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 July 31, 2000
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 0-27022
OPTICAL CABLE CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1237042
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5290 Concourse Drive
Roanoke, Virginia 24019
(Address of principal executive offices, including zip code)
(540) 265-0690
(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.
(1) Yes X No (2) Yes X No
--- ---- ----- ------
As of September 11, 2000, 56,381,169 shares (adjusted for the effects of
the 3-for-2 stock dividend described in note 7) of the registrant's Common
Stock, no par value, were outstanding. Of these outstanding shares, 54,000,000
shares (adjusted for the effects of the 3-for-2 stock dividend described in note
7) were held by Robert Kopstein, Chairman of the Board, President and Chief
Executive Officer of the registrant.
<PAGE>
OPTICAL CABLE CORPORATION
Form 10-Q Index
Nine Months Ended July 31, 2000
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - July 31, 2000 and October 31,
1999......................................................2
Condensed Statements of Income - Three Months and Nine
Months Ended July 31, 2000 and 1999.......................3
Condensed Statement of Changes in Stockholders' Equity -
Nine Months Ended July 31, 2000...........................4
Condensed Statements of Cash Flows - Nine Months Ended
July 31, 2000 and 1999....................................5
Condensed Notes to Condensed Financial Statements.........6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................9-13
Item 3. Quantitative and Qualitative Disclosures About Market
Risk.....................................................14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...........................15
SIGNATURES
2
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
OPTICAL CABLE CORPORATION
Condensed Balance Sheets
(Unaudited)
July 31, October 31,
Assets 2000 1999
--------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 578,138 $ 6,816,678
Trading securities 13,067,000 -
Trade accounts receivable, net of allowance for doubtful
accounts of $115,285 at July 31, 2000 and $316,000 at
October 31, 1999 12,744,420 10,230,717
Income taxes refundable 609,942 -
Other receivables 182,500 280,219
Due from employees 1,482 8,100
Note receivable, net of allowance for doubtful accounts of
$93,605 at July 31, 2000 - 61,100
Inventories 7,157,955 8,754,423
Prepaid expenses 174,956 106,536
Deferred income taxes 180,642 206,652
--------------- ----------------
Total current assets 34,697,035 26,464,425
Note receivable, noncurrent - 32,505
Other assets, net 239,111 188,328
Property and equipment, net 11,201,545 10,826,331
--------------- -----------------
Total assets $ 46,137,691 $ 37,511,589
=============== ================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 2,444,052 $ 3,370,244
Accrued compensation and payroll taxes 632,094 692,678
Notes payable 150,000 -
Payable to investment broker 668,772 -
Income taxes payable - 421,803
--------------- ----------------
Total current liabilities 3,894,918 4,484,725
Deferred income taxes 141,290 179,789
--------------- ----------------
Total liabilities 4,036,208 4,664,514
--------------- ----------------
Stockholders' equity:
Preferred stock, no par value, authorized 1,000,000
shares; none issued and outstanding - -
Common stock, no par value, authorized 100,000,000
shares; issued and outstanding 56,357,544 shares at July
31, 2000 and 56,121,407 shares at October 31, 1999 4,956,477 4,128,316
Paid-in capital 1,655,122 359,566
Retained earnings 35,489,884 28,359,193
--------------- ----------------
Total stockholders' equity 42,101,483 32,847,075
Commitments and contingencies
--------------- ----------------
Total liabilities and stockholders' equity $ 46,137,691 $ 37,511,589
=============== ================
</TABLE>
See accompanying condensed notes to condensed financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
OPTICAL CABLE CORPORATION
Condensed Statements of Income
(Unaudited)
Three Months Ended Nine Months Ended
July 31, July 31,
----------------------------- ------------------------------
2000 1999 2000 1999
------------ ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 16,650,975 $ 12,602,659 $ 41,025,520 $ 35,879,331
Cost of goods sold 8,998,778 7,178,532 22,259,116 20,022,465
------------ ------------- ------------- --------------
Gross profit 7,652,197 5,424,127 18,766,404 15,856,866
Selling, general and administrative expenses 3,546,316 2,535,414 9,277,803 7,742,384
------------ ------------- ------------- --------------
Income from operations 4,105,881 2,888,713 9,488,601 8,114,482
------------ ------------- ------------- --------------
Other income (expense):
Gains (losses) on trading securities, net (416,799) - 1,330,933 -
Interest income 16,456 45,467 180,337 132,731
Interest expense (3,267) - (3,267) -
Other, net 358 (35,011) 7,439 (38,116)
------------ ------------- ------------- --------------
Other income (expense), net (403,252) 10,456 1,515,442 94,615
------------ ------------- ------------- --------------
Income before income tax expense 3,702,629 2,899,169 11,004,043 8,209,097
Income tax expense 1,302,500 1,082,586 3,873,352 2,980,952
------------ ------------- ------------- --------------
Net income $ 2,400,129 $ 1,816,583 $ 7,130,691 $ 5,228,145
============ ============= ============= ==============
Net income per share:
Net income per common share* $ 0.043 $ 0.032 $ 0.127 $ 0.092
============ ============= ============= ==============
Net income per common share -
assuming dilution* $ 0.042 $ 0.032 $ 0.126 $ 0.092
============ ============= ============= ==============
* Adjusted for the effects of the 3-for-2 stock dividend described in note 7.
