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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, 1999
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 12/9/99
----- ----------------------
Common Stock, $.01 Par Value 28,248,976
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CABLE DESIGN TECHNOLOGIES CORPORATION
-------------------------------------
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements......................................... 3
Review Report of Independent Public Accountants for
the Three Months Ended October 31, 1999 and 1998............. 4
Condensed Consolidated Statements of
Income - Unaudited for the Three Months Ended
October 31, 1999 and 1998.................................... 5
Condensed Consolidated Balance Sheets
as of October 31, 1999 (Unaudited), and July 31, 1999........ 6
Condensed Consolidated Statements of
Cash Flows - Unaudited for the Three Months
Ended October 31, 1999 and 1998.............................. 7
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>
<PAGE>
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 as of and for the three month periods ended
October 31, 1999 and 1998, 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.
3
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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, 1999, and the related condensed consolidated statements of income
and cash flows for the three month periods ended October 31, 1999 and 1998.
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, 1999, and, in our report dated
September 20, 1999, 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, 1999, is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
Pittsburgh, Pennsylvania, /s/ Arthur Andersen LLP
November 24, 1999
4
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CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
-------------------------------------------------------
(In thousands, except share and per share data)
-----------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
October 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net sales $ 187,622 $ 173,624
Cost of sales 131,336 119,883
----------- -----------
Gross profit 56,286 53,741
Selling, general and administrative expenses 29,961 28,204
Research and development expenses 1,175 1,467
----------- -----------
Income from operations 25,150 24,070
Interest expense, net 2,985 3,222
Other expense 864 252
----------- -----------
Income before income taxes 21,301 20,596
Income tax provision 8,317 8,232
----------- -----------
Net income $ 12,984 $ 12,364
=========== ===========
Basic earnings per common share $ 0.46 $ 0.41
=========== ===========
Diluted earnings per common share $ 0.45 $ 0.41
=========== ===========
Weighted average common shares 28,196,158 29,976,797
=========== ===========
Weighted average common and common equivalent shares 28,882,992 30,322,820
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
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CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES
------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands, except share and per share data)
-----------------------------------------------
<TABLE>
<CAPTION>
As of As of
October 31, July 31,
1999 1999
------------ ---------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 13,556 $ 11,424
Accounts receivable, net of allowance for uncollectible amounts
of $5,081 and $4,926, respectively 130,929 130,936
Inventories 152,304 141,762
Other current assets 20,674 21,863
--------- --------
Total current assets 317,463 305,985
Property, plant and equipment, net 204,120 201,586
Goodwill, net 75,806 76,584
Other assets 10,492 10,945
--------- --------
Total assets $ 607,881 $595,100
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Current liabilities $ 144,173 $142,221
Long-term debt, excluding current maturities 165,852 171,727
Other non-current liabilities 30,291 29,050
--------- --------
Total liabilities 340,316 342,998
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, 30,847,417 and
30,778,928 shares issued, respectively 308 308
Paid in capital 180,008 178,979
Common stock issuable, 25,011 and 22,679 shares, respectively 384 253
Retained earnings 141,230 128,246
Treasury stock, at cost, 2,623,452 shares (49,262) (49,262)
Currency translation adjustment (5,103) (6,422)
--------- --------
Total stockholders' equity 267,565 252,102
--------- --------
Total liabilities and stockholders' equity $ 607,881 $595,100
========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
6
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CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES
------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
-----------------------------------------------------------
(In thousands)
--------------
<TABLE>
<CAPTION>
Three months ended
October 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 18,333 $ 19,439
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (5,426) (7,596)
Acquisition of businesses, including transaction costs,
net of cash acquired -- (43,144)
-------- --------
Net cash used by investing activities (5,426) (50,740)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in revolving note borrowings (11,184) 41,712
Funds provided by long-term debt 131 1,819
Funds used to reduce long-term debt (877) (1,556)
Common stock issued or issuable 416 --
Net proceeds from exercise of stock options and related tax benefits 744 28
Purchase of treasury stock -- (11,866)
-------- --------
Net cash (used) provided by financing activities (10,770) 30,137
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS (5) 228
-------- --------
Net increase (decrease) in cash 2,132 (936)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,424 11,143
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,556 $ 10,207
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net $ 2,924 $ 2,762
======== ========
Income taxes $ 6,862 $ 1,959
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
7
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CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
----------------------------------------------------------------
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, 1999.
