Attached files

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EX-32.1 - EXHIBIT 32.1 - WireCo WorldGroup Inc.exhibit321_q1x2016.htm
EX-31.2 - EXHIBIT 31.2 - WireCo WorldGroup Inc.exhibit312_q1x2016.htm
EX-31.1 - EXHIBIT 31.1 - WireCo WorldGroup Inc.exhibit311_q1x2016.htm
EX-32.2 - EXHIBIT 32.2 - WireCo WorldGroup Inc.exhibit322_q1x2016.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 March 31, 2016
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.)
 
 
 
 
 
 
 
2400 West 75th Street
Prairie Village, Kansas
 
66208
 
 
(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 May 2, 2016 the Registrant had 100 shares of common stock outstanding.




WireCo WorldGroup Inc.
Quarterly Report
For the period ended March 31, 2016
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)
Assets
 
March 31, 2016
 
December 31, 2015
Current assets:
 
(unaudited)
 
 
Cash and cash equivalents
 
$
28,941

 
$
21,060

Restricted cash
 
1,791

 
1,522

Accounts receivable, less allowance for doubtful accounts of $2,261 and $2,180, at March 31, 2016 and December 31, 2015, respectively
 
122,582

 
124,463

Other receivables
 
1,847

 
2,779

Inventories, net
 
194,251

 
186,964

Current derivative assets
 
35,363

 

Prepaid expenses and other current assets
 
9,214

 
8,133

Total current assets
 
$
393,989

 
$
344,921

Property, plant and equipment, less accumulated depreciation of $204,759 and $196,653, at March 31, 2016 and December 31, 2015, respectively
 
288,082

 
283,655

Intangible assets, net
 
103,850

 
102,765

Goodwill
 
183,944

 
181,738

Non-current deferred income tax assets
 
141

 
1,459

Non-current derivative assets
 

 
47,519

Other non-current assets
 
9,674

 
9,272

Total assets
 
$
979,680

 
$
971,329

Liabilities and Stockholders’ Equity
 
 
 
 
Current liabilities:
 
 
 
 
Current maturities of long-term debt
 
$
350,788

 
$
8,948

Interest payable
 
17,507

 
6,159

Accounts payable
 
64,005

 
72,153

Accrued compensation and benefits
 
19,938

 
18,516

Other current liabilities
 
32,812

 
22,967

Total current liabilities
 
$
485,050

 
$
128,743

Long-term debt, excluding current maturities
 
478,049

 
811,090

Non-current deferred income tax liabilities
 
35,171

 
34,214

Other non-current liabilities
 
13,622

 
13,711

Total liabilities
 
$
1,011,892

 
$
987,758

Commitments and contingencies
 


 


Stockholders’ deficit:
 
 
 
 
Common stock, $0.01 par value. 3,000,000 shares authorized; 2,054,374 and 2,005,205 shares issued and outstanding, respectively at March 31, 2016 and December 31, 2015
 
$
21

 
$
21

Additional paid-in capital
 
242,115

 
240,379

Accumulated other comprehensive loss
 
(77,890
)
 
(80,694
)
Accumulated deficit
 
(184,211
)
 
(164,263
)
Treasury stock, at cost. 49,169 shares at March 31, 2016
and December 31, 2015
 
(14,465
)
 
(14,465
)
Total stockholders’ deficit attributable to WireCo WorldGroup (Cayman) Inc.
 
$
(34,430
)
 
$
(19,022
)
Non-controlling interests
 
2,218

 
2,593

Total stockholders’ deficit
 
$
(32,212
)
 
$
(16,429
)
Total liabilities and stockholders’ deficit
 
$
979,680

 
$
971,329

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
 
March 31,
 
2016
 
2015
Net sales
$
149,001

 
$
180,355

Cost of sales
(112,378
)
 
(138,354
)
Gross profit
36,623

 
42,001

Other operating expenses:

 

Selling expenses
(8,534
)
 
(9,775
)
Administrative expenses
(19,617
)
 
(17,971
)
Amortization expense
(2,079
)
 
(2,309
)
Total other operating expenses
(30,230
)
 
(30,055
)
Operating income
6,393

 
11,946

Other income (expense):

 

Interest expense, net
(18,971
)
 
(18,988
)
Foreign currency exchange losses, net
(3,544
)
 
(4,278
)
Other income (expense), net
59

 
(309
)
Total other expense, net
(22,456
)
 
(23,575
)
Loss before income taxes
(16,063
)
 
(11,629
)
Income tax benefit (expense)
(4,412
)
 
7,561

Net loss
(20,475
)
 
(4,068
)
Less: Net income (loss) attributable to non-controlling interests
(527
)
 
680

Net loss attributable to WireCo WorldGroup (Cayman) Inc.
$
(19,948
)
 
$
(4,748
)
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
 
March 31,
 
2016
 
2015
Net loss
$
(20,475
)
 
$
(4,068
)
Other comprehensive income (loss):
 
 

Foreign currency translation gain (loss)
2,956

 
(14,405
)
Comprehensive loss
(17,519
)
 
(18,473
)
Less: Comprehensive income (loss) attributable to non-controlling interests
(375
)
 
858

Comprehensive loss attributable to WireCo WorldGroup (Cayman) Inc.
$
(17,144
)
 
$
(19,331
)
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)


 
 
Three months ended
 
 
March 31,
 
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(20,475
)
 
$
(4,068
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 

 

Depreciation and amortization
 
10,747

 
11,375

Amortization of debt issuance costs, discounts and premium
 
1,996

 
1,855

Share-based compensation
 
1,736

 
1,926

Unrealized losses (gains) on derivative instruments, net
 
18,137

 
(39,553
)
Unrealized foreign currency exchange losses (gains), net
 
(16,245
)
 
43,306

Provision for deferred income taxes
 
1,258

 

Other adjustments
 
(357
)
 
139

Changes in assets and liabilities:
 

 

Accounts receivable
 
6,155

 
7,495

Inventories
 
(2,546
)
 
4,801

Prepaid expenses and other assets
 
(418
)
 
(8,679
)
Interest payable
 
11,345

 
11,107

Accounts payable
 
(9,314
)
 
(12,696
)
Other accrued liabilities
 
3,653

 
(4,408
)
Net cash provided by operating activities
 
$
5,672

 
$
12,600

Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(5,055
)
 
(9,212
)
Net cash used in investing activities
 
$
(5,055
)
 
$
(9,212
)
Cash flows from financing activities:
 
 
 
 
Principal payments on long-term debt
 
(792
)
 
(830
)
Borrowings under revolving credit agreement
 
17,750

 
21,550

Repayments under revolving credit agreement
 
(10,155
)
 
(32,650
)
Net cash provided by (used in) financing activities
 
$
6,803

 
$
(11,930
)
Effect of exchange rates on cash and cash equivalents
 
461

 
(4,460
)
Increase (decrease) in cash and cash equivalents
 
$
7,881

 
$
(13,002
)
Cash and cash equivalents, beginning of period
 
21,060

 
58,195

Cash and cash equivalents, end of period
 
$
28,941

 
$
45,193

Supplemental Disclosure of Cash Flow Information:
 
 
 
 
Cash paid for interest, net of interest capitalized
 
$
5,284

 
$
5,639

Cash paid for income taxes, net of refunds
 
2,076

 
1,460

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)
(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 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”). In the opinion of management, all material adjustments, which are of a normal and recurring nature necessary for a fair presentation of the results for the periods presented, have been reflected.
Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q, certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. 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, 2015.
New Accounting Standards
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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. As a result of a deferral of the effective date enacted in July 2015, the new standard would be effective for public entities on January 1, 2018. 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.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest, to reduce complexity in accounting standards and make the presentation of debt issuance costs consistent with the presentation of debt discounts. This ASU requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying amount of the associated debt liability, rather than as an asset. ASU 2015-03 is limited to simplifying the presentation of debt issuance costs and there will be no effect on the income statement. The Company adopted the new guidance in the first quarter of 2016 and applied it retrospectively. The adoption of this standard resulted in the Company presenting its remaining unamortized debt issuance costs as a direct deduction from the carrying amount of the related debt liability, and there was no impact on the Company's operating results.
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. This ASU requires prospective adoption and is effective for annual reporting periods beginning after December 15, 2016 and interim periods within those annual periods, with early adoption permitted. The Company does not expect the adoption of this standard will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, which aims to make leasing activities more transparent and comparable and requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. This ASU is effective for all interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which affects entities that issue share-based payment awards to their employees. This ASU identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. ASU 2016-09 is effective for all interim and annual reporting periods beginning after December 15, 2016 and interim periods within those annual periods, with early adoption permitted. The Company does not expect the adoption of this standard will have a material impact on its consolidated financial statements.

