<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report
(Date of earliest event reported):
September 2, 1999
BELDEN INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
1-12280 76-0412617
(Commission File Number) (I.R.S. Employer
Identification No.)
7701 Forsyth Boulevard, Suite 800
St. Louis, Missouri 63105
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code
(314) 854-8000
<PAGE> 2
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Report on Form 8-K dated July 12,
1999 as set forth in the pages attached hereto.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of Cable Systems Holding Company
Audited Financial Statements of Cable Systems Holding Company
and Subsidiaries for the fiscal years ended September 27, 1998,
September 28, 1997, and the period from October 7, 1995 (inception)
through September 29, 1996.
Unaudited Statements of Operations of Cable Systems Holding
Company and Subsidiaries for the interim nine-month periods ended June
27, 1999 and June 28, 1998.
Unaudited Statements of Cash Flows of Cable Systems Holding
Company and Subsidiaries for the interim nine-month periods ended June
27, 1999 and June 28, 1998.
(b) Pro Forma Financial Information
Unaudited Pro Forma Consolidating Income Statement of Belden
Inc. for the year ended December 31, 1998
2
<PAGE> 3
Item 7(a) Financial Statements of Cable Systems Holding Company and Subsidiaries
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Accountants 4
Balance Sheets - September 27, 1998 and September 28, 1997 5
Statements of Operations - Years ended September 27, 1998, September 28, 6
1997, and the period from October 7, 1995 (inception) through
September 29, 1996.
Statements of Stockholders' Equity - Years ended September 27, 1998, 7
September 28, 1997, and the period from October 7, 1995 (inception)
through September 29, 1996.
Statements of Cash Flows - Years ended September 27, 1998, September 28, 8
1997, and the period from October 7, 1995 (inception) through
September 29, 1996.
Notes to the Financial Statements 9
</TABLE>
3
<PAGE> 4
[PRICEWATERHOUSECOOPERS LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Cable Systems Holding Company and Subsidiaries
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Cable
Systems Holding Company and Subsidiaries (the "Company") at September 27, 1998
and September 28, 1997, and the results of their operations and their cash flows
for each of the years ended September 27, 1998 and September 28, 1997, and for
the period from October 7, 1995 (inception) through September 29, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
December 23, 1998, except for
Note 17, which is as of April 8, 1999
4
<PAGE> 5
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of September 27, 1998 and September 28, 1997 (in thousands, except share and
per share data)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 24,128 $ 7,921
Accounts receivable, net of allowance for doubtful accounts of
$1,110 and $91, respectively 39,015 68,281
Inventories 42,295 47,375
Deferred income taxes 5,663 4,618
Prepaid expenses and other current assets 3,219 3,358
-------------- --------------
Total current assets 114,320 131,553
Property, plant and equipment, net 117,844 106,277
Note receivable, net of current portion 5,591 8,056
Investment in unconsolidated affiliate 15,083
Goodwill, net 29,420 32,929
Other assets 7,674 8,980
-------------- --------------
$ 289,932 $ 287,795
============== ==============
LIABILITIES, MINORITY INTEREST, MANDATORILY REDEEMABLE
PREFERRED STOCK, AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,461 $ 19,495
Accrued income taxes payable 1,463 21,689
Accrued liabilities 22,764 20,872
Long-term debt, current portion 23,073 12,280
-------------- --------------
Total current liabilities 68,761 74,336
-------------- --------------
Long-term debt, net of current portion 111,094 112,167
Subordinated notes to related parties 22,834 21,824
Deferred income taxes 6,786 5,584
Other liabilities 477 500
-------------- --------------
Total liabilities 209,952 214,411
-------------- --------------
Commitments and contingencies (Note 14)
Minority interest in consolidated subsidiary
Mandatorily redeemable preferred stock - Series A, $.01 par value,
authorized 100,000 shares, issued and outstanding 16,987.50 shares
(Liquidation value $24,076 at September 27, 1998) 24,076 21,698
-------------- --------------
Stockholders' equity:
Common stock, $.01 par value:
Class A authorized 500,000 shares; 108,000 shares issued
and 107,000 and 108,000 shares outstanding, respectively 1 1
Class B authorized 500,000; 281,000 shares issued and
outstanding 3 3
Additional paid-in capital 39,589 39,558
Retained earnings 16,219 11,410
Treasury stock, at cost (150)
-------------- --------------
Total stockholders' equity 55,662 50,972
-------------- --------------
Total liabilities, minority interest,
mandatorily redeemable preferred stock, and
stockholders' equity $ 289,932 $ 287,795
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended September 27, 1998 and September 28, 1997, and for the
period from October 7, 1995 (inception) through September 29, 1996 (in
thousands)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net sales $ 447,484 $ 423,323 $ 417,032
Cost of sales 381,425 368,253 355,827
-------------- -------------- --------------
Gross margin 66,059 55,070 61,205
Research and development expense 1,785 1,282 1,071
Marketing and sales expense 9,093 7,260 4,998
General and administrative expense 31,479 22,944 20,622
Impairment of property, plant and equipment 4,192
-------------- -------------- --------------
Income from operations 19,510 23,584 34,514
Interest expense 13,326 18,649 28,105
Interest income (1,520) (1,769) (1,618)
Other income, net (3,790) (8,510) (2,285)
Equity in loss of unconsolidated affiliate 837
-------------- -------------- --------------
Income before income taxes and minority interest 10,657 15,214 10,312
Income taxes 3,927 5,506 3,721
Minority interest (457) 178
-------------- -------------- --------------
Net income $ 7,187 $ 9,530 $ 6,591
============== ============== ==============
Accretion to redemption value of mandatorily
redeemable preferred stock 2,378 2,378 2,333
-------------- -------------- --------------
Net income applicable to common stockholders $ 4,809 $ 7,152 $ 4,258
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 7
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended September 27, 1998 and September 28, 1997, and for the
period from October 7, 1995 (inception) through September 29, 1996 (in
thousands, except share and per share data)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK STOCK
--------------------- ----------------------- SUBSCRIPTION
SHARES AMOUNT SHARES AMOUNT RECEIVABLE
<S> <C> <C> <C> <C> <C>
Initial capitalization at October 7, 1995:
Issuance of Class A common stock 104 $1
Issuance of Class B common stock 281 $3
Issuance of warrants
Stock subscription receivable $(25)
Purchase of Class A common stock (4)
Purchase of warrants
Accretion to redemption value of mandatorily
redeemable preferred stock
Net income
--- -- --- -- ----
Balance at September 29, 1996 100 1 281 3 (25)
Issuance of Class A common stock 4
Reissuance of treasury stock as
Class A common stock 4
Stock subscription receivable payment 25
Exercise of stock options
Purchase of warrants
Forgiveness of related party debt, net
of taxes
Accretion to redemption value of mandatorily
redeemable preferred stock
Net income
--- -- --- -- ----
Balance at September 28, 1997 108 1 281 3 0
Purchase of Class A common stock (1)
Exercise of stock options
Accretion to redemption value of mandatorily
redeemable preferred stock
Net income
--- -- --- -- ----
Balance at September 27, 1998 107 $1 281 $3 $ 0
=== == === == ====
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL TREASURY STOCK
PAID-IN RETAINED ------------------
CAPITAL EARNINGS SHARES AMOUNT TOTAL
<S> <C> <C> <C> <C> <C>
Initial capitalization at October 7, 1995:
Issuance of Class A common stock $ 259 $ 260
Issuance of Class B common stock 700 703
Issuance of warrants 286 286
Stock subscription receivable (25)
Purchase of Class A common stock 4 $ (10) (10)
Purchase of warrants (41) (41)
Accretion to redemption value of mandatorily
redeemable preferred stock $(2,333) (2,333)
Net income 6,591 6,591