2. INVENTORIES
-----------
Inventories of the Company consist of the following:
<TABLE>
<CAPTION>
October 31, July 31,
1999 1999
----------- -----------
(In thousands)
<S> <C> <C>
Raw materials $ 39,528 $ 36,851
Work-in-process 36,762 32,297
Finished goods 76,014 72,614
----------- -----------
$152,304 $141,762
=========== ===========
</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:
<TABLE>
<CAPTION>
Three Months Ended
October 31,
----------------------------
1999 1998
----------- -----------
(In thousands, except share
and per share data)
<S> <C> <C>
Net income $ 12,984 $ 12,364
----------- -----------
Basic earnings per common share:
Weighted average common shares outstanding 28,196,158 29,976,797
Basic earnings per common share $ 0.46 $ 0.41
=========== ===========
Diluted earnings per common share:
Weighted average common shares outstanding 28,196,158 29,976,797
Shares issuable from assumed conversion
of dilutive stock options 686,834 346,023
----------- -----------
Weighted average common shares-diluted 28,882,992 30,322,820
Diluted earnings per common share $ 0.45 $ 0.41
=========== ===========
</TABLE>
8
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Options to purchase 106,000 and 982,200 shares of common stock were outstanding
during the three month periods ended October 31, 1999 and 1998, respectively,
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 periods.
4. INDUSTRY SEGMENT INFORMATION
----------------------------
The Company's operations are organized into two business segments: the Network
Communication segment and the Specialty Electronic segment. Network
Communication encompasses connectivity products used within computer networks
and communication infrastructures for the electronic transmission of data,
voice, and multimedia. Products included in this segment are high performance
network cable, fiber optic cable and passive components, including connectors,
wiring racks and panels, and interconnecting hardware, for end-to-end network
structured wiring systems, and communication cable products for local loop,
central office, wireless and other applications, including assembly of products
for the wireless marketplace. Effective with the first quarter of fiscal 2000,
the Company is reporting sales of computer interconnect and wireless
communication products in its Network Communication segment to more
appropriately reflect the markets to which these products are sold. Prior period
segment information has been restated to conform to the current year
presentation. The Specialty Electronic segment encompasses electronic data and
signal transmission cables for automation and process control applications as
well as specialized wire and cable products for niche markets, including
commercial aviation and automotive electronics.
The Company evaluates segment performance based on operating profit excluding
nonrecurring charges, after allocation of Corporate expenses.
The Company has no inter-segment revenues. Summarized financial information for
the Company's business segments for the three months ended October 31, is as
follows:
<TABLE>
<CAPTION>
Network Specialty
Communication Electronic
Segment Segment Total
------------- ----------- ---------
(In thousands)
<S> <C> <C> <C>
Sales:
1999 $126,014 $61,608 $187,622
1998 $110,776 $62,848 $173,624
Segment Operating Profit:
1999 $ 15,315 $ 9,835 $ 25,150
1998 $ 13,857 $10,213 $ 24,070
</TABLE>
5. OTHER COMPREHENSIVE INCOME
--------------------------
Comprehensive income is defined as all changes in stockholders' equity during a
period except those resulting from investment by or distribution to
stockholders. The Company's comprehensive income differs from net income
primarily due to foreign currency translation adjustments. Total comprehensive
income was $14.3 million and $13.4 million for the three months ended October
31, 1999 and 1998, respectively.
6. RECLASSIFICATIONS
-----------------
Certain reclassifications have been made to the prior year statements to conform
with the current year presentation.
