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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 April 30, 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 06/7/99
----- ----------------------
Common Stock, $.01 Par Value 28,154,876
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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 and Nine Months Ended April 30, 1999 and 1998 4
Condensed Consolidated Statements of
Income-Unaudited for the Three Months and Nine Months Ended
April 30, 1999 and 1998....................................... 5
Condensed Consolidated Balance Sheets
as of April 30, 1999 (Unaudited), and July 31, 1998........... 6
Condensed Consolidated Statements of
Cash Flows-Unaudited for the Nine Months
Ended April 30, 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........................... 11
PART II OTHER INFORMATION
Item 1 Legal Proceedings............................................. 18
Item 2 Changes in Securities......................................... 18
Item 3 Defaults upon Senior Securities............................... 18
Item 4 Submission of Matters to a Vote of Security Holders........... 18
Item 5 Other Information............................................. 18
Item 6 Exhibits and Reports on Form 8-K.............................. 18
Signatures .............................................................. 19
</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 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 and nine month
periods ended April 30, 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.
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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
April 30, 1999, and the related condensed consolidated statements of income for
the three month and nine month periods ended April 30, 1999 and 1998, and the
condensed consolidated statements of cash flows for the nine month periods ended
April 30, 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, 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
May 24, 1999
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CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES
--------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED
-----------------------------------------------------
(In thousands, except share and per share data)
-----------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales $ 165,611 $ 167,647 $ 500,131 $ 485,429
Cost of sales 119,090 119,132 353,003 343,602
----------- ----------- ----------- ------------
Gross profit 46,521 48,515 147,128 141,827
Selling, general and administrative expenses 27,631 26,447 82,846 78,960
Research and development expenses 1,361 2,157 4,258 5,774
Non-recurring (income) expense (1,148) - 5,159 -
----------- ----------- ----------- ------------
Income from operations 18,677 19,911 54,865 57,093
Interest expense, net 3,424 2,311 9,842 6,142
Other expense (income) 732 285 1,335 (810)
----------- ----------- ----------- ------------
Income before income taxes 14,521 17,315 43,688 51,761
Income tax provision 5,638 6,657 17,635 19,727
----------- ----------- ----------- ------------
Net income $ 8,883 $ 10,658 $ 26,053 $ 32,034
=========== =========== =========== ============
Per share data:
Basic earnings per common share $ 0.32 $ 0.37 $ 0.90 $ 1.12
Diluted earnings per common share $ 0.31 $ 0.34 $ 0.89 $ 1.02
=========== =========== =========== ============
Weighted average common shares - basic 28,149,704 29,050,372 28,995,909 28,682,804
=========== =========== =========== ============
Weighted average common shares - diluted 28,390,853 31,441,457 29,342,199 31,467,919
=========== =========== =========== ============
</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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<TABLE>
<CAPTION>
As of As of
April 30, July 31,
1999 1998
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(Unaudited)
<S> <C> <C>
ASSETS
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Current Assets:
Cash and cash equivalents $ 10,249 $ 11,143
Accounts receivable, net of allowance for uncollectible amounts of $4,426
and $3,995, respectively 117,471 117,265
Inventories 144,983 130,307
Other current assets 22,674 17,830
----------- ---------
Total current assets 295,377 276,545
Property, plant and equipment, net 200,809 160,891
Goodwill, net 73,138 57,656
Other assets 11,760 8,468
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Total assets $581,084 $503,560
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Current liabilities $134,819 $101,869
Long-term debt, excluding current maturities 182,532 136,052
Other non-current liabilities 24,733 20,741
----------- ---------
Total liabilities 342,084 258,662
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,30,776,453
and 30,660,472 shares issued, respectively 308 307
Paid in capital 178,948 165,681
Retained earnings 114,658 88,605
Treasury stock, at cost, 2,623,452 and 200,000 shares, respectively (49,262) (4,291)
Currency translation adjustment (5,642) (5,394)
Minimum pension liability (10) (10)
----------- ---------
Total stockholders' equity 239,000 244,898
----------- ---------
Total liabilities and stockholders' equity $581,084 $503,560
=========== =========
</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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(In thousands)
--------------
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
---------------------
1999 1998
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<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 39,097 $ 27,800
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (18,805) (38,481)
Acquisition of businesses, including transaction costs,
net of cash acquired (47,506) (18,905)