</TABLE>
See accompanying condensed notes to condensed financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
OPTICAL CABLE CORPORATION
Condensed Statement of Changes in Stockholders' Equity
(Unaudited)
Nine Months Ended July 31, 2000
----------------------------------------------------------------------------------------
Common Stock Total
---------------------------------- Paid-in Retained Stockholders'
Shares* Amount Capital Earnings Equity
---------------- -------------- ------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at October 31, 1999 56,121,407 $ 4,128,316 $ 359,566 $ 28,359,193 $ 32,847,075
Exercise of employee stock options
($3.48 weighted-average price
per share) 233,887 814,098 - - 814,098
Restricted stock award ($6.25
per share) 2,250 14,063 - - 14,063
Tax benefit of disqualifying
disposition of stock options
exercised - - 1,295,556 - 1,295,556
Net income - - - 7,130,691 7,130,691
---------------- -------------- ------------- ---------------- ------------------
Balances at July 31, 2000 56,357,544 $ 4,956,477 $ 1,655,122 $ 35,489,884 $ 42,101,483
================ ============== ============= ================ ==================
* Adjusted for the effects of the 3-for-2 stock dividend described in note 7.
</TABLE>
See accompanying condensed notes to condensed financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
OPTICAL CABLE CORPORATION
Condensed Statements of Cash Flows
(Unaudited)
Nine Months Ended
July 31,
-----------------------------
2000 1999
------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,130,691 $ 5,228,145
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 579,752 599,818
Bad debt expense 128,268 14,802
Deferred income tax expense (benefit) (12,489) 161,091
Tax benefit of disqualifying disposition of stock options
exercised 1,295,556 186,135
Stock-based compensation expense 14,063 -
Unrealized loss on trading securities, net 782,785 -
(Increase) decrease in:
Trading securities (13,849,785) -
Trade accounts receivable (2,548,366) 366,242
Income taxes refundable (609,942) -
Other receivables 97,719 (19,666)
Due from employees 6,618 (4,145)
Inventories 1,596,468 1,586,773
Prepaid expenses (68,420) (57,510)
Increase (decrease) in:
Accounts payable and accrued expenses (892,259) 993,353
Accrued compensation and payroll taxes (60,584) (114,181)
Payable to investment broker 668,772 -
Income taxes payable (421,803) 76,645
------------- -----------
Net cash provided by (used in) operating activities (6,162,956) 9,017,502
------------- -----------
Cash flows from investing activities:
Purchase of property and equipment (976,146) (210,298)
Cash surrender value of life insurance (63,536) (171,382)
------------- -----------
Net cash used in investing activities (1,039,682) (381,680)
------------- -----------
Cash flows from financing activities:
Repurchase of common stock - (4,944,608)
Proceeds from notes payable, net 150,000 -
Proceeds from exercise of employee stock options 814,098 197,375
------------- -----------
Net cash provided by (used in) financing activities 964,098 (4,747,233)
------------- -----------
Net increase (decrease) in cash and cash equivalents (6,238,540) 3,888,589
Cash and cash equivalents at beginning of period 6,816,678 1,122,277
------------- -----------
Cash and cash equivalents at end of period $ 578,138 $ 5,010,866
============= ===========
</TABLE>
See accompanying condensed notes to condensed financial statements.
