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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 January 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
---------- -----------
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 03/10/98
----- -----------------------
Common Stock, $.01 Par Value 29,027,635
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CABLE DESIGN TECHNOLOGIES CORPORATION
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TABLE OF CONTENTS
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PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements........................................... 3
Review Report of Independent Public Accountants for
the Three Months and Six Months Ended January 31, 1998 and 1997. 4
Cable Design Technologies Corporation and
Subsidiaries Condensed Consolidated Statements of
Income - Unaudited for the Three Months and Six Months Ended
January 31, 1998 and 1997...................................... 5
Cable Design Technologies Corporation and
Subsidiaries Condensed Consolidated Balance Sheets
as of January 31, 1998 (Unaudited), and July 31, 1997.......... 6
Cable Design Technologies Corporation and
Subsidiaries Condensed Consolidated Statements of
Cash Flows - Unaudited for the Six Months
Ended January 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.............................................. 15
ITEM 2 Changes in Securities.......................................... 15
ITEM 3 Defaults upon Senior Securities................................ 15
ITEM 4 Submission of Matters to a Vote of Security Holders............ 15
ITEM 5 Other Information.............................................. 16
ITEM 6 Exhibits and Reports on Form 8-K............................... 16
SIGNATURES ............................................................... 17
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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 condensed 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 condensed
consolidated financial statements for the three month and six month periods
ended January 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
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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
January 31, 1998, and the related condensed consolidated statements of income
for the three month and six month periods ended January 31, 1998 and 1997, and
the condensed consolidated statements of cash flows for the six month periods
ended January 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, 1997, and, in our report dated
September 9, 1997, 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, 1997, is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
Pittsburgh, Pennsylvania, Arthur Andersen LLP
February 19, 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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(In thousands, except per share data)
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<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- ---------
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Net Sales $155,638 $113,957 $317,782 $229,928
Cost of sales 110,471 78,695 225,539 159,961
-------- -------- -------- ---------
Gross profit 45,167 35,262 92,243 69,967
Selling, general and administrative expenses 27,756 21,456 55,061 42,181
-------- -------- -------- ---------
Income from operations 17,411 13,806 37,182 27,786
Interest expense, net 1,917 1,026 3,831 2,143
Other (income) expense (566) 185 (1,095) 140
-------- -------- -------- ---------
Income before income taxes 16,060 12,595 34,446 25,503
Income tax provision 6,134 4,655 13,070 9,425
-------- -------- -------- ---------
Net income $ 9,926 $ 7,940 $ 21,376 $ 16,078
======== ======== ======== =========
Per share data:
Basic earnings per common share $ 0.35 $ 0.29 $ 0.75 $ 0.59
Diluted earnings per common share $ 0.32 $ 0.26 $ 0.68 $ 0.52
======== ======== ======== =========
</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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(In thousands, except share and per share data)
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<CAPTION>
As of As of
January 31, July 31,
1998 1997
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ASSETS (unaudited)
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Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 6,150 $ 9,017
Accounts receivable, net of allowance for uncollectible amounts of $4,518
and $4,665, respectively 114,616 112,051
Inventories 129,085 120,974
Other current assets 5,816 5,503
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Total current assets 255,667 247,545
Net property, plant and equipment 146,178 127,568
Goodwill, net 53,363 45,248
Other assets 8,774 9,138
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Total assets $463,982 $429,499
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Current liabilities $ 90,592 $ 85,520
Long-term debt, excluding current maturities 132,989 126,661
Other non-current liabilities 12,939 12,193
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Total liabilities 236,520 224,374
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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,
issued and outstanding, 28,818,405 and 28,133,798 shares, respectively 288 188
Paid in capital 161,806 158,670
Deferred compensation (52) (87)
Retained earnings 69,500 48,219
Currency translation adjustment (4,080) (1,865)
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Total stockholders' equity 227,462 205,125
Total liabilities and stockholders' equity $463,982 $429,499
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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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Six Months Ended
January 31,
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1998 1997
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NET CASH PROVIDED BY OPERATING ACTIVITIES $ 22,885 $ 3,857
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (27,633) (8,455)
Acquisition of businesses, including transaction costs,
net of cash acquired (10,656) ---
--------- --------
Net cash used by investing activities (38,289) (8,455)
CASH FLOWS FROM FINANCING ACTIVITIES:
Funds provided by long-term debt 285 222
Funds used to reduce long-term debt (3,320) (4,451)
Net change in revolving note borrowings 13,564 5,831
Net proceeds from issuance of common stock 5 3
Net proceeds from exercise of stock options and related tax benefits 1,976 1,195
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Net cash provided by financing activities 12,510 2,800
EFFECT OF CURRENCY TRANSLATION ON CASH 27 (31)
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Net decrease in cash (2,867) (1,829)
Cash and cash equivalents, beginning of period 9,017 16,097
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Cash and cash equivalents, end of period $ 6,150 $14,268
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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:
---------------------
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, 1997.