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Net cash used by investing activities (66,311) (57,386)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in revolving note borrowings 64,246 25,230
Funds provided by long-term debt 11,290 1,199
Funds used to reduce long-term debt (13,859) (3,340)
Purchase of treasury stock (44,971) ---
Net proceeds from exercise of stock options and related tax benefits 9,737 4,806
Net proceeds from issuance of common stock --- 8
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Net cash provided by financing activities 26,443 27,903
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS (123) 88
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Net decrease in cash (894) (1,595)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,143 9,017
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,249 $ 7,422
========== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net $ 8,749 $ 6,033
========== =========
Income taxes $ 9,561 $ 14,713
========== =========
</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
---------------------
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
-----------
Inventories of the Company consist of the following:
<TABLE>
<CAPTION>
April 30, July 31,
1999 1998
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(In thousands)
<S> <C> <C>
Raw materials $ 35,534 $ 40,089
Work-in-process 34,417 27,485
Finished goods 75,032 62,733
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$144,983 $130,307
======== ========
</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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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C>
Net income $ 8,883 $ 10,658 $ 26,053 $ 32,034
----------- ----------- ----------- -----------
Basic earnings per common share:
Weighted average common shares outstanding 28,149,704 29,050,372 28,995,909 28,682,804
Basic earnings per common share $ 0.32 $ 0.37 $ 0.90 $ 1.12
=========== =========== =========== ===========
Diluted earnings per common share:
Weighted average common shares outstanding 28,149,704 29,050,372 28,995,909 28,682,804
Shares issuable from assumed conversion of
dilutive stock options 241,149 2,391,085 346,290 2,785,115
----------- ----------- ----------- -----------
Weighted average common shares-diluted 28,390,853 31,441,457 29,342,199 31,467,919
Diluted earnings per common share $ 0.31 $ 0.34 $ 0.89 $ 1.02
=========== =========== =========== ===========
</TABLE>
Options to purchase 2,104,225 and 1,906,850 shares of common stock were
outstanding during the three and nine month periods, respectively, ended April
30, 1999, but were not included in the computation of diluted EPS as the
option's exercise price was greater than the average market price of the common
stock for the respective periods.
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 $7.7
million and $12.2 million for the three months and $25.8 million and $31.4
million for the nine months ended April 30, 1999 and 1998, respectively.
5. BUSINESS ACQUISITIONS
---------------------
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:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Assets acquired, net of cash $ 65,679
Liabilities assumed (22,942)
Notes issued (8,566)
---------
Net cash paid $ 34,171
=========
</TABLE>
On September 25, 1998, the Company acquired the assets of Network Essentials,
Inc., ("Red Hawk") based in Milpitas, California. On March 12, 1999, the Company
acquired the outstanding stock of the Tennecast Company
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("Tennecast/CDT") of Barberton, Ohio. The Red Hawk and Tennecast/CDT
acquisitions were accounted for using the purchase method under APB Opinion No.
16.
The operations and financial position of HEW/CDT, Red Hawk and Tennecast/CDT are
not material to either the consolidated operations or financial position of the
Company, therefore, pro forma financial information is not presented.
6. RECLASSIFICATIONS
-----------------
Certain reclassifications have been made to the prior year statements to conform
with the current year presentation.
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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
electronic, 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
Sales for the three months ended April 30, 1999 ("third quarter 1999") decreased
$2.0 million, or 1%, to $165.6 million compared to $167.6 million for the three
months ended April 30, 1998 ("third quarter 1998"). Adjusted for the
unfavorable effects of foreign currency translation and the decline in the
average price of copper on sales of communication cable, sales for the third
quarter 1999 were slightly ahead of last year. Sales attributable to recently
acquired businesses, primarily HEW/CDT, Orebro/CDT and Red Hawk, were $13.1
million for the third quarter 1999. Excluding acquisitions, the lower sales for
the third quarter 1999 were primarily due to lower sales of communication cable
in the U.S. marketplace, lower sales and pricing for certain network structured
wiring products, primarily Category 5 network cables, and lower sales of
automation and process control cable products. These reductions were partially
offset by a 46% increase in sales of Category 5e and 6 advanced network cables,
and a 9% increase in specialty cable sales. Net income, excluding a non-
recurring gain, for the third quarter 1999 was $8.1 million ($0.29 per diluted
share) compared to $10.7 million ($0.34 per diluted share) for the third quarter
1998. Net income for the third quarter 1999 reflects approximately $0.5
million, net of tax, of net foreign currency exchange losses versus $0.2
million, net of tax, a year ago. Reported net income including a non-recurring
gain for the third quarter 1999 was $8.9 million ($0.31 per diluted share).