6

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

(2) Inventories, net
The major classes of inventories were as follows as of the dates indicated:
 
 
March 31, 2016
 
December 31, 2015
Raw materials, net
 
$
66,053

 
$
64,826

Work in process, net
 
7,968

 
9,535

Finished goods, net
 
120,230

 
112,603

Inventories, net
 
$
194,251

 
$
186,964


(3) Intangible Assets and Goodwill
The components of finite-lived intangible assets were as follows as of the dates indicated:
 
 
March 31, 2016
 
December 31, 2015
 
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net
carrying
amount
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net
carrying
amount
Finite-lived assets
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
 
$
119,390

 
$
(93,684
)
 
$
25,706

 
$
117,459

 
$
(90,736
)
 
$
26,723

Patented and unpatented technology
 
17,677

 
(10,652
)
 
7,025

 
17,395

 
(10,271
)
 
7,124

Other
 
6,320

 
(6,320
)
 

 
6,214

 
(6,214
)
 

Total finite-lived intangible assets
 
$
143,387

 
$
(110,656
)
 
$
32,731

 
$
141,068

 
$
(107,221
)
 
$
33,847


Using the exchange rates in effect at period end, estimated amortization of finite-lived intangible assets as of March 31, 2016 was as follows:
Remainder of 2016
 
$
6,342

2017
 
6,921

2018
 
3,301

2019
 
3,062

2020
 
2,818

Thereafter
 
10,287

Total
$
32,731


Intangible assets with indefinite lives are not amortized. The carrying values of trade names as of March 31, 2016 and December 31, 2015 were $71,119 and $68,918, respectively.

The change in the carrying value of goodwill was as follows as of the dates indicated:
December 31, 2015
$
181,738

Foreign currency translation
2,206

March 31, 2016
$
183,944


7

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

(4) Borrowings
Outstanding debt consisted of the following as of the dates indicated:
 
 
March 31, 2016
 
December 31, 2015
Current
 
 
 
 
Current maturities of long-term debt
 
355,562

 
8,948

Less: Unamortized discount, net
 
(691
)
 

Less: Deferred financing fees, net
 
(4,083
)
 

Current maturities of long-term debt, net of unamortized discount and deferred financing fees
 
$
350,788

 
$
8,948

Long-Term
 
 
 
 
Borrowings under Revolving Loan Facility
 
49,900

 
42,305

Term Loan due 2017
 
305,662

 
306,454

9.00% Senior Notes due 2017
 
56,000

 
56,000

9.50% Senior Notes due 2017
 
425,000

 
425,000

Less: Unamortized premium (discount), net
 
213

 
(603
)
Less: Deferred financing fees, net
 
(3,164
)
 
(9,118
)
Less: Current maturities of long-term debt
 
(355,562
)
 
(8,948
)
Long-term debt, net of unamortized premium (discount) and deferred financing fees
 
$
478,049

 
$
811,090


For a detailed discussion of the Company's borrowings, see Note 6—“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, 2015.
The Company currently has $355,562 of outstanding debt which matures on February 15, 2017 and $481,000 of outstanding debt which matures on May 15, 2017. The Company plans to either raise additional equity capital or refinance its current debt, or some combination thereof, in order to satisfy these obligations before they become due.

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 March 31, 2016, availability under the Revolving Loan Facility was $90,439. 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 $4,661 at March 31, 2016. The variable interest rate on the Revolving Loan Facility and Term Loan due 2017 at March 31, 2016 was 5.39% and 6.00%, respectively.

Interest expense, net
Net interest expense consists of:
 
 
Three months ended
 
 
March 31,
 
 
2016
 
2015
Interest on long-term debt
 
$
17,198

 
$
17,116

Amortization of debt issuance costs, discounts and premium
 
1,996

 
1,855

Capitalized interest
 
(179
)
 
(64
)
Other
 
(44
)
 
81

Interest expense, net
 
$
18,971

 
$
18,988


8

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

(5) Derivative Financial Instruments
During September 2014, the Company entered into cross-currency swaps with three counterparties to economically hedge exposures to foreign currency exchange risk related to its global operations. The notional value of the cross-currency swaps is $300,000, at a weighted average foreign currency exchange rate of $1.00 to €0.7820, and matures in February 2017. In accordance with the cross-currency swap agreements, on a semi-annual basis, the Company pays interest on €234,597 at a weighted average fixed rate of 8.79% and receives interest on $300,000 based on a fixed rate of 9.50%, which is included in Interest expense, net within the consolidated statements of operations.
In March 2015, the Company entered into a foreign currency forward contract to mitigate the exchange rate risk associated with fluctuations of the U.S. dollar to euro on internal cash movements associated with its global operations. Pursuant to the contract, the Company received a notional value of $3,093 at a foreign currency exchange rate of $1.00 to €0.9700 on the settlement date of May 13, 2015. Upon cash settlement, the Company realized a $253 foreign currency exchange loss, which is included in Foreign currency exchange gains (losses) within the consolidated statements of operations.
During June 2015, the Company entered into a cross-currency swap with a counterparty to economically hedge exposures to foreign currency exchange risk related to its global operations. The cross-currency swap notional value is $125,000, at a foreign currency exchange rate of $1.00 to €0.9125, and matures in February 2017. In accordance with the cross-currency swap agreement, on a quarterly basis, the Company pays interest on €114,062 at a fixed rate of 8.94% and receives interest on $125,000 based on a fixed rate of 9.50%, which is included in Interest expense, net within the consolidated statements of operations.
The Company incurred a settlement with one of its counterparties during the first quarter of 2016, which resulted in a net reduction in Interest expense, net of $105 for the three months ended March 31, 2016.
The Company's derivative financial instruments do not qualify for hedge accounting treatment and accordingly, changes in fair value are recorded in Foreign currency exchange gains (losses) within the consolidated statements of operations. The Company recognized an unrealized loss of $18,137 during the three months ended March 31, 2016 that was recorded in Foreign currency exchange gains (losses) in the consolidated statements of operations.
Refer to Note 6—“Fair Value Measurements” for additional information regarding the fair value of the Company’s derivative arrangements included in the consolidated balance sheets.
On May 12, 2016, the Company settled $150,000 of its $300,000 of cross-currency swaps entered into in September 2014 and the entire $125,000 cross-currency swap entered into in June 2015, for total cash proceeds of $11,605 and a realized loss of $443.

(6) Fair Value Measurements
The Company’s short-term financial instruments include cash and cash equivalents, accounts receivable and accounts payable. The carrying amounts reported on the consolidated balance sheets for these items approximate fair market value due to their relative short-term nature.
The table below sets forth by level, within the fair value hierarchy, the fair value of the Company's derivative financial instruments that are measured on a recurring basis. The Company estimates the fair value of its derivative instruments using present value measurements based on the spot rate, forward option spreads and other relevant market conditions.
 
 
 
March 31, 2016
 
 
 
Level 1
 
Level 2
 
Level 3
Derivatives Designated
Balance Sheet Classification
 
 
 
 
 
 
Cross-currency swaps
Current derivative assets
 
$

 
$
35,363

 
$

Cross-currency swap
Other current liabilities
 
$

 
$
6,189

 
$

 
 
 
December 31, 2015
 
 
 
Level 1
 
Level 2
 
Level 3
Derivatives Designated
Balance Sheet Classification
 
 
 
 
 
 
Cross-currency swaps
Non-current derivative assets
 
$

 
$
47,519

 
$

Cross-currency swap
Other non-current liabilities
 
$

 
$
208

 
$


9

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

The carrying amounts and estimated fair values of the Company’s long-term debt at March 31, 2016 were as follows:
 
 
Carrying
amount
 
Estimated
fair value
Revolving Loan Facility
 
$
49,900

 
$
49,900

Term Loan due 2017
 
304,971

 
299,634

9.00% Senior Notes due 2017
 
56,000

 
52,780

9.50% Senior Notes due 2017
 
425,213

 
399,500

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 9.00% Senior Notes is based on a model that incorporates assumptions a market participant would use in pricing the liability (Level 3 inputs), and the estimated fair value of the 9.50% Senior Notes is based on current market rates in inactive markets (Level 2 inputs).

(7) Share-based Compensation
Changes in the Company's outstanding service-based stock option awards since December 31, 2015 were as follows:
Options
 
Number of
options
 
Weighted
average
exercise price
 
Weighted
average
remaining
contractual term
(years)
Outstanding at December 31, 2015
 
509,791

 
$
170.99

 
 
Granted
 

 

 
 
Exercised
 

 

 
 
Expired
 
(3,300
)
 
285.23

 
 
Other
 

 

 
 
Outstanding at March 31, 2016
 
506,491

 
$
172.03

 
3.6
Vested and expected to vest as of March 31, 2016
 
506,491

 
172.03

 
3.6
Exercisable at March 31, 2016
 
419,058

 
150.93

 
2.8
At March 31, 2016, total unrecognized compensation cost related to the unvested portion of the Company's service-based stock option awards that remains to be expensed was $6,660, with the weighted average remaining years to vest of approximately 1.76 years. There were 36,779 awards available for future grants under the 2008 Long Term Incentive Plan at March 31, 2016.

