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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1998
Commission File No. 0-22724
CABLE DESIGN TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3601505
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Foster Plaza 7
661 Andersen Drive
Pittsburgh, PA 15220
(Address of principal executive offices)
(412) 937-2300
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___________
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at 12/9/98
----- ----------------------
Common Stock, $.01 Par Value 29,664,478
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CABLE DESIGN TECHNOLOGIES CORPORATION
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TABLE OF CONTENTS
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Page
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PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements..................................... 3
Review Report of Independent Public Accountants for
the Three Months Ended October 31, 1998.................. 4
Cable Design Technologies Corporation and
Subsidiaries Condensed Consolidated Statements of
Income - Unaudited for the Three Months Ended
October 31, 1998 and 1997................................ 5
Cable Design Technologies Corporation and
Subsidiaries Condensed Consolidated Balance Sheets
as of October 31, 1998 (Unaudited), and July 31, 1998.... 6
Cable Design Technologies Corporation and
Subsidiaries Condensed Consolidated Statements of
Cash Flows - Unaudited for the Three Months
Ended October 31, 1998 and 1997.......................... 7
Cable Design Technologies Corporation and
Subsidiaries - Notes to Condensed Consolidated
Financial Statements (Unaudited)......................... 8
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 10
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings........................................ 14
ITEM 2 Changes in Securities.................................... 14
ITEM 3 Defaults upon Senior Securities.......................... 14
ITEM 4 Submission of Matters to a Vote of Security Holders...... 14
ITEM 5 Other Information........................................ 14
ITEM 6 Exhibits and Reports on Form 8-K......................... 14
SIGNATURES ......................................................... 15
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
In the opinion of Cable Design Technologies Corporation's (the "Company")
management, the unaudited consolidated financial statements included in this
filing on Form 10-Q reflect all adjustments which are considered necessary for a
fair presentation of financial information for the periods presented.
REVIEW BY INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has made a review, based upon procedures adopted by the
American Institute of Certified Public Accountants, of the unaudited
consolidated financial statements as of and for the three month periods ended
October 31, 1998 and 1997, contained in this report. As stated on page 4, Arthur
Andersen LLP did not audit and accordingly does not express an opinion on the
unaudited consolidated financial statements; however as a result of such review,
they are not aware of any material modifications that should be made to the
financial statements referred to above for them to be in conformity with
generally accepted accounting principles.
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Report of Independent Public Accountants
To the Board of Directors and Stockholders of Cable Design Technologies
Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of Cable
Design Technologies Corporation (a Delaware corporation) and Subsidiaries as of
October 31, 1998, and the related condensed consolidated statements of income
and cash flows for the three month periods ended October 31, 1998 and 1997.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Cable Design Technologies
Corporation and Subsidiaries as of July 31, 1998, and, in our report dated
September 11, 1998, we expressed an unqualified opinion on that statement. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of July 31, 1998 is fairly stated, in all material
respects, in relation to the balance sheet from which it has been derived.
Pittsburgh, Pennsylvania, ARTHUR ANDERSEN LLP
November 25, 1998
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CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
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(Dollars in thousands, except per share data)
---------------------------------------------
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<CAPTION>
Three Months Ended
October 31,
------------------------
1998 1997
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<S> <C> <C>
Net sales $ 173,624 $ 162,144
Cost of sales 120,584 115,068
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Gross profit 53,040 47,076
Selling, general and administrative expenses 28,970 27,305
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Income from operations 24,070 19,771
Interest expense, net 3,222 1,914
Other expense (income) 252 (529)
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Income before income taxes 20,596 18,386
Income tax provision 8,232 6,936
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Net income $ 12,364 $ 11,450
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Per share data:
Basic earnings per common share $0.41 $0.41
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Diluted earnings per common share $0.41 $0.37
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Weighted average common shares 29,976,797 28,196,613
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Weighted average common and common equivalent shares 30,322,820 31,285,673
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</TABLE>
The accompanying notes are an integral part of these statements.