2. INVENTORIES
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Inventories of the Company consist of the following:
January 31, July 31,
1998 1997
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(Dollars in thousands)
Raw materials $38,271 $34,424
Work-in-process 29,458 25,608
Finished goods 61,356 60,942
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$129,085 $120,974
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3. EARNINGS PER SHARE
------------------
During the second quarter of fiscal 1998, the Company adopted SFAS No. 128,
"Earnings Per Share." Under SFAS No. 128, earnings per share are classified as
basic earnings per share and diluted 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. All
prior periods have been restated to reflect this adoption. The following table
sets forth the calculations of earnings per share under SFAS No. 128.
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<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
------------------------ ------------------------
(Dollars In Thousands)
1998 1997 1998 1997
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Net income $ 9,926 $ 7,940 $ 21,376 $ 16,078
----------- ----------- ----------- -----------
Basic earnings per common share:
Weighted average common shares 28,499,853 27,397,613 28,348,233 27,323,588
Basic earnings per common share $ 0.35 $ 0.29 $ 0.75 $ 0.59
=========== =========== =========== ===========
Diluted earnings per common share:
Weighted average common shares 28,499,853 27,397,613 28,348,233 27,323,588
Shares issuable from assumed
conversion of dilutive stock
options 2,790,559 3,414,186 2,974,275 3,476,553
----------- ----------- ----------- -----------
Weighted average diluted common
shares 31,290,412 30,811,799 31,322,508 30,800,141
Diluted earnings per common share $ 0.32 $ 0.26 $ 0.68 $ 0.52
=========== =========== =========== ===========
</TABLE>
Options to purchase 99,000 and 787,500 shares of common stock were outstanding
during the three and six month periods ended January 31, 1998 and 1997,
respectively, but were not included in the computation of diluted EPS as the
options exercise price was greater than the average market price of the common
stock for the respective periods.
4. BUSINESS ACQUISITIONS
---------------------
On September 10, 1997, the Company acquired all the outstanding stock of Barcel
Acquisition Corporation, and its subsidiaries, based in Irvine, California. The
acquisition was accounted for using the purchase method under APB Opinion No.
16. The prior results are not material, therefore, pro forma financial
information is not presented.
5. STOCK SPLIT
-----------
On January 9, 1998, the Company effected a three for two stock split in the form
of a common stock dividend. Prior period share information presented in the
accompanying condensed consolidated financial statements has been adjusted to
reflect the effect of the split.
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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 cables for network, communications, 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 telecommunications
infrastructures.
The Company has refined its existing business groups. Effective with the
current quarter, results of operations for all periods presented will be
discussed along the following four principal lines of business: Network Products
Group; Communications Group; Automation & Process Control Group; and Specialty
Electronic Cable Group.
This discussion and analysis of the Company's financial condition and results of
operations should be read in conjunction with the Company's condensed
consolidated financial statements (unaudited) and the notes thereto.
RESULTS OF OPERATIONS
OVERVIEW
Sales for the three months ended January 31, 1998 ("second quarter 1998")
increased 36.6% to $155.6 million and net income increased 25.0% compared to the
three months ended January 31, 1997 ("second quarter 1997"). For the six months
ended January 31, 1998 ("first half 1998"), sales increased 38.2% to $317.8
million and net income increased 33.0% compared to the six months ended January
31, 1997 ("first half 1997"). Acquisition continues to be an important part of
the Company's strategy and the incremental sales attributable to the recently
acquired businesses accounted for approximately 71% and 69%, respectively, of
the increase in sales for the second quarter 1998 and first half 1998 as
compared to the same periods last year. The recently acquired businesses
include Dearborn/CDT (including Thermax/CDT), Barcel/CDT and Stronglink/CDT.