(8) Restructuring Charges
As part of the Company's initiatives to manage costs in response to the challenges in certain end markets, the Company reduced its administrative workforce during the first quarter of 2016. Restructuring charges related to employee termination and related benefits were recorded in Administrative expenses in the consolidated statement of operations. The accrual balance is included in Other current liabilities on the consolidated balance sheet.
A rollforward of this restructuring activity is set forth below:
Balance at December 31, 2015
$
1,118

Restructuring charges incurred in 2016
862

Payments made in 2016
(1,235
)
Balance at March 31, 2016
$
745


10

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

(9) 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. Additionally, for certain tax jurisdictions where a reliable estimate of year-to-date income tax expense or benefit cannot be made, the Company applied the actual effective tax rate to year-to-date income.
The effective income tax rate for the three months ended March 31, 2016 and 2015 was (27.5)% and 65.0%, respectively. The Company's effective income tax rates differ from the applicable statutory tax rate primarily due to valuation allowances on deferred tax assets in various jurisdictions, mix of earnings (losses) by jurisdictions and the effects of foreign tax rate differences.

(10) Related Party Transactions
Paine & Partners, LLC (“Paine & Partners”), which manages the funds that control the Company, has entered into a management agreement with the Company to provide administrative and other support services. During the first quarters of 2016 and 2015, the Company paid an annual management fee of $2,300 and $3,112, respectively. This annual management fee is deferred as a prepaid and recognized ratably over the year as the services are provided. The Company recognized management fee expense of $575 and $778 during the three months ended March 31, 2016 and 2015, respectively, that was recorded in Administrative expenses in the consolidated statements of operations.
During the three months ended March 31, 2016 and 2015, the Company had product sales of $217 and $282, respectively, to its Spanish joint venture, Lankhorst Euronete Espana SA. The Company purchased $113 and $854 of product during the three months ended March 31, 2016 and 2015, respectively, from its Greek joint venture, Eurorope Performance Rope Producers SA.

(11) 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 or other contingencies that it believes would have a material adverse effect on its financial position, results of operations or cash flows.

(12) 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 net sales by product line for the periods presented was as follows:
 
Three months ended
 
March 31,
 
2016
 
2015
Product line net sales
($)
(%)
 
($)
(%)
Rope
$
106,425

71
%
 
$
130,333

72
%
Specialty wire
28,162

19
%
 
32,876

18
%
Engineered products
14,414

10
%
 
17,146

10
%
Total net sales
$
149,001

100
%
 
$
180,355

100
%

11

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

(13) 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 following condensed consolidating financial statements are prepared with each entity’s investment in subsidiaries accounted for under the equity method. 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.


12

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

Condensed Consolidating Balance Sheets
 
March 31, 2016
 
WireCo
WorldGroup
(Cayman) Inc.
(Parent)
 
WireCo
WorldGroup
Inc.
(Issuer)
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Elimination
Adjustments
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
19

 
$
3,747

 
$
14,861

 
$
10,314

 
$

 
$
28,941

Restricted cash

 

 
696

 
1,095

 

 
1,791

Accounts receivable, net

 
26,232

 
64,790

 
31,560

 

 
122,582

Intercompany accounts receivable
1,955

 
39,480

 
21,883

 
28,652

 
(91,970
)
 

Other receivables

 
249

 
(209
)
 
1,807

 

 
1,847

Inventories, net

 
70,799

 
94,658

 
28,794

 

 
194,251

Current derivative assets
30,136

 
5,227

 

 

 

 
35,363

Prepaid expenses and other current assets

 
3,823

 
4,296

 
1,095

 

 
9,214

Total current assets
$
32,110

 
$
149,557

 
$
200,975

 
$
103,317

 
$
(91,970
)
 
$
393,989

Long-term intercompany notes receivable
(20
)
 
415,522

 
16,167

 
109,537

 
(541,206
)
 

Property, plant and equipment, net

 
49,975

 
194,866

 
43,241

 

 
288,082

Intangible assets, net

 
29,788

 
58,683

 
15,379

 

 
103,850

Goodwill

 
116,842

 
48,056

 
19,046

 

 
183,944

Investments in subsidiaries
(60,098
)
 

 
102,899

 
8,006

 
(50,807
)
 

Non-current deferred income tax assets

 

 
(359
)
 
500

 

 
141

Other non-current assets

 
199

 
9,466

 
9

 

 
9,674

Total assets
$
(28,008
)
 
$
761,883

 
$
630,753

 
$
299,035

 
$
(683,983
)
 
$
979,680

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

 
$
350,788

 
$

 
$

 
$

 
$
350,788

Interest payable

 
17,351

 
2

 
154

 

 
17,507

Accounts payable

 
11,887

 
42,379

 
9,739

 

 
64,005

Accrued compensation and benefits

 
3,782

 
12,510

 
3,646

 

 
19,938

Intercompany accounts payable
25

 
30,595

 
49,770

 
11,405

 
(91,795
)
 

Other current liabilities
6,397

 
6,282

 
15,522

 
4,611

 

 
32,812

Total current liabilities
$
6,422

 
$
420,685

 
$
120,183

 
$
29,555

 
$
(91,795
)
 
$
485,050

Long-term debt, excluding current maturities

 
478,049

 

 

 

 
478,049

Long-term intercompany notes payable

 

 
518,185

 
23,015

 
(541,200
)
 

Non-current deferred income tax liabilities

 
10,373

 
17,549

 
7,249

 

 
35,171


13

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

Other non-current liabilities

 
685

 
11,442

 
1,495

 

 
13,622

Total liabilities
$
6,422

 
$
909,792

 
$
667,359

 
$
61,314

 
$
(632,995
)
 
$
1,011,892

Stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
Total stockholders’ equity attributable to WireCo WorldGroup (Cayman) Inc.
(34,430
)
 
(147,909
)
 
(31,641
)
 
230,538

 
(50,988
)
 
(34,430
)
Non-controlling interests

 

 
(4,965
)
 
7,183

 

 
2,218

Total stockholders’ equity
$
(34,430
)
 
$
(147,909
)
 
$
(36,606
)
 
$
237,721

 
$
(50,988
)
 
$
(32,212
)
Total liabilities and stockholders’ equity
$
(28,008
)
 
$
761,883

 
$
630,753

 
$
299,035

 
$
(683,983
)
 
$
979,680



14

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

 
December 31, 2015
 
WireCo
WorldGroup
(Cayman) Inc.
(Parent)
 
WireCo
WorldGroup
Inc.
(Issuer)
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Elimination
Adjustments
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
21

 
$
2,378

 
$
10,906

 
$
7,755

 
$

 
$
21,060

Restricted cash

 

 
533

 
989

 

 
1,522

Accounts receivable, net

 
28,087

 
59,211

 
37,165

 

 
124,463

Intercompany accounts receivable
1,252

 
60,560

 
41,627

 
27,418

 
(130,857
)
 

Other receivables

 
11

 
2,191

 
577

 

 
2,779

Inventories, net

 
67,319

 
90,982

 
28,663

 

 
186,964

Prepaid expenses and other current assets

 
2,983

 
3,701

 
1,449

 

 
8,133

Total current assets
$
1,273

 
$
161,338

 
$
209,151

 
$
104,016

 
$
(130,857
)
 
$
344,921

Long-term intercompany notes receivable

 
422,668

 
16,984

 
107,887

 
(547,539
)
 

Property, plant and equipment, net

 
51,833

 
190,285

 
41,537

 

 
283,655

Intangible assets, net

 
30,512

 
57,458

 
14,795

 

 
102,765

Goodwill

 
116,842

 
46,824

 
18,072

 

 
181,738

Investment in subsidiaries
(59,270
)
 

 
115,440

 
7,805

 
(63,975
)
 

Non-current deferred income tax assets

 
171

 
697

 
591

 

 
1,459

Non-current derivative assets
40,284

 
7,235

 

 

 

 
47,519

Other non-current assets

 
199

 
9,065

 
8

 

 
9,272

Total assets
$
(17,713
)
 
$
790,798

 
$
645,904

 
$
294,711

 
$
(742,371
)
 
$
971,329

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

 
$
8,948

 
$

 
$

 
$

 
$
8,948

Interest payable

 
5,970

 
21

 
168

 

 
6,159

Accounts payable

 
17,808

 
39,351

 
14,994

 

 
72,153

Accrued compensation and benefits

 
6,039

 
9,670

 
2,807

 

 
18,516

Intercompany accounts payable
871

 
48,758

 
69,636

 
11,532

 
(130,797
)
 

Other current liabilities
230

 
6,054

 
14,687

 
1,996

 

 
22,967

Total current liabilities
$
1,101

 
$
93,577

 
$
133,365

 
$
31,497

 
$
(130,797
)
 
$
128,743

Long-term debt, excluding current maturities

 
811,090

 

 

 

 
811,090

Long-term intercompany notes payable

 

 
520,684

 
26,831

 
(547,515
)
 