9
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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 the Network Communication and Specialty
Electronic marketplaces. Network Communication encompasses connectivity
products used within computer networks and communication infrastructures for the
electronic transmission of data, voice, and multimedia. Products included in
this segment are high bandwidth network cable, fiber optic cable and passive
components, including connectors, wiring racks and panels, and interconnecting
hardware, for end-to-end network structured wiring systems, and communication
cable products for local loop, central office, wireless and other applications,
including assembly of products for the wireless marketplace. The Specialty
Electronic segment encompasses electronic data and signal transmission cables
for automation and process control applications as well as specialized wire and
cable products for niche markets, including commercial aviation and automotive
electronics.
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
Sales for the three months ended October 31, 1999 ("first quarter 2000") were a
record $187.6 million, an increase of 8% compared to the same period a year ago.
Sales for the Network Communication segment increased 14% to $126.0 million, and
represented 67% of total revenue. The increase in sales for this segment was led
by 114% growth in sales of enhanced gigabit network cables (Category 5e and
Category 6), 33% growth in sales of wireless products and 30% growth in sales of
fiber optic products. Sales for the Specialty Electronic segment were $61.6
million, a decrease of 2% compared to the same period last year due to lower
sales to the aviation and automotive markets. The operating margin, derived by
dividing operating income by net sales, was 13.4% for the first quarter 2000
versus 13.9% for the same period last year. Net income for the first quarter
2000 increased $0.6 million, or 5%, to $13.0 million compared to net income of
$12.4 million for the three months ended October 31, 1998 ("first quarter
1999"). Diluted earnings per share increased 10%, to $0.45 per share, compared
to $0.41 per share for the first quarter 1999.
Three Months Ended October 31, 1999 Compared to
Three Months Ended October 31, 1998
Sales for the first quarter 2000 increased $14.0 million, or 8%, to a record
$187.6 million compared to $173.6 million for the first quarter 1999. Sales for
the Network Communication segment were $126.0 million for the first quarter
2000, an increase of 14% compared to sales of $110.8 million for the first
quarter 1999. The increase in sales for the Network Communication segment was
primarily due to a 114% increase in sales of high performance Category 5e and 6
network cables, a 33% increase in wireless communication product sales, and a
30% increase in sales of fiber optic cable and components, which were partially
offset by lower average selling prices for plenum Category 5 and 5e network
cables. First quarter 2000 sales for the Specialty Electronic segment decreased
$1.2 million, or 2%, to $61.6 million compared to $62.8 million for the first
quarter 1999. The decrease in sales for this segment was primarily due to lower
sales to the aviation and automotive markets. Sales outside of North America
were $41.0 million for the first quarter 2000, compared to $41.1 million for the
first quarter 1999. Increased sales to Southeast Asia and Latin America were
offset by lower sales in Western Europe, primarily for the Specialty Electronic
segment.
Effective with the first quarter 2000, the Company is reporting sales of
computer interconnect cables and wireless cables and assembly services in its
Network Communication segment to more appropriately represent the markets to
which these products are sold. Prior period segment information has been
restated to conform to the current year presentation.
Gross profit for the first quarter 2000 increased $2.5 million, or 5%, to $56.3
million compared to $53.7 million for the first quarter 1999, primarily due to
an increase in gross profit for the Network Communication segment as a result of
the increase in sales for this segment.
10
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The gross margin for the first quarter 2000 was 30.0% compared to 31.0% for the
first quarter 1999. The decrease in the gross margin was primarily the result
of a slightly lower gross margin for the Network Communication segment which was
partially offset by an improved margin for the Specialty Electronic segment.
Factors contributing to the slightly lower gross margin for the Network
Communication segment were: lower pricing on Category 5 and 5e network cables;
an increase in depreciation and other overhead expenses, primarily for certain
communication and component products; and a less favorable mix within wireless
products. These unfavorable factors were partially offset by an improved mix
due to increased sales of the relatively higher margin Category 5e and 6 network
cable products and lower product costs for network cables.