6
<PAGE>
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Financial Statements
Nine-Months Ended July 31, 2000
(Unaudited)
(1) General
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial reporting information and the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all material adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the nine months ended July 31, 2000 are
not necessarily indicative of the results that may be expected for the
fiscal year ending October 31, 2000. The unaudited condensed financial
statements and condensed notes are presented as permitted by Form 10-Q
and do not contain certain information included in the Company's annual
financial statements and notes. For further information, refer to the
financial statements and notes thereto included in the Company's annual
report on Form 10-K for the fiscal year ended October 31, 1999.
(2) Trading Securities
Trading securities are recorded at fair value, which is based on quoted
market prices. Purchases and sales of trading securities are recognized
on a trade-date basis, the date the order to buy or sell is executed.
The Company's trading securities are bought and held principally for the
purpose of selling them in the near term. Unrealized holding gains and
losses for trading securities are included in net income. The amount of
net unrealized holding loss that has been included in net income for the
nine months ended July 31, 2000 was $782,785. As of July 31, 2000, the
Company's trading securities consist of shares in a stock index mutual
fund concentrated in the technology sector.
(3) Inventories
Inventories at July 31, 2000 and October 31, 1999 consist of the
following:
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
----------- -----------
<S> <C> <C>
Finished goods $ 918,829 $ 2,976,426
Work in process 3,295,506 2,306,209
Raw materials 2,873,976 3,416,046
Production supplies 69,644 55,742
----------- -----------
$ 7,157,955 $ 8,754,423
=========== ===========
</TABLE>
7
<PAGE>
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Financial Statements
(Unaudited)
(4) Notes Payable
Under a loan agreement with its bank dated March 10, 1999, the Company
has a $5 million secured revolving line of credit and a $10 million
secured revolving line of credit. The Company's intention is that the $5
million line of credit be available to fund general corporate purposes
and that the $10 million line of credit be available to fund potential
acquisitions and joint ventures. The lines of credit bear interest at
1.50 percent above the monthly LIBOR rate and are equally and ratably
secured by the Company's accounts receivable, contract rights,
inventory, furniture and fixtures, machinery and equipment and general
intangibles. The lines of credit will expire on February 28, 2001,
unless renewed or extended. While the lines of credit do not require a
compensating balance that legally restricts the use of cash amounts, at
the bank's request, the Company has agreed to maintain an unrestricted
target cash balance of $125,000.
(5) Net Income Per Share
Net income per common share excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Net income per
common share - assuming dilution reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the net income of the entity. The
following is a reconciliation of the numerators and denominators of the
net income per common share computations for the periods presented (see
note 7):
<TABLE>
<CAPTION>
Net Income Shares Per Share
Three Months Ended July 31, 2000 (Numerator) (Denominator) Amount
--------------------------------
------------------ --------------------- -------------
<S> <C> <C> <C>
Net income per common share $ 2,400,129 56,357,064 $ 0.043
=============
Effect of dilutive stock options ---- 351,738
------------------ ---------------------
Net income per common share - assuming dilution $ 2,400,129 56,708,802 $ 0.042
================== ===================== =============
Net Income Shares Per Share
Three Months Ended July 31, 1999 (Numerator) (Denominator) Amount
-------------------------------- ------------------ --------------------- -------------
Net income per common share $ 1,816,583 56,610,015 $ 0.032
=============
Effect of dilutive stock options ---- 374,027
------------------ ---------------------
Net income per common share - assuming dilution $ 1,816,583 56,984,042 $ 0.032
================== ===================== =============
Net Income Shares Per Share
Nine Months Ended July 31, 2000 (Numerator) (Denominator) Amount
------------------------------- ------------------ --------------------- -------------
Net income per common share $ 7,130,691 56,282,045 $ 0.127
=============
Effect of dilutive stock options ---- 451,950
------------------ ---------------------
Net income per common share - assuming dilution $ 7,130,691 56,733,995 $ 0.126
================== ===================== =============
</TABLE>
8
<PAGE>
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Financial Statements
(Unaudited)
<TABLE>
<CAPTION>
Net Income Shares Per Share
Nine Months Ended July 31, 1999 (Numerator) (Denominator) Amount
------------------------------- ------------------ -------------------------------------
<S> <C> <C> <C>
Net income per common share $ 5,228,145 56,610,015 $ 0.092
=============
Effect of dilutive stock options ---- 374,027
------------------ ---------------------
Net income per common share - assuming dilution $ 5,228,145 56,984,042 $ 0.092
================== ===================== =============
</TABLE>
Subsequent to July 31, 2000 and through September 11, 2000, stock
options totaling 25,425 shares of common stock were exercised.