Non-current deferred income tax liabilities

 
9,295

 
17,918

 
7,001

 

 
34,214

Other non-current liabilities
208

 
714

 
11,371

 
1,418

 

 
13,711


15

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

Total liabilities
$
1,309

 
$
914,676

 
$
683,338

 
$
66,747

 
$
(678,312
)
 
$
987,758

Stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
Total stockholders’ equity attributable to WireCo WorldGroup (Cayman) Inc.
(19,022
)
 
(123,878
)
 
(33,244
)
 
221,181

 
(64,059
)
 
(19,022
)
Non-controlling interests

 

 
(4,190
)
 
6,783

 

 
2,593

Total stockholders’ equity
$
(19,022
)
 
$
(123,878
)
 
$
(37,434
)
 
$
227,964

 
$
(64,059
)
 
$
(16,429
)
Total liabilities and stockholders’ equity
$
(17,713
)
 
$
790,798

 
$
645,904

 
$
294,711

 
$
(742,371
)
 
$
971,329




16

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
 
Three months ended March 31, 2016
 
WireCo
WorldGroup
(Cayman) Inc.
(Parent)
 
WireCo
WorldGroup
Inc.
(Issuer)
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Elimination
Adjustments
 
Consolidated
Net sales
$

 
$
38,655

 
$
94,147

 
$
38,727

 
$
(22,528
)
 
$
149,001

Cost of sales

 
(30,863
)
 
(73,511
)
 
(30,532
)
 
22,528

 
(112,378
)
Gross profit

 
7,792

 
20,636

 
8,195

 

 
36,623

Other operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Selling expenses

 
(2,376
)
 
(3,500
)
 
(2,658
)
 

 
(8,534
)
Administrative expenses
(191
)
 
(14,186
)
 
(3,595
)
 
(1,645
)
 

 
(19,617
)
Amortization expense

 
(724
)
 
(1,156
)
 
(199
)
 

 
(2,079
)
Total other operating expenses
(191
)
 
(17,286
)
 
(8,251
)
 
(4,502
)
 

 
(30,230
)
Operating income (loss)
(191
)
 
(9,494
)
 
12,385

 
3,693

 

 
6,393

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income (expense), net
105

 
(11,675
)
 
(8,692
)
 
1,291

 

 
(18,971
)
Equity income (loss) from subsidiaries
(3,755
)
 

 
(12,542
)
 
201

 
16,096

 

Foreign currency exchange gains (losses), net
(16,107
)
 
(2,025
)
 
20,115

 
(5,527
)
 

 
(3,544
)
Other income (expense), net

 
(19
)
 
26

 
52

 

 
59

Total other expense, net
(19,757
)
 
(13,719
)
 
(1,093
)
 
(3,983
)
 
16,096

 
(22,456
)
Income (loss) before income taxes
(19,948
)
 
(23,213
)
 
11,292

 
(290
)
 
16,096

 
(16,063
)
Income tax expense

 
(94
)
 
(2,765
)
 
(1,553
)
 

 
(4,412
)
Net income (loss)
(19,948
)
 
(23,307
)
 
8,527

 
(1,843
)
 
16,096

 
(20,475
)
Less: Net income (loss) attributable to non-controlling interests

 

 
(775
)
 
248

 

 
(527
)
Net income (loss) attributable to WireCo WorldGroup (Cayman) Inc.
(19,948
)
 
(23,307
)
 
9,302

 
(2,091
)
 
16,096

 
(19,948
)
Comprehensive income (loss)
$
(17,519
)
 
$
(23,307
)
 
$
11,483

 
$
(4,272
)
 
$
16,096

 
$
(17,519
)
 

17

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

 
Three months ended March 31, 2015
 
WireCo
WorldGroup
(Cayman) Inc.
(Parent)
 
WireCo
WorldGroup
Inc.
(Issuer)
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Elimination
Adjustments
 
Consolidated
Net sales
$

 
$
57,967

 
$
116,097

 
$
34,104

 
$
(27,813
)
 
$
180,355

Cost of sales

 
(47,322
)
 
(90,963
)
 
(28,440
)
 
28,371

 
(138,354
)
Gross profit

 
10,645

 
25,134

 
5,664

 
558

 
42,001

Other operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Selling expenses

 
(3,049
)
 
(3,906
)
 
(2,820
)
 

 
(9,775
)
Administrative expenses
(191
)
 
(12,103
)
 
(4,470
)
 
(1,207
)
 

 
(17,971
)
Amortization expense

 
(757
)
 
(1,253
)
 
(299
)
 

 
(2,309
)
Total other operating expenses
(191
)
 
(15,909
)
 
(9,629
)
 
(4,326
)
 

 
(30,055
)
Operating income (loss)
(191
)
 
(5,264
)
 
15,505

 
1,338

 
558

 
11,946

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income (expense), net
(101
)
 
(10,552
)
 
(9,761
)
 
1,426

 

 
(18,988
)
Equity income (loss) from subsidiaries
(4,456
)
 

 
23,971

 
201

 
(19,716
)
 

Foreign currency exchange gains (losses), net

 
40,450

 
(52,590
)
 
7,862

 

 
(4,278
)
Other income (expense), net

 
(94
)
 
(221
)
 
6

 

 
(309
)
Total other income (expense), net
(4,557
)
 
29,804

 
(38,601
)
 
9,495

 
(19,716
)
 
(23,575
)
Income (loss) before income taxes
(4,748
)
 
24,540

 
(23,096
)
 
10,833

 
(19,158
)
 
(11,629
)
Income tax benefit

 
41

 
3,240

 
4,280

 

 
7,561

Net income (loss)
(4,748
)
 
24,581

 
(19,856
)
 
15,113

 
(19,158
)
 
(4,068
)
Less: Net income (loss) attributable to non-controlling interests

 

 
805

 
(125
)
 

 
680

Net income (loss) attributable to WireCo WorldGroup (Cayman) Inc.
(4,748
)
 
24,581

 
(20,661
)
 
15,238

 
(19,158
)
 
(4,748
)
Comprehensive income (loss)
$
(18,473
)
 
$
24,581

 
$
(34,261
)
 
$
28,838

 
$
(19,158
)
 
$
(18,473
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


18

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

Condensed Consolidating Statements of Cash Flows
 
Three months ended March 31, 2016
 
WireCo
WorldGroup
(Cayman) Inc.
(Parent)
 
WireCo
WorldGroup
Inc.
(Issuer)
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Elimination
Adjustments
 
Consolidated
Net cash provided by (used in) operating activities
$
103

 
$
(11,247
)
 
$
8,618

 
$
8,198

 
$

 
$
5,672

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(1,333
)
 
(2,890
)
 
(832
)
 

 
(5,055
)
Repayments from intercompany loans

 
7,146

 
1,594

 

 
(8,740
)
 

Investment in subsidiaries
(105
)
 

 

 

 
105

 

Net cash provided by (used in) investing activities
$
(105
)
 
$
5,813

 
$
(1,296
)
 
$
(832
)
 
$
(8,635
)
 
$
(5,055
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
Principal payments on long-term debt

 
(792
)
 

 

 

 
(792
)
Decreases in intercompany notes

 

 
(4,147
)
 
(4,593
)
 
8,740

 

Borrowings under revolving credit agreement

 
17,750

 

 

 

 
17,750

Repayments under revolving credit agreement

 
(10,155
)
 

 

 

 
(10,155
)
Capital contributions received

 

 
105

 

 
(105
)
 

Net cash provided by (used in) financing activities
$

 
$
6,803

 
$
(4,042
)
 
$
(4,593
)
 
$
8,635

 
$
6,803

Effect of exchange rates on cash and cash equivalents

 

 
675

 
(214
)
 

 
461

Increase (decrease) in cash and cash equivalents
$
(2
)
 
$
1,369

 
$
3,955

 
$
2,559

 
$

 
$
7,881

Cash and cash equivalents, beginning of period
21

 
2,378

 
10,906

 
7,755

 

 
21,060

Cash and cash equivalents, end of period
$
19

 
$
3,747

 
$
14,861

 
$
10,314

 
$

 
$
28,941


19

WIRECO WORLDGROUP (CAYMAN) INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(in thousands)
(unaudited)

 
Three months ended March 31, 2015
 
WireCo
WorldGroup
(Cayman) Inc.
(Parent)
 
WireCo
WorldGroup
Inc.
(Issuer)
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Elimination
Adjustments
 
Consolidated
Net cash provided by (used in) operating activities
$
(1
)
 
$
6,015

 
$
11,270

 
$
(4,684
)
 
$

 
$
12,600

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(2,061
)
 
(6,471
)
 
(680
)
 

 
(9,212
)
Repayments from intercompany loans

 
8,949

 
2,044

 

 
(10,993
)
 

Net cash provided by (used in) investing activities
$

 
$
6,888

 
$
(4,427
)
 
$
(680
)
 
$
(10,993
)
 
$
(9,212
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
Principal payments on long-term debt