Results for the second quarter 1998 and first half 1998 reflect increased sales
in each of the Company's four principal business groups, resulting from the
additional sales contributed by the Company's recent acquisitions and internal
sales growth, primarily in the Communications Group. These results were achieved
despite an unfavorable impact on results of operations experienced as a result
of the severe January ice storms in the Canadian provinces of Quebec and Ontario
which generally disrupted business for several days and caused electric power
outages resulting in lost production at the Company's largest subsidiary,
Canadian-based NORDX/CDT and its NORCOM/CDT division. Also during the second
quarter 1998, the Company began the move of the NORDX/CDT Montreal operations
from two separate facilities into a new administration/manufacturing/R&D
facility. The move will be completed during the Company's third fiscal quarter.
Sales outside of North America were $26.3 million for the second quarter 1998
compared to $24.4 million for the same period last year, and were $51.3 million
for the first half 1998 compared to $49.8 million for the first half 1997,
including the additional sales outside of North America of the recently acquired
businesses. International sales outside of North America reflect reduced sales
in the U.K. and western Europe by the Company's U.K. based manufacturing and
distribution operations which were adversely affected by a stronger British
pound and competitive market conditions which are expected to continue into the
third fiscal quarter. Increased international sales in other geographic areas,
including Southeast Asia, Latin America, and eastern Europe, partially offset
the lower sales in the U.K. and western Europe.
THREE MONTHS ENDED JANUARY 31, 1998 COMPARED TO
THREE MONTHS ENDED JANUARY 31, 1997
Net Sales Net sales for the second quarter 1998 increased $41.6 million, or
- ---------
36.6%, to $155.6 million compared to $114.0 million for the second quarter 1997.
Net sales for the second quarter 1998 include additional sales of $29.7 million
attributable to the Company's recently acquired businesses. Network Products
Group sales increased $1.9 million over the second quarter 1997, primarily due
to an increase in sales of network cable products to the North American
marketplace, which increased approximately 9%, excluding an unfavorable foreign
currency translation effect. The increase in sales of network cable products,
including sales of the higher performance Level 6 cables, more than offset a
reduction in sales of network structured wiring components due to lower sales in
the U.K. and western European marketplaces as well as temporarily reduced demand
from a major North American customer reportedly implementing a value managed
inventory program.
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Also, the recent announcement by the Company of a new IBDN structured wiring
system based on the 110 standard to complement NORDX/CDT's BIX technology may
have temporarily reduced sales of network components during this transition
period until the complete introduction in the U.S. of the 110 system
alternative. Communications Group sales posted a significant increase of $10.4
million, as demand for additional phone lines to support increased Internet,
fax, telecommuting and other usages continues to drive the sales of local loop
distribution cables. Repairs of the local distribution telecommunication
infrastructure in eastern Canada and the northeast U.S. damaged as a result of
the January 1998 ice storms will help to sustain current demand for
communications cable. However, any immediate beneficial increase in demand was
not realized because of lost production at the NORCOM/CDT communications cable
plant as a result of electric power disruptions due to the ice storms. Sales of
Automation & Process Control Group products increased $13.3 million, primarily
due to additional sales attributable to the recently acquired Dearborn/CDT
business. Second quarter 1998 sales of Specialty Electronic Cable Group products
increased $16.6 million, primarily due to additional sales attributable to the
recently acquired Thermax/CDT and Dearborn/CDT businesses, in part reflecting
the strong demand for specialty commercial aircraft cable products and the
addition of cables and component assemblies for use in wireless communication
applications. Foreign currency translation negatively affected reported second
quarter 1998 sales principally as a result of a 6% reduction in the Canadian
exchange rate which affected the reported sales for the Network Products and
Communications Groups. Excluding the effect of foreign currency translation,
sales for the Network Products and Communications Groups increased 5% and 60%,
respectively.