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CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(Dollars in thousands, except per share data)
---------------------------------------------
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As of As of
October 31, July 31,
1998 1998
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(Unaudited)
<S> <C> <C>
ASSETS
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Current assets:
Cash and cash equivalents $ 10,207 $ 11,143
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Accounts receivable, net of allowance for uncollectible amounts of $4,496
and $3,995, respectively 113,931 117,265
Inventories 143,132 130,307
Other current assets 18,412 17,830
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Total current assets 285,682 276,545
Property, plant and equipment, net 195,441 160,891
Goodwill, net 74,958 57,656
Other assets 13,162 8,468
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Total assets $569,243 $503,560
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Liabilities:
Current liabilities $115,472 $101,869
Long-term debt, excluding current maturities 183,367 136,052
Other non-current liabilities 23,566 20,741
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Total liabilities 322,405 258,662
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Stockholders' equity:
Preferred stock, par value $.01 per share -
Authorized 1,000,000 shares, no shares issued --- ---
Common stock, par value $.01 per share -
Authorized 100,000,000 shares, 30,691,878 and
30,660,472 shares issued, respectively 307 307
Paid in capital 166,069 165,681
Retained earnings 100,969 88,605
Treasury stock, at cost, 1,026,200 and 200,000 shares, respectively (16,157) (4,291)
Currency translation adjustment (4,340) (5,394)
Minimum pension liability (10) (10)
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Total stockholders' equity 246,838 244,898
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Total liabilities and stockholders' equity $569,243 $503,560
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</TABLE>
The accompanying notes are an integral part of these statements.
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CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
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(Dollars in thousands)
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Three months ended
October 31,
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1998 1997
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NET CASH PROVIDED BY OPERATING ACTIVITIES $ 19,439 $ 9,478
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (7,596) (13,628)
Acquisition of businesses, including transaction costs,
net of cash acquired (43,144) (9,007)
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Net cash used by investing activities (50,740) (22,635)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in revolving note borrowings 41,712 13,857
Funds provided by long-term debt 1,819 115
Funds used to reduce long-term debt (1,556) (3,266)
Net proceeds from exercise of stock options and related tax benefits 28 177
Purchase of treasury stock (11,866) ---
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Net cash provided by financing activities 30,137 10,883
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS 228 100
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Net decrease in cash (936) (2,174)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,143 9,017
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,207 $ 6,843
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net $ 2,762 $ 2,147
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Income taxes $ 1,959 $ 2,732
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</TABLE>
The accompanying notes are an integral part of these statements.
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CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
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1. BASIS OF PRESENTATION
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The condensed consolidated financial statements presented herein are unaudited.
Certain information and footnote disclosures normally prepared in accordance
with generally accepted accounting principles have been either condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. Although the registrant believes that all adjustments necessary for
a fair presentation have been made, interim period results are not necessarily
indicative of the results of operations for a full year. As such, these
financial statements should be read in conjunction with the financial statements
and notes thereto included in the registrant's most recent Form 10-K which was
filed for the fiscal year ended July 31, 1998.
2. INVENTORIES
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Inventories of the Company consist of the following:
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October 31, July 31,
1998 1998
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(Dollars in thousands)
Raw materials $ 42,585 $ 40,089
Work-in-process 33,556 27,485
Finished goods 66,991 62,733
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$143,132 $130,307
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</TABLE>
3. EARNINGS PER SHARE
------------------
Basic earnings per common share are computed based on the weighted average
common shares outstanding. Diluted earnings per common share are computed based
on the weighted average common shares outstanding plus additional shares assumed
to be outstanding to reflect the dilutive effect of common stock equivalents.
The following table sets forth the computation of basic and diluted earnings per
share:
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<CAPTION>
Three Months Ended
October 31,
---------------------------------
1998 1997
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<S> <C> <C>
(Dollars in thousands, except per
share data)
Net income $ 12,364 $ 11,450
--------------- ---------------
Basic earnings per common share:
Weighted average common shares outstanding 29,976,797 28,196,613
Basic earnings per common share $0.41 $0.41
=============== ===============
Diluted earnings per common share:
Weighted average common shares outstanding 29,976,797 28,196,613
Shares issuable from assumed conversion of dilutive
stock options 346,023 3,089,060
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Weighted average common and common equivalent shares 30,322,820 31,285,673
Diluted earnings per common share $0.41 $0.37
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</TABLE>
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Options to purchase 982,200 shares of common stock were outstanding during the
three month period ended October 31, 1998 but were not included in the
computation of diluted earnings per common share as the option's exercise price
was greater than the average market price of the common stock for the respective
period.