------- ------- -- ----- -------
Balance at September 29, 1996 1,204 4,258 4 (10) 5,431
Issuance of Class A common stock 106 106
Reissuance of treasury stock as
Class A common stock (4) 10 10
Stock subscription receivable payment 25
Exercise of stock options 2 2
Purchase of warrants (854) (854)
Forgiveness of related party debt, net
of taxes 39,100 39,100
Accretion to redemption value of mandatorily
redeemable preferred stock (2,378) (2,378)
Net income 9,530 9,530
------- ------- -- ----- -------
Balance at September 28, 1997 39,558 11,410 0 0 50,972
Purchase of Class A common stock 1 (150) (150)
Exercise of stock options 31 31
Accretion to redemption value of mandatorily
redeemable preferred stock (2,378) (2,378)
Net income 7,187 7,187
------- ------- -- ----- -------
Balance at September 27, 1998 $39,589 $16,219 1 $(150) $55,662
======= ======= == ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE> 8
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended September 27, 1998 and September 28, 1997, and for the
period from October 7, 1995 (inception) through September 29, 1996
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,187 $ 9,530 $ 6,591
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interest (457) 178
Depreciation and amortization 12,646 11,004 11,988
Gain on contract modification (13,000)
Debt issued in lieu of interest 1,010 6,612 3,035
Deferred income taxes 157 7,082 (6,116)
Provision for (recovery of) doubtful accounts 1,039 (480) 662
Provision for (recovery of) excess and obsolete inventory 1,652 (189) 2,742
Impairment of property, plant and equipment 4,192
Equity in loss of unconsolidated affiliate 837
Loss (gain) on sale of property, plant and equipment (925) (2,862) 86
Changes in operating assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable 7,179 (9,285) (32,654)
Proceeds from settlement of contract
modification receivable 21,048
(Increase) decrease in inventories 3,428 22,879 11,503
(Increase) decrease in prepaid expenses and other current assets 139 (172) (9)
Increase (decrease) in accounts payable 1,966 4,389 10,787
Increase (decrease) in accrued income taxes payable 4,976 (6,512) 2,992
Income taxes in connection with settlement of contract
modification receivable (25,202)
Increase (decrease) in accrued liabilities (1,635) (9,637) 30,421
--------- --------- ---------
Net cash provided by operating activities 39,237 19,537 42,028
--------- --------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (24,818) (14,933) (9,660)
Proceeds from sale of property, plant and equipment 1,216 3,065 133
Collection on note receivable 3,000 3,000
Increase in notes receivable (111)
Acquisition of business (26,254) (134,791)
Investment in unconsolidated affiliate (15,920)
Net change in other assets and liabilities 475 (882) 104
--------- --------- ---------
Net cash used in investing activities (36,158) (36,004) (144,214)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt borrowings 22,000 128,750 141,947
Payments on long-term debt borrowings (12,280) (124,303) (27,000)
Payment of debt issuance costs (3,910) (6,135)
Increase in bank overdrafts 3,527
Purchase of warrants (854)
Proceeds from issuance of mandatorily redeemable preferred stock 16,988
Proceeds from issuance of common stock, warrants, and stock
subscription receivable 143 958
Proceeds from exercise of stock options 31
Acquisition of treasury stock (150) (10)
--------- --------- ---------
Net cash provided by (used in) financing activities 13,128 (174) 126,748
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 16,207 (16,641) 24,562
Cash and cash equivalents, beginning of period 7,921 24,562
--------- --------- ---------
Cash and cash equivalents, end of period $ 24,128 $ 7,921 $ 24,562
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE> 9
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
The consolidated financial statements include Cable Systems Holding Company
("CSH"), its wholly owned subsidiary Cable Systems International Inc.
("CSI") and its 80% owned subsidiary LoDan Electronics, Inc. ("LoDan"),
collectively (the "Company"). CSI manufactures and sells copper cable,
electronic wire and cable, service distribution wire, custom and connector
cable, and cords principally to the telecommunications industry. CSI's
sales and inventory are substantially concentrated in multi-pair, plastic
insulated conductor (PIC) cable used in telecommunication networks. PIC
cable competes with newer, high performance products such as fiber-optic
cable; accordingly, PIC cable is sold for applications where ease-of-use
and compatibility with existing infra-structure are advantageous. LoDan is
a regional provider of contract assembly services and manufactures
specialized cable assemblies for a variety of industries. The Company's
products are sold within the United States and its territories.
2. ACQUISITIONS:
OPENING ACQUISITION
In October 1995, the Company acquired substantially all the fixed assets,
inventory, and rights under certain contracts, patents and licenses, and
assumed certain contractual obligations of Copper Cable Products, a
business unit of Lucent Technologies, Inc. ("Lucent", formerly a subsidiary
of AT&T Corp.), for $191.9 million (the "Acquisition"). The purchase price
consisted of $134.8 million in cash, $57.0 million in debt issued to Lucent
and $124,500 of warrants. The cash portion was funded by various senior
notes, a subordinated note, and capital stock. Purchase accounting was
applied and the purchase price was allocated to assets and liabilities
acquired based on their respective fair values at the date of acquisition.
Concurrent with the Acquisition, the Company and Lucent entered into a
ten-year supply agreement whereby the Company will produce electronic wire
and cable products ("EWC") for Lucent (the "Supply Agreement"). As part of
the Supply Agreement, the Company will receive a guaranteed minimum annual
payment of $3 million for five years. The net present value of these
payments was recorded as a note receivable using a discount rate of 5.75%.
The current portion of this note receivable is included in prepaid expenses
and other current assets in the accompanying consolidated balance sheets.
Additionally, Lucent agreed to indemnify the Company for on-site and
off-site environmental contamination existing prior to the Acquisition and
for violations of environmental laws and regulations which began prior to
the Acquisition. The environmental indemnity is subject to certain
deductibles, caps, cost sharing and time limitations.
In September 1997, the Company and Lucent modified the Supply Agreement.
This contract modification reduced the amount of products to be purchased
and supplied and reduced the period to seven years. The revised Supply
Agreement also removed certain restrictions on the ability of the Company
to sell EWC products and acquire other companies. Total consideration from
Lucent for modification of the Supply Agreement was $77.3 million.
Consideration included cancellation of the subordinated note and accrued
interest due to Lucent of $53.3 million and $3 million, respectively, and a
receivable of $21 million which was paid in October 1997 and is included
within accounts receivable in the accompanying consolidated balance sheet
at September 28, 1997.
9
<PAGE> 10
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS: (CONTINUED)
OPENING ACQUISITION (CONTINUED)
The $13 million of consideration attributable to the decrease in products
to be purchased under the Supply Agreement has been recognized in other
income in the accompanying consolidated statement of operations. The
remaining consideration has been reflected as an increase in additional
paid-in capital of $39.1 million, net of $25.2 million related income
taxes.
LODAN ACQUISITION
In February 1997, the Company acquired an 80% interest in LoDan, a
privately held Illinois corporation. The acquisition was accounted for
under the purchase method with the Company's share of LoDan's results from
operations included in the accompanying consolidated financial statements
since the date of acquisition.
The purchase price of $44.3 million was allocated, based on the
proportional change in ownership, to assets and liabilities acquired based
on their respective fair values at the date of acquisition.