(6) Segment Information
On November 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 131, Disclosure about Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards
for the way public business enterprises are to report information about
operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in
condensed financial statements of interim periods.
The Company has a single reportable segment for purposes of segment
reporting pursuant to SFAS No. 131.
(7) Stock Dividend
On August 31, 2000, the Company's Board of Directors approved a 3-for-2
stock split effected in the form of a stock dividend of one share
payable on September 28, 2000, upon each two shares held by stockholders
of record at the close of business on September 8, 2000. The Company's
stock will begin trading ex-dividend on September 29, 2000. Any
fractional shares will be settled in cash. All references to share and
per share data, except for references to authorized shares, contained
elsewhere in this quarterly report have been retroactively adjusted to
reflect the impact of the approved stock dividend.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Information
This Form 10-Q may contain certain "forward-looking" information within the
meaning of the federal securities laws. The forward-looking information may
include, among other information, (i) statements concerning the Company's
outlook for the future, (ii) statements of belief, (iii) future plans,
strategies or anticipated events, and (iv) similar information and statements
concerning matters that are not historical facts. Such forward-looking
information is subject to risks and uncertainties that may cause actual events
to differ materially from the expectations of the Company. Factors that could
cause or contribute to such differences include, but are not limited to, the
level of sales to key customers, actions by competitors, fluctuations in the
price of raw materials (including optical fiber), the Company's dependence on a
single manufacturing facility, the ability of the Company to protect its
proprietary manufacturing technology, the Company's dependence on a limited
number of suppliers, an adverse price change in trading securities held by the
Company, technological changes and introductions of new competing products,
changes in market demand, productivity, weather, and market and economic
conditions in the areas of the world in which the Company operates and markets
its products.
Results of Operations
Three Months Ended July 31, 2000 and 1999
Net Sales
Net sales consists of gross sales of products, less discounts, refunds and
returns. Net sales increased 32.1 percent to $16.7 million in third quarter 2000
from $12.6 million for the same period in 1999. This increase was attributable
to increased sales volume. Total cable meters shipped in third quarter 2000
increased 32.9 percent to 57.0 million from 42.9 million cable meters shipped
for the same period in 1999. This increase in cable meters shipped was a result
of a 6.7 million increase in multimode cable meters shipped coupled with a 7.4
million increase in single-mode cable meters shipped. Multimode cable generally
has a higher selling price than single-mode cable. Management believes there is
a trend in the marketplace of an accelerated pace of fiber deployment,
particularly of the type sold by the Company. Management believes this trend
resulted in increased sales volume during third quarter 2000 and could continue
to positively affect net sales in the future.
Gross Profit Margin
Cost of goods sold consists of the cost of materials, compensation costs and
overhead related to the Company's manufacturing operations. The Company's gross
profit margin (gross profit as a percentage of net sales) increased to 46.0
percent in third quarter 2000 from 43.0 percent in third quarter 1999. This
increase was primarily due to the ratio of net sales attributable to the
Company's distributors and orders greater than $50,000 during the period as
compared to total net sales. During third quarter 2000, net sales to
distributors approximated 57.8 percent versus 69.0 percent for the same period
in 1999. During third quarter 2000, sales from orders $50,000 or more
approximated 9.6 percent compared to 9.1 percent for third quarter 1999.