Sales for the nine months ended April 30, 1999 ("first nine months 1999")
increased $14.7 million, or 3%, to $500.1 million compared to $485.4 million for
the nine months ended April 30, 1998 ("first nine months 1998"). Adjusted for
the unfavorable effects of foreign currency translation and the decline in the
average price of copper on sales of communication cable, the increase in sales
was approximately 5%. Sales attributable to the recently acquired businesses
were $45.0 million for the first nine months 1999. Income from operations
excluding net non-recurring expense increased $2.9 million, or 5%, to $60.0
million for the first nine months 1999 compared to $57.1 million for the first
nine months 1998. Net income for the first nine months 1999 excluding net non-
recurring expense was $29.5 million ($1.01 per diluted share) compared to net
income of $32.0 million ($1.02 per diluted share) for the first nine months
1998. Reported net income including net non-recurring expense for the first
nine months 1999 was $26.1 million ($0.89 per diluted share). The increase of
$2.9 million in the first nine months 1999 income from operations excluding net
non-recurring expense, as compared to the same period last year, was more than
offset by a $3.7 million increase in interest expense and a net unfavorable
change of $2.1 million in other income/expense, primarily net foreign currency
exchange losses.
Three Months Ended April 30, 1999 Compared to
Three Months Ended April 30, 1998
Sales for the third quarter 1999 of $165.6 million decreased $2.0 million, or
1%, compared to sales of $167.6 million for the third quarter 1998. Adjusted
for the unfavorable effects of foreign currency translation and the decline in
the average price of copper on sales of communication cable, sales for the third
quarter 1999 were slightly ahead of last year. Sales attributable to the
recently acquired businesses were $13.1 million for the third quarter 1999.
Third quarter 1999 sales for the Network Communication group of $88.9 million,
which includes network structured wiring systems products and communication
cable, decreased $13.2 million, or 13%, compared to $102.1 million for the third
quarter 1998. Adjusted for the unfavorable effects of foreign currency
translation and the decline in the average price of copper on communication
cable sales, the decrease in sales for this group was 11%.
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Factors which contributed to the decrease in sales for this product group
compared to the third quarter 1998 were lower sales of communication cable,
Category 5 network cable, and network structured wiring components, primarily in
the U.S. marketplace, and lower average selling prices for certain network cable
products, particularly for plenum Category 5 and 5e. However, these reductions
were partially offset by an improvement in product mix due to a 46% increase in
sales of the higher priced Category 5e and 6 network cables for the third
quarter 1999. Third quarter 1999 sales for the Specialty Electronic group
increased $11.1 million, or 17%, to $76.7 million compared to $65.6 million for
the third quarter 1998. Excluding additional sales of $12.3 million attributable
to the recently acquired businesses, Specialty Electronic group sales declined
2% compared to the third quarter 1998 primarily as a result of continued
competitive conditions in the marketplace for automation and process control
cable products. Sales outside of North America increased $10.0 million, or 36%,
to $37.8 million for the third quarter 1999 compared to $27.8 million for the
same period last year, including additional sales of $11.9 million attributable
to the recently acquired businesses. Excluding acquisitions, sales outside of
North America were unfavorably affected by the continued sluggish economy in the
United Kingdom and Europe as well as the economic turmoil in the Pacific Rim.
Third quarter 1999 gross profit decreased $2.0 million, or 4%, to $46.5 million
compared to $48.5 million for the third quarter 1998. Excluding the additional
gross profit from the recently acquired businesses, gross profit decreased $4.6
million primarily due to lower sales of communication cable, Category 5 network
cable, automation and process control cable, and network structured wiring
components, and to lower pricing for Category 5 and 5e network cable products.
These reductions were partially offset by, for network cable products, an
improved product mix primarily as a result of a 46% increase in sales of higher
margin advanced network cable products and lower product costs primarily due to
less outsourcing. The gross margin percentage for the third quarter 1999
decreased to 28.1% compared to 28.9% for the third quarter 1998 due to a lower
margin for the Specialty Electronic group and, to a lesser extent, the Network
Communication group. The lower gross margin for the Specialty Electronic group
was primarily due to the inclusion of the recently acquired businesses which
have comparatively lower gross margins. The primary factors which contributed
to the lower gross margin for the Network Communication group were an increase
in product costs for communication cable associated with the expansion of
manufacturing capacity, lower pricing for Category 5 and 5e network cable, and
increased product costs for structured wiring components due to a shift in
product mix and increased product development and revision costs. These
reductions were partially offset by, for network cable, an improved product mix
including a 46% increase in sales of the higher margin advanced network cable
products and lower product costs primarily due to less product outsourcing.