The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisition of LoDan had occurred at the beginning
of the fiscal period ended September 29, 1996, after giving effect to
certain adjustments, including amortization of intangible assets, increased
interest expense on the acquisition debt and related income tax effects (in
thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net sales $ 444,389 $ 453,631
Net income 10,904 4,107
</TABLE>
The pro forma information provided above is presented for information
purposes only. It is not necessarily indicative of what would have occurred
if the acquisition had been made as of those dates or indicative of future
results.
10
<PAGE> 11
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS: (CONTINUED)
ACQUISITION OF INVESTMENT IN UNCONSOLIDATED AFFILIATE
In April 1998, for $15.9 million, the Company acquired 18.8% of the
outstanding common stock of IPC Information Systems, Inc. ("IPC") a
provider of integrated telecommunications equipment and services that
facilitate the execution of transactions by the financial trading
community. In connection with this transaction, the Chief Executive Officer
and President of the Company was elected Chairman of the Board of IPC. The
Company's proportionate share of IPC's results of operations is included in
the accompanying consolidated statement of operations from the date of
acquisition through September 27, 1998. The results of operations and
financial position of IPC as of and for the fiscal year ended September 27,
1998, is summarized as follows (in thousands):
<TABLE>
<S> <C>
Condensed Statement of Operations Information:
Net sales $ 295,897
Operating income 18,808
Net income 2,278
Condensed Balance Sheet Information:
Current assets $ 155,555
Noncurrent assets 85,737
Current liabilities 103,379
Noncurrent liabilities 204,454
Net deficit (66,541)
</TABLE>
3. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts
of its majority-owned subsidiaries. The Company's investment in an
affiliated company represents less than a 20% ownership interest, however,
due to the Company's implied ability to exercise significant influence over
the entity, the investment has been accounted for under the equity method.
At September 27, 1998, the difference between the carrying value of this
equity investment and the amount of underlying equity in net assets of the
investee is being amortized on a straight-line basis over ten years. All
significant intercompany accounts and transactions have been eliminated.
Minority interest in consolidated subsidiaries is shown separately.
FISCAL YEAR
The Company's fiscal year ends on the Sunday nearest the last calendar day
of September.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with
maturities at acquisition of three months or less to be cash equivalents.
11
<PAGE> 12
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
on a first-in, first-out ("FIFO") basis for all inventory other than CSI
raw materials, which is determined using average cost and approximates
FIFO.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization is provided
over the estimated useful lives of the assets using the straight-line
method. The estimated lives are as follows:
Buildings and building improvements 30-39 years
Leasehold improvements Shorter of economic
life or lease term
Machinery and equipment 5-15 years
Furniture, fixtures and office equipment 5-10 years
Computer hardware and software 3-5 years
Capitalized amounts include expenditures which materially extend the useful
lives of existing property, plant and equipment. Expenditures for repairs
and maintenance which do not materially extend the useful lives of the
related assets are charged to expense as incurred. Long-term improvements
are capitalized as additions to property, plant and equipment. Upon
retirement, or other disposal, the asset cost and related accumulated
depreciation and amortization are removed from the accounts and the net
amount, less any proceeds, is charged or credited to income.
DEBT ISSUANCE COSTS
The costs incurred in connection with certain of the Company's debt
financings are included in the accompanying consolidated balance sheets in
other assets and are being amortized using the effective interest method
over the term of the related debt.
SELF-INSURANCE
The Company self-insures, with certain stop loss insurance coverage, for
workers compensation and employee health care. Claims expense is recorded
in the year of occurrence through the accrual of claim reserves based on
estimates of ultimate claims costs and settlement expenses according to
industry standards.
The Company is required to maintain a $250,000 Certificate of Deposit
("CD") as of September 27, 1998 and September 28, 1997, as collateral for a
line of credit related to the workers' compensation coverage. These amounts
have been included in other assets in the accompanying consolidated balance
sheets.
ENVIRONMENTAL COSTS
The Company expenses, on a current basis, recurring costs associated with
managing hazardous substances and pollution in ongoing operations.
Expenditures related to future compliance are capitalized, if appropriate
under the Company's capitalization policy. Expenditures that relate to an
existing condition caused by past operations are handled in accordance with
the indemnification agreement described in Note 2. The Company records
liabilities when environmental assessments or remedial efforts are probable
and the costs can be reasonably estimated. Such estimates are adjusted if
necessary based on the completion of a formal study or the Company's
commitment to a formal plan of action.
12
<PAGE> 13
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
WARRANTIES
The Company provides warranties on products and sub-components for periods
up to 30 years. The Company provides for the estimated costs to repair or
replace products under warranty when claims are both probable and
estimable.
REVENUE RECOGNITION
Sales and related costs are recorded by the Company upon shipment of
products. The Company provides for estimated product returns at the time of
initial shipment.
The Company receives revenues from sales of various scrap by-products that
result from the production of the Company's principal products. These sales
are included in net sales in the accompanying consolidated statements of
operations.
STOCK COMPENSATION
The Company measures compensation cost related to employee stock options
using the intrinsic value method of accounting prescribed by Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and has included the proforma disclosures as required by
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting
for Stock Based Compensation (Note 13).
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax
laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense represents
the tax payable in connection with the current period operations plus or
minus the change during the period in deferred tax assets and liabilities.
The Company files a consolidated tax return with its two consolidated
subsidiaries.
GOODWILL
Goodwill represents the excess of cost over the net assets acquired.
Goodwill is stated at cost and is amortized on a straight-line basis over
ten years. Pursuant to SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the Company
evaluates the recoverability of goodwill and its other long-lived assets
whenever a significant change in the business environment indicates that
expected future net cash flows (undiscounted and without interest) would
become less than the carrying amount of the asset. Accumulated amortization
of goodwill amounted to $5,856,000 and $2,347,000 at September 27, 1998
and September 28, 1997, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses a variety of derivative financial instruments, including
collars and exchange-traded futures and options, as part of an overall
risk-management strategy. These instruments are used as a means of hedging
exposure to price and/or interest-rate risk connected to anticipated sales
or existing assets and liabilities. The Company does not hold or issue
derivative financial instruments for trading purposes.
The Company enters into futures contracts with the objective of minimizing
price risk due to market fluctuations and to hedge the Company's net
inventory investment in copper, and its future inventory needs related to
sales contracts with customers. Any realized gains or losses from hedging
transactions are included as part of cost of sales.
13
<PAGE> 14
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
The Company uses interest-rate collars to synthetically change its
variable-rate debt to fixed-rate debt under certain conditions. The costs
of interest rate collar agreements are included in interest expense ratably
over the lives of the agreements. Unamortized costs of the collar
agreements are included in the accompanying consolidated balance sheets
within prepaid expenses and other current assets for the current portion
and other assets for the long-term portion.
RECLASSIFICATIONS
Certain reclassifications have been made to the consolidated financial
statements for the year ended September 28, 1997 and for the period from
October 7, 1995 (inception) through September 29, 1996 to conform with the
current year's presentation. These reclassifications had no impact on
stockholders' equity or net income.
RECENTLY ISSUED ACCOUNTING STANDARDS
During fiscal 1998, the Company implemented Statement of Position ("SOP")
98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use, issued by the Accounting Standards Executive Committee in
March 1998. SOP 98-1 establishes guidelines for the accounting for the
costs of all computer software developed or obtained for internal use,
including payroll and other direct costs. In connection with the Company's
project to improve the functionality of its computer system during fiscal
1998, direct internal and external costs incurred during the application
development stage of this project have been capitalized within property,
plant and equipment in the accompanying consolidated balance sheets.
Capitalized costs were $2,819,000 as of September 27, 1998 and will be
amortized on a straight-line basis over a period of three years.