 
(830
)
 

 

 

 
(830
)
Borrowings under revolving credit agreement

 
21,550

 

 

 

 
21,550

Repayments under revolving credit agreement

 
(32,650
)
 

 

 

 
(32,650
)
Repayments of intercompany loans

 

 
(8,949
)
 
(2,044
)
 
10,993

 

Net cash used in financing activities
$

 
$
(11,930
)
 
$
(8,949
)
 
$
(2,044
)
 
$
10,993

 
$
(11,930
)
Effect of exchange rates on cash and cash equivalents

 

 
(2,711
)
 
(1,749
)
 

 
(4,460
)
Increase (decrease) in cash and cash equivalents
$
(1
)
 
$
973

 
$
(4,817
)
 
$
(9,157
)
 
$

 
$
(13,002
)
Cash and cash equivalents, beginning of period
24

 
4,178

 
35,792

 
18,201

 

 
58,195

Cash and cash equivalents, end of period
$
23

 
$
5,151

 
$
30,975

 
$
9,044

 
$

 
$
45,193


20


Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Unless the context otherwise requires, the use of the terms “WireCo,” the “Company,” “we,” “our” or “us” in the following refers to WireCo WorldGroup (Cayman) Inc., its wholly-owned subsidiaries, including WireCo WorldGroup Inc., and subsidiaries in which it has a controlling interest.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides a reader of our financial statements with a narrative from the perspective of our management on our consolidated financial condition, results of operations, liquidity and capital resources on a historical basis and certain other factors that have affected recent earnings, as well as those factors that may affect future earnings. This MD&A is provided as a supplement to, and should be read in conjunction with the unaudited interim consolidated financial statements and accompanying notes included in this quarterly report. Additionally, our MD&A should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2015.

Forward-Looking Statements
This quarterly report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which reflect the current views and assumptions of management with respect to future events regarding our business and industry in general. These forward-looking statements include all statements, other than statements of historical fact, regarding our financial position, business strategy and other plans and objectives for future operations. Forward-looking statements include those containing such words as “anticipates,” “believes,” “continues,” “estimates,” “expects,” “forecasts,” “outlook,” “plans,” “projects,” “should,” “targets,” “will,” or the negative of those words or other comparable terminology. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this quarterly report are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. Such statements are subject to a number of risks and uncertainties, many of which are beyond our control. You are cautioned that any such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward-looking statements as a result of various factors, including but not limited to those set forth under “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2015. Such factors include, among others:

the general economic conditions in markets and countries where we have operations;
fluctuations in end market demand;
foreign currency exchange rate fluctuations;
risks associated with our non-U.S. operations;
our ability to meet quality standards;
our ability to protect our trade names;
the competitive environment in which we operate;
changes in the availability or cost of raw materials and energy;
risks associated with our manufacturing activities;
violations of laws and regulations;
the impact of environmental issues and changes in environmental laws and regulations;
our ability to successfully execute and integrate acquisitions;
comparability of our specified scaled disclosure requirements applicable to emerging growth companies;
labor disturbances, including any resulting from suspension or termination of our collective bargaining agreements;
our significant indebtedness;
covenant restrictions;
the interests of our principal equity holder may not be aligned with the holders of our 9.5% Senior Notes; and
credit-rating downgrades.

Any forward-looking statements that we make in this quarterly report speak only as of the date of such statement and we undertake no obligation to update such statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Non-GAAP Financial Measures
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). This MD&A includes various financial measures that have not been calculated in accordance with GAAP, commonly referred to as “Non-GAAP Financial Measures”.

21


These Non-GAAP Financial Measures include:

Adjusted EBITDA
Credit Agreement EBITDA
Adjusted Working Capital
Net Debt
Free Cash Flow

These measures are not in accordance with, or an alternative to GAAP, and may be different from Non-GAAP Financial Measures used by other companies. These measures have important limitations as analytical tools and should not be considered in isolation, nor as a substitute for, or superior to, analysis of our results as reported under GAAP. We recommend that investors view these measures in conjunction with the GAAP measures included in this MD&A and have provided reconciliations of reported GAAP amounts to the Non-GAAP amounts. Also, in the respective sections of MD&A, we explain the ways in which management uses these Non-GAAP Financial Measures to evaluate our business and the reasons why management believes that these Non-GAAP Financial Measures provide useful information to investors.

First Quarter 2016 Executive Summary
We provide steel and synthetic rope, specialty wire and engineered products across multiple customers and geographies which results in a diversified revenue stream. The long-term sales growth and profitability of our product portfolio is dependent not only on increased demand in the end markets which we serve and the overall economic environment, but also on our ability to increase our existing market share and expand our presence geographically, continuously improve operational excellence, identify, consummate and integrate strategic acquisitions and develop and market innovative new products. 
For the three months ended March 31, 2016, we reported sales of $149.0 million, a net loss of $20.5 million and Adjusted EBITDA of $23.5 million compared to sales of $180.4 million, a net loss of $4.1 million and Adjusted EBITDA of $27.3 million for the same period in 2015. Given our global operations, the strengthening of the U.S. dollar as compared to the first quarter of 2015 had a negative impact on our first quarter 2016 results.  For the three months ended March 31, 2016, approximately 70% of our sales were generated in currencies other than the U.S. dollar. The euro, Polish zloty and Mexican peso all devalued in relation to the U.S. dollar compared to the three months ended March 31, 2015.  Given the translation of our international results into U.S. dollars, this devaluation unfavorably impacted our sales by $6.3 million and our Adjusted EBITDA by $1.2 million for the three months ended March 31, 2016. The foreign currency exchange impact on cash for the three months ended March 31, 2016 is an increase of $0.5 million.
As a result of the weakening global oil, gas and crane rope markets, we announced in March 2016 the sale of our steel wire rope manufacturing facility in St. Joseph, Missouri to a non-competitor located next door to our facility. We will continue to operate our fabricated products facility in St. Joseph at its existing site, and the facility will go through a phased shutdown over the next few quarters. Also in response to these weakening end markets, we implemented workforce reductions in several administrative departments and took other cost containment measures in procurement and other non-personnel selling and administrative expenses. The disciplined management of capital expenditures continues to contribute to our cost savings initiatives.
We continue to believe that our targeted strategies will provide attractive long-term opportunities for sustainable growth despite short-term challenges in some of our end markets. We remain focused on maintaining our financial strength by adjusting our cost structure to reflect changes in demand levels and by proactively managing working capital and cash flow generation.

Consolidated Results of Operations
This section focuses on significant items that impacted our operating results for the three months ended March 31, 2016 compared to the three months ended March 31, 2015. Our results of operations have been converted to U.S. dollars from multiple currencies, which primarily include the euro, Polish zloty and Mexican peso. Our revenues and certain expenses are affected by fluctuations in the value of the U.S. dollar against these local currencies.


22


Three months ended March 31, 2016 compared to three months ended March 31, 2015
 
Three months ended
 
 
 
 
 
March 31,
 
Change
 
2016
 
2015
 
Dollars
 
Percent
 
(in thousands)
Net sales
$
149,001

 
$
180,355

 
$
(31,354
)
 
(17.4
)%
Gross profit
36,623

 
42,001

 
(5,378
)
 
(12.8
)%
Other operating expenses
(30,230
)
 
(30,055
)
 
(175
)
 
0.6
 %
Other expense, net
(22,456
)
 
(23,575
)
 
1,119

 
(4.7
)%
Income tax benefit (expense)
(4,412
)
 
7,561

 
(11,973
)
 
NM

Net loss
$
(20,475
)
 
$
(4,068
)
 
$
(16,407
)
 
NM

Gross profit as % of net sales
24.6
%
 
23.3
%
 

 
 
Other operating expenses as % of net sales
20.3
%
 
16.7
%
 
 
 
 
NM = Not Meaningful

Net sales
Our consolidated net sales decreased $31.4 million, or 17.4%, for the three months ended March 31, 2016 as compared to the same period in 2015. Foreign currency exchange rate fluctuations contributed $6.3 million of the decrease due to the depreciation of the euro, Polish zloty and Mexican peso when comparing the average exchange rates for the three months ended March 31, 2016 to the average exchange rates for the three months ended March 31, 2015.
Excluding the impact of foreign currency exchange rate fluctuations, rope sales for the quarter decreased $21.5 million primarily due to decreased sales in the onshore oil and gas and industrial and infrastructure end markets. Sales to our onshore oil and gas end market decreased $13.3 million primarily driven by a slowdown in domestic drilling activity evidenced by the decline in rig count. According to Baker Hughes, the average North American onshore rig count for the first quarter of 2016 was 677 compared to 1,664 in the first quarter of 2015, a 59.3% decline, and the rig count at March 31, 2016 was 470 compared to 1,132 at March 31, 2015. Sales to our industrial and infrastructure end market decreased $5.7 million primarily due to decreased demand for general purpose ropes related to oil and gas activities and weakening original equipment manufacturers ("OEM") crane backlogs. Sales to our maritime end market decreased $1.4 million primarily due to a global decline in ocean cargo shipments. Sales to our fishing end market decreased $1.2 million primarily due to delayed tuna net orders. Rope sales represented 71% of our total consolidated net sales for the three months ended March 31, 2016 compared to 72% for the same period in 2015.
Excluding the impact of foreign currency exchange rate fluctuations, specialty wire sales decreased $1.4 million for the three months ended March 31, 2016 compared to the same period last year primarily due to fewer Mexican governmental infrastructure projects than the first quarter of 2015, although there has been an increase in these types of projects in comparison to the three months ended December 31, 2015. Specialty wire sales represented 19% of our total consolidated net sales for the three months ended March 31, 2016 compared to 18% for the same period in 2015.
Excluding the impact of foreign currency exchange rate fluctuations, engineered products sales decreased $2.3 million for the three months ended March 31, 2016 compared to the same period last year primarily due to lower sales of traditional offshore projects driven by the downturn in the oil and gas industry. Engineered product sales represented 10% of our total consolidated net sales for both the three months ended March 31, 2016 and 2015.