Discounts on large orders and on sales to distributors are generally greater
than for sales to the Company's other customer base.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of the compensation costs
(including sales commissions) for sales and marketing personnel, shipping costs,
travel expenses, customer support expenses, trade show expenses, advertising,
the compensation cost for administration, finance and general management
personnel, as well as legal and accounting fees. Selling, general and
administrative expenses as a percentage of net sales were 21.3 percent in
10
<PAGE>
third quarter 2000 compared to 20.1 percent in third quarter 1999. Selling,
general and administrative expenses as a percentage of net sales increased
largely as a result of an increase in the Company's sales force and the
continued expansion of marketing efforts.
Other Income (Expense)
Other expense totaled $403,000 for the three months ended July 31, 2000,
compared to $10,000 of other income for the same period in 1999. During fiscal
year 2000, the Company began investing in trading securities and has recognized
related losses, net, of $417,000 in other expense for the three months ended
July 31, 2000.
Income Before Income Tax Expense
Income before income tax expense increased 27.7 percent to $3.7 million for the
three months ended July 31, 2000 compared to $2.9 million for the three months
ended July 31, 1999. This was primarily due to an increase in sales volume
partially offset by an increase in selling, general and administrative expenses
and losses on trading securities, net.
Income Tax Expense
Income tax expense increased $220,000 to $1.3 million for the three months ended
July 31, 2000 compared to $1.1 million for the same period in 1999 due to the
increase in income before income tax expense. The Company's effective tax rate
was 35.2 percent during the three months ended July 31, 2000 compared to 37.3
percent for the same period in 1999.
Net Income
Net income for third quarter 2000 was $2.4 million compared to $1.8 million for
third quarter 1999. Net income increased $584,000, or 32.1 percent, due to the
$804,000 increase in income before income tax expense (which includes net losses
on trading securities of $417,000), partially offset by the increase in income
tax expense of $220,000.
Nine Months Ended July 31, 2000 and 1999
Net Sales
Net sales consists of gross sales of products, less discounts, refunds and
returns. Net sales increased 14.3 percent to $41.0 million for the nine months
ended July 31, 2000 from $35.9 million for the same period in 1999. This
increase was attributable to the 4.7 percent increase in net sales during the
six months ended April 30, 2000 compared to the same period in 1999, which, in
turn, was due to increased sales volume, and to the 32.1 percent increase in net
sales in third quarter 2000 compared to the same period in 1999 as described
above.
Gross Profit Margin
Cost of goods sold consists of the cost of materials, compensation costs and
overhead related to the Company's manufacturing operations. The Company's gross
profit margin (gross profit as a percentage of net sales) increased to 45.7
percent for the nine months ended July 31, 2000 from 44.2 percent for the nine
months ended July 31, 1999. This increase was due to the ratio of net sales
attributable to the Company's distributors and orders greater than $50,000
during the period as compared to total net sales. For the nine months ended July
31, 2000, net sales to distributors approximated 58.8 percent versus 62.2
percent for the same period in 1999. During the nine months ended July 31, 2000,
sales from orders $50,000 or more approximated 12.3 percent compared to 14.0
percent for
11
<PAGE>
the nine months ended July 31, 1999. Discounts on large orders and on sales to
distributors are generally greater than for sales to the rest of the Company's
customer base.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of the compensation costs
(including sales commissions) for sales and marketing personnel, shipping costs,
travel expenses, customer support expenses, trade show expenses, advertising,
the compensation cost for administration, finance and general management
personnel, as well as legal and accounting fees. Selling, general and
administrative expenses as a percentage of net sales were 22.6 percent for the
nine months ended July 31, 2000 compared to 21.6 percent for the nine months
ended July 31, 1999. This higher percentage reflects the fact that net sales for
the nine months ended July 31, 2000 increased 14.3 percent compared to the same
period in 1999, while selling, general and administrative expenses increased
19.8 percent, due to increased marketing efforts.