Gross Profit Second quarter 1998 gross profit increased $9.9 million, or 28.1%,
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to $45.2 million compared to $35.3 million for the second quarter 1997. Gross
profit for the second quarter 1998 includes $8.2 million of additional gross
profit attributable to the recently acquired businesses. The gross profit on the
additional sales attributable to the recently acquired Dearborn/CDT, Thermax/CDT
and Barcel/CDT businesses substantially benefited the increase in gross profit
for the Automation & Process Control and Specialty Electronic Cable Groups,
which together accounted for a majority of the overall increase in gross profit
for the second quarter 1998. Gross profit for Communications Group products
accounted for a significant portion of the overall increase in gross profit for
the second quarter 1998. A significant drop in the market price of copper during
the quarter is estimated to have unfavorably impacted second quarter 1998 gross
profit for the Communications Group by approximately $1 million.
The gross margin percentage for the second quarter 1998 was 29.0% compared to
30.9% for the second quarter 1997. Factors contributing to the lower second
quarter 1998 gross margin percentage include higher quarterly sales of the lower
margin Communications Group cables compared to second quarter 1997 and the
inclusion of the additional sales from the recently acquired businesses, which
have a lower gross margin percentage than the Company's previous gross margin
percentage.
Selling, General and Administrative Expense Selling, general and
- -------------------------------------------
administrative expense ("SG&A") for the second quarter 1998 increased $6.3
million, or 29.4%, to $27.8 million compared to $21.5 million for the second
quarter 1997, primarily due to the additional SG&A of the recently acquired
businesses. As a percentage of sales, SG&A for the second quarter 1998 was 17.8%
compared to 18.8% for the second quarter 1997. The decrease in SG&A as a
percentage of sales for the second quarter 1998 is the result of the lower
average SG&A as a percentage of sales of the recently acquired businesses
compared to the Company's previous SG&A as a percentage of sales.
Income from Operations Income from operations for the second quarter 1998
- ----------------------
increased $3.6 million, or 26.1%, to $17.4 million compared to $13.8 million for
the second quarter 1997. The operating margin was 11.2% for the second quarter
1998 compared to 12.1% for the second quarter 1997.
Net Income Net income for the second quarter 1998 increased $2.0 million, or
- ----------
25.0%, to $9.9 million ($0.32 per diluted share) compared to net income of $7.9
million ($0.26 per diluted share) for the second quarter 1997. Net income for
the second quarter 1998 includes approximately $0.3 million (net of tax) of net
foreign currency gains, primarily by the Company's Canadian operations.
SIX MONTHS ENDED JANUARY 31, 1998 COMPARED TO
SIX MONTHS ENDED JANUARY 31, 1997
Net Sales Net sales for the first half 1998 increased $87.9 million, or 38.2%,
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to $317.8 million compared to $229.9 million for the first half 1997. The
increase in net sales for the first half 1998 include additional sales of $60.6
million attributable to the Company's recently acquired businesses. Network
Products Group sales increased $7.9 million over the first half 1997. Sales of
network cable products increased 12% of which sales to the North American
marketplace increased approximately 20%, excluding an unfavorable foreign
currency translation effect. Sales of the higher performance Level 6 network
cables accounted for 59% of the 12% overall increase in sales of network cable
products. The increase in network cable products sales reflects an increase in
sales of plenum cable products which offset a decline in sales of non-plenum
cable products resulting primarily from competitive conditions in the U.K. and
western European marketplaces. Decreased sales of structured wiring
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components reflects temporarily reduced sales to a major North American customer
reportedly implementing a value managed inventory program and lower sales in
Europe. Excluding an unfavorable foreign currency translation effect, of which
the principal cause was a 4% decline in the Canadian exchange rate, the increase
in Network Products Group sales was approximately 8%. Communications Group sales
increased $20.4 million, as demand for additional phone lines to support
increased Internet, fax, telecommuting and other usages continues to drive the
sales of local loop distribution cables. Sales of Automation & Process Control
Group products increased $27.8 million, primarily due to the additional sales of
$25.6 million attributable to the recently acquired businesses, particularly
Dearborn/CDT. Specialty Electronic Cables Group sales increased $33.5 million,
including additional sales of $33.0 million attributable to the recently
acquired businesses, primarily sales of commercial aircraft cable products and
wireless communication cables and component assemblies.