Gross profit
Gross profit decreased $5.4 million for the three months ended March 31, 2016 compared to the same period in 2015, and gross profit as a percentage of sales (“gross margin”) increased from 23.3% for the three months ended March 31, 2015 to 24.6% for the three months ended March 31, 2016. The decline in gross profit was directly related to the decline in sales, and the higher gross margin was due to cost savings initiatives executed throughout 2015 and the first quarter of 2016.



23


Other operating expenses
 
 
Three months ended March 31,
 
Change
 
 
2016
 
2015
 
Dollars
 
Percent
 
 
(in thousands)
Selling expenses
 
$
(8,534
)
 
$
(9,775
)
 
$
1,241

 
(12.7
)%
Administrative expenses
 
(19,617
)
 
(17,971
)
 
(1,646
)
 
9.2
 %
Amortization expense
 
(2,079
)
 
(2,309
)
 
230

 
(10.0
)%
Other operating expenses
 
$
(30,230
)
 
$
(30,055
)
 
$
(175
)
 
0.6
 %

Other operating expenses increased $0.2 million, or 0.6%, for the three months ended March 31, 2016 compared to the same period in 2015. Total other operating expenses as a percentage of net sales increased from 16.7% for the first quarter of 2015 to 20.3% for the first quarter of 2016.
Selling expenses decreased $1.2 million, or 12.7%, for the three months ended March 31, 2016 compared to the same period in 2015. We incurred $0.8 million less external distributor commissions and $0.4 million less internal sales bonuses and commissions during the three months ended March 31, 2016 compared to the three months ended March 31, 2015 due to the decline in net sales during the period.
Administrative expenses increased $1.6 million, or 9.2%, for the three months ended March 31, 2016 compared to the same period in 2015. We incurred $3.0 million more reorganization and restructuring charges in the first quarter of 2016 than the same period last year due to workforce reductions and corporate restructuring. Partially offsetting this increase, due to the decline in Adjusted EBITDA, incentive compensation was $0.6 million lower during the three months ended March 31, 2016 compared to the three months ended March 31, 2015. We incurred $0.5 million less labor and related expenses during the three months ended March 31, 2016 compared to the three months ended March 31, 2015 as a result of our workforce reductions. We also incurred $0.2 million less third party consultant fees during the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to cost management initiatives, which included the management of more projects with internal resources rather than the use of external consultants.

Other expense, net
 
 
Three months ended March 31,
 
Change
 
 
2016
 
2015
 
Dollars
 
Percent
 
 
(in thousands)
Interest expense, net
 
$
(18,971
)
 
$
(18,988
)
 
$
17

 
(0.1
)%
Foreign currency exchange losses, net
 
(3,544
)
 
(4,278
)
 
734

 
(17.2
)%
Other income (expense), net
 
59

 
(309
)
 
368

 
(119.1
)%
Total other expense, net
 
$
(22,456
)
 
$
(23,575
)
 
$
1,119

 
(4.7
)%

Total other expense decreased by $1.1 million, or 4.7%, for the three months ended March 31, 2016 compared to the same period in 2015. For the three months ended March 31, 2016, foreign currency exchange losses were $3.5 million compared to $4.3 million for the same period in 2015. At March 31, 2016 and 2015, we had intercompany loans that required remeasurement in the aggregate amounts of $361.6 million and $400.9 million, respectively. The U.S. dollar to euro exchange rate at March 31, 2015 was $1.00 to €0.9295 compared to $1.00 to €0.8783 at March 31, 2016. The U.S. dollar to the Polish zloty exchange rate at March 31, 2015 was $1.00 to zł3.7972 compared to $1.00 to zł3.7397 at March 31, 2016. The U.S. dollar to the Mexican peso exchange rate at March 31, 2015 was $1.00 to $15.2427 compared to $1.00 to $17.2509 at March 31, 2016.

Income tax expense/benefit
For the three months ended March 31, 2016, we recorded an income tax expense of $4.4 million compared to an income tax benefit of $7.6 million for the three months ended March 31, 2015. The resulting effective tax rate for the first quarter of 2016 and 2015 was (27.5)% and 65.0%, respectively. The Company's effective tax rate differs from the applicable statutory tax rate primarily due to valuation allowances on deferred tax assets in various jurisdictions, mix of earnings (losses) by jurisdictions and the effects of foreign tax rate differences.
 
 
 
 
 
 
 
 
 

24


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
Adjusted EBITDA is a Non-GAAP Financial Measure, defined in the indenture governing the 9.50% Senior Notes, as net income (loss) plus, without duplication: interest expense, income tax expense (benefit), depreciation and amortization, as further adjusted by (i) all fees and costs incurred in connection with any merger, consolidation, acquisition or offering of debt or equity securities, (ii) realized and unrealized gains (losses) resulting from foreign currency transactions, (iii) payments of advisory fees pursuant to the Management Fee Letter with Paine & Partners, LLC, (iv) all amounts deducted in arriving at net income (loss) in respect of severance packages payable in connection with the termination of any officer, director or employee, (v) business optimization expenses and other reorganization or restructuring charges, reserves or expenses (which, for the avoidance of doubt, will include, without limitation, the effect of inventory optimization programs, plant closures, facility consolidations, retention, system establishment costs, contract termination costs, future lease commitments and excess pension charges), (vi) other expenses, such as share-based compensation expense and income (loss) on our investments in joint ventures, and (vii) non-cash items, other than the accrual of revenue in the ordinary course of business.
We use this Non-GAAP Financial Measure internally to evaluate our performance, allocate resources, calculate debt covenant ratios and for incentive compensation purposes. We believe that our presentation of this measure provides investors with greater transparency with respect to our results of operations and is useful for peer comparisons.
The following is a reconciliation of net loss to Adjusted EBITDA:
 
 
Three months ended March 31,
 
 
2016
 
2015
 
 
(in thousands)
Net loss (GAAP)
 
$
(20,475
)
 
$
(4,068
)
Plus:
 
 
 
 
Interest expense, net
 
18,971

 
18,988

Income tax expense (benefit)
 
4,412

 
(7,561
)
Depreciation and amortization
 
10,747

 
11,375

Foreign currency exchange losses, net
 
3,544

 
4,278

Share-based compensation
 
1,736

 
1,926

Other expense (income), net
 
(59
)
 
309

Advisory fees
 
767

 
984

Reorganization and restructuring charges
 
3,769

 
759

Other adjustments
 
47

 
352

Adjusted EBITDA (Non-GAAP)
 
$
23,459

 
$
27,342


Credit Agreement EBITDA
Credit Agreement EBITDA is a Non-GAAP Financial Measure, defined in the Credit Agreement as Consolidated Net Income, adjusted by adding thereto, (a) to the extent deducted in determining Consolidated Net Income, the sum of (i) Consolidated Interest Expense, (ii) provision for Taxes based on income of the Parent and its Subsidiaries, (iii) depreciation and amortization expense, (iv) Closing Date Transaction Expenses incurred in connection with the Closing Date Transactions, (v) Transaction Expenses of the type described in clause (a) of the definition thereof, provided that the amount of Transaction Expenses included pursuant to this clause (v) shall not exceed (a) with respect to Transaction Expenses paid to the Sponsor, 1.0% of the value of the applicable transaction and (b) with respect to Transaction Expenses paid to any other Person, such Transaction Expenses as are normal and customary, (vi) non-cash, stock-based compensation expense, (vii) non-recurring or unusual losses or expenses (including non-recurring or unusual losses on permitted sales or dispositions of assets and casualty events), (viii) all other non-cash charges that represent an accrual to the extent no cash is expected to be paid in the next twelve months (excluding any such non-cash item to the extent that it represents an accrual or reserve for potential cash items in any future period or amortization of a prepaid cash item that was paid in a prior period), (ix) Permitted Management Fees paid during such period, (x) non-cash, restricted stock award charges, (xi) unrealized non- cash losses resulting from foreign currency balance sheet adjustments required by GAAP, (xii) severance packages payable in connection with the termination of the ten highest paid officers, directors or employees of Parent or any of its Subsidiaries in an aggregate amount not to exceed $5,000,000 from the Closing Date until the date of determination and (xiii) non-cash minority interest expense; minus (b) to the extent included in determining Consolidated Net Income, the sum of (i) extraordinary, non-recurring or unusual gains (including extraordinary,

25


non-recurring or unusual income or gains on permitted sales or dispositions of assets and casualty events), (ii) all other non-cash income to the extent no cash is expected to be received in the next twelve months (excluding any such non-cash item to the extent it represents the reversal of and accrual or reserve for potential cash item in any prior period), (iii) unrealized non-cash gains resulting from foreign currency balance sheet adjustments required by GAAP, and (iv) non-cash minority interest income.
We use this Non-GAAP Financial Measure to calculate debt covenant ratios, to the extent it differs from Adjusted EBITDA as described above. We believe that our presentation of this measure provides investors with greater transparency with respect to the inputs utilized to determine covenant compliance. For the last twelve months ended March 31, 2016, our Credit Agreement EBITDA is $119.9 million.
 
Three months ended March 31,
 
2016
 
2015
 
(in thousands)
Adjusted EBITDA (Non-GAAP)
$
23,459

 
$
27,342

Plus:
 
 
 
Additional reorganization and restructuring charges

 
89

Additional effect of Inventory Optimization Program
330

 

Production curtailment

 
633

Impact of nonrecurring and unusual items in Brazil

 
2,609

Impact of nonrecurring and unusual items in Portugal
1,113

 

Pro forma selling and administrative expense savings
917

 
3,397

Pro forma manufacturing facility consolidation
1,173

 
1,173

Pro forma manufacturing facility labor savings
659

 

Additional other adjustments

 
202

Credit Agreement EBITDA (Non-GAAP)
$
27,651

 
$
35,445


LIQUIDITY AND CAPITAL RESOURCES
Overview
Our principal sources of liquidity consist of cash from operations and borrowings under our Revolving Loan Facility. Our principal uses of cash are to fund working capital and capital expenditures, support operations and service our debt. Our liquidity is influenced by many factors, including the amount and timing of cash collections from our customers and fluctuations in the cost of our raw materials. Based on our current assessment of our operating plan, we believe that our cash and cash equivalents balance, cash flow from operations and availability under our Revolving Loan Facility will be adequate to fund anticipated operating and capital requirements and other commitments over the next twelve months. As discussed in Note 4—“Borrowings” to our unaudited interim consolidated financial statements in Part I, Item 1 of this quarterly report, our debt financing consists of secured credit facilities due in February 2017 and senior notes due in May 2017. We plan to either raise additional equity capital or refinance our current debt, or some combination thereof, in order to satisfy these obligations before they become due.
Total available liquidity, defined as availability under our Revolving Loan Facility plus cash and cash equivalents, was $119.4 million at March 31, 2016 compared to $122.1 million at December 31, 2015. Availability under the Revolving Loan Facility is based upon the maximum borrowing capacity of $145.0 million, less outstanding borrowings, letters of credit and if applicable, further restricted by certain covenants in our credit agreements.
We reinvest the earnings of substantially all of our subsidiaries in those respective operations. The foreign operating subsidiaries use cash generated from earnings to fund working capital, invest in capital expenditures and service interest and principal payments on intercompany debt. Our outstanding debt is issued by the U.S. operating subsidiary and there are intercompany loans within the Company's legal structure that are paid with earnings from the operating subsidiaries in foreign jurisdictions to provide liquidity in the U.S. for interest and principal payments on our outstanding debt. Of the consolidated cash and cash equivalents balance of $28.9 million at March 31, 2016, cash and cash equivalents held by our foreign subsidiaries were $25.3 million, of which $7.6 million was in U.S. dollars. The cash balances in currencies other than the U.S. dollar are primarily in the euro and can be readily converted to U.S. dollars. It is our present intention to permanently reinvest the undistributed earnings associated with our foreign subsidiaries, and our current plans do not require repatriation of these earnings other than servicing intercompany loans.


26


Working Capital Management
Within our asset base, working capital management is our largest opportunity for cash generation. During these challenging market conditions, we continue to monitor working capital and our cash conversion cycle. Working Capital, which is all current assets minus all current liabilities, decreased from $216.2 million at December 31, 2015 to $(91.1) million at March 31, 2016. Adjusted Working Capital, a Non-GAAP Financial Measure defined as accounts receivable plus inventories less accounts payable and customer advances, increased from $230.4 million at December 31, 2015 to $243.0 million at March 31, 2016. The decrease in Working Capital was due to our secured credit facilities being considered current liabilities as they mature on February 15, 2017. Also, we saw declines in accounts receivable and accounts payable related to the reduced demand in certain key end markets of our business. Our days sales outstanding increased from 66 days at December 31, 2015 to 68 days at March 31, 2016 due to supporting customers in our challenging end markets with longer terms. Our days payable outstanding decreased from 54 days at December 31, 2015 to 51 days at March 31, 2016. Adjusted Working Capital as a percentage of annualized first quarter sales was 40.8% for the first quarter of 2016 compared to 36.4% for the fourth quarter of 2015 with a cash conversion cycle of 173 days and 152 days for the respective periods. We use Adjusted Working Capital to monitor our liquidity and believe that Adjusted Working Capital provides a meaningful measure of our efforts to manage inventory, our customer collections and vendor payments.

The following is a reconciliation of Adjusted Working Capital to working capital:
 
 
March 31, 2016
 
December 31, 2015
 
 
(in thousands)
Accounts receivable, net
 
$
122,582

 
$
124,463

Inventories, net
 
194,251

 
186,964

Accounts payable
 
(64,005
)
 
(72,153
)
Customer advances
 
(9,853
)
 
(8,918
)
Adjusted Working Capital (Non-GAAP)
 
242,975

 
230,356

Plus: All other current assets
 
77,156

 
33,494

Less: All other current liabilities
 
(411,192
)
 
(47,672
)
Working capital (GAAP)
 
$
(91,061
)
 
$
216,178


Cash Flow Information
The following tables summarize our cash flows from operating, investing and financing activities for the three months ended March 31, 2016 and 2015, respectively:
 
 
Three months ended March 31,
 
 
2016
 
2015
 
 
(in thousands)
Cash flows provided by (used in)
 
 
 
 
Operating activities
 
$
5,672

 
$
12,600

Investing activities
 
(5,055
)
 
(9,212
)
Financing activities
 
6,803

 
(11,930
)
Effect of exchange rates on cash and cash equivalents
 
461

 
(4,460
)
Increase (decrease) in cash and cash equivalents
 
7,881

 
(13,002
)
Cash and cash equivalents, beginning of period
 
21,060

 
58,195

Cash and cash equivalents, end of period
 
$
28,941

 
$
45,193



27


Cash from Operating Activities
 
 
Three months ended March 31,
 
 
2016
 
2015
 
 
(in thousands)
Net loss
 
$
(20,475
)
 
$
(4,068
)
Adjustments to reconcile net loss to net cash provided by operating activities
 
17,272

 
19,048

Changes in assets and liabilities
 
8,875

 
(2,380
)
Net cash provided by operating activities
 
$
5,672

 
$
12,600


Cash flows from operating activities decreased in the three months ended March 31, 2016 over the prior period primarily due to less cash earnings related to business performance. Cash earnings is our net loss adjusted for non-cash items, such as depreciation and amortization among other reconciling items.

Cash from Investing Activities
 
 
Three months ended March 31,
 
 
2016
 
2015
 
 
(in thousands)
Capital expenditures
 
$
(5,055
)
 
$
(9,212
)
Net cash used in investing activities
 
$
(5,055
)
 
$
(9,212
)

We expect capital expenditures to be between $20.0 million and $30.0 million for the year ended December 31, 2016. A significant portion of the anticipated capital expenditures in the remainder of 2016 is not committed and represents
discretionary capital investments that we plan to make as we believe they would generate an immediate return.

Cash from Financing Activities
 
 
Three months ended March 31,
 
 
2016
 
2015
 
 
(in thousands)
Principal payments on long-term debt
 
$
(792
)
 
$
(830
)
Net borrowings (repayments) under revolving credit agreement
 
7,595

 
(11,100
)
Net cash provided by (used in) financing activities
 
$
6,803

 
$
(11,930
)

During the three months ended March 31, 2016, we received net cash provided by financing activities of $6.8 million.

Long-term Debt
For a detailed discussion of our long-term debt, see Note 6—“Borrowings” to our audited consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of our annual report on Form 10-K for the year ended December 31, 2015.