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, Reporting Comprehensive Income. SFAS No. 130 requires that changes
in the amounts of certain items, including foreign currency translation
adjustments, which are currently direct adjustments to equity, be shown in
a statement of comprehensive income. The statement of comprehensive income
may be included in the statement of operations or as a separate financial
statement. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997 and requires the reclassification of earlier financial
statements for comparative purposes. The Company will adopt this statement
in fiscal 1999. Since this statement only requires additional disclosure in
the Company's consolidated financial statements, the adoption will have no
impact on the Company's financial position or results of operations.
During fiscal 1998, the Company implemented SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131 requires
public business enterprises to report certain information about their
operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in
interim financial statements. It also requires disclosures about products
and services, geographic areas and major customers. Since this statement
only requires additional disclosures in the Company's consolidated
financial statements, the adoption had no impact on the Company's financial
position or results of operations.
14
<PAGE> 15
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. The
Company will adopt this statement in fiscal 2000. SFAS No. 133 requires
that all derivative instruments be recorded on the balance sheet at their
fair value. Changes in the fair value of derivatives are recorded each
period in current income or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if
it is, the type of hedge transaction. For fair value hedge transactions in
which the Company is hedging changes in an asset's, liability's or firm
commitment's fair value, changes in the fair value of the derivative
instrument will generally be offset in the statement of operations by
changes in the hedged item's fair value. For cash flow hedge transactions,
in which the Company is hedging the variability of cash flows related to a
variable-rate asset, liability, or a forecasted transaction, changes in the
fair value of the derivative instrument will be reported in other
comprehensive income. The gains and losses on the derivative instrument
that are reported in other comprehensive income will be reclassified as
income in the periods in which income is impacted by the variability of the
cash flows of the hedged item. The ineffective portion of all hedges will
be recognized in current period income. The Company has not yet determined
the impact that the adoption of SFAS 133 will have on its financial
position or results of operations.
Other pronouncements issued by the FASB adopted during the year are not
material to the consolidated financial statements of the Company. Further,
other pronouncements with future effective dates are either not applicable
or not material to the consolidated financial statements of the Company.
4. CREDIT CONCENTRATIONS AND BUSINESS RISKS:
CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and receivables.
The Company's cash and cash equivalents are maintained at various financial
institutions. The Company, in the normal course of business, maintains cash
balances in excess of the Federal Deposit Insurance Corporation's ("FDIC")
insurance limit. The Company has not experienced losses as a result of the
uninsured balances.
The Company performs periodic credit evaluations of its customers and does
not require collateral. Estimated credit losses are provided for in the
accompanying consolidated financial statements.
OFF-BALANCE SHEET RISK
The Company enters into future contracts hedging the Company's net
inventory investment in copper and its anticipated needs related to
customer orders. The Company does not engage in these contracts for
speculative purposes, rather they are intended to reduce the Company's
financial exposure to risk from copper price movements. At September 27,
1998, the notional value of the hedging contracts was $9.9 million and the
related unrealized loss was approximately $788,000. There were no open
contracts at September 28, 1997.
The Company also has an agreement with a supplier which allows fixed prices
for up to four months of future copper deliveries. At September 27, 1998
prices for future deliveries had not been fixed. At September 28, 1997, the
notional value of these deliveries was $925,000, with deliveries under
these fixed prices scheduled in December 1997.
15
<PAGE> 16
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. CREDIT CONCENTRATIONS AND BUSINESS RISKS: (CONTINUED)
BUSINESS RISK
One product line accounted for approximately 58%, 64% and 67% of net sales
for the years ended September 29, 1998 and September 28, 1997, and for the
period from October 7, 1995 (inception) through September 29, 1996,
respectively.
Net sales to four customers accounted for 64% collectively (61% associated
with the Communication Wire and Cable segment and 3% associated with the
Assembly Services segment), and 19%, 17%, 16% and 12% individually of
net sales for the year ended September 27, 1998. Net sales to four
customers accounted for 61% collectively (57% associated with the
Communication Wire and Cable segment and 4% associated with the Assembly
Services segment), and 17%, 15%, 15% and 14% individually, of net sales for
the year ended September 28, 1997. Net sales to four customers accounted
for 69% collectively (60% associated with the Communication Wire and Cable
segment and 9% associated with the Assembly Services segment), and 29%,
18%, 12% and 10% individually, of net sales for the period from October 7,
1995 (inception) through September 29, 1996.
CSI's manufacturing operations, responsible for approximately 87% of the
Company's net sales, are located at a single facility in Phoenix, Arizona.
CSI's occupational workforce, approximately 69% of the Company's total
workforce, is subject to a collective bargaining agreement with the
Communication Workers of America. This agreement was subject to
renegotiation on September 30, 1998. A new collective bargaining agreement
was signed on October 21, 1998, effective October 1, 1998, and expires on
September 30, 2003.
SUPPLIER RISK
The Company purchases its principal raw material, copper, from two
suppliers. The contracts with these two suppliers expire on December 31,
1999 and December 31, 2000. Another significant material used in the
Company's manufacturing process is plastic, principally polyethylene and
polyvinyl chloride. The Company purchases all of its polyethylene, which is
customized to its specifications, from a single supplier. The contract with
this supplier expires May 2002.
INTEREST RATE RISK
The Company's debt agreement requires interest rate protection be
maintained on at least 50% of the related outstanding indebtedness for a
period of three years. The Company has entered into interest rate collar
agreements on notional principal amounts of $37.5 million, $20 million, and
$6,875,000. These agreements effectively set interest rates from a minimum
(or floor) of 5.25% to a maximum (or cap) of 7%. These agreements were
effective beginning January 9, 1997 (for the notional principal amounts of
$37.5 million and $20 million) and May 6, 1997 (for the notional principal
amount of $6,875,000) and expire December 31, 1999.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The financial position of the Company at September 27, 1998 and September
28, 1997, includes certain financial instruments which may have a fair
value that is different from the value currently reflected on the
accompanying consolidated financial statements.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practical to
estimate that value.
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short-term
maturities of such instruments.
16
<PAGE> 17
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)
NOTE RECEIVABLE
The carrying value approximates fair value, determined by discounting the
future cash flows using the current rate at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining
maturities.
LONG-TERM DEBT
The carrying values of the Tranche A and Tranche B Term Loans approximate
their fair values due to the variable rate terms of the interest rates.
SUBORDINATED NOTES TO RELATED PARTIES
The estimated fair value of the subordinated notes to related parties (Note
10) is based on discounting the future cash flows using the current interest
rates at which similar loans would be made to borrowers with similar credit
ratings for the same remaining maturities. At September 27, 1998 and
September 28, 1997, subordinated notes to related parties with carrying
values totaling $22,834,000 and $21,824,000, respectively, had estimated
fair values totaling $17,617,000 and $22,288,000, respectively.
INTEREST RATE COLLARS
The carrying value approximates fair value at September 27, 1998 and
September 28, 1997, determined by using discounted cash flow analysis on
estimated interest rates for similar types of instruments.
FUTURES CONTRACTS
The carrying values of the Company's futures contracts approximate the fair
values due to their short-term maturity.
6. INVENTORIES:
Inventories, net of reserves of $4,205,000 and $2,553,000, respectively, for
obsolescence, consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1998 1997
<S> <C> <C>
Raw materials and work-in process $ 29,614 $ 29,516
Finished goods 12,681 17,859
---------- ------------
$ 42,295 $ 47,375
========== ============
</TABLE>
17
<PAGE> 18
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1998 1997
<S> <C> <C>
Buildings, and building and leasehold improvements $ 26,260 $ 22,186
Machinery and equipment 71,279 70,070
Furniture, fixtures and office equipment 2,565 2,238
Computer, hardware and software 18,786 13,923
----------- ------------
118,890 108,417
Less accumulated depreciation and amortization (22,690) (15,834)
Land 4,435 3,312
Construction in process 17,209 10,382
----------- ------------
$ 117,844 $ 106,277
=========== ============
</TABLE>
Depreciation and amortization of property, plant, and equipment totaled
$8,263,000, $7,788,000 and $6,597,000 for the years ended September 27, 1998
and September 28, 1997, and for the period from October 7, 1995 (inception)
through September 29, 1996.