Selling, general and administrative expense ("SG&A") for the third quarter 1999
increased $1.2 million, or 4%, to $27.6 million compared to $26.4 million for
the third quarter 1998, including $2.2 million of additional SG&A attributable
to the recent acquisitions. Excluding acquisitions, the reduction in SG&A of
$1.0 million was primarily due to the discontinuance of the DynaTraX(TM) product
line and other restructuring activities implemented in July 1998, to continuing
cost reduction efforts, and to a lesser extent, the favorable effect of foreign
currency translation. As a percentage of sales, SG&A for the third quarter 1999
increased to 16.7% compared to 15.8% for the third quarter 1998, primarily due
to the lower level of sales. Third quarter 1999 research and development
expense decreased $0.8 million to $1.4 million compared to $2.2 million for
the third quarter 1998, primarily as a result of the discontinuance of the
DynaTraX(TM)product line.
Income from operations for the third quarter 1999 decreased $1.2 million to
$18.7 million compared to $19.9 million for the third quarter 1998. Third
quarter 1999 income from operations includes a $1.1 million ($0.7 million, net
of tax) gain which was recognized on the sale of certain assets related to the
previously discontinued DynaTrax(TM) product line. The operating margin,
excluding the non-recurring gain, was 10.6% for the third quarter 1999 compared
to 11.9% for the third quarter 1998. The lower operating margin was primarily
the result of the lower gross margin and the higher SG&A percentage, which were
partially offset by lower research and development expense.
Interest expense was $3.4 million for the third quarter 1999, an increase of
$1.1 million compared to the third 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 fiscal 1999 and the purchase of 2.4 million shares
of the Company's common stock during the first nine months 1999. Other expense
increased $0.4 million to $0.7 million compared to
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$0.3 million for the third quarter 1998, primarily due to net foreign currency
exchange losses.
Net income for the third quarter 1999 excluding the non-recurring gain decreased
$2.5 million, or 24%, to $8.1 million ($0.29 per diluted share) compared to net
income of $10.7 million ($0.34 per diluted share) for the third quarter 1998.
Reported net income for the third quarter 1999 including the non-recurring gain
was $8.9 million ($0.31 per diluted share).
Nine Months Ended April 30, 1999 Compared to
Nine Months Ended April 30, 1998
For the nine months ended April 30, 1999, sales increased $14.7 million, or 3%,
to $500.1 million compared to $485.4 million for the nine months ended April 30,
1998. Adjusted for the unfavorable effects of foreign currency translation and
the decline in the average price of copper on communication cable sales, the
increase in sales was approximately 5%. Sales attributable to the recently
acquired businesses were $45.0 million for the first nine months 1999. Network
Communication group sales for the first nine months 1999 were $269.8 million, a
decrease of $24.1 million, or 8%, compared to the first nine months 1998.
However, adjusted for the unfavorable effects of foreign currency translation
and for the decline in the price of copper on sales of communication cable, the
sales for this group only declined 5%. The decrease was primarily the result of
reduced demand in the U.S. marketplace for communication cable and for plenum
Category 5 network cable as well as competitive pricing pressure on Category 5
and 5e network cables. An improved product mix due to a 70% increase in sales
of the higher priced Category 5e and 6 network cables partially offset the
reduction in communication cable and Category 5 network cable sales. Specialty
Electronic group sales for the first nine months 1999 increased $38.8 million,
to $230.3 million, including additional sales of $42.2 million attributable to
the recently acquired businesses. Excluding acquisitions, sales for the
Specialty Electronic group declined 2%, primarily due to lower sales of
automation and process control cable products as a result of continued
competitive market conditions in the U.S. and the United Kingdom, which was
partially offset by increased sales of specialty cable products. Sales outside
of North America for the first nine months 1999 increased $38.0 million, or 48%,
to $117.0 million, including additional sales of $41.0 million attributable to
the recently acquired businesses, compared to $79.1 million for the first nine
months 1998. Excluding acquisitions, sales outside North America were
unfavorably affected by the sluggish economy in the United Kingdom and the
economic turmoil in Russia, Latin America and the Pacific Rim.
