-controlling interests
(1,683
)
 
(4,189
)
 
(1,683
)
 
2,506

 
3,366

 
(1,683
)
Total stockholders’ equity
$
93,316

 
$
(125,858
)
 
$
183,242

 
$
67,089

 
$
(124,473
)
 
$
93,316

Total liabilities and stockholders’ equity
$
101,381

 
$
843,296

 
$
833,801

 
$
196,066

 
$
(770,562
)
 
$
1,203,982


13

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
(unaudited)

 
December 31, 2013
 
WireCo
WorldGroup
(Cayman) Inc.
(Parent)
 
WireCo
WorldGroup
Inc.
(Issuer)
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Elimination
Adjustments
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
53

 
$
2,564

 
$
11,798

 
$
20,572

 
$

 
$
34,987

Restricted cash

 

 
2,887

 

 

 
2,887

Accounts receivable, net

 
38,891

 
87,234

 
22,439

 

 
148,564

Intercompany accounts receivable
20,871

 
53,444

 
131,716

 
(55
)
 
(205,976
)
 

Inventories, net

 
79,017

 
121,913

 
27,315

 

 
228,245

Current deferred income tax assets

 
3,139

 
2,185

 
144

 

 
5,468

Prepaid expenses and other current assets

 
2,218

 
4,016

 
389

 
6,034

 
12,657

Total current assets
$
20,924

 
$
179,273

 
$
361,749

 
$
70,804

 
$
(199,942
)
 
$
432,808

Long-term intercompany notes receivable

 
477,637

 
4,827

 

 
(482,464
)
 

Property, plant and equipment, net

 
59,065

 
258,580

 
48,693

 

 
366,338

Intangible assets, net

 
37,090

 
86,555

 
26,642

 

 
150,287

Goodwill

 
117,124

 
55,749

 
25,456

 

 
198,329

Investment in subsidiaries
83,430

 

 
125,767

 

 
(209,197
)
 

Deferred financing fees, net

 
22,702

 

 

 

 
22,702

Non-current deferred income tax assets

 

 
7,175

 
903

 

 
8,078

Other non-current assets

 
201

 
17,273

 
3,199

 

 
20,673

Total assets
$
104,354

 
$
893,092

 
$
917,675

 
$
175,697

 
$
(891,603
)
 
$
1,199,215

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
Current maturities of long-term debt
$

 
$
6,710

 
$
8,223

 
$

 
$

 
$
14,933

Interest payable

 
6,604

 
124

 
3

 

 
6,731

Accounts payable

 
14,552

 
45,695

 
15,934

 

 
76,181

Accrued compensation and benefits

 
7,907

 
9,622

 
344

 

 
17,873

Intercompany accounts payable
1,412

 
84,495

 
49,713

 
4,418

 
(140,038
)
 

Current deferred income tax liabilities

 

 
(33
)
 
424

 
351

 
742

Other current liabilities
9

 
1,886

 
351

 
74,085

 
(60,071
)
 
16,260

Total current liabilities
$
1,421

 
$
122,154

 
$
113,695

 
$
95,208

 
$
(199,758
)
 
$
132,720

Long-term debt, excluding current maturities

 
861,948

 
544

 

 

 
862,492

Long-term intercompany notes payable
6,700

 

 
472,165

 
2,613

 
(481,478
)
 


14

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
(unaudited)

Non-current deferred income tax liabilities

 
6,717

 
56,670

 
12,376

 

 
75,763

Other non-current liabilities

 
7,477

 
22,618

 
2,878

 
(966
)
 
32,007

Total liabilities
$
8,121

 
$
998,296

 
$
665,692

 
$
113,075

 
$
(682,202
)
 
$
1,102,982

Stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
Total stockholders’ equity attributable to WireCo WorldGroup (Cayman) Inc.
97,326

 
(105,204
)
 
253,076

 
60,215

 
(208,087
)
 
97,326

Non-controlling interests
(1,093
)
 

 
(1,093
)
 
2,407

 
(1,314
)
 
(1,093
)
Total stockholders’ equity
$
96,233

 
$
(105,204
)
 
$
251,983

 
$
62,622

 
$
(209,401
)
 
$
96,233

Total liabilities and stockholders’ equity
$
104,354

 
$
893,092

 
$
917,675

 
$
175,697

 
$
(891,603
)
 
$
1,199,215




15

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
(unaudited)

Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
 
Three months ended June 30, 2014
 
WireCo
WorldGroup
(Cayman) Inc.
(Parent)
 
WireCo
WorldGroup
Inc.
(Issuer)
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Elimination
Adjustments
 
Consolidated
Net sales
$

 
$
74,769

 
$
130,732

 
$
54,887

 
$
(33,881
)
 
$
226,507

Cost of sales

 
(57,626
)
 
(102,613
)
 
(40,525
)
 
34,414

 
(166,350
)
Gross profit

 
17,143

 
28,119

 
14,362

 
533

 
60,157

Other operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Selling expenses

 
(2,993
)
 
(5,361
)
 
(3,186
)
 

 
(11,540
)
Administrative expenses
(153
)
 