For the year ended September 27, 1998 the Company recorded a non-cash
impairment loss of $4,192,000 related to a write-down of certain property,
plant and equipment. As a result of diminishing sales of certain product
lines and a significant change in the expected asset usage, the projected
future cash flows from the identified assets are less than the carrying
value of the assets. The revised carrying values of these assets were
calculated on the basis of discounted estimated future cash flow and
resulted in an impairment loss being recognized. The impaired assets include
machinery and equipment used to manufacture products in the Communication
Wire and Cable segment ($1,465,000) and products in the Assembly Services
segment ($2,727,000).
The Company capitalizes interest costs as part of constructing major assets.
Interest costs capitalized totaled $782,000, $732,000 and $373,000, for the
years ended September 27, 1998 and September 28, 1997, and for the period
from October 7, 1995 (inception) through September 29, 1996, respectively.
The Company leases a building, premise improvements, machinery and equipment
to a vendor of sub-assemblies. The lease is classified as an operating lease
and expires in 2002. The lease terms require that the lessee maintain its
status as a qualifying minority and women owned business enterprise and meet
certain minimum quality standards relative to supplied products.
The Company and the vendor have also entered into a concurrent long-term
purchase/supply agreement. This agreement restricts the vendor from
manufacturing or selling, without the Company's approval, sub-assemblies
which are the same or essentially the same as those produced for the
Company. However, the agreement does not require the Company to purchase any
of the sub-assemblies. The cost and accumulated depreciation of the
building, improvements, machinery, and equipment are $8,316,000 and
$1,381,000, respectively, at September 27, 1998 and $8,295,000 and $893,000,
respectively, at September 28, 1997.
18
<PAGE> 19
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PROPERTY, PLANT AND EQUIPMENT: (CONTINUED)
The future minimum rent payments due under this operating lease, by fiscal
year, are as follows (in thousands):
<TABLE>
<S> <C>
1999 $ 3,000
2000 3,000
2001 3,000
2002 3,000
2003 500
----------
$ 12,500
==========
</TABLE>
8. ACCRUED LIABILITIES:
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1998 1997
<S> <C> <C>
Accrued payroll and benefit related liabilities $ 4,998 $ 5,549
Bank overdraft 3,527
Accrued property taxes 2,581 2,525
Accrued interest 2,350 2,831
Accrued workers' compensation 1,572 902
Accrued freight 1,419 1,836
Other accrued liabilities 6,317 7,229
---------- --------
$ 22,764 $ 20,872
========== ========
</TABLE>
19
<PAGE> 20
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES:
Outstanding debt consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1998 1997
<S> <C> <C>
Tranche A Term Loan, interest at LIBOR plus 2.5% (8.19% and 8.29% at
September 27, 1998 and September 28, 1997, respectively), principal and
interest payable quarterly, due December 31, 2001, collateralized by $ 61,250 $ 71,250
substantially all assets
Tranche B Term Loan, interest at LIBOR plus 3% (8.69% and 8.79% at
September 27, 1998 and September 28, 1997, respectively), principal and
interest payable quarterly, due December 3l, 2002, collateralized by 39,400 39,800
substantially all assets
Tranche A Acquisition Term Loan, interest at LIBOR plus 2.5% (8.19% and
8.29% September 27, 1998 and September 28, 1997, respectively), principal 11,517 13,397
and interest payable quarterly, due December 31, 2002, collateralized by
substantially all assets
Term Notes drawn under $35 million Revolving Credit Facility, interest at
LIBOR plus 2.5% payable quarterly (8.00% to 8.19% at September 27, 1998)
due December 31, 2001, collateralized by substantially all assets 22,000
---------- ----------
$ 134,167 $ 124,447
========== ==========
</TABLE>
The related debt agreement contains various financial covenants such as
limitations on capital expenditures and indebtedness and maintaining certain
financial ratios. In July 1998 and December 1998, the Company and its
lenders modified certain financial covenant provisions of its credit
agreement. With these modifications the Company was in compliance with the
financial covenants at September 27, 1998. The December 1998 modification
included amendments of the agreement through October 3, 1999 and increased
the interest rate on all outstanding borrowings by .25% effective December
18, 1998 and an additional .25% on April 1, 1999. In conjunction with this
debt agreement, the Company obtained a $35 million revolving credit facility
and a $20 million acquisition term loan facility available at either LIBOR
plus 2.5% or the alternate base rate plus 1.5%, at the direction of the
Company. In February 1997, $13.75 million was drawn under the acquisition
term loan facility. As of September 27, 1998 and September 28, 1997, a
total of $22 million and $0, respectively, was drawn under the revolving
credit facility.
As of September 27, 1998, future annual minimum principal payments are as
follows (in thousands):
<TABLE>
<S> <C>
1999 $ 23,073
2000 21,488
2001 28,066
2002 45,540
2003 16,000
-----------
$ 134,167
===========
</TABLE>
20
<PAGE> 21
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RELATED PARTY TRANSACTIONS:
As part of the Acquisition, a stockholder loaned the Company $7,109,057
pursuant to a subordinated note bearing interest at 11.65% and maturing on
November 6, 2007. Per the agreement, at the Company's option, interest can
be paid in cash or by issuing a note for the interest amount due. These new
notes have the same terms as the original note. Accrued interest of
$1,010,000, $902,000 and $414,000 was paid by issuing additional notes in
accordance with the agreement for the years ended September 27, 1998 and
September 28, 1997, and for the period from October 7, 1995 (inception)
through September 29, 1996, respectively. These notes are not
collateralized.
In connection with the LoDan Acquisition, a minority stockholder was issued
$8,932,600 of senior subordinated notes and $4,466,400 of junior
subordinated notes. The senior notes bear interest at LIBOR plus 1% (6.7% at
September 27, 1998) and the junior notes bear interest at fixed rates
ranging from 6.1 % to 6.2%, payable quarterly. The notes provide for the
payment of interest in cash or by issuing a note for the interest amount
due. These new notes have the same term as the original note. Through
September 27, 1998 all interest payments were made in cash. The notes are
not collateralized. Principal payments of $6,500,000 and $6,899,000, under
the terms of the notes, are due in August 2003 and March 2004, respectively.
For the years ended September 27, 1998 and September 28, 1997 for the period
from October 7, 1995 (inception) through September 29, 1996 the Company paid
consulting fees to directors of the company in the amount of $115,000,
$73,000 and $69,000, respectively.