Gross profit for the first nine months 1999 increased $5.3 million, or 4%, to
$147.1 million compared to $141.8 million for the first nine months 1998.
Excluding acquisitions, gross profit declined 5%, primarily due to lower sales
of communication cable, Category 5 network cable, automation and process control
cable, and network structured wiring components, and to lower pricing for
Category 5 and 5e network cable products. These reductions were partially
offset by an improved product mix as a result of a 70% increase in sales of
higher margin advanced network cable products and less product outsourcing. The
gross margin percentage for the first nine months 1999 was 29.4% compared to
29.2% for the first nine months 1998. The increase in the gross margin
percentage for the first nine months 1999 is the result of an improved gross
margin for the Network Communication group which was partially offset by a lower
margin for the Specialty Electronic group. Factors contributing to the increase
in the Network Communication group gross margin were, for network cable
products, a favorable mix for advanced network cable products, less product
outsourcing and lower product costs, which were partially offset by lower
pricing on Category 5 and 5e network cables and higher product costs for
communication cables and network structured wiring components. The decrease in
the Specialty Electronic group gross margin was primarily due to the inclusion
of the comparatively lower gross margins of the recently acquired businesses and
a lower gross margin on wireless products, which were partially offset by an
improved margin for automation and process control cables primarily due to lower
copper material costs.
SG&A for the first nine months 1999 increased $3.9 million to $82.8 million,
including $6.9 million of additional SG&A attributable to the recent
acquisitions, compared to $79.0 million for the first nine months 1998.
Excluding acquisitions, the $3.0 million reduction in SG&A was primarily the
result of significantly lower expenses due to the discontinuance of the
DynaTraX(TM)product line and other restructuring activities implemented in July
1998, lower volume related sales expenses, and the favorable effect of foreign
currency translation. SG&A as a percentage of sales was 16.6% for the first nine
months 1999 compared to 16.3% for the first nine months 1998. First nine
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months 1999 research and development expense decreased $1.5 million to $4.3
million compared to $5.8 million for the first nine months 1998. The decrease in
research and development expense is primarily the result of the discontinuance
of the DynaTraX(TM) product line.
Income from operations, excluding net non-recurring expense, increased $2.9
million, or 5%, to $60.0 million compared to $57.1 million for the first nine
months 1998. Non-recurring expense for the first nine months 1999 includes a
$1.1 million gain realized in the third quarter on the sale of assets related to
the discontinued DynaTraX(TM) product line, and a charge of $6.3 million
incurred in connection with the December 1998 Share Purchase Plan. The operating
margin percentage excluding net non-recurring expense was 12.0% for the first
nine months 1999 compared to 11.8% for the first nine months 1998. Income from
operations for the first nine months 1999 decreased $2.2 million to $54.9
million, including net non-recurring expense of $5.2 million.
Interest expense for the first nine months 1999 was $9.8 million, an increase of
$3.7 million compared to the first nine months 1998. The increase was primarily
the result of the higher average balance of debt outstanding due to the
acquisition of HEW/CDT in August, 1998 and the purchase of 2.4 million shares of
the Company's common stock during the first half 1999. The effective tax rate
increased to 40.4% for the first nine months 1999 compared to 38.1% for the
first nine months 1998. The increase in the effective tax rate for the first
nine months 1999 was primarily due to the fact that approximately $0.9 million
of the second quarter 1999 non-recurring charge is non-deductible for income tax
purposes. Excluding net non-recurring expense, the increase in the effective
tax rate to 39.6% compared to 38.1% for the first nine months 1998 was primarily
the result of lower Canadian research and development and a change in the tax
rate mix among domestic and foreign statutory entities primarily due to the
inclusion of the recently acquired German subsidiary, HEW/CDT.
Net income excluding net non-recurring charges for the first nine months 1999
was $29.5 million ($1.01 per diluted share) compared to the first nine months
1998 net income of $32.0 million ($1.02 per diluted share). The increase of
$2.9 million in the first nine months 1999 income from operations excluding net
non-recurring expense compared to the first nine months 1998 was more than
offset by the $3.7 million increase in interest expense, and a $2.1 million net
unfavorable change in other income/expense, primarily net foreign currency
exchange losses. Reported net income for the first nine months 1999 including
net non-recurring expense was $26.1 million ($0.89 per diluted share).