Other Income
Other income increased $1.4 million to $1.5 million for the nine months ended
July 31, 2000 compared to $95,000 for the same period in 1999. During fiscal
year 2000, the Company began investing in trading securities and has recognized
related gains on trading securities, net, of $1.3 million in other income for
the nine months ended July 31, 2000. Although the Company actively purchases and
sells trading securities in order to realize such gains, it should not be
expected that these gains will be recurring.
Income Before Income Tax Expense
Income before income tax expense increased 34.0 percent to $11.0 million for the
nine months ended July 31, 2000 compared to $8.2 million for the nine months
ended July 31, 1999. This was primarily due to gains on trading securities, net,
and an increase in sales volume offset by an increase in selling, general and
administrative expenses.
Income Tax Expense
Income tax expense increased $892,000 to $3.9 million for the nine months ended
July 31, 2000 compared to $3.0 million for the same period in 1999 due to the
increase in income before income tax expense. The Company's effective tax rate
was 35.2 percent during the nine months ended July 31, 2000 as compared to 36.3
percent for the same period in 1999.
Net Income
Net income for the nine months ended July 31, 2000 was $7.1 million compared to
$5.2 million for the nine months ended July 31, 1999. Net income increased $1.9
million, or 36.4 percent, due to the $2.6 million increase in income before
income tax expense, partially offset by the increase in income tax expense of
$892,000. Part of the increase in net income can be attributed to $1.3 million
in other income of net recognized gains on trading securities.
Financial Condition
Total assets at July 31, 2000 were $46.1 million, an increase of $8.6 million,
or 23.0 percent from October 31, 1999. This increase was primarily due to the
Company investing its cash and cash equivalents on hand at October 31, 1999, as
well as cash flows from operating income generated during the nine-month period
ended July 31, 2000 in trading securities. In addition, realized gains from
these trading activities were reinvested during the nine-
12
<PAGE>
month period ended July 31, 2000. As a result, cash and cash equivalents have
decreased $6.2 million and trading securities have increased $13.1 million.
Total stockholders' equity at July 31, 2000 increased $9.3 million, or 28.2
percent from October 31, 1999. Net income retained and an increase in paid-in
capital of $1.3 million resulting from the tax benefit of disqualifying
disposition of stock options exercised accounted for the majority of this
increase. During the nine months ended July 31, 2000, employees realized gains
on the premature disposition of stock options exercised of approximately $3.4
million. The $1.3 million tax benefit to the Company of these gains has been
reflected as an increase in paid-in capital.
Liquidity and Capital Resources
During the first nine months of fiscal years 2000 and 1999, the Company's
primary capital needs have been to fund working capital requirements and capital
expenditures as needed. The Company's primary source of financing has been cash
provided from operations; however, the Company does maintain bank lines of
credit as described below. As of July 31, 2000, there was a balance of $150,000
outstanding under these lines of credit for working capital purposes. There was
no balance outstanding under the lines as of the end of fiscal year 1999.
Under a loan agreement with its bank dated March 10, 1999, the Company has a $5
million secured revolving line of credit available for general corporate
purposes and a $10 million secured line of credit available to fund potential
acquisitions, mergers and joint ventures. The lines of credit bear interest at
1.50 percent above the monthly LIBOR rate and are equally and ratably secured by
the Company's accounts receivable, contract rights, inventory, furniture and
fixtures, machinery and equipment and general intangibles. The lines of credit
will expire on February 28, 2001, unless renewed or extended. As of the date
hereof, the Company has no additional material sources of financing. The Company
believes that its cash flow from operations and available lines of credit will
be adequate to fund its operations for at least the next twelve months.
Cash flows used in operations were approximately $6.2 million for the nine
months ended July 31, 2000. Cash flows provided by operations were approximately
$9.0 million for the nine months ended July 31, 1999. For the nine months ended
July 31, 2000, cash flows used in operations were primarily due to the purchase
of approximately $13.8 million in trading securities, an increase in trade
accounts receivable of $2.5 million, and a decrease in accounts payable and
accrued expenses of $892,000, partially offset by cash provided by operating
income, realized net gains on trading securities of $2.1 million, a decrease in
inventories of $1.6 million and an increase in payable to investment broker of
$669,000. Cash flows provided by operations for the nine months ended July 31,
1999 were primarily provided by operating income, a decrease in inventories of
$1.6 million and an increase in accounts payable and accrued expenses of
$993,000.