11. INCOME TAXES:
The income tax expense consists of the following (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 7,
1995
(INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 29,
1998 1997 1996
<S> <C> <C> <C>
Current:
Federal $ 3,365 $ (372) $ 8,721
State and local 405 (1,204) 1,116
---------- --------- ----------
Total current 3,770 (1,576) 9,837
Deferred:
Federal 362 5,686 (4,912)
State and local (205) 1,396 (1,204)
---------- --------- ----------
Total deferred 157 7,082 (6,116)
---------- --------- ----------
$ 3,927 $ 5,506 $ 3,721
========== ========= ==========
</TABLE>
21
<PAGE> 22
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES: (CONTINUED)
Deferred tax assets and liabilities are comprised as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1998 1997
<S> <C> <C>
Deferred tax assets:
Current:
Allowance for bad debts and sales returns $ 620 $ 249
Accrued salaries, benefits and expenses 2,553 1,659
Inventories 2,490 2,710
-------- ---------
5,663 4,618
-------- ---------
Deferred tax assets (liabilities):
Non-current:
Depreciation (10,160) (5,901)
Amortization 1,290 317
Fixed asset reserve 2,084
-----
(6,786) (5,584)
-------- ---------
Net deferred tax liability $ (1,123) $ (966)
======== =========
</TABLE>
Actual income tax expense differs from the "expected" amount (computed by
applying the United States federal corporate tax rate of 35% in 1998, 1997
and 1996) as follows:
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 7, 1995
(INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 29,
1998 1997 1996
<S> <C> <C> <C>
U.S. federal statutory rate 35 % 35 % 35 %
State and local taxes, net of federal income tax benefit 6 % 6 % 6 %
State Enterprise Zone credit, net of federal tax effect (4)% (5)% (5)%
-------- -------- --------
37 % 36 % 36 %
======== ======== ========
</TABLE>
12. EMPLOYEE PENSION PLANS:
The Company sponsors savings plans covering substantially all employees. The
plans allow employees to contribute a portion of their pre-tax or after-tax
earnings, in accordance with specified limitations as defined in the plans.
The Company matches a percentage of these contributions up to certain
limitations. The Company's contributions to the plans, for matching, were
$856,000, $712,000 and $383,000 for the years ended September 27, 1998 and
September 28, 1997, and for the period from October 7, 1995 (inception)
through September 29, 1996, respectively.
22
<PAGE> 23
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. MANDATORILY REDEEMABLE PREFERRED STOCK, STOCK WARRENTS AND STOCK OPTIONS:
MANDATORILY REDEEMABLE PREFERRED STOCK
The Company is authorized to issue up to 100,000 shares of mandatorily
redeemable preferred stock, with a par value of $.01, in one or more series
and to fix the powers, designations, preferences, and rights of each series.
The Series A Preferred stock has a cumulative cash dividend of $140 per
share per year and a liquidation value of $1,000 per share plus accrued but
unpaid dividends. No dividends have been paid to date. On October 31, 2009,
all outstanding shares of the Series A Preferred stock must be redeemed at a
price of $1,000 per share plus accrued but unpaid dividends; however, the
Company may redeem these shares at any time prior to that date for the same
terms. The Series A Preferred stock are non-participating shares.
STOCK WARRANTS
The Company has outstanding warrants to purchase approximately 52,417 shares
of Class A common stock, at September 27, 1998 and September 28, 1997. The
warrants are exercisable at $.01 per share and expire on October 6, 2005.
In August 1997, the Company paid $9 million in connection with certain
refinancing transactions in fiscal 1997, including repurchase of 45,917
outstanding warrants to purchase Class A common stock, and $2 million in
settlement of any obligations or claims a related entity of the warrant
holder had against the Company.
The fair value of the warrants repurchased was $854,000 and was charged to
additional paid in capital in the accompanying consolidated statement of
stockholders' equity. The remaining $10,146,000 is reflected as other
expense in the accompanying consolidated statement of operations.
STOCK OPTIONS
In July 1996 and April 1998, non-qualified options were granted to purchase
3,750 and 1,250 shares of Class A Common Stock at $2.50 and $100 a share,
respectively, to members of the Board of Directors. The vesting period for
these options is one-half of the underlying shares at the date of grant and
the remaining one-half on the first anniversary of the grant date. The
options expire seven years after date of grant. The July 1996 options were
exercised during fiscal 1997. The April 1998 options had not been exercised
as of September 27, 1998.
In July 1997 and August 1998, the Company authorized the "1997 Special Stock
Option Plan" (the "Plan") and the "1998 Special Stock Option Plan" (the
"1998 Plan"), respectively. Under the Plan non-qualified options were
granted to select key management employees to purchase 5,235 and 3,441
shares, respectively, of Class A common stock at $19.24 and $27.50 a share,
respectively. The options vested upon grant and expire ten years after date
of grant. At September 27, 1998 there were 600 options outstanding related
to the Plan and 3,300 options outstanding related to the 1998 Plan.
23
<PAGE> 24
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. MANDATORILY REDEEMABLE PREFERRED STOCK, STOCK WARRANTS AND STOCK OPTIONS:
(CONTINUED)
A summary of stock option activity and related information for the years
ended September 27, 1998 and September 28, 1997, and for the period from
October 7, 1995 (inception) through September 29, 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- -------------------- ---------------------
SHARES AGGREGATE SHARES AGGREGATE SHARES AGGREGATE
UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE
OPTION PRICE OPTION PRICE OPTION PRICE
<S> <C> <C> <C> <C> <C> <C>
Beginning balance
outstanding: 800 $ 15,392 3,750 $ 9,375
Granted 4,691 219,628 5,235 100,721 3,750 $ 9,375
Exercised (341) (7,726) (7,985) (90,856)
Canceled (200) (3,848)
--------- --------- -------- --------- --------- ---------
Ending balance
outstanding 5,150 227,294 800 15,392 3,750 9,375
--------- --------- -------- --------- --------- ---------
Exercisable at end of
period 5,150 $ 227,294 800 $ 15,392 3,750 $ 9,375
========= ========= ======== ========= ========= =========
Weighted average fair
value of options
granted during the
period $ 69.34 $ 10.44 $ 0.14
========= ========= =========
Weighted average fair
value of options
exercised during the
period $ 39.59 $ 5.60
========= =========
</TABLE>
The Company applied APB Opinion 25 in accounting for its stock options.
Compensation cost of $31,000 and $15,000, was recognized for the years ended
September 27, 1998 and September 28, 1997, respectively. There was no
compensation cost recognized for the period from October 7, 1995 (inception)
through September 29, 1996 as exercise price approximated estimated market
price. Had the Company determined compensation cost based on the fair value
at the grant date for its stock options under SFAS No 123, the Company's net
income would have been impacted as indicated in the proforma amounts
presented below (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Net income - as reported $ 7,187 $ 9,530 $ 6,591
Net income - pro forma 7,178 9,495 6,591
</TABLE>
24
<PAGE> 25
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. MANDATORILY REDEEMABLE PREFERRED STOCK, STOCK WARRANTS AND STOCK OPTIONS:
(CONTINUED)
The fair value of each grant is estimated on the date of grant using the
Black-Scholes option pricing model applying the following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Expected dividend yield 0.00 % 0.00 % 0.00 %
Risk-free interest rate 5.13-5.37 % 5.52 % 5.74 %
Expected life of options 3 years 1 year 1 year
</TABLE>
The following table summarizes information about the stock options
outstanding at September 27, 1998:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
EXERCISE OPTIONS AVERAGE AVERAGE
PRICE OUTSTANDING REMAINING EXERCISE
AND CONTRACT PRICE
EXERCISABLE LIFE
------------------------------------------------------
<S> <C> <C> <C>
$19.24 600 8 years $19.24
$100.00 1,250 6 years $100.00
$27.50 3,300 9 years $27.50
</TABLE>
14. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company has entered into operating leases for various office space and
equipment. These lease agreements are for terms of two to five years. The
minimum future obligations for these leases, by fiscal year, are summarized
below (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1999 $ 550
2000 567
2001 450
2002 426
2003 311
----------
$ 2,304
==========
</TABLE>
Rent expense related to operating leases was $1,406,000, $1,016,000, and
$101,000 for the years ended September 27, 1998 and September 28, 1997, and
for the period from October 7, 1995 (inception) through September 29, 1996,
respectively.