Selling, general and administrative expense ("SG&A") for the first quarter 2000
was $30.0 million compared to $28.2 million for the first quarter 1999. The
increase in SG&A was primarily due to higher volume related sales expenses. As a
percentage of sales, SG&A for the first quarter 2000 was 16.0% compared to 16.2%
for the first quarter 1999. First quarter 2000 research and development expense
decreased $0.3 million to $1.2 million compared to $1.5 million for the first
quarter 1999.
Income from operations for the first quarter 2000 increased $1.1 million, or 4%,
to $25.2 million compared to $24.1 million for the first quarter 1999. The
operating margin was 13.4% for the first quarter 2000 compared to 13.9% for the
first quarter 1999.
Interest expense decreased $0.2 million to $3.0 million for the first quarter
2000 compared to $3.2 million for the first quarter 1999 and was primarily due
to a lower average rate on the Company's primary credit facility. Other
expenses increased $0.6 million to $0.9 million for the first quarter 2000
compared to $0.3 million for the first quarter 1999, primarily due to net
foreign currency exchange losses. The effective tax rate was 39.0% for the
first quarter 2000 compared to 40.0% for the first quarter 1999. The change in
the effective tax rate was primarily due to a lower projected annual effective
rate as well as changes in the income mix among domestic and foreign statutory
entities.
Net income for the first quarter 2000 increased $0.6 million, or 5%, to $13.0
million compared to net income of $12.4 million for the first quarter 1999.
Diluted earnings per share increased 10%, to $0.45 per share, compared to $0.41
per share for the first quarter 1999.
Financial Condition
Liquidity and Capital Resources
- -------------------------------
The Company's primary credit agreement (the "Credit Agreement") consists of a
$121.3 million U.S. revolving facility, which includes a USD $50.0 million
Deutschmark sub-facility, and a CDN $115.0 million Canadian revolving facility
equivalent to approximately USD $78.2 million. The Company also maintains a
bank credit facility in the United Kingdom equivalent to approximately USD $12.3
million (the "Foreign Facility"). At October 31, 1999, the Company had
outstanding borrowings of $158.4 million and $9.9 million under the Credit
Agreement and Foreign Facility, respectively.
The Company's 364-day, $35 million unsecured bank revolving credit agreement
terminated on December 13, 1999, at which time the Company repaid the $18.0
million outstanding under the facility through borrowings under the Credit
Agreement and entered into a new 364-day, unsecured bank revolving credit
agreement (the "364-day Facility") which provides for maximum borrowings of
$15.0 million. As of December 13, 1999, there were no amounts outstanding under
the 364-day Facility.
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.
During the first quarter 2000, operating working capital increased $1.3 million.
The change in operating working capital was primarily the result of an increase
in inventories of $9.2 million and a decrease in accrued liabilities of $3.0
million, which was partially offset by an increase in accounts payable of $9.0
million. The change in operating working capital excludes changes in cash and
cash equivalents and current maturities of long-term debt.
11
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The Company generated $18.3 million of net cash from operating activities during
the first quarter 2000, after providing for the $1.3 million increase in
operating working capital. Net cash used by investing activities of $5.4
million represented investments in capital projects. Net cash used by financing
activities was $10.8 million, including $11.9 million used to reduce outstanding
debt.
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 operations. 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 products, although selling prices are not generally adjusted
to directly reflect changes in copper prices, the relief of copper costs from
inventory for those operations 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 June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 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. This statement has been amended by Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the effective date of SFAS No. 133" ("SFAS
No. 137"). SFAS No. 137 is effective for the Company's fiscal year ending July
31, 2001. The Company does not believe the adoption of SFAS No. 137 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".
Each of the Company's operating units has established a Year 2000 project leader
and, in the case of the larger units, a project team. In addition, CDT's
corporate headquarters has established a Year 2000 project team. The function of
each unit's project team is to identify and remediate Year 2000 issues at their
respective facilities. The function of the corporate team is to review and
remediate any corporate-wide Year 2000 issues and monitor the status of the
remediation activities of the operating units.