(12,571
)
 
(6,806
)
 
(1,102
)
 
(450
)
 
(21,082
)
Amortization expense

 
(757
)
 
(1,564
)
 
(270
)
 

 
(2,591
)
Total other operating expenses
(153
)
 
(16,321
)
 
(13,731
)
 
(4,558
)
 
(450
)
 
(35,213
)
Operating income (loss)
(153
)
 
822

 
14,388

 
9,804

 
83

 
24,944

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income (expense), net
(102
)
 
(11,172
)
 
(8,871
)
 
29

 

 
(20,116
)
Equity income (losses) from subsidiaries
(1,769
)
 

 
(2,506
)
 
842

 
3,433

 

Foreign currency exchange gains (losses), net

 
123

 
(3,274
)
 
(894
)
 

 
(4,045
)
Other income (expense), net

 
(363
)
 
189

 
(2
)
 

 
(176
)
Total other expense, net
(1,871
)
 
(11,412
)
 
(14,462
)
 
(25
)
 
3,433

 
(24,337
)
Income (loss) before income taxes
(2,024
)
 
(10,590
)
 
(74
)
 
9,779

 
3,516

 
607

Income tax expense

 
(4
)
 
(1,892
)
 
(808
)
 

 
(2,704
)
Net income (loss)
(2,024
)
 
(10,594
)
 
(1,966
)
 
8,971

 
3,516

 
(2,097
)
Less: Net income (loss) attributable to non-controlling interests

 

 
(355
)
 
282

 

 
(73
)
Net income (loss) attributable to WireCo WorldGroup (Cayman) Inc.
(2,024
)
 
(10,594
)
 
(1,611
)
 
8,689

 
3,516

 
(2,024
)
Comprehensive income (loss)
$
(3,309
)
 
$
(10,594
)
 
$
(754
)
 
$
(945
)
 
$
12,293

 
$
(3,309
)
 

16

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
(unaudited)

 
Three months ended June 30, 2013
 
WireCo
WorldGroup
(Cayman) Inc.
(Parent)
 
WireCo
WorldGroup
Inc.
(Issuer)
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Elimination
Adjustments
 
Consolidated
Net sales
$

 
$
72,972

 
$
119,158

 
$
25,929

 
$
(28,306
)
 
$
189,753

Cost of sales

 
(56,367
)
 
(96,452
)
 
(21,492
)
 
28,421

 
(145,890
)
Gross profit

 
16,605

 
22,706

 
4,437

 
115

 
43,863

Other operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Selling expenses

 
(3,422
)
 
(4,766
)
 
(2,085
)
 

 
(10,273
)
Administrative expenses
(671
)
 
(10,465
)
 
(7,839
)
 
(2,069
)
 

 
(21,044
)
Amortization expense

 
(1,432
)
 
(2,468
)
 
(537
)
 

 
(4,437
)
Total other operating expenses
(671
)
 
(15,319
)
 
(15,073
)
 
(4,691
)
 

 
(35,754
)
Operating income (loss)
(671
)
 
1,286

 
7,633

 
(254
)
 
115

 
8,109

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
(102
)
 
(11,372
)
 
(8,910
)
 
(72
)
 

 
(20,456
)
Equity losses from subsidiaries
(12,075
)
 

 
(11,887
)
 
(441
)
 
24,403

 

Foreign currency exchange gains (losses), net

 
(378
)
 
2,095

 
(881
)
 

 
836

Other income (expense), net

 
(77
)
 
942

 
1

 

 
866

Total other expense, net
(12,177
)
 
(11,827
)
 
(17,760
)
 
(1,393
)
 
24,403

 
(18,754
)
Loss before income taxes
(12,848
)
 
(10,541
)
 
(10,127
)
 
(1,647
)
 
24,518

 
(10,645
)
Income tax benefit (expense)

 
132

 
(2,815
)
 
(109
)
 

 
(2,792
)
Net loss
(12,848
)
 
(10,409
)
 
(12,942
)
 
(1,756
)
 
24,518

 
(13,437
)
Less: Net loss attributable to non-controlling interests

 

 
(323
)
 
(266
)
 

 
(589
)
Net loss attributable to WireCo WorldGroup (Cayman) Inc.
(12,848
)
 
(10,409
)
 
(12,619
)
 
(1,490
)
 
24,518

 
(12,848
)
Comprehensive income (loss)
$
(13,047
)
 
$
(10,409
)
 
$
(13,332
)
 
$
2,635

 
$
21,106

 
$
(13,047
)

17

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
(unaudited)

 
Six months ended June 30, 2014
 
WireCo
WorldGroup
(Cayman) Inc.
(Parent)
 
WireCo
WorldGroup
Inc.
(Issuer)
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Elimination
Adjustments
 
Consolidated
Net sales
$

 
$
146,993

 
$
258,970

 
$
94,415

 
$
(63,369
)
 
$
437,009

Cost of sales

 
(113,480
)
 
(202,863
)
 
(71,158
)
 
63,955

 
(323,546
)
Gross profit

 
33,513

 
56,107

 
23,257

 
586

 
113,463

Other operating expenses: