##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 000-51043
 International Wire Group, Inc.
  Delaware
    
    43-1705942(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 12 Masonic Ave.
Camden, NY 13316
(315) 245-3800
 o þ
   o o þ
 o þ
  þ o




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INTERNATIONAL WIRE GROUP, INC.
 INDEX
 PagePART I.FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS
    
    
    1ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    17ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    29ITEM 4. CONTROLS AND PROCEDURES
    
    
    30PART II.OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    31ITEM 1A. RISK FACTORS.
    
    
    31ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    31ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    31ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    31ITEM 5. OTHER INFORMATION
    
    
    31ITEM 6. EXHIBITS
    
    
    31Key Management Incentive Plan SummaryTermination of Intercreditor AgreementCertification of Principal Executive OfficerCertification of Principal Financial OfficerCertification of Principal Executive OfficerCertification of Principal Financial Officer




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 September 30,
    
    
    December 31,2006
    
    
    2005(In thousands, except share data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,927
    
    
    $
    5,422Accounts receivable, less allowance of $1,345 and $3,036
    
    
    121,087
    
    
    
    98,296Inventories
    
    
    78,865
    
    
    
    56,874Prepaid expenses and other
    
    
    8,929
    
    
    
    10,112Assets held for sale
    
    
    
    
    
    
    1,975Deferred income taxes
    
    
    14,876
    
    
    
    20,218Total current assets
    
    
    225,684
    
    
    
    192,897Property, plant and equipment, net
    
    
    102,481
    
    
    
    85,440Goodwill
    
    
    62,307
    
    
    
    62,307Identifiable intangibles, net
    
    
    18,883
    
    
    
    21,358Deferred financing costs, net
    
    
    2,907
    
    
    
    2,457Restricted cash
    
    
    1,577
    
    
    
    1,922Other assets
    
    
    1,882
    
    
    
    2,305Total assets
    
    $
    415,721
    
    
    $
    368,686LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    1,192
    
    
    $
    228Accounts payable and other
    
    
    54,826
    
    
    
    33,865Accrued and other liabilities
    
    
    17,203
    
    
    
    13,670Accrued payroll and payroll related items
    
    
    9,212
    
    
    
    8,131Customers deposits
    
    
    13,306
    
    
    
    11,428Accrued income taxes
    
    
    714
    
    
    
    197Accrued interest
    
    
    3,437
    
    
    
    1,838Total current liabilities
    
    
    99,890
    
    
    
    69,357Long-term debt, less current maturities
    
    
    134,758
    
    
    
    135,188Other long-term liabilities
    
    
    3,955
    
    
    
    3,558Deferred income taxes
    
    
    12,102
    
    
    
    7,770Total liabilities
    
    
    250,705
    
    
    
    215,873Stockholders equityCommon stock, $.01 par value, 20,000,000 shares
authorized, 10,000,002 issued and outstanding
    
    
    100
    
    
    
    100Contributed capital
    
    
    177,162
    
    
    
    175,600Accumulated deficit
    
    
    (12,511
    )
    
    
    (21,581
    )Accumulated other comprehensive income/(loss)
    
    
    265
    
    
    
    (1,306
    )Total stockholders equity
    
    
    165,016
    
    
    
    152,813Total liabilities and stockholders equity
    
    $
    415,721
    
    
    $
    368,686
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INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands, except share data)Net sales
    
    $
    206,372
    
    
    $
    107,569
    
    
    $
    565,012
    
    
    $
    305,858Operating expenses:Cost of goods sold, exclusive of depreciation and
amortization expense shown below
    
    
    182,031
    
    
    
    91,471
    
    
    
    500,962
    
    
    
    258,738Selling, general and administrative expenses
    
    
    11,575
    
    
    
    7,324
    
    
    
    29,224
    
    
    
    23,680Depreciation
    
    
    3,471
    
    
    
    2,052
    
    
    
    7,930
    
    
    
    6,167Amortization
    
    
    864
    
    
    
    769
    
    
    
    2,513
    
    
    
    2,368(Gain)/loss on sale of property, plant and
equipment
    
    
    (8
    )
    
    
    15
    
    
    
    (8
    )
    
    
    8Operating income
    
    
    8,439
    
    
    
    5,938
    
    
    
    24,391
    
    
    
    14,897Other income/(expense):Interest expense
    
    
    (3,623
    )
    
    
    (2,879
    )
    
    
    (10,257
    )
    
    
    (8,609
    )Amortization of deferred financing costs
    
    
    (654
    )
    
    
    (162
    )
    
    
    (993
    )
    
    
    (484
    )Other, net
    
    
    (134
    )
    
    
    10
    
    
    
    105
    
    
    
    (7
    )Income from continuing operations before income
tax provision/(benefit)
    
    
    4,028
    
    
    
    2,907
    
    
    
    13,246
    
    
    
    5,797Income tax provision/(benefit) from continuing
operations
    
    
    377
    
    
    
    1,389
    
    
    
    3,974
    
    
    
    2,887Income from continuing operations
    
    
    3,651
    
    
    
    1,518
    
    
    
    9,272
    
    
    
    2,910Income/(loss) from discontinued operations, net
of income tax provision/(benefit) of $178,
($1,073), ($86) and ($1,980)
    
    
    294
    
    
    
    (5,165
    )
    
    
    (202
    )
    
    
    (12,706
    )Net income/(loss)
    
    $
    3,945
    
    
    $
    (3,647
    )
    
    $
    9,070
    
    
    $
    (9,796
    )Basic and diluted net income/(loss) per share:Income from continuing operations
    
    $
    0.36
    
    
    $
    0.15
    
    
    $
    0.93
    
    
    $
    0.29Income/(loss) from discontinued operations
    
    
    0.03
    
    
    
    (0.51
    )
    
    
    (0.02
    )
    
    
    (1.27
    )Net income/(loss)
    
    $
    0.39
    
    
    $
    (0.36
    )
    
    $
    0.91
    
    
    $
    (0.98
    )Weighted average basic shares outstanding
    
    
    10,000,002
    
    
    
    10,000,002
    
    
    
    10,000,002
    
    
    
    10,000,002Weighted average diluted shares outstanding
    
    
    10,006,418
    
    
    
    10,000,002
    
    
    
    10,002,866
    
    
    
    10,000,002
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INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 For the Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2005(In thousands)Cash flows provided by/(used in) operating activities:Net income/(loss)
    
    $
    9,070
    
    
    $
    (9,796
    )Adjustments to reconcile net income/(loss) to net cash
provided by operating activities:Depreciation
    
    
    8,734
    
    
    
    8,099Amortization
    
    
    2,844
    
    
    
    3,561Amortization of deferred financing costs
    
    
    993
    
    
    
    484Provision for doubtful accounts
    
    
    627
    
    
    
    333Stock-based compensation expense
    
    
    1,562
    
    
    
    Gain on sale of property, plant and equipment
    
    
    (447
    )
    
    
    (8
    )Gain on sale of businesses
    
    
    (280
    )
    
    
    Impairment of identifiable intangibles
    
    
    
    
    
    
    8,331Deferred income taxes
    
    
    2,738
    
    
    
    Change in operating assets and liabilities, net of
acquisitions and divestitures:Accounts receivable
    
    
    (19,434
    )
    
    
    (30,738
    )Inventories
    
    
    (11,863
    )
    
    
    13,167Prepaid expenses and other assets
    
    
    (1,881
    )
    
    
    (562
    )Accounts payable and other
    
    
    19,906
    
    
    
    28,728Accrued and other liabilities
    
    
    3,484
    
    
    
    (953
    )Accrued payroll and payroll related items
    
    
    779
    
    
    
    (573
    )Customers deposits
    
    
    256
    
    
    
    231Accrued interest
    
    
    1,599
    
    
    
    2,004Accrued income taxes
    
    
    485
    
    
    
    Other long-term liabilities
    
    
    (8
    )
    
    
    (822
    )Net cash provided by operating activities before
reorganization activities
    
    
    19,164
    
    
    
    21,486Cash flows used in reorganization activities
    
    
    
    
    
    
    (6,582
    )Net cash provided by operating activities
    
    
    19,164
    
    
    
    14,904Cash flows used in investing activities:Capital expenditures
    
    
    (7,643
    )
    
    
    (5,563
    )Proceeds from sale of property, plant and equipment
    
    
    1,191
    
    
    
    13Restricted cash
    
    
    345
    
    
    
    1,120Proceeds
from sale of businesses
    
    
    36,123
    
    
    
    Acquisition of Phelps Dodge High Performance Conductors
of SC&GA, Inc., net of $45 cash acquired
    
    
    (52,143
    )
    
    
    Net cash used in investing activities
    
    
    (22,127
    )
    
    
    (4,430
    )Cash flows used in financing activities:Borrowings of long-term obligations
    
    
    350,958
    
    
    
    28,239Repayment of long-term borrowings
    
    
    (350,424
    )
    
    
    (47,413
    )Financing fees
    
    
    (1,443
    )
    
    
    (28
    )Net cash used in financing activities
    
    
    (909
    )
    
    
    (19,202
    )Effects of exchange rate changes on cash and cash equivalents
    
    
    377
    
    
    
    261Net change in cash and cash equivalents
    
    
    (3,495
    )
    
    
    (8,467
    )Cash and cash equivalents at beginning of the period
    
    
    5,422
    
    
    
    15,192Cash and cash equivalents at end of the period
    
    $
    1,927
    
    
    $
    6,725Supplemental disclosure of cash flow information:Interest paid
    
    $
    9,553
    
    
    $
    8,533Net taxes
paid (including taxes refunded of $129 and $13)
    
    $
    711
    
    
    $
    869
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INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
 1.
    
    Business Organization and Basis of PresentationUnaudited Interim Consolidated Financial StatementsThe unaudited interim consolidated financial statements reflect all adjustments, consisting
only of normal recurring adjustments that are, in the opinion of management, necessary for a
fair presentation of the financial position, results of operations and cash flows of
International Wire Group, Inc. (the Company, we or our). The results for the three
and nine months ended September 30, 2006 and 2005 are not necessarily indicative of the
results that may be expected for the full fiscal year. These financial statements should be
read in conjunction with the audited consolidated financial statements and notes thereto
included in the Companys Annual Report on Form 10-K/A filed with the Securities and
Exchange Commission for the year ended December 31, 2005. Certain reclassifications have
been made to the prior year financial statements to conform to the current year
classifications. In addition, the Company recorded adjustments to cost of sales and depreciation expense
totalling $197, net of income taxes, in the third quarter of 2006 that should have been recorded during
 the six month period ended June 30, 2006.Insulated Wire Business and Discontinued OperationsOver the last several years, the Companys Insulated Wire business operating results have
been adversely impacted by industry wide over capacity and increased material costs, that,
with the exception of copper price increases, could not be passed through to customers under
most of our current customer contracts. In addition, in the second and fourth quarters of
2005, we were notified that significant volume with two large customers, Viasystems
International, Inc. (Viasystems) and Yazaki Corp., and its affiliates, respectively, would
not be renewed upon the expiration of the existing supply contracts. Throughout 2005, the
Company actively evaluated the Insulated Wire business and considered alternatives affecting
all or part of the Insulated Wire business. On December 2, 2005, we sold and leased
selected assets of the U.S. Insulated Wire business to Copperfield, LLC and ceased U.S.
operations.On June 28 and 30, 2006, the Company entered into Stock Purchase Agreements (Cebu and
Durango Purchase Agreements) with Draka Holdings N.V. (Draka) and Draka Holdings Mexico,
S.A. (Draka Mexico). Pursuant to the terms of the Cebu Purchase Agreement, Draka
purchased all the stock of the Companys Philippines insulated wire subsidiary,
IWG-Philippines, Incorporated, for a purchase price of $30,000, plus an additional sum of
$881 pursuant to a post closing working capital adjustment.
Additionally, the Company reimbursed Draka $3,510 for an accounts
receivable collected related to the business sold and Draka purchased
approximately $6,478 of copper from the Company, which was being held on consignment, in
September 2006. Pursuant to the terms of the Durango Purchase Agreement, Draka and Draka
Mexico purchased all the stock of the Companys Mexican insulated wire subsidiaries, IWG
Services Company, S. de R.L. de C.V., Cables Durango, S. de R.L. de C.V. and IWG Durango, S.
de R.L. de C.V., for a purchase price of $5,000.The disposition of the IWG-Philippines and the Mexican insulated wire subsidiaries, which
was completed on July 3, 2006, together with the sale of certain U.S. Insulated Wire assets
to Copperfield, LLC in December 2005 and the subsequent collection of retained accounts
receivable, completed the Companys exit from the Insulated Wire business. Accordingly, the
entire Insulated Wire business has been presented as a discontinued operation in the
accompanying condensed consolidated statements of operations. The pre-tax gain on the
disposition recorded in 2006 was $280. In addition, there was a
pre-tax gain of $439 for the disposal of other remaining U.S.
Insulated Wire business assets.
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The Insulated Wire business operating results of discontinued operations are as follows:
 For the Three
    
    
    For the NineMonths Ended
    
    
    Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    
    
    
    $
    65,240
    
    
    $
    53,155
    
    
    $
    180,039Income/(loss) before income tax
provision/(benefit)
    
    
    472
    
    
    
    (6,238
    )
    
    
    (288
    )
    
    
    (14,685
    )
  As ofDecember 31, 2005Property, plant and equipment, net
    
    $
    1,975
 Statement of Cash FlowsThe Company previously separately reported cash flow from discontinued operations. The
Company has conformed the prior year to the current year presentation of total cash flows.
There is no change to operating cash flows for the prior year. The condensed consolidated
statements of cash flows reflect deposits into and changes in restricted cash accounts as an
Investing Activity. The condensed consolidated statement of cash flows for the nine
months ended September 30, 2005 previously reflected such deposits into restricted cash
accounts as a Financing Activity. The 2005 period has been conformed to the current year
basis and presentation. This revision had no impact on the condensed consolidated
statements of operations, or the net increase/(decrease) in cash and cash equivalents
included in our condensed consolidated statement of cash flows for the period ended
September 30, 2005.2.
    
    AcquisitionOn March 4, 2006, the Company entered into a Stock Purchase Agreement (HPC Purchase
Agreement) to acquire Phelps Dodge High Performance Conductors of SC & GA, Inc. (HPC)
from Phelps Dodge Corporation (PD). HPC is a manufacturer of specialty high performance
conductors which are plated copper and copper alloy conductors offering both high and low
temperature standard and customized conductors as well as specialty film, insulated
conductors and miniature tubing products. The conductors manufactured are tin, nickel and
silver plated, including some proprietary products. High temperature products are generally
used where high thermal stability and good solderability are required for certain military
and commercial aerospace applications. The medical products include ultra fine alloys,
which are used in medical electronics such as ultrasound equipment and portable
defibrillators. The tubing products are used in a variety of medical devices in medicine
delivery and coronary procedures. These products are sold to harness assembly
manufacturers, distributors and original equipment manufacturers (OEMs) in the United
States, Europe and Asia primarily serving the aerospace, medical, automotive, computer,
telecommunications, mass transportation, geophysical and electronics markets. HPC has
manufacturing operations in Inman, South Carolina and Trenton, Georgia and a
sales/distribution facility in Belgium.On March 31, 2006, the Company completed the acquisition of all of the outstanding common
stock of HPC for $42,000 plus an estimated working capital adjustment payment at closing of
$1,676. An additional working capital adjustment of $2,671 was paid in August, 2006. The
acquisition was funded with borrowings under the Companys Revolver Credit Facility.
Additionally, on March 31, 2006, the Company purchased the copper inventory held on
consignment by HPC from PD for $5,057, with $2,528 paid on May 15, 2006 and $2,529 paid on
June 14, 2006. In addition, pursuant to the HPC Purchase Agreement, the Company has agreed
to a contingency payment in an amount equal to 4.88 multiplied by the amount that HPCs 2006
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) (as defined in the
HPC Purchase Agreement) exceeds $9,400. The contingency payment is capped at
$3,000. In connection with transaction Phelps Dodge High Performance Conductors of SC & GA, Inc. changed its name to IWG
High Performance Conductors, Inc.
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This acquisition was accounted for as a purchase on March 31, 2006. Results of operations
of HPC are included in the accompanying condensed consolidated statements of operations
beginning April 1, 2006.The total purchase price of the HPC acquisition was $52,188 and the payment of related
purchase price, fees and costs is summarized as follows:
 Purchase of common stock and estimated working capital
adjustment at closing
    
    $
    43,676Additional working capital adjustment
    
    
    2,671Purchase of consigned inventory
    
    
    5,057Fees and costs
    
    
    784$
    52,188
  Current assets
    
    $
    34,288Property, plant and equipment
    
    
    30,789Identifiable intangibles
    
    
    460Current liabilities, excluding of deferred income taxes
    
    
    (3,065
    )Deferred credit
    
    
    (3,000
    )Deferred income taxes
    
    
    (6,937
    )Other liabilities
    
    
    (347
    )$
    52,188
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Pro FormaFor the Three
    
    
    For the NineMonths Ended
    
    
    Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2006
    
    
    2005Net sales
    
    $
    129,028
    
    
    $
    591,906
    
    
    $
    369,888Income from continuing operations
    
    
    2,104
    
    
    
    10,295
    
    
    
    4,715Net income/(loss)
    
    
    (3,061
    )
    
    
    10,093
    
    
    
    (7,991
    )Basic and diluted net income/(loss) per share
    
    
    (0.31
    )
    
    
    1.01
    
    
    
    (0.80
    )
 3.
    
    Recently Issued Accounting StandardsIn November 2004 (revised in December 2004), the Financial Accounting Standards Board
(FASB) issued SFAS No. 151, Inventory Costs  an amendment of ARB No. 43,Chapter 4 to be
effective for inventory costs incurred during fiscal years beginning after June 15, 2005,
with early adoption permitted. SFAS No. 151 amends the guidance in Accounting Research
Bulletin (ARB) No. 43, Chapter 4, Inventory Pricing,to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage). Paragraph 5 of ARB No. 43, Chapter 4, previously stated that . . . under some
circumstances, items such as idle facility expense, excessive spoilage, double freight, and
rehandling costs may be so abnormal as to require treatment as current period charges. . . SFAS No. 151 requires those items be recognized as current period charges regardless of
whether they meet the criterion of so abnormal. In addition, SFAS No. 151 requires the
allocation of fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. The adoption of SFAS No. 151 did not have a material
impact on the Companys financial statements.In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment.SFAS No. 123(R)
establishes standards for the accounting for transactions in which an entity exchanges its
equity instruments for goods or services. This Statement focuses primarily on accounting
for transactions in which an entity obtains employee services in share-based payment
transactions. SFAS No. 123(R) requires that the fair value of such equity instruments be
recognized as an expense in the historical financial statements as services are performed.
Prior to SFAS No. 123(R), only certain pro forma disclosures of fair value were required.
The Company adopted the provisions of SFAS No. 123(R) effective the first quarter of fiscal
year 2006, which began on January 1, 2006. See Note 6.In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes,to be effective for fiscal years beginning after December 31, 2006. This
Interpretation adopts a two-step approach for recognizing and measuring tax benefits and
requires certain disclosures about uncertainties in income tax positions. It also adopts
the recognition threshold of more likely than not. The Company is currently evaluating
the impact, if any, that Interpretation No. 48 will have on its financial statements.In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157).
This statement defines fair value, established a framework for using fair value to measure
assets and liabilities and expands disclosures about fair value measurements. The statement
applies whenever other pronouncements require or permit assets or liabilities to be measured
at fair value. SFAS No. 157 is effective for the Companys fiscal year beginning January 1,
2008. The Company is evaluating the impact the adoption of SFAS No. 157 will have on the
Companys financial statements.In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements
in Current Year
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##### Table of Contents



Financial Statements (SAB 108) to address diversity in practice in quantifying financial
statement misstatements. SAB 108 requires that the Company quantify misstatements based on
their impact on each of its financial statements and related disclosures. The application
of SAB 108 in the third quarter did not have any impact on the Companys financial
statements.In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Liabilities  including an amendment to FASB Statement No. 115. This statement permits
entities to choose to measure many financial instruments and certain other items at fair
value. SFAS No. 159 is effective for the Companys fiscal year beginning January 1, 2008.
The Company is currently evaluating the impact of adopting SFAS No. 159.4.
    
    InventoriesThe composition of inventories is as follows:
 September 30,
    
    
    December 31,2006
    
    
    2005Raw materials
    
    $
    16,096
    
    
    $
    18,274Work-in process
    
    
    22,919
    
    
    
    14,400Finished goods
    
    
    39,850
    
    
    
    24,200Total
    
    $
    78,865
    
    
    $
    56,874
 Inventories are valued at the lower of cost or current
estimated market. Cost is determined using
the last-in, first-out (LIFO) method for the Bare Wire and High Performance Conductors
segments and the first-in, first-out (FIFO) method for the Engineered Wire ProductsEurope
segment. Had all inventories been valued at the first-in, first-out (FIFO) cost method,
inventories would have been $44,376 and $20,641 higher as of September 30, 2006 and December
31, 2005, respectively.5.
    
    Goodwill and Intangible AssetsThe carrying amounts of goodwill are as follows:
 September 30,
    
    
    December 31,2006
    
    
    2005Balance, beginning of period
    
    $
    62,307
    
    
    $
    71,359Reversal of deferred income tax valuation allowance
    
    
    
    
    
    
    (9,052
    )Balance, end of period
    
    $
    62,307
    
    
    $
    62,307
   September 30, 2006
    
    
    December 31, 2005Accumulated
    
    
    
    
    
    
    AccumulatedCost
    
    
    Amortization
    
    
    Cost
    
    
    AmortizationCustomer contracts and relationships
    
    $
    9,534
    
    
    $
    1,240
    
    
    $
    11,292
    
    
    $
    1,125Trade names and trademarks
    
    
    10,568
    
    
    
    1,004
    
    
    
    10,200
    
    
    
    612Leases
    
    
    2,671
    
    
    
    1,736
    
    
    
    2,671
    
    
    
    1,068Alloys
    
    
    92
    
    
    
    2
    
    
    
    
    
    
    
    Total
    
    $
    22,865
    
    
    $
    3,982
    
    
    $
    24,163
    
    
    $
    2,805
 8




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##### Table of Contents



2006 (remaining three months)
    
    $
    5132007
    
    
    1,8762008
    
    
    9862009
    
    
    9862010
    
    
    986Thereafter
    
    
    13,536
 6.
    
    Stock Option Plans and Compensation ExpenseOn May 11, 2006, the Companys stockholders approved the 2006 Management Stock Option Plan
and the 2006 Stock Option Plan for Non-Employee Directors. Under the 2006 Management Stock
Option Plan, options for up to 1,300,000 shares of common stock are available for grant to
the eligible members of management. The options will be granted at no less than 100% of
fair market value of the Companys stock on the date of the grant and have a life of no
longer than 10 years. All other material terms of the stock options, including without
limitation, vesting and exercisability, will be determined by the Compensation Committee of
the Board of Directors. On May 12, 2006, the Compensation Committee and the Board of
Directors approved the issuance of 972,000 options to members of
management at an exercise price of $15.00 per share, a life of 10 years, and a vesting schedule of one-third of the
award to each employee at each anniversary date in May 2007 through 2009. The estimated
grant date fair value of these awards was $8.85 per option. See Note 13 for subsequent
events.Under the 2006 Stock Option for Non-Employee Directors, options for up to 300,000 shares of
common stock are available for granting to non-employee directors. These stock options will
have an exercise price equal to 100% of fair market value of the underlying stock on the
date of grant and have a life of 10 years. On May 19, 2006, stock option awards of 69,300
were granted to current non-employee directors at an exercise price of $15.00 per share with
a 10-year life and a vesting schedule of one-third on the date of grant, one-third on
October 20, 2006 and the remaining one-third on October 20, 2007. The estimated grant date
fair value of these awards was $8.85 per option.On August 1, 2005, William Lane Pennington, Vice-Chairman of the Board of Directors, was
granted an option to purchase 25,000 shares at an exercise price of $11.00 per share.
One-third of the shares underlying the option became exercisable on August 1, 2005, the
second-third became exercisable on August 1, 2006, and the remaining third becomes
exercisable on August 1, 2007. The option expires on August 1, 2015.Effective January 1, 2006, the Company adopted SFAS No. 123(R) which requires measurement of
compensation cost for all stock awards at fair value on the date of grant and recognition of
compensation cost spread over the service periods for awards expected to vest. SFAS No.
123(R) has been adopted using the modified-prospective transition method. Prior to the
adoption of SFAS No. 123(R), the Company accounted for stock-based compensation plans under
the recognition and measurement principles of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations.Under the modified-prospective transition method, compensation cost recognized in the
three-month and nine-month periods ended September 30, 2006 includes: (a) compensation cost
for all unvested share-based awards granted prior to January 1, 2006, based on the grant
date fair value estimated in accordance with SFAS 123, Accounting For Stock-Based
Compensation, and (b) compensation cost for all share-based awards granted subsequent to
December 31, 2005, based on the grant date fair value estimated in accordance with SFAS
123(R). Prior periods were not restated to reflect the impact of adopting the new standard.As a result of adopting SFAS No. 123(R) on January 1, 2006, the net income for the nine
months ended September 30, 2006, includes compensation expense
of $1,093 related to stock
options (net of tax benefit
 9




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##### Table of Contents



of $469). The stock-based compensation expense is included in selling, general and
administrative expenses in the accompanying condensed consolidated statements of operations.
The Company uses the Black-Scholes option model to estimate fair value of share-based
awards with the following weighted average assumptions:
 Nine Months EndedSeptember 30, 2006Stock Options and Awards:Expected life
    
    

    6 yearsExpected volatility
    
    
    58
    %Dividend yield
    
    
    0
    %Risk-free interest rate
    
    
    4.9
    %
   Weighted
    
    
    WeightedAverage
    
    
    Average
    
    
    AggregateOptions
    
    
    Exercise
    
    
    Remaining
    
    
    IntrinsicOutstanding
    
    
    Price
    
    
    Term in Years
    
    
    ValueOutstanding at
January 1, 2006
    
    
    25,000
    
    
    $
    11.00Granted
    
    
    1,041,300
    
    
    $
    15.00Outstanding at
September 30, 2006
    
    
    1,066,300
    
    
    $
    14.91
    
    
    
    9.3
    
    
    $
    3,299Expected to vest at
September 30,
2006
    
    
    1,012,985
    
    
    $
    14.91
    
    
    
    9.3Exercisable at
September 30, 2006
    
    
    39,767
    
    
    $
    13.32
    
    
    
    9.5
    
    
    $
    186
 As of September 30, 2006, the Company had total unrecognized compensation costs of $7,277
which will be recognized as compensation expense over a weighted average period of 2.5
years. The Company estimates a 5% forfeiture rate in recording stock-based compensation
expense. As of September 30, 2006, no awards have been exercised under the 2006 Management
Stock Option Plan and the 2006 Stock Option Plan for Non-Employee Directors.The stock options are non-qualified which results in the creation of a deferred tax asset
until the time the option is exercised.7.
    
    Comprehensive Income/(Loss)Comprehensive income/(loss) is comprised of:
 10




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For the Three
    
    
    For the NineMonths Ended
    
    
    Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income/(loss)
    
    $
    3,945
    
    
    $
    (3,647
    )
    
    $
    9,070
    
    
    $
    (9,796
    )Foreign currency translation adjustment
    
    
    (473
    )
    
    
    70
    
    
    
    1,571
    
    
    
    (2,000
    )Total comprehensive income/(loss)
    
    $
    3,472
    
    
    $
    (3,577
    )
    
    $
    10,641
    
    
    $
    (11,796
    )
 8.
    
    Net Income/(Loss) Per ShareNet income/(loss) per share is calculated using the weighted average number of common shares
outstanding during the period. For purposes of computing weighted average dilutive shares
outstanding the Company uses the treasury stock method as required by Statement of Financial
Accounting Standards No. 128 Earnings Per Share (as amended). The following table
provides a reconciliation of the number of shares outstanding for basic and dilutive
earnings per share:
 For the Three
    
    
    For the NineMonths Ended
    
    
    Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Weighted average shares outstanding-basic
    
    
    10,000,002
    
    
    
    10,000,002
    
    
    
    10,000,002
    
    
    
    10,000,002Dilutive effect of stock options
    
    
    6,416
    
    
    
    
    
    
    
    2,864
    
    
    
    Weighted average shares outstanding-dilutive
    
    
    10,006,418
    
    
    
    10,000,002
    
    
    
    10,002,866
    
    
    
    10,000,002
 Weighted average shares outstanding for the three and nine month periods ended September 30,
2006 exclude 1,041,300 and 578,500 options, respectively, because they are antidilutive
under the treasury stock method.9.
    
    Long-Term DebtThe composition of long-term debt is as follows:
 September 30,
    
    
    December 31,2006
    
    
    2005Senior Revolver Credit Facility
    
    $
    59,758
    
    
    $
    30,188Term Credit Facility
    
    
    
    
    
    
    30,00010% Secured Senior Subordinated Notes
    
    
    75,000
    
    
    
    75,000Other
    
    
    1,192
    
    
    
    228135,950
    
    
    
    135,416Less current maturities
    
    
    1,192
    
    
    
    228Long-term portion of long-term debt
    
    $
    134,758
    
    
    $
    135,188
 Senior Revolver Credit Facility and Term LoanThe Company and its domestic subsidiaries are parties to a credit agreement (the
Revolver Credit Facility) with among Wachovia Capital Financial Corporation (Central),
formerly known as Congress Financial Corporation (Central), as administrative agent, and
several banks and financial institutions parties. The Revolver Credit Facility is a senior
revolver credit facility in the amount of up to $200,000 subject to borrowing availability
(including, as a sub-facility of the revolver credit facility, a $25,000 letter of credit
facility). Previously, the Company and its domestic subsidiaries were parties to a credit
agreement with
 11




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##### Table of Contents



Silver Point Finance, LLC, as administrative agent, and the several banks and financial
institutions parties thereto, which provided for a $30,000 five-year senior term loan
facility (the Term Credit Facility) agreement, but the Term Credit Facility was paid off
in connection with the August 28, 2006 amendment to the Revolver Credit Facility.Borrowings under the Revolver Credit Facility are tied to a borrowing base, which is
calculated by reference to, among other things, eligible accounts receivable, eligible
inventory and eligible real property and equipment. As of September 30, 2006, letters of
credit in the amount of $13,472 were outstanding and $59,758 was drawn under the Revolver
Credit Facility. Availability under the Revolver Credit Facility was $85,104 as of
September 30, 2006.The Companys domestic subsidiaries are the primary parties to the Revolver Credit Facility.
The Company has guaranteed their obligations under the Revolver Credit Facility. The
collateral for the Revolver Credit Facility includes all or substantially all of the
Companys and its domestic subsidiaries assets, including 65 percent of the capital stock
of, or other equity interests in, the Companys foreign subsidiaries.The Companys Revolver Credit Facility requires the Company to observe conditions,
affirmative covenants and negative covenants (including financial
covenants). These covenants include limitations on the Companys
ability to pay dividends, make acquisitions, dispose of assets and
incur indebtedness. The Company must also comply with a fixed charge coverage ratio when either, (1) minimum availability under
the credit facility falls below $30,000 or (2) there is a default or event of default. At
September 30, 2006, the Company is in compliance with the terms of the Revolver Credit
Facility.Secured Senior Subordinated NotesThe 10% Secured Senior Subordinated Notes due 2011 (Notes) are: senior subordinated
obligations of the Company; senior in right of payment to any of future subordinated
obligations; guaranteed by the Companys domestic subsidiaries; and secured by a
second-priority lien on all or substantially all of the Companys and its domestic
subsidiaries assets, including 65 percent of the capital stock of, or other equity
interests in, the Companys foreign subsidiaries. The Company issued the Notes on October
20, 2004 in aggregate principal amount of $75,000. The Notes will mature on October 15,
2011.Interest on the Notes accrues at the rate of 10 percent per annum and is payable
semiannually in arrears on April 15 and October 15. Interest on overdue principal accrues
at 2 percent per annum in excess of the above rate.The indenture governing the Notes contains restrictive covenants which, among other things,
limit the Companys ability and some of its subsidiaries to (subject to exceptions): incur
additional debt; pay dividends or distributions on, or redeem or repurchase capital stock;
restrict dividends or other payments; transfer or sell assets; engage in transactions with
affiliates; create certain liens; engage in sale/leaseback transactions; impair the
collateral for the Notes; make investments; guarantee debt; consolidate, merge or transfer
all or substantially all of its assets and the assets of the Companys subsidiaries; and
engage in unrelated businesses.10.
    
    Business Segment and Geographic InformationAt December 31, 2005, the Company had three reportable segments: Bare Wire, Engineered
Wire ProductsEurope, and Insulated Wire. As a result of the HPC acquisition on March 31,
2006 (Note 2) and the discontinued operations of the Insulated Wire
business (Note 1), at September 30, 2006 the Companys three reportable segments are Bare Wire, Engineered Wire ProductsEurope, and High
Performance Conductors. These segments are strategic business units organized around three
product categories that follow managements internal organization structure. The Company
evaluates segment performance based on segment operating income.The Bare Wire segment manufactures bare and tin-plated copper wire products (or conductors)
used to transmit digital, video and audio signals or conduct electricity and sells to
insulated wire manufacturers and various industrial original equipment manufacturers
(OEMs) for use in computer and data
 12




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##### Table of Contents



communications products, general industrial, energy, appliances, automobiles, and other
applications. The Bare Wire segment is in the primary business of copper fabrication. The
Company may provide such copper to its customers or use their copper in the fabrication
process. While the Company bills its customers for copper it provides, it does not
distinguish in its records these customer types and it is therefore not practical to provide
such disclosure.The Engineered Wire ProductsEurope segment manufactures and engineers connections and bare
copper wire products (or conductors) to conduct electricity either for power or for
grounding purposes and are sold to a diverse customer base of various OEMs for use in
electrical appliances, power supply, aircraft and railway, and automotive.The High Performance Conductors segment, which resulted from the Companys acquisition
described in Note 2, manufactures specialty high performance conductors which include tin,
nickel and silver plated copper and copper alloy conductors including high and low
temperature standard and customized conductors as well as specialty film, insulated
conductors and miniature tubing products.Summarized financial information for the Companys reportable segments is as follows:
 EngineeredWire
    
    
    HighProducts
    
    
    PerformanceBare Wire
    
    
    Europe
    
    
    Conductors
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalNet salesThree months ended September 30, 2006
    
    $
    166,356
    
    
    $
    12,801
    
    
    $
    27,263
    
    
    $
    
    
    
    $
    (48
    )
    
    $
    206,372Three months ended September 30, 2005
    
    
    100,484
    
    
    
    8,554
    
    
    
    
    
    
    
    
    
    
    
    (1,469
    )
    
    
    107,569Nine months ended September 30, 2006
    
    
    469,275
    
    
    
    39,739
    
    
    
    56,291
    
    
    
    
    
    
    
    (293
    )
    
    
    565,012Nine months ended September 30, 2005
    
    
    280,665
    
    
    
    29,074
    
    
    
    
    
    
    
    
    
    
    
    (3,881
    )
    
    
    305,858Operating income/(loss)Three months ended September 30, 2006
    
    
    5,429
    
    
    
    1,107
    
    
    
    2,923
    
    
    
    (1,020
    )
    
    
    
    
    
    
    8,439Three months ended September 30, 2005
    
    
    6,102
    
    
    
    73
    
    
    
    
    
    
    
    (137
    )
    
    
    (100
    )
    
    
    5,938Nine months ended September 30, 2006
    
    
    16,749
    
    
    
    3,326
    
    
    
    5,885
    
    
    
    (1,569
    )
    
    
    
    
    
    
    24,391Nine months ended September 30, 2005
    
    
    16,470
    
    
    
    1,200
    
    
    
    
    
    
    
    (2,673
    )
    
    
    (100
    )
    
    
    14,897GoodwillSeptember 30, 2006
    
    
    62,307
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,307December 31, 2005
    
    
    62,307
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,307Total assetsSeptember 30, 2006
    
    
    298,443
    
    
    
    36,514
    
    
    
    67,227
    
    
    
    25,188(a
    )
    
    
    (11,651
    )
    
    
    415,721December 31, 2005
    
    
    244,918
    
    
    
    28,230
    
    
    
    
    
    
    
    96,554(a
    )
    
    
    (1,016
    )
    
    
    368,686
 
 (a)
    
    Includes assets of the Insulated Wire segment as of September 30, 2006 and as of December 31, 2005. 13




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##### Table of Contents



For the Three
    
    
    For the NineMonths Ended
    
    
    Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005United States
    
    $
    191,334
    
    
    $
    99,015
    
    
    $
    520,620
    
    
    $
    276,784Europe
    
    
    15,038
    
    
    
    8,554
    
    
    
    44,392
    
    
    
    29,074Total
    
    $
    206,372
    
    
    $
    107,569
    
    
    $
    565,012
    
    
    $
    305,858
 The following table presents property, plant and equipment, net by geographic region based
on the location of the asset:
 September 30,
    
    
    December 31,2006
    
    
    2005United States
    
    $
    93,578
    
    
    $
    64,693Europe
    
    
    8,903
    
    
    
    7,916Mexico
    
    
    
    
    
    
    5,118Philippines
    
    
    
    
    
    
    7,713Total
    
    $
    102,481
    
    
    $
    85,440
 11.
    
    Related Party TransactionsIn September 2002, the Company began selling a portion of its production scrap to Prime
Materials Recovery, Inc. (Prime). Prime is a closely held company and its major
shareholder, chairman and director is the Chief Executive Officer of the Company. In
addition, the Vice President of Finance of the Company holds a minority ownership interest
and is a director. The Company had sales to Prime of $7,866 and $2,673 for the three months
ended September 30, 2006 and 2005, respectively and $19,144 and $7,987 for the nine months
ended September 30, 2006 and 2005, respectively. The outstanding trade receivables were
$3,634 and $823 at September 30, 2006 and December 31, 2005, respectively. Sales to Prime
were made at terms comparable to those of other companies in the industry.12.
    
    LitigationIn February 2002, the Company initiated an action in the Circuit Court of Cook County,
Chancery Division (Case No. 02CH2470) located in Chicago, Illinois, titled International
Wire Group, Inc. v. National Union Fire Insurance Company of Pittsburgh, Pennsylvania, AIG
Technical Services, Inc., Aon Corporation and Aon Risk Services of Missouri, Ltd.(The AIG
Litigation). The Company alleges in the complaint in such action, among other things, that
National Union is obligated to defend and indemnify and otherwise provide insurance coverage
to the Company and the various OEMs for certain claims and damages related to certain water
inlet hoses supplied by and through the Company pursuant to two (2) $25,000 excess insurance
policies issued to the Company by National Union. In July 2003, a ruling was rendered in
this matter. The trial court ruled in favor of the Company and ruled that National
Union/AIG is obligated to defend and indemnify and otherwise provide insurance coverage to
the Company and various OEMs for certain claims and damages related to certain water inlet
hoses supplied by and through the Company pursuant to the two (2) $25,000 excess insurance
policies issued to the Company by National Union. National Union/AIG filed for an appeal of
the decision.In December 2003, the Company and its former parent company reached an agreement with
National Union, AIG Technical Services, Aon Corporation and Aon Risk Services of Missouri to
settle pending matters in the AIG Litigation. Under the settlement agreement, National
Union agreed to provide full defense and indemnity to the Company and certain OEMs for all
claims for damages that have occurred between April 1, 2000 and March 31, 2002 related to
certain water inlet hoses supplied by and through the Company pursuant to the two (2)
$25,000 excess insurance policies issued to the Company by National
Union. All other aspects of the settlement are subject to the confidentiality provisions of
the settlement agreement.
 14




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##### Table of Contents



In connection with the sale of the Companys former wire harness business to Viasystems
International, Inc. in March 2000, the Company agreed to indemnify Viasystems for certain
claims and litigation including any claims related to the claims for water inlet hoses. The
Companys policy is to record the probable and reasonably estimable loss related to the
product liability claims. Over time, the level of claims, insurance coverage and
settlements has varied. Accordingly, the Company has revised its estimated liability
outstanding, or balance sheet reserve, based on actual claims reported and costs incurred
and its estimate of claims and cost incurred but not reported. The Company has reached
global settlements with various claimants related to such claims which are also considered
in determining the balance sheet reserve. There are no recoveries from third parties
considered in determining the balance sheet reserve. The following table summarizes the
number of uninsured claims received, resolved and pending as of and for the periods ended
September 30, 2006 and December 31, 2005 (in thousands, except number of claims):
 Value ofNo. of
    
    
    AllegedClaims
    
    
    DamagesAs of December 31, 2004
    
    
    388
    
    
    $
    3,956For the year ended December 31, 2005:New uninsured claims
    
    
    1,526
    
    
    
    15,158Resolved uninsured claims
    
    
    (1,604
    )
    
    
    (15,503
    )As December 31, 2005
    
    
    310
    
    
    
    3,611For the nine months ended September 30, 2006:New uninsured claims
    
    
    550
    
    
    
    5,627Resolved uninsured claims
    
    
    (545
    )
    
    
    (5,098
    )As of September 30, 2006
    
    
    315
    
    
    $
    4,140
   For the Nine Months
    
    
    For the YearEnded
    
    
    EndedSeptember 30, 2006
    
    
    December 31, 2005Aggregate settlement costs
    
    $
    410
    
    
    $
    340Cost of administering and litigating
    
    $
    92
    
    
    $
    360Average cost per resolved claim
    
    $
    1
    
    
    $
    
 The Company had a reserve of $1,064 and $1,566 as of September 30, 2006 and December 31,
2005, respectively, related to the estimated future payments to be made to the claimants in
the settlement of the remaining incurred claims and claims incurred but not reported. The
majority of payments are expected to be made over approximately the next three years. Due
to the uncertainties associated with these product claims, such as greater than expected
amount of unreported claims and amounts to be paid under reached global settlements, the
future costs of final settlement of these claims may differ from the liability currently
accrued. However, in the Companys opinion, the impact of final settlement of these claims
on future operations, financial position and cash flows should not be material.
 15




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##### Table of Contents



The Company is a party to various proceedings and administrative actions, all of which are
of an ordinary or routine nature incidental to the operations of the Company. The Company
does not believe that such proceedings and actions would materially affect the Company.13.
    