Gross Profit First half 1998 gross profit increased $22.3 million, or 31.8%, to
- ------------
$92.2 million compared to $70.0 million for the first half 1997. Gross profit
for the first half 1998 includes $17.1 million of additional gross profit
attributable to the recently acquired businesses. The gross profit on the
additional sales attributable to the recently acquired Dearborn/CDT, Thermax/CDT
and Barcel/CDT businesses substantially benefited the increase in gross profit
for the Automation & Process Control and Specialty Electronic Cable Groups,
which together accounted for a majority of the overall increase in gross profit
for the second quarter 1998. Increases in gross profit for the Communications
Group, and to a lesser extent the Network Products Group, accounted for a
significant portion of the overall increase in gross profit for the first half
1998.
The gross margin percentage for the first half 1998 was 29.0% compared to 30.4%
for the first half 1997. Factors contributing to the lower first half 1998
gross margin include higher first half 1998 sales of the lower margin
Communications Group cables and the inclusion of the additional sales from the
recent acquisitions which have a lower gross margin percentage than the
Company's previous gross margin percentage.
Selling, General and Administrative Expense SG&A for the first half 1998
- -------------------------------------------
increased $12.9 million to $55.1 million compared to $42.2 million for the first
half 1997, primarily due to the additional SG&A of the recently acquired
businesses. As a percentage of sales, SG&A for the first half 1998 was 17.3%
compared to 18.3% for the first half 1997. The decrease in SG&A as a percentage
of sales for the first half 1998 is the result of the lower average SG&A as a
percentage of sales of the recently acquired businesses compared to the
Company's previous SG&A as a percentage of sales.
Income from Operations Income from operations for the first half 1998
- ----------------------
increased $9.4 million, or 33.8%, to $37.2 million compared to $27.8 million for
the first half 1997. The operating margin was 11.7% for the first half 1998
compared to 12.1% for the first half 1997.
Net Income Net income for the first half 1998 increased $5.3 million, or
- ----------
33.0%, to $21.4 million ($0.68 per diluted share) compared to net income of
$16.1 million ($0.52 per diluted share) for the first half 1997. Net income for
the first half 1998 includes approximately $0.6 million (net of tax) of net
foreign currency transaction gains, primarily by the Company's Canadian
operations.
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FINANCIAL CONDITION
Liquidity and Capital Resources Based on the Company's current expectations for
- -------------------------------
its business, management believes that its cash flow from operations and the
available portion of its revolving credit facilities and foreign credit
facilities will provide it with sufficient liquidity to meet its current
liquidity needs.
Working Capital During the first half 1998, operating working capital increased
- ---------------
$6.0 million. The change in operating working capital was primarily the result
of increases in raw material and work-in-process inventories of $7.7 million
and in accounts receivable of $2.1 million and a decrease in accrued
liabilities of $0.9 million, which were partially offset by an increase in
accounts payable of $4.6 million. The change in operating working capital
excludes changes in cash and cash equivalents and current maturities of long-
term debt.
Cash Flow The Company generated $28.9 million of net cash from operating
- ---------
activities during the first half 1998, before providing for the $6.0 million
increase in operating working capital. Financing activities during the first
half 1998 provided net cash of $12.5 million, including $10.5 million from debt
sources and $2.0 million from the exercise of stock options. Net cash used by
investing activities of $38.3 million included $10.7 million for the acquisition
of Barcel Wire and Cable Corp. and $27.6 million for capital projects, including
expenditures for construction and expansion of manufacturing and warehouse
facilities at NORDX/CDT, Raydex/CDT, and West Penn/CDT, the purchase of a
warehouse in the southeastern U.S. and of a formerly leased manufacturing
facility in Chicago, Illinois, and additional equipment and machinery to expand
production capacity, particularly at NORDX/CDT for communications cable
products, Thermax/CDT for commercial aircraft and other high-temperature cable
products, and at various other locations for high-performance wire and cable
products.
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 the Communications Group,
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 groups, 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
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 129, "Disclosure of Information about Capital Structure" ("SFAS No. 129").