4. OTHER COMPREHENSIVE INCOME
--------------------------
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130") in the first quarter of fiscal
1999. SFAS No. 130 established standards for reporting and displaying
comprehensive income and its components in financial statements. Comprehensive
income is defined as net income and all nonowner changes in stockholders'
equity. The Company's comprehensive income differs from net income due to
foreign currency translation adjustments. Total comprehensive income was $13.4
million and $11.6 million for the three months ending October 31, 1998 and 1997,
respectively.
5. BUSINESS ACQUISITIONS
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On August 3, 1998, the Company acquired an 80% interest in HEW-Kabel Heinz
Eilentropp GmbH & Co. KG, and related entities, ("HEW/CDT") located in
Wipperfurth, Germany. The acquisition was accounted for using the purchase
method under APB Opinion No. 16 and the assets and liabilities assumed were as
follows:
(Dollars in thousands)
Assets acquired, net of cash $ 65,228
Liabilities assumed (22,859)
Notes issued (8,198)
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Net cash paid $ 34,171
=============
On September 25, 1998, the Company acquired the assets of Network Essentials,
Inc., ("Red Hawk") based in Milpitas, California. The acquisition was accounted
for using the purchase method under APB Opinion No. 16.
The operations and financial position of HEW/CDT and Red Hawk are not material
to either the consolidated operations or financial position of the Company,
therefore, pro forma financial information is not presented.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cable Design Technologies is a leading manufacturer of technologically advanced
electronic data transmission cable for network, communication, specialty
electronics, and automation and process control applications, including complete
voice and data wiring solutions, fiber optic connective solutions and other
components required to build high performance telecommunication infrastructures.
This discussion and analysis of the Company's financial condition and results of
operations should be read in conjunction with the Company's unaudited condensed
consolidated financial statements and the notes thereto.
Results of Operations
Overview
The Company reported record quarterly sales, operating profit and earnings per
share for the three months ended October 31, 1998 ("first quarter 1999").
Operating profit advanced 22% and diluted earnings per share increased 11%
compared to the three months ended October 31, 1997 ("first quarter 1998"). The
acquisition of HEW/CDT significantly contributed to these improved operating
results.
Sales increased 7% to a record $173.6 million, including $16.5 million of sales
attributable to the recently acquired businesses, primarily HEW/CDT and
Orebro/CDT. Reported sales were negatively impacted in the first quarter 1999 by
the effect of foreign currency translation primarily as a result of a 10%
decline in the Canadian exchange rate in the first quarter 1999 as compared to
the first quarter 1998. Sales were also reduced due to the effect of the 24%
decline in the average price of copper from the first quarter 1998 which
resulted in reduced selling prices on certain of the Company's products. After
adjusting for the effects of foreign currency rate changes and the decline in
the average price of copper, the Company estimates that sales increased 11% on a
year over year basis.
Net income for the first quarter 1999 increased 8% to $12.4 million ($0.41 per
diluted share) compared to $11.5 million ($0.37 per diluted share) for the first
quarter 1998.
Three Months Ended October 31, 1998 Compared to
Three Months Ended October 31, 1997
Sales Sales for the first quarter 1999 increased $11.5 million, or 7%, to
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$173.6 million compared to $162.1 million for the first quarter 1998. Sales for
the Network Communication Product Group, which includes network structured
wiring systems products and communication cable, were $92.2 million for the
first quarter 1999 compared to $97.9 million for the first quarter 1998, a
decline of 6%. Reported sales for this group were negatively impacted by the
effects of foreign currency translation and the lower average price of copper.
After adjusting for the effects of foreign currency rate changes and the decline
in the average price of copper, the sales for this group were relatively flat on
a year-over-year basis. Increased sales volume of high performance Level 6 and 7
network cables during the quarter partially offset the lower sales volume and
lower average selling prices for plenum category 5 cables. First quarter 1999
sales for the Specialty Electronics Product Group increased $17.1 million, or
27%, to $81.4 million compared to $64.3 million for the first quarter 1998. The
increase for this group was primarily due to an additional $16.1 million of
sales attributable to the recently acquired businesses.
Sales outside of North America increased $16.1 million, or 64%, to $41.1 million
for the first quarter 1999 compared to $25.0 million for the same period last
year. Sales attributable to the recently acquired businesses accounted for $15.1
million of the increase in sales outside of North America.