    Subsequent EventsOn October 27, 2006, the Company announced the purchase of a new plant site located in
Sherrill, New York, from a subsidiary of Oneida, LTD. The purchase of this facility, which
is approximately 80,000 square feet, for approximately $600, will be used to expand and move
current bare wire production in the central New York region. New and existing equipment
will be installed in this facility over the next 6 to 9 months. Total capital expenditures
related to the facility are expected to be approximately $14,000. The City of Sherrill, New
York provides favorable hydroelectric power rates which should result in lower production
costs.On November 9, 2006, the Compensation Committee of the Board of Directors of the Company
accelerated the vesting of the 861,000 Management options granted May 12, 2006 such that
two-thirds of the options granted will vest immediately and one-third of the options granted
vest on October 20, 2007. Accordingly, additional stock-based compensation expense of
approximately $2,506, net of tax, will be recorded in the fourth quarter of 2006.
 16




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     Overview
  
    
    Bare Wire Products. Our bare and tin-plated copper wire products (or conductors) are
used to transmit digital, video and audio signals or conduct electricity and are sold to a
diverse customer base of over 1,000 insulated wire manufacturers and various industrial
OEMs for use in computer and data communications products, general industrial, energy,
appliances, automobiles and other applications.
    
    Engineered Wire Products  Europe. Our bare copper wire products are engineered and
used to conduct electricity either for power or for grounding purposes and are sold to a
diverse customer base of various OEMs for use in electrical appliances, power supply,
aircraft and railway and automotive.
    
    High Performance Conductors. Our High Performance Conductors segment manufactures
specialty high performance conductors which include tin, nickel and silver plated copper
and copper alloy conductors including high and low temperature standard and customized
conductors as well as specialty film insulated
conductors and miniature tubing products. This segment resulted from our acquisition of
Phelps Dodge High Performance Conductors of SC & GA, Inc. (HPC) on March 31, 2006.
 17




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##### Table of Contents




    
    Demand for the end products in which our products are incorporated.
    
    Our abilities to compete with other suppliers in the industry served.
  
    
    Electronics/data communications and industrial/energy  while the end user applications
are very diverse, some of the contributing factors of demand in the markets include
technology spending and major industrial and/or infrastructure projects, including
build-out of computer networks, mining development, oil exploration and production
projects, mass transit and general commercial and industrial real estate development.
    
    Automobiles  North American industry production statistics, which are influenced by
labor relations issues, regulatory requirements and trade agreements. For the first nine
months of 2006, automotive industry production volumes decreased 0.7% compared to the same
period for 2005. In addition, major OEMs have announced fourth quarter 2006 cut-backs in
production levels.
    
    With the HPC acquisition, additional factors include commercial aircraft shipments,
military aircraft deliveries and electro-medical equipment demand rates. Orders and
deliveries of large civil aircraft in the first nine months of 2006 increased over 20% over
the same period in 2005. Demand for medical devices was also strong in the first nine
months of 2006 due to the broadening acceptance and products available for minimally
invasive procedures and increased product development.
    18




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##### Table of Contents



Insulated Wire Business Sale
  
    
    Sold the inventory, equipment, spare parts and certain other assets located at our
Avilla, Indiana facility and three facilities located in El Paso, Texas;
    
    Sold our Avilla, Indiana facility, transferred leases for two of our El Paso, Texas
facilities and leased a third El Paso, Texas facility to Copperfield (the third facility
was subsequently sold to Copperfield on February 21, 2006 for $2 million); and
    
    Transferred certain contracts related to these facilities.
    Acquisition and Other
  19




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##### Table of Contents



20




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##### Table of Contents



Results of Operations
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    206.4
    
    
    
    100.0
    %
    
    $
    107.6
    
    
    
    100.0
    %
    
    $
    565.0
    
    
    
    100.0
    %
    
    $
    305.8
    
    
    
    100.0
    %Operating expenses:Cost of goods sold, exclusive of
depreciation and amortization expense shown
below
    
    
    182.0
    
    
    
    88.2
    
    
    
    91.5
    
    
    
    85.0
    
    
    
    501.0
    
    
    
    88.7
    
    
    
    258.7
    
    
    
    84.6Selling, general and administrative expenses
    
    
    11.6
    
    
    
    5.6
    
    
    
    7.3
    
    
    
    6.8
    
    
    
    29.2
    
    
    
    5.2
    
    
    
    23.7
    
    
    
    7.8Depreciation and amortization
    
    
    4.3
    
    
    
    2.1
    
    
    
    2.9
    
    
    
    2.7
    
    
    
    10.4
    
    
    
    1.8
    
    
    
    8.5
    
    
    
    2.7Operating income
    
    
    8.5
    
    
    
    4.1
    
    
    
    5.9
    
    
    
    5.5
    
    
    
    24.4
    
    
    
    4.3
    
    
    
    14.9
    
    
    
    4.9Other income/(expense):Interest expense
    
    
    (3.6
    )
    
    
    (1.7
    )
    
    
    (2.9
    )
    
    
    (2.7
    )
    
    
    (10.2
    )
    
    
    (1.8
    )
    
    
    (8.6
    )
    
    
    (2.8
    )Amortization of deferred financing costs
    
    
    (0.7
    )
    
    
    (0.3
    )
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    (1.0
    )
    
    
    (0.2
    )
    
    
    (0.5
    )
    
    
    (0.2
    )Other, net
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0Income from continuing operations before
income tax provision
    
    
    4.0
    
    
    
    1.9
    
    
    
    2.9
    
    
    
    2.7
    
    
    
    13.3
    
    
    
    2.3
    
    
    
    5.8
    
    
    
    1.9Income tax provision/(benefit)
    
    
    0.4
    
    
    
    0.2
    
    
    
    1.4
    
    
    
    1.3
    
    
    
    4.0
    
    
    
    0.6
    
    
    
    2.9
    
    
    
    0.9Income from continuing operations
    
    
    3.6
    
    
    
    1.7
    
    
    
    1.5
    
    
    
    1.4
    
    
    
    9.3
    
    
    
    1.7
    
    
    
    2.9
    
    
    