Financial Condition
Liquidity and Capital Resources
- -------------------------------
The Company's primary bank credit agreement (the "Credit Agreement") is
comprised of a U.S. revolving facility of $121.3 million, which includes a USD
$50.0 million Deutschmark sub-facility, and a CDN $115.0 million Canadian
revolving facility equivalent to $79.0 million. The Company also maintains a
bank credit facility in the United Kingdom equivalent to $12.1 million (the
"Foreign Facility"). At April 30, 1999, the Company had $170.2 million and $9.7
million outstanding under the Credit Agreement and Foreign Facility,
respectively.
Effective December 14, 1998, the Company entered into a 364-day, unsecured bank
revolving credit agreement (the "Revolving Facility") which provides for maximum
borrowings of $35.0 million. At April 30, 1999, the Company had $28.5 million
outstanding under the Revolving 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.
Working Capital During the first nine months 1999, operating working capital
- ---------------
increased $2.6 million, excluding increases resulting from the initial recording
of the working capital of acquired businesses. The change in operating working
capital was primarily the net result of a decrease in accounts payable of $11.2
million and an increase in inventories of $3.0 million, which were partially
offset by a decrease in accounts receivable of $7.8 million. The change in
operating working capital excludes changes in cash and cash equivalents and
current maturities of long-
-14-
<PAGE>
term debt.
Cash Flow The Company generated $39.1 million of net cash from operating
- ---------
activities during the first nine months 1999, after providing for the $2.6
million increase in operating working capital. Net cash provided by financing
activities during the first nine months 1999 of $26.4 million included $61.7
million from debt sources and $9.7 million from the exercise of stock options,
which were partially offset by $45.0 million used for the purchase of 2,423,452
shares of the Company's common stock. Net cash used by investing activities of
$66.3 million included $47.5 million for the acquisition of businesses,
primarily HEW/CDT, and $18.8 million for capital projects, including
expenditures for equipment and machinery to expand production capacity,
particularly for communication cable and advanced network 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 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 will 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
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 Compliance
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-IT systems, such as manufacturing equipment and control
devices. Operating units representing approximately 77% of the Company's
consolidated revenues have completed any Year 2000 remediation believed
necessary with respect to their IT
-15-
<PAGE>
systems. The remaining operating units have either purchased and are in the
process of implementing compliant hardware and/or software or identified
compliant hardware and/or software and are in the process of obtaining such
items. All units, with the exception of two units representing less than 3% of
the Company's consolidated revenues, are expected to complete their remediation
activities by fiscal year-end, July 31, 1999. The two remaining units are
expected to complete their remediation activities by September 30, 1999.
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 April 30, 1999, the Company has expended $3.0
million with respect to IT systems, which represents approximately 85% of the
total costs expected to be incurred. Based on management's review, 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. The Company does not anticipate any
material issues or delays regarding implementation schedules for IT system
remediations.
Each of the operating units has undertaken an assessment of non-IT systems. Such
reviews are substantially completed. While certain items of equipment have been
found to contain potentially non-compliant components, neither the number or
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.
The Company and its operating units are in the process of assessing third party
Year 2000 compliance. 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.
Neither the Company nor its operating units have adopted formal contingency
plans regarding Year 2000 compliance issues, but are in the process of
identifying areas where contingency plans may be appropriate as well as the
potential cost and feasibility of implementing such plans.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue 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, 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.
-16-
<PAGE>
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, Year 2000 compliance, introduction of the Euro, and long-term
growth prospects, 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 this report, 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.
-17-
<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.
99.1 Cable Design Technologies Corporation 1999 Long-Term Performance
Incentive Plan, incorporated by reference to Exhibit 4.3 to the Form
S-8 as filed June 8, 1999.
(b) Form 8-Ks
---------
None
-18-
<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
June 11, 1999 /s/ Paul M. Olson
-------------------------------------
Paul M. Olson
President and Chief Executive Officer
June 11, 1999 /s/ Kenneth O. Hale
-------------------------------------
Kenneth O. Hale
Vice President and Chief Financial Officer
-19-
<PAGE>
EXHIBIT 15.1
May 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. 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 April 30, 1999, which includes our report dated May 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
ARTHUR ANDERSEN LLP
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APRIL 30, 1999 AND THE NINE MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS
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