Net cash used in investing activities totaled $1,040,000 for the nine months
ended July 31, 2000 and was primarily for expenditures related to facilities and
9equipment of $976,000 and increase in cash surrender value of life insurance of
$64,000. Net cash used in investing activities totaled $382,000 for the nine
months ended July 31, 1999 and was primarily for expenditures related to
facilities and equipment of $210,000 and increase in cash surrender value of
life insurance of $171,000. As of July 31, 2000, there were no material
commitments for additional capital expenditures.
Net cash provided by financing activities was $964,000 for the nine months ended
July 31, 2000 and related to proceeds from the exercise of employee stock
options and proceeds from notes payable. Net cash used in financing activities
was $4.7 million for the nine months ended July 31, 1999 and primarily related
to the Company's common stock repurchase program.
The Company's Board of Directors has authorized the repurchase of up to $20
million of the Company's common stock in the open market or in privately
negotiated transactions. Through July 31, 2000, the Company has
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repurchased approximately $14.9 million of its common stock in such transactions
since the inception of the Company's share repurchase program in October 1997.
The repurchases were funded through cash flows from operations. The Company may
use excess working capital and other sources as appropriate to finance the
remaining share repurchase program.
On August 31, 2000, the Company's Board of Directors approved a 3-for-2 stock
split effected in the form of a stock dividend of one share payable on September
28, 2000, upon each two shares held by stockholders of record at the close of
business on September 8, 2000. The Company's stock will begin trading
ex-dividend on September 29, 2000. Any fractional shares will be settled in
cash. All references to share and per share data, except for references to
authorized shares, contained elsewhere in this quarterly report have been
retroactively adjusted to reflect the impact of the approved stock dividend.
Derivatives
The Company does not use derivatives or other off-balance sheet instruments such
as future contracts, forward obligations, interest rate swaps, or options.
Future Accounting Considerations
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. In June
1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133.
SFAS No. 137 defers the effective date of SFAS No. 133 to apply to all fiscal
quarters of all fiscal years beginning after June 15, 2000. In June 2000, the
FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities, an amendment of FASB Statement No. 133. SFAS No. 138
amends SFAS No. 133 for a limited number of issues that have caused application
difficulties. It is not anticipated that SFAS No. 133, as amended, will have a
material effect on the financial position, results of operations or liquidity of
the Company.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company does not engage in derivative financial instruments or derivative
commodity instruments. As of July 31, 2000, the Company's financial instruments
are not exposed to significant market risk due to interest rate risk, foreign
currency exchange risk or commodity price risk. However, as of July 31, 2000,
the Company's trading securities, which consist of shares in a stock index
mutual fund concentrated in the technology industry sector, are exposed to
equity price risk. As of July 31, 2000, the Company's trading securities have
experienced a 5.7 percent decline in value since the date of purchase. It is
reasonably possible that the price of these trading securities, valued at
approximately $13.1 million as of July 31, 2000, could continue to experience an
adverse change in the near term. For illustration purposes, assuming a 30
percent adverse change in the fund's equity price, the Company's trading
securities would decrease in value by approximately $3.9 million, based on the
value of the Company's portfolio as of July 31, 2000. This assumption is not
necessarily indicative of future performance and actual results may differ
materially.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K for the nine
months ended July 31, 2000.
27 Financial Data Schedule.
(b) Reports on Form 8-K filed during the three months ended July 31,
2000.
On September 8, 2000, a report on Form 8-K was filed with respect
to the stock dividend described in note 7 in Item 1 of this Form
10-Q, attaching a press release of the Company dated September 6,
2000.
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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.
OPTICAL CABLE CORPORATION
(Registrant)
Date: September 14, 2000 /s/Robert Kopstein
--------------------
Robert Kopstein
Chairman of the Board, President and
Chief Executive Officer
Date: September 14, 2000 /s/Kenneth W. Harber
--------------------
Kenneth W. Harber
Vice President of Finance, Treasurer
and Secretary
(principal financial and accounting
officer)
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INDEX TO ATTACHED EXHIBITS
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule.
18