    1.0Income/(loss) from discontinued operations
    
    
    0.3
    
    
    
    0.2
    
    
    
    (5.1
    )
    
    
    (4.7
    )
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    (12.7
    )
    
    
    (4.2
    )Net income/(loss)
    
    $
    3.9
    
    
    
    1.9
    %
    
    $
    (3.6
    )
    
    
    (3.3
    )%
    
    $
    9.1
    
    
    
    1.6
    %
    
    $
    (9.8
    )
    
    
    (3.2
    )%
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    

2005Net sales:Bare Wire
    
    $
    166.4
    
    
    
    81
    %
    
    $
    100.5
    
    
    
    93
    %
    
    $
    469.3
    
    
    
    83
    %
    
    $
    280.6
    
    
    
    92
    %Engineered Wire ProductsEurope
    
    
    12.8
    
    
    
    6
    
    
    
    8.6
    
    
    
    8
    
    
    
    39.7
    
    
    
    7
    
    
    
    29.1
    
    
    
    9High Performance Conductors
    
    
    27.3
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    56.3
    
    
    
    10
    
    
    
    
    
    
    
    Eliminations
    
    
    (0.1
    )
    
    
    (0
    )
    
    
    (1.5
    )
    
    
    (1
    )
    
    
    (0.3
    )
    
    
    (0
    )
    
    
    (3.9
    )
    
    
    (1
    )Total
    
    $
    206.4
    
    
    
    100
    %
    
    $
    107.6
    
    
    
    100
    %
    
    $
    565.0
    
    
    
    100
    %
    
    $
    305.8
    
    
    
    100
    %Operating income:Bare Wire
    
    $
    5.5
    
    
    
    58
    %
    
    $
    6.1
    
    
    
    98
    %
    
    $
    16.8
    
    
    
    65
    %
    
    $
    16.5
    
    
    
    93
    %Engineered Wire ProductsEurope
    
    
    1.1
    
    
    
    12
    
    
    
    0.1
    
    
    
    2
    
    
    
    3.3
    
    
    
    13
    
    
    
    1.2
    
    
    
    7High Performance Conductors
    
    
    2.9
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    5.9
    
    
    
    22
    
    
    
    
    
    
    
    Subtotal
    
    
    9.5
    
    
    
    100
    %
    
    
    6.2
    
    
    
    100
    %
    
    
    26.0
    
    
    
    100
    %
    
    
    17.7
    
    
    
    100
    %Corporate and eliminations
    
    
    (1.0
    )
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    (1.6
    )
    
    
    
    
    
    
    (2.8
    )Total
    
    $
    8.5
    
    
    
    
    
    
    $
    5.9
    
    
    
    
    
    
    $
    24.4
    
    
    
    
    
    
    $
    14.9
 21




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##### Table of Contents



Three Months Ended September 30, 2006 versus Three Months Ended September 30, 2005
         22




---



##### Table of Contents



Nine Months Ended September 30, 2006 versus Nine Months Ended September 30, 2005
    23




---



##### Table of Contents



24




---



##### Table of Contents



Financial Condition
     Recently Issued Accounting Standards
  25




---



##### Table of Contents



.
    The Fair Value Option for Financial Assets and
Liabilities  including an amendment to FASB Statement No. 115
 Liquidity and Capital Resources
 Working Capital and Cash Flows
  26




---



##### Table of Contents



Financing Arrangements
   Liquidity
    27




---



##### Table of Contents



Off-Balance Sheet Arrangements
  28




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  Interest Rate Risk
  Foreign Currency Risk
    Commodity Price Risk
   29




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
    1.
    
    We did not have an adequate process in place to perform analysis and
independent secondary review of complex or non-routine accounting matters, such as
accounting for discontinued operations, certain aspects of debt modification, purchase
accounting transactions and stock-based compensation.2.
    
    We did not maintain an adequate process to analyze and review certain
accrued liabilities and related expense accounts involving managements judgments and estimates.3.
    
    We did not maintain effective policies and procedures related to its financial
close process to ensure that the presentation and disclosures in the financial
statements were prepared and reviewed in a timely and accurate manner.
  Remediation Plan
    Changes in Internal Control over Financial Reporting
  30




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description10.1
    
    Amendment No. 3 to Loan and Security Agreement, dated as of
August 22, 2006, by and among International Wire Group,
Inc., its domestic subsidiaries, the parties to the Loan
and Security Agreement as lenders and Wachovia Capital
Finance Corporation (Central), formerly known as Congress
Financial Corporation (Central) (incorporated by reference
to Exhibit 10.1 to Form 8-K filed August 28, 2006).10.2
    
    Key Management Incentive Plan
Summary (filed herewith).*10.3
    
    Termination of Intercreditor
Agreement, dated as of August 23, 2006, by and between Wachovia
Capital Finance Corporation (Central), formerly known as Congress
Financial Corporation (Central), in its capacity as agent for the
lenders who are party from time to time and Silver Point Finance,
LLC, in its capacity as collateral agent for the lenders who are
party from time to time (filed herewith).31.1
    
    Certification of Principal Executive Officer Required by
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.31.2
    
    Certification of Principal Financial Officer Required by
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.32.1
    
    Certification of Principal Executive Officer Required by
Rule 13a-14(b) of the Securities Exchange Act of 1934, as
amended, and 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Principal Financial Officer Required by
Rule 13a-14(b) of the Securities Exchange Act of 1934, as
amended, and 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
    Indicates a management contract or
compensatory plan or arrangement
 31




---



##### Table of Contents



SIGNATURES
  INTERNATIONAL WIRE GROUP, INC.Dated:
April 30, 2007
    
    By:
    
    /s/ GLENN J. HOLLERName:
    
    Glenn J. HollerTitle:
    
    Senior Vice President, Chief Financial Officer(Principal Financial and Accounting Officer) andSecretary
 32




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    Amendment No. 3 to Loan and Security Agreement, dated as of
August 22, 2006, by and among International Wire Group,
Inc., its domestic subsidiaries, the parties to the Loan
and Security Agreement as lenders and Wachovia Capital
Finance Corporation (Central), formerly known as Congress
Financial Corporation (Central) (incorporated by reference
to Exhibit 10.1 to Form 8-K filed August 28, 2006).10.2
    
    Key Management Incentive Plan
Summary (filed herewith).*10.3
    
    Termination of Intercreditor
Agreement, dated as of August 23, 2006, by and between Wachovia
Capital Finance Corporation (Central), formerly known as Congress
Financial Corporation (Central), in its capacity as agent for the
lenders who are party from time to time and Silver Point Finance,
LLC, in its capacity as collateral agent for the lenders who are
party from time to time (filed herewith).31.1
    
    Certification of Principal Executive Officer Required by
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.31.2
    
    Certification of Principal Financial Officer Required by
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.32.1
    
    Certification of Principal Executive Officer Required by
Rule 13a-14(b) of the Securities Exchange Act of 1934, as
amended, and 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Principal Financial Officer Required by
Rule 13a-14(b) of the Securities Exchange Act of 1934, as
amended, and 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
    Indicates a management contract or
compensatory plan or arrangement
 33