Gross Profit Gross profit for the first quarter 1999 increased $5.9 million, or
- ------------
13%, to $53.0 million compared to $47.1 million for the first quarter 1998.
Gross profit for the first quarter 1999 includes $4.8 million of additional
gross profit attributable to the recently acquired businesses, which primarily
benefitted the Specialty Electronics Product Group. Excluding the gross profit
from acquisitions, the remaining increase in first quarter 1999 gross profit was
primarily attributable to the Network Communication Product Group.
The gross margin for the first quarter 1999 was 30.5% compared to 29.0% for the
first quarter 1998. Lower
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material costs as a percentage of sales, primarily due to the lower average cost
of copper, contributed to the improved gross margin. The improved gross margin
percentage also reflects the effect of the reduction in the Canadian exchange
rate which resulted in lower comparative product costs on U.S. denominated sales
by the Company's Canadian businesses. The mix effect of higher sales of the
relatively higher margin Level 6 and 7 network cable products and lower sales of
the relatively lower margin communication cable products also benefitted the
first quarter 1999 gross margin.
Selling, General and Administrative Expense Selling, general and administrative
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expense ("SG&A") for the first quarter 1999 was $29.0 million compared to $27.3
million for the first quarter 1998. The increase in SG&A attributable to the
recently acquired businesses more than offset reductions in SG&A expense
achieved as a result of NORDX/CDT's discontinuance of its DynaTraX(TM) product
line, restructuring activities, and other expense reduction efforts. As a
percentage of sales, SG&A for the first quarter 1999 was 16.7% compared to 16.8%
for the first quarter 1998.
Income from Operations Income from operations for the first quarter 1999
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increased $4.3 million, or 22%, to $24.1 million compared to $19.8 million for
the first quarter 1998. The operating margin, derived by dividing operating
income by net sales, was 13.9% for the first quarter 1999 compared to 12.2% for
the first quarter 1998.
Interest Expense Interest expense was $3.2 million for the first quarter 1999,
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an increase of $1.3 million compared to the first quarter 1998. This increase
was primarily due to the higher average balance of debt outstanding due to the
acquisition of HEW/CDT at the beginning of the first quarter 1999 and the
purchase of 826,200 shares of the Company's common stock during the quarter.
Income Tax Provision The effective tax rate increased to 40.0% in the first
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quarter 1999 compared to 37.7% in the first quarter 1998. Factors contributing
to the increase in the effective tax rate were the higher German tax rate
applicable to the Company's recently acquired HEW/CDT subsidiary and lower
Canadian research and development tax credits.
Net Income Net income for the first quarter 1999 increased $0.9 million, or 8%
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to $12.4 million ($0.41 per diluted share) compared to net income of $11.5
million ($0.37 per diluted share) for the first quarter 1998.
Financial Condition
Liquidity and Capital Resources
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The Company's primary credit agreement (the "Credit Agreement") was amended on
August 3, 1998 to, among other things, increase the borrowing limit under its
U.S. revolving credit facility, and to include a German loan sub-facility. The
Credit Agreement as amended is comprised of a $121.3 million U.S. revolving
facility, including a USD $50.0 million Deutschmark sub-facility, and a CDN
$115.0 million Canadian revolving facility. The Company also maintains a foreign
credit facility in the United Kingdom which provides for up to approximately
$12.4 million of borrowings. At October 31, 1998, the Company had outstanding
borrowings of approximately $168.0 million and $12.4 million under the Credit
Agreement and foreign credit facility, respectively.
Effective December 14, 1998, the Company entered into a 364-day, unsecured
revolving credit agreement (the "Revolving Facility") with a bank. The Revolving
Facility provides for maximum borrowings of $35.0 million. Outstanding
borrowings bear floating interest rates of either LIBOR plus the applicable
margin or the base rate, as defined, at the Company's election. The applicable
margin over LIBOR ranges from .525% to 1.05% and is determined based on the
attainment of specified leverage ratios. A facility fee of between .10% and
.20%, based upon a specific leverage ratio, is payable quarterly on the maximum
facility amount. The Revolving Facility contains customary financial and
non-financial covenants, except as limited by the terms of the existing Credit
Agreement. The Revolving Facility will be used in part to fund the repurchase
program described below and for working capital and other general corporate
purposes.