Net Debt
At March 31, 2016, our total debt, including capital leases, was $838.5 million compared to Net Debt of $807.7 million, with the difference being cash currently and eventually available to pay down our outstanding debt. Net Debt is a Non-GAAP Financial Measure defined as consolidated total debt at face value plus capital lease obligations less cash and cash equivalents and restricted cash. Total debt increased $7.1 million from year-end primarily due to our decision to leave more cash in our European and Brazilian entities for liquidity reasons during the three months ended March 31, 2016. Net Debt decreased primarily because the increase in our cash and cash equivalents balance was greater than the increase in total debt. Our Net Leverage ratio, Net Debt to the last twelve months of Adjusted EBITDA, increased to 6.75x at March 31, 2016, compared to 6.34x at December 31, 2015, due to the decline in Adjusted EBITDA as a result of challenging market conditions. We believe Net Debt is meaningful to investors because management assesses our leverage position after factoring in available cash and restricted cash that eventually could be used to repay outstanding debt.

28


The following is a reconciliation of total debt to Net Debt:
 
 
March 31, 2016
 
December 31, 2015
 
 
(in thousands)
Borrowings under Revolving Loan Facility
 
$
49,900

 
$
42,305

Term Loan due 2017
 
305,662

 
306,454

9.00% Senior Notes due 2017
 
56,000

 
56,000

9.50% Senior Notes due 2017
 
425,000

 
425,000

Capital lease obligations
 
1,900

 
1,619

Total debt at face value plus capital lease obligations (GAAP)
 
838,462

 
831,378

Less: Cash and cash equivalents
 
(28,941
)
 
(21,060
)
Less: Restricted cash
 
(1,791
)
 
(1,522
)
Net Debt (Non-GAAP)
 
$
807,730

 
$
808,796


As of March 31, 2016, we were in compliance with all restrictive and financial covenants associated with our borrowings. As defined in our respective credit agreements, the Senior Secured Net Leverage to Adjusted EBITDA ratio was 2.74x at March 31, 2016 compared to the maximum ratio of 3.25x. The maximum Senior Secured Net Leverage Ratio will step-down to 3.00x effective June 30, 2016. As defined in our respective credit agreements, the interest coverage ratio was 1.90x at March 31, 2016 compared to a required ratio of no less than 1.50x. Based on our current assessment of our operating plan, we expect to remain in compliance with our debt covenants throughout 2016.

Free Cash Flow
We generated cash flow from operations of $5.7 million during the three months ended March 31, 2016 compared to a consumption of $1.1 million in Free Cash Flow during the same period. Free Cash Flow, a Non-GAAP Financial Measure, is defined as cash flows from operating activities less capital expenditures, and further adjusted by effect of exchange rates on cash and cash equivalents and other items. Our Free Cash Flow is lower than cash flow from operations primarily due to capital expenditures.
We believe that the Free Cash Flow measure is meaningful to investors because it represents the cash flow we have available to pay down debt and/or invest for future growth. We use Free Cash Flow internally for incentive compensation purposes. It is important to note that Free Cash Flow does not represent the residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service requirements, are not deducted from the measure. Free Cash Flow is also equivalent to the change in Net Debt.
The following is a reconciliation of net cash provided by operating activities to Free Cash Flow:
 
 
Three months ended
 
 
March 31,
 
 
2016
 
2015
 
 
(in thousands)
Net cash provided by operating activities (GAAP)
 
$
5,672

 
$
12,600

Less: capital expenditures
 
(5,055
)
 
(9,212
)
Effect of exchange rates on cash and cash equivalents
 
461

 
(4,460
)
Other items
 
(12
)
 
940

Free Cash Flow (Non-GAAP)
 
$
1,066

 
$
(132
)

Contractual Obligations and Commitments
As of March 31, 2016, there have been no material changes in our contractual obligations and commitments from those reported in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our annual report on Form 10-K for the year ended December 31, 2015.


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Off-balance Sheet Arrangements
Our liquidity is not dependent on the use of off-balance sheet financing arrangements other than in connection with our operating leases, which have not materially changed from the disclosure in our annual report on Form 10-K for the year ended December 31, 2015. We also periodically maintain standby letters of credit for purchase of inventory, contract performance on certain sales contracts and other guarantees of our performance.

Critical Accounting Policies
A discussion of our critical accounting policies can be found in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our annual report on Form 10-K for the year ended December 31, 2015. There have been no significant changes in our critical accounting policies since year-end.

Recently Issued Accounting Standards
Refer to Note 1—“Interim Financial Statement Presentation” to our unaudited interim consolidated financial statements in Part I, Item 1 of this quarterly report for recently issued accounting standards.

Item 3.Quantitative and Qualitative Disclosures About Market Risk
Other than as described below, there was no material change from the information included in Item 7A, Quantitative and Qualitative Disclosures about Market Risk, in our annual report on Form 10-K for the year ended December 31, 2015.

Foreign Currency Exchange Rate Risk. The volatility in foreign currency exchange rates resulted in significant unrealized foreign currency exchange gains of $16.2 million on intercompany loans denominated in U.S. dollars for the three months ended March 31, 2016. At March 31, 2016, we had intercompany loans that required remeasurement in the aggregate amount of $361.6 million, of which $269.4 million were with a subsidiary whose functional currency is the euro. The unrealized foreign currency exchange gains (losses) due to a hypothetical 10% change in the exchange rates of the U.S. dollar to the euro, Polish zloty and Mexican peso are shown in the following table:
 
Three months ended March 31,
 
2016
 
(in thousands)
 
+10%
 
-10%
Unrealized foreign currency exchange gains (losses) due to hypothetical 10% rate movement:

 
 
 
U.S. dollar to euro
$
(29,326
)
 
$
53,359

U.S. dollar to Polish zloty
(4,580
)
 
12,727

U.S. dollar to Mexican peso
(217
)
 
243


At times, we have partially hedged foreign currency exchange rate volatility through the use of derivative instruments. During 2014, we entered into cross-currency swaps with an aggregate notional value of $300.0 million, and during 2015, we entered into a cross-currency swap with a notional value of $125.0 million to hedge exposures to foreign currency exchange rate risk. Among other things, the table below includes the potential change in fair value of these instruments related to a hypothetical 10% change in the foreign currency exchange rates. Refer to Note 5—“Derivative Financial Instruments” to our unaudited interim consolidated financial statements in Part I, Item 1 of this quarterly report for further information on these cross-currency swap contracts.
Cross-currency swaps:
 
 
Fair value at December 31, 2015
 
$
47,311

Unrealized loss for the three months ended March 31, 2016
 
(18,137
)
Fair value at March 31, 2016
 
29,174

Change in fair value due to hypothetical 10% foreign currency exchange rate movement
 
43,937


Notwithstanding our efforts to mitigate some foreign currency exchange rate risk, we do not hedge all of our foreign currency exposures, and there can be no assurance that our mitigating activities related to the exposures that we hedge will adequately protect us against risks associated with foreign currency fluctuations.

30


Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
The Company's management, under the supervision and with the participation of our CEO and CFO, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d - 15(e) under the Exchange Act) at March 31, 2016. Based on this evaluation, the Company's CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2016.

Changes in Internal Control over Financial Reporting
There was no change in the Company's internal control over financial reporting that occurred during the Company's first quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.Legal Proceedings
We are not a party to any material legal proceedings. From time to time, we are involved in routine litigation arising in the ordinary course of business, which is incidental to our operations. For further information required by this item, refer to Note 11—“Contingencies” to our unaudited interim consolidated financial statements in Part I, Item 1 of this quarterly report.

Item 1A.Risk Factors
There have been no material changes in our Risk Factors from those disclosed in Item 1A, Risk Factors, in our annual report on Form 10-K for the year ended December 31, 2015.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
None.

Item 3.     Defaults Upon Senior Securities
None.

Item 4.Mine Safety Disclosures
Not applicable.

Item 5.     Other Information
None.


31


Item 6. Exhibits
Exhibit
No.

Description of Exhibits Filed with this Report
 
 
 
31.1

 
CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
31.2

 
CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
32.1

 
CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
32.2

  
CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
101.INS

  
XBRL Instance Document
 
 
 
101.SCH

 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL

 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.LAB

 
XBRL Taxonomy Extension Labels Linkbase Document
 
 
 
101.PRE

 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
101.DEF

 
XBRL Taxonomy Extension Definition Linkbase Document
Exhibit
No.

 
Description of Exhibits Incorporated by Reference
 
 
10.1

 
Employee Bonus Plan, dated January 1, 2015, as amended and restated on January 1, 2016 (incorporated by reference to Exhibit 10.10 to the Registrant's annual report on Form 10-K (File No. 333-174896), filed on March 10, 2016).

 
 
 


32


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
WireCo WorldGroup Inc.
 
 
 
 
 
 
 
(Registrant)
 
 
 
 
 
Dated:
May 13, 2016
 
 
 
By:
 
/s/ Brian G. Block
 
 
 
 
 
 
 
Brian G. Block
 
 
 
 
 
 
 
Senior Vice President and Chief Financial Officer (Principal Financial Officer)
 
 
 
 
 
 
 




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