Each operating unit has assessed their internal information systems ("IT
systems") and non-information systems ("non-IT systems"), such as manufacturing
equipment and control devices. As of November 30, 1999, all operating units of
the Company have completed the Year 2000 remediation believed necessary with
respect to their IT systems. The remediation of such IT systems has included
the purchase of new hardware and software or the modification of existing
software. In certain cases, new IT systems were acquired to improve
functionality and provide additional system capabilities, as well as address
Year 2000 issues. The cost to maintain or modify existing IT systems is expensed
as incurred, while the cost of new and functionally improved IT systems are
capitalized and amortized over their estimated useful lives. As of October 31,
1999, the Company has expended $3.7 million with respect to IT systems.
All operating units have completed an assessment of non-IT systems. While
certain items of equipment have been found to contain potentially noncompliant
components, neither the number nor function of such items are material. Such
equipment is either being modified or replaced. The Company does not anticipate
material Year 2000 compliance issues with respect to non-IT systems, and does
not expect expenditures to remediate non-compliant non-IT systems to have a
material adverse effect on the Company's results of operations, liquidity or
capital resources.
12
<PAGE>
The Company and its operating units have completed an assessment of third party
Year 2000 compliance, however, as many of the Company's suppliers and customers
are still engaged in executing their Year 2000 programs, the Company cannot
fully evaluate such compliance. The Company has not been made aware of any Year
2000 issues of third parties that would have a material adverse effect on the
Company. Neither the Company nor its operating units intend to adopt
contingency plans regarding third party Year 2000 compliance issues.
Management of the Company believes it has an effective program in place to
resolve its Year 2000 issues in a timely manner. However, since it is not
possible to anticipate all possible future outcomes, especially in the case of
third parties, there could be "worst-case scenarios" in which one or more
operating units of the Company would be unable to conduct normal operations due
to Year 2000 related matters, such as the inability to take customer orders,
manufacture and ship products, invoice customers or collect payments. In
addition, there is still uncertainty about the broader scope of the Year 2000
issue as it may affect the Company and third parties who are critical to the
Company's operations. For example, lack of readiness by electrical and water
utilities, suppliers, financial institutions, government agencies or other
providers of general infrastructure could, in some geographic areas, pose
significant impediments to one or more of the Company's operating units to carry
on their normal operations in the area or areas so affected. In the event that
the Company or third parties (including those described above) do not properly
complete their Year 2000 remedial actions or unanticipated Year 2000 events
occur there could be a material adverse effect on the Company's business,
results of operations or financial condition.
Introduction of the Euro Currency
The European Economic Monetary Union's ("EEMU") common currency, the Euro, was
implemented effective January 1, 1999, at which time fixed exchange rates were
established between the legacy currencies of the participating countries and the
Euro. During the transition period, which extends through June 30, 2002,
transactions may be conducted in either the Euro or the legacy currencies. The
Company has subsidiaries in the United Kingdom, Sweden, Denmark and Germany
which have customers and suppliers in participating EEMU countries. The
Company's German subsidiary is the only subsidiary domiciled in a participating
country. These subsidiaries currently have the ability to support transactions
in both the Euro and their respective legacy currencies. Conversion to the Euro
as the functional currency for the Company's German subsidiary will be phased in
prior to January 1, 2002, and conversion costs are not expected to be
significant. The EEMU's introduction of the Euro may potentially have economic
and business implications, such as changes in product pricing and currency
exchange risks, for businesses within the EEMU as well as for businesses outside
the EEMU that do business with companies within the EEMU. The nature and extent
of such effects, whether beneficial or adverse, are unknown at this time.
However, the Company does not believe that such effects will have a material
impact on its consolidated results of operations or financial condition,
although there can be no assurance that unanticipated effects will not have an
adverse impact on the Company's future results of operations.
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, 1999, 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 14, 1999 Paul M. Olson
President and Chief Executive Officer
/s/ Kenneth O. Hale
------------------------------------------
December 14, 1999 Kenneth O. Hale
Vice President and Chief Financial Officer
15
<PAGE>
EXHIBIT 15.1
November 24, 1999
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. 333-80229); Form S-8 (Registration No. 333-
76351); 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, 1999, which includes our report dated November 24, 1999,
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
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