Based on an analysis of current expectations for its business, management
believes that the Company's cash flow from operations, funds available under its
credit agreements, and ability to attract short term and long term capital will
provide it with sufficient liquidity to meet its current liquidity needs.
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Share Repurchase On December 1, 1998, the Company's Board of Directors approved
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the purchase of up to 1.9 million shares of the Company's common stock that was
acquired by certain key employees upon the exercise of certain incentive stock
options granted primarily in 1988 and 1989 and expiring in 1998 and 1999. The
offer to the employees to purchase such stock will be made in the Company's
second fiscal quarter ending January 31, 1999, based upon the closing price of
the Company's common stock on the date of the purchase. The Company will receive
a cash benefit through the reduction of income taxes due to the disqualification
of the qualified status of the incentive stock options upon the repurchase.
Under GAAP, the tax benefit received will not be reflected in the income
statement. In connection with the Company's purchase of this stock, the
employees will be paid an incentive payment to induce them to offer such shares
for purchase by the Company so that it may receive the related tax benefit. The
Company will share the tax benefit by making an incentive payment to each
employee equal to 19.6% of the tax deduction obtained as a result of the shares
repurchased from such employee. The incentive payment is intended to partially
compensate the employee for the difference between the income tax rate for
ordinary income and for long term capital gains and will result in a non-
recurring charge to operating earnings. The amount of the tax benefit received
by the Company and the amount of the incentive payments to employees will be
determined by the number of shares actually purchased and the price of the stock
on the date of purchase. The purchase price for the shares and the incentive
payments will be paid in cash, notes or a combination thereof.
Working Capital During the first quarter 1999, operating working capital
- ---------------
decreased $1.8 million excluding increases resulting from the initial recording
of the working capital of acquired businesses. The change in operating working
capital was primarily the result of a decrease in accounts receivable of $10.0
million and an increase in taxes payable of $6.7 million, offset by a decrease
in accounts payable of $12.3 million and an increase in inventories of $2.7
million. The change in operating working capital excludes changes in cash and
cash equivalents and current maturities of long-term debt.
Cash Flow Including the decrease in working capital, the Company
- ---------
generated $19.4 million of net cash from operating activities during the first
quarter 1999. Net cash used by investing activities of $50.7 million included
$43.1 million for the acquisition of businesses, primarily HEW/CDT, and $7.6
million for capital projects. Net cash provided by financing activities of $30.1
million included $42.0 million from debt sources, partially offset by $11.9
million used for the purchase of 826,200 shares of the Company's common stock.
Fluctuation in Copper Price
The cost of copper in inventories (including finished goods) reflects purchases
over various periods of time ranging from one to several months for each of the
Company's individual operating units. For communication cable products,
profitability is generally not significantly affected by volatility of copper
prices as changes in copper prices are generally passed along to customers,
however, differences in the timing of selling price adjustments do occur and may
impact near term results. For other product lines, although selling prices are
not generally adjusted to directly reflect changes in copper prices, the relief
of copper costs from inventory for those operating units having longer inventory
cycles may affect profitability from one period to the next following periods of
significant movement in the cost of copper. The Company does not engage in
activities to hedge the underlying value of its copper inventory.
New Accounting Standards
The FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131") in June 1997. SFAS No. 131 establishes standards for reporting information
about operating segments. SFAS No. 131 is effective for the Company's fiscal
year ending July 31, 1999. Adoption of this standard will not change the
reported results of operations or financial position of the Company, however
compliance with the provisions of this standard will add, expand and/or modify
various disclosures made in conjunction with the financial statements. The
Company plans to provide appropriate financial statement disclosure under SFAS
No. 131 in its Form 10-K for the fiscal year ended July 31, 1999.
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). This statement establishes
accounting and reporting standards for derivative instruments and requires
recognition in the balance sheet of all derivative instruments as either assets
or liabilities, measured at fair value. SFAS No. 133 is effective for the
Company's fiscal year ending July 31, 2000. The Company does not
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believe the adoption of SFAS No. 133 will have a material effect on the
Company's results of operations, financial position or cash flows.
Year 2000 Issues
Readers are cautioned that forward-looking statements contained in the Year 2000
discussion below should be read in conjunction with the Company's disclosures
under the heading "Forward-Looking Statements".