SFAS No. 129 consolidates previous standards for disclosing information about an
entity's capital structure. Adoption of SFAS No. 129 is required for annual
periods ending after December 15, 1997. The Company will adopt SFAS No. 129 in
the fiscal year ending July 31, 1998.
The FASB issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130") in June 1997. SFAS No. 130 establishes
reporting standards for a new statement of comprehensive income and its
components to be included with the financial statements currently required.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
The Company will adopt SFAS No. 130 in the fiscal year ending July 31, 1999.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"). SFAS No. 131 establishes standards for reporting information
about operating segments. SFAS No. 131 is effective for fiscal years beginning
after December 15, 1997. The Company will adopt SFAS No. 131 in the fiscal year
ending July 31, 1999.
-13-
<PAGE>
YEAR 2000 ISSUES
The Company has assessed the impact of the Year 2000 issue on its information
systems, and expects to incur expenditures over the next 18 months to address
this issue. Maintenance or modification costs are expensed as incurred, while
the costs of new software are capitalized and amortized over the software's
useful life. Many of the Company's operating units have acquired, or plan to
acquire, new computer hardware and software systems in order to improve
functionality and provide additional capabilities. Based on management's
assessment, expenditures associated with modifying existing information systems
for Year 2000 compliance will not have a material effect upon the Company's
results of operations or liquidity and capital resources. Many of the Company's
suppliers and customers, many of which are located in Europe and other foreign
countries, rely significantly on computer systems. The Company does not monitor
such third parties' Year 2000 compliance procedures. There can be no assurance
that inadequate Year 2000 compliance by third parties will not cause business
disruptions which may have an adverse effect on the Company's operations.
FORWARD-LOOKING STATEMENTS -- Under the Private Securities Litigation Act of
1995
Certain statements in this quarterly report are forward-looking statements.
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, 1997, 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.
-14-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In December 1997, the Company and certain of its subsidiaries were named in a
lawsuit filed by the Furon Company (Case No. 1:97CF 3292, United States District
Court, N.D. Ohio). Such suit alleges that certain unspecified network cables
manufactured by the Company's subsidiaries infringe a patent held by the Furon
Company. The Furon Company has filed similar actions in the United States
District Court, N.D. Ohio against Comtran Corporation, Belden Wire & Cable
Company, Inc., Lucent Technologies Inc. and Alcatel NA Cable Systems, Inc.
These actions have been consolidated. The Company has denied such infringement.
While the outcome of any litigation is uncertain, the Company believes that
there are valid defenses to such suit.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Cable Design Technologies Corporation annual meeting of stockholders was
held on December 9, 1997.
(b) Proxies were solicited by Cable Design Technologies Corporation and there
was no solicitation in opposition to the nominees as listed in the proxy
statement. All such nominees were elected pursuant to the vote of the
stockholders as follows:
VOTES *
-----
For Withheld
---------- ---------
Bryan C. Cressey 16,148,222 1,039,737
Paul M. Olson 16,150,222 1,037,737
Myron S. Gelbach, Jr. 16,170,302 1,017,657
Michael F. O. Harris 16,148,732 1,039,227
Glenn Kalnasy 16,149,132 1,038,827
Richard C. Tuttle 16,172,232 1,015,727
The firm of Arthur Andersen LLP was re-elected to serve as auditors for the
fiscal year ending July 31, 1998, by a vote of:
For: * 16,978,593
Against: * 200,278
Abstain: * 9,088
* Reported vote results are on a pre-split basis.
-15-
<PAGE>
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.
20.1 1997 Proxy Statement, as filed on November 10, 1997, and
incorporated herein by reference.
27.1 Financial data schedule.
(b) Form 8-Ks
---------
None
-16-
<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
March 17, 1998 /s/ Paul M. Olson
-------------------------------------
Paul M. Olson
President/Chief Executive Officer
March 17, 1998 /s/ Kenneth O. Hale
-------------------------------------
Kenneth O. Hale
Vice President, Chief Financial Officer and Secretary
-17-
<PAGE>
EXHIBIT 15.1
February 19, 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 January 31, 1998, which includes our report dated February 19, 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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