OTHER COMMITMENTS
The Company is obligated under the General Agreement between the
Communications Workers of America Local 7060 and CSI to distribute annually
a portion of the Company's earnings before interest expense and income
taxes, as defined in the agreement, that exceeds the following thresholds
for the fiscal years (in thousands):
<TABLE>
<S> <C>
1996 $ 35,020
1997 $ 37,760
1998 $ 40,900
</TABLE>
25
<PAGE> 26
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. COMMITMENTS AND CONTINGENCIES (CONTINUED):
OTHER COMMITMENTS (CONTINUED)
As the Company began operations on October 7, 1995, there were only 51 weeks
of operations instead of the normal 52 weeks; therefore, the fiscal 1996
threshold was reduced proportionately to $34,346,538.
The expense recognized for the year ended September 28, 1997, and for the
period from October 7, 1995 (inception) through September 29, 1996 was
$1,731,042 and $3,699,062, respectively. No expense was recognized for the
year ended September 27, 1998.
LEGAL CONTINGENCIES
The Company is involved in various legal proceedings which are incidental to
the conduct of its business. The Company does not believe the outcome of any
of the legal proceedings will have a material effect on the Company's
results of operations, cash flows or financial position.
15. SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):
<TABLE>
<CAPTION>
PERIOD FROM
FISCAL YEARS ENDED OCTOBER 7, 1995
--------------------------- (INCEPTION)
SEPTEMBER 27, SEPTEMBER 28, THROUGH
1998 1997 SEPTEMBER 29,
1996
<S> <C> <C> <C>
Cash paid for:
Interest, net of amounts capitalized $ 12,079 $ 16,134 $ 12,172
Income taxes 23,997 4,936 6,845
Schedule of cash and non-cash investing and financing activities:
Acquisition of business:
Assets acquired $ 44,343 $ 191,895
Liabilities assumed (18,089) (57,000)
Warrants issued, net of cash paid by purchasers (104)
--------- ---------
Net cash paid $ 26,254 $ 134,791
========= =========
Transfer to (from) restricted cash (included in other assets) $ (250) $ 500
Receivable from and forgiveness of related party debt charged to
additional paid-in capital ($64.3 million) and other income ($13
million) $ 77,300
Accrued income taxes on forgiveness of related party
debt charged to additional paid-in capital $ 25,202
Warrants issued in connection with senior notes $ 162
Stock subscription receivable $ (25)
</TABLE>
26
<PAGE> 27
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SEGMENT INFORMATION:
The Company conducts its business in two broad segments which offer
different products and services: (1) Communications Wire and Cable, which
manufactures and sells a wide variety of copper telephone and data wire and
cable products; and (2) Assembly Services, which specializes in custom cable
assemblies and contract manufacturing using cable, connectors and other
materials from third party suppliers.
The accounting policies of the Company's two segments are the same as those
described in the summary of significant accounting policies (Note 3).
Amounts necessary to reconcile segment income from operations to total
Company income from operations are included in "All other" and relate to
corporate expenses not allocated to individual segments. Amounts necessary
to reconcile segment depreciation and amortization expense included in
segment operating income to total Company depreciation and amortization
expense are noted below. Amounts necessary to reconcile segment assets to
total Company assets are noted below. Segmental performance is evaluated
based on income from operations.
The following table presents the Company's segment financial information (in
thousands):
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED AS OF AND FOR THE PERIOD
---------------------------------------- FROM OCTOBER 7,1995
SEPTEMBER 27, 1998 SEPTEMBER 28, 1997 (INCEPTION) THROUGH
SEPTEMBER 29, 1996
<S> <C> <C> <C>
Net sales
Communications Wire & Cable $ 367,300 $ 358,442 $ 375,535
Assembly Services 80,184 64,881 41,497
--------- --------- ---------
Total net sales $ 447,484 $ 423,323 $ 417,032
========= ========= =========
Income from operations
Communications Wire & Cable $ 27,750 $ 27,101 $ 27,942
Assembly Services (4,879) (1,995) 7,250
All other (3,361) (1,522) (678)
--------- --------- ---------
Total income from operations $ 19,510 $ 23,584 $ 34,514
========= ========= =========
Depreciation and amortization expense
Communications Wire & Cable $ 7,181 $ 6,732 $ 5,450
Assembly Services 3,893 3,041 786
--------- --------- ---------
Segment depreciation and amortization 11,074 9,773 6,236
Depreciation of rental property 469 461 363
Corporate goodwill amortization 735 457
Amortization of discounts and debt issuance costs, net 368 313 5,389
--------- --------- ---------
Total depreciation and amortization expense $ 12,646 $ 11,004 $ 11,988
========= ========= =========
Assets
Communications Wire & Cable $ 128,151 $ 122,412
Assembly Services 53,347 49,976
--------- ---------
Segment assets 181,498 172,388
Unallocated assets
Cash 24,128 6,109
Accounts receivable 34,024 66,325
Other current assets 9,226 11,554
Investment in unconsolidated affiliate 15,083
Corporate goodwill 6,178 6,911
Other long-term assets 19,795 24,508
--------- ---------
Total assets $ 289,932 $ 287,795
========= =========
</TABLE>
27
<PAGE> 28
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SEGMENT INFORMATION (CONTINUED):
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED AS OF AND FOR THE PERIOD
------------------------------------------ FROM OCTOBER 7, 1995
(INCEPTION) THROUGH
SEPTEMBER 27, 1998 SEPTEMBER 28, 1997 SEPTEMBER 29, 1996
<S> <C> <C> <C>
Expenditures for additions to property, plant and
equipment and goodwill
Communications Wire & Cable $ 18,365 $ 14,134 $ 9,184
Assembly Services 6,453 30,099 476
Corporate goodwill 7,382
--------- ---------- ----------
Total expenditures for additions to property, plant
and equipment and goodwill $ 24,818 $ 51,615 $ 9,660
========= ========== ==========
</TABLE>
17. Sale of Investment in IPC:
On April 8, 1999, the Company sold its investment in IPC for $16,041,000 to
Cable Systems Holding, LLC, the majority stockholder of the Company.
Proceeds from the sale exceeded the carrying amount of the investment by
$3,089,000.
18. Subsequent Event (Unaudited);
On June 28, 1999, Belden Inc. acquired all of the outstanding shares of CSH
and CSI.