The Company has assessed the potential impact of the Year 2000 date processing
issue on its information technology ("IT") systems and has plans to modify or
replace non-compliant IT systems. Many of the Company's operating units have
acquired, or plan to acquire, new IT systems in order to improve functionality
and provide additional system capabilities. The Company anticipates completing
all remaining required modifications or replacements prior to August 1999. The
cost to maintain or modify IT systems is expensed as incurred, while the cost of
new hardware and software is capitalized and amortized over the estimated useful
life of the IT system. As of October 31, 1998, the Company has expended
approximately $2.6 million to replace or modify such IT systems, and estimates
an additional $0.8 million will be expended over the next 9 months. Costs to
address the Year 2000 issue are being funded through operating cash flows, and
based on management's assessment, expenditures associated with modifying or
replacing existing IT systems to resolve the Year 2000 issue will not have a
material adverse effect on the Company's results of operations, liquidity or
capital resources.
Each division and subsidiary of the Company has undertaken or is in the process
of completing a review of the impact of the Year 2000 issue on their non-IT
systems and on key suppliers and customers. While all such reviews are not yet
completed, the Company has not become aware of any materially adverse Year 2000
compliance issues relating to its non-IT systems or key customers or suppliers.
As reviews of non-IT systems and third party compliance have not yet been
completed, the Company has not determined whether or not a contingency plan for
Year 2000 issues is necessary. There can be no assurance, however, that
inadequate Year 2000 compliance by third parties, non-compliance of systems or
other unanticipated effects will not cause business disruptions that may have an
adverse effect on the Company's operations.
The costs of Year 2000 compliance modifications and the date by which management
believes such modifications will be complete are management's best estimates
based on information currently available. Actual results could differ materially
from those anticipated due to uncertainties including, but not limited to, the
ability to locate and correct all relevant computer codes, and the availability
and cost of necessary external resources.
Forward-Looking Statements -- Under the Private Securities Litigation Act of
1995
Certain statements in this quarterly report are forward-looking statements,
including, without limitation, statements regarding future financial results and
performance, and the Company's or management's beliefs, expectations or
opinions. These statements are subject to various risks and uncertainties, many
of which are outside the control of the Company, including the level of market
demand for the Company's products, competitive pressures, the ability to achieve
reductions in operating costs and to continue to integrate acquisitions, price
fluctuations of raw materials and the potential unavailability thereof, foreign
currency fluctuations, technological obsolescence, environmental matters and
other specific factors discussed in the Company's Annual Report on Form 10-K for
the year ended July 31, 1998, and other Securities and Exchange Commission
filings. The information contained herein represents management's best judgement
as of the date hereof based on information currently available; however, the
Company does not intend to update this information to reflect developments or
information obtained after the date hereof and disclaims any legal obligation to
the contrary.
13-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
15.1 Letter of Arthur Andersen LLP regarding unaudited interim
financial statement information.
27.1 Financial data schedule.
(b) Reports on Form 8-K:
None.
14-
<PAGE>
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.
CABLE DESIGN TECHNOLOGIES CORPORATION
/s/ Paul M. Olson
-------------------------------------------------------
December 15, 1998 Paul M. Olson
President and Chief Executive Officer
/s/ Kenneth O. Hale
-------------------------------------------------------
December 15, 1998 Kenneth O. Hale
Vice President and Chief Financial Officer
15-
<PAGE>
EXHIBIT 15.1
November 25, 1998
To the Stockholders and Board of Directors of
Cable Design Technologies Corporation:
We are aware that Cable Design Technologies Corporation has incorporated by
reference in its Registration Statements on Form S-3 (Registration No.
333-00554); Form S-8 (Registration No. 33-73272); Form S-8 (Registration No.
33-78418); Form S-8 (Registration No. 333-2450); Form S-8 (Registration No.
333-6743); and Form S-8 (Registration No. 333-17443) its Form 10-Q for the
quarter ended October 31, 1998, which includes our report dated November 25,
1998, covering the unaudited interim financial statement information contained
therein. Pursuant to Regulation C of the Securities Act of 1933 (the Act), that
report is not considered a part of the registration statements prepared or
certified by our firm or a report prepared or certified by our firm within the
meaning of Sections 7 and 11 of the Act.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
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<PAGE>
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This schedule contains summary financial information extracted from the
Unaudited Condensed Consolidated Balance Sheet and Statement of Income as of and
for the three month period ended October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
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