28
<PAGE> 29
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTH PERIODS ENDED JUNE 27, 1999 AND JUNE 28, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------------
<S> <C> <C>
Net sales $ 241,688 $331,824
Cost of sales 215,511 285,930
- ----------------------------------------------------------------------------------------------------------------------
Gross margin 26,177 45,894
Research and development 1,515 1,411
Marketing and sales 6,377 6,763
General and administrative 23,239 24,829
- ----------------------------------------------------------------------------------------------------------------------
Income from operations (4,954) 12,891
Interest expense, net 11,285 9,133
Other (income) expense, net 1,149 (2,944)
Equity in loss of unconsolidated affiliate 2,750 -
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interest (20,138) 6,702
Income tax (7,501) 2,299
Minority interest (142) (82)
- ----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (12,495) $ 4,485
======================================================================================================================
</TABLE>
29
<PAGE> 30
CABLE SYSTEMS HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTH PERIODS ENDED JUNE 27, 1999 AND JUNE 28, 1998
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income/(loss) $ (12,495) $ 4,485
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority Interest (142) (82)
Depreciation and amortization 11,581 8,899
Debt issued in lieu of interest 1,131 1,010
Deferred income taxes (7,438) 1,546
Provision for (recovery of) doubtful accounts and sales returns (46) 222
Provision for excess and obsolete inventory 2,970 11
Provision for fixed assets reserve 694 100
Gain on disposition of unconsolidated affiliate (3,708) -
Equity in loss of unconsolidated affiliate 1,307 -
Provision for excess and obsolete parts inventory 389 330
(Gain)/loss on sale of property, plant and equipment 208 (980)
Compensation associated with stock option exercise 423 -
Loss on disposition of consolidated affiliate 5,138 -
Write off of unamortized debt issuance costs 1,855 -
Changes in assets and liabilities, net of acquisition:
(Increase) decrease in accounts receivable 8,708 5,499
(Increase) decrease in inventories 5,554 2,381
(Increase) decrease in prepaid expenses (714) (220)
Increase (decrease) in accrued liabilities (9,691) 2,785
Increase (decrease) in accrued income taxes payable (2,046) 3,662
Increase (decrease) in accounts payable (8,116) 582
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (4,438) 30,230
Cash flows from investing activities:
Purchase of property, plant and equipment (8,119) (18,963)
Proceeds from sale of property, plant and equipment 249 1,176
Collection of notes receivable 3,019 3,000
Disposition of unconsolidated affiliate 16,041 -
Investment in common and preferred stock - (15,920)
Net change in other assets and liabilities 2,154 (247)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 13,344 (30,954)
Cash flows from financing activities:
Proceeds from long-term debt borrowings 123,578 12,000
Payments on long-term debt borrowings (134,167) (8,467)
Proceeds from contract modification - 21,000
Payments of contract modification income taxes - (25,202)
Debt issuance costs (75) -
Redemption of redeemable preferred stock (17,168) -
Proceeds from exercise of stock options 209 8
Acquisition of treasury stock (138) (150)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (27,761) (811)
- ------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (18,855) (1,535)
Cash and cash equivalents, beginning of period 24,128 7,921
==============================================================================================================================
Cash and cash equivalents, end of period $ 5,273 $ 6,386
==============================================================================================================================
</TABLE>
30
<PAGE> 31
Item 7(b) Pro Forma Financial Information
On June 28, 1999, Registrant acquired the outstanding shares of the
common stock of Cable Systems Holding Company ("Holding Company"). Holding
Company owns all of the outstanding capital stock of Cable Systems International
Inc. ("CSI"). CSI manufactures copper cable products primarily for
telecommunications applications. Registrant intends to continue to use the
assets of CSI for such purposes.
The balance sheet of the acquired business is included in the Company's
June 30, 1999 balance sheet included in the Form 10-Q filed on August 13, 1999.
Pro forma consolidated income statements for the six month periods ended June
30, 1998 and 1999 have been included in the Form 10-Q filed on August 13, 1999.
This section contains the unaudited pro forma consolidated income
statement of Belden Inc. for the year ended December 31, 1998, giving effect to
the acquisition as if it had occurred on January 1, 1998. The pro forma
information presented is not necessarily indicative of the operating results
which would have occurred if the transaction had been consummated on January 1,
1998, nor is it indicative of the future operating results.
The last fiscal year for Holding Company was as of the twelve months
ended September 27, 1998. As such, all historical financial information for
Holding Company has been adjusted to exclude the fourth calendar quarter of
1997 and add the fourth calendar quarter of 1998 to be consistent with the
reporting period of the Company. Revenues and net income/(loss) for the fourth
calendar quarter of 1998 were included in the 1998 pro forma information as
well as the unaudited nine month period ended June 27, 1999. The pro forma
revenues and net income/(loss) for that period were $64,096,000 and $(744,000),
respectively.
The pro forma statement has been prepared by Belden management based
upon the historical financial statements of Belden and Holding Company and
should be read in conjunction with such historical financial statements and
notes included herein. The Holding Company historical financial statements have
been prepared in accordance with U.S. generally accepted accounting principles.
31
<PAGE> 32
<TABLE>
<CAPTION>
Belden Inc. and Subsidiaries
PRO FORMA CONSOLIDATING INCOME STATEMENT
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------------------
(a) Acquisition
Businesses Related (b)
($ in thousands) BWC CSI not Acquired Adjustments Reclass Pro forma
<S> <C> <C> <C> <C> <C> <C>
Revenues $664,148 $419,017 $(58,260) $ 0 $ (18,359) $1,006,546
Cost of goods sold 501,348 355,051 (49,311) (916) (c) (16,422) 789,750
-------------------------------------------------------------------------------------
Gross margin 162,800 63,966 (8,949) 916 (1,937) 216,796
Selling, General and Administrative 86,127 41,666 (7,861) (430) (d) (1,937) 117,565
Goodwill amortization 1,787 1,440 (1,440) 0 0 1,787
Non-recurring items 9,084 4,192 0 (4,192) (e) 0 9,084
-------------------------------------------------------------------------------------
Total SG&A 96,998 47,298 (9,301) (4,622) (1,937) 128,436
Operating earnings 65,802 16,668 352 5,538 0 88,360
Interest expense 7,145 12,040 (926) 2,071 (f) 0 20,330
-------------------------------------------------------------------------------------
Income from continuing operations before tax 58,657 4,628 1,278 3,467 0 68,030
Income taxes 22,729 1,830 698 1,221 (g) 0 26,478
-------------------------------------------------------------------------------------
Income from continuing operations $35,928 $ 2,798 $ 580 $2,246 $ 0 $ 41,552
=====================================================================================
Basic shares outstanding 25,507 25,507
Basic earnings per share from continuing $ 1.41 $ 1.63
operations
Diluted shares outstanding 25,620 25,620
Diluted earnings per share from continuing $ 1.40 $ 1.62
operations
</TABLE>
32
<PAGE> 33
EXPLANATORY NOTES TO PRO FORMA ADJUSTMENTS TO THE CONSOLIDATED
INCOME STATEMENT
(Unaudited)
These pro forma adjustments reflect the acquisition of Holding Company by
Belden, which has been accounted for as a purchase. The allocation of purchase
price to the fair value of net assets has been based on information provided by
Holding Company management and certain professional appraisals and evaluations.
The final allocation of the purchase price might differ from the pro forma
allocation as a result of more complete appraisals, evaluations or other
information.
Pro forma adjustments to the Holding Company historical financial
information:
(a) Adjustment to eliminate certain businesses included in the consolidated
operations of Holding Company not acquired by Belden.
(b) Adjustment to reclassify freight out to customers, scrap sales, and
engineering expenses to be consistent with Belden classification.
(c) Adjustment to cost of sales to record depreciation expense based on
property, plant and equipment as adjusted in the opening balance sheet at
fair market values and using estimated useful lives consistent with Belden
policies.
(d) Adjustment to reflect expenses that have been eliminated in connection with
the acquisition including the termination of certain professional service
arrangements.
(e) Adjustment to eliminate the non-recurring charge related to SFAS no. 121,
Accounting for the Impairment of Long-Lived Assets, as these items would
have been adjusted in the valuation of the opening balance sheet at fair
market value as of January 1, 1998.
(f) Adjustment to reflect the incremental interest expense based on pro forma
debt incurred to finance the acquisition, offset by lower effective
interest rates.
(g) Adjustment to the provision for income taxes at the statutory rate of 40%
for the effect of the pro forma adjustments as if Holding Company had been
included in Belden's provision for the year ended December 31, 1998.
33
<PAGE> 34
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 hereunto duly authorized.
BELDEN INC.
Date: September 2, 1999 By /s/ Paul Schlessman
-----------------------------------------
Paul Schlessman
Vice President, Finance, Treasurer and
Chief Financial Officer
34
