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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, 2000
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 12/5/00
----- ----------------------
Common Stock, $.01 Par Value 43,746,157
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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, 2000 and 1999........... 4
Condensed Consolidated Statements of
Income - Unaudited for the Three Months Ended
October 31, 2000 and 1999.................................. 5
Condensed Consolidated Balance Sheets
as of October 31, 2000 (Unaudited) and July 31, 2000....... 6
Condensed Consolidated Statements of
Cash Flows - Unaudited for the Three Months
Ended October 31, 2000 and 1999............................ 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.......................................... 14
ITEM 2 Changes in Securities...................................... 14
ITEM 3 Defaults upon Senior Securities............................ 14
ITEM 4 Submission of Matters to a Vote of Security Holders........ 14
ITEM 5 Other Information.......................................... 14
ITEM 6 Exhibits and Reports on Form 8-K........................... 14
SIGNATURES ........................................................... 15
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
In the opinion of Cable Design Technologies Corporation's (the "Company")
management, the unaudited 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, 2000 and 1999, 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, 2000, and the related condensed consolidated statements of income
and cash flows for the three month periods ended October 31, 2000 and 1999.
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 auditing standards generally accepted in the United States, 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 accounting principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Cable Design
Technologies Corporation and Subsidiaries as of July 31, 2000, and, in our
report dated September 15, 2000, 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, 2000, 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 22, 2000
4
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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 share and per share data)
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<TABLE>
<CAPTION>
Three Months Ended
October 31,
-------------------------
2000 1999
------------ -----------
<S> <C> <C>
Net sales $ 214,726 $ 187,622
Cost of sales 150,455 131,336
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Gross profit 64,271 56,286
Selling, general and administrative expenses 33,852 29,961
Research and development expenses 1,250 1,175
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Income from operations 29,169 25,150
Interest expense, net 2,394 2,985
Other expense, net 208 864
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Income before income taxes 26,567 21,301
Income tax provision 10,358 8,317
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Net income $ 16,209 $ 12,984
============ ===========
Basic earnings per common share $ 0.37 $ 0.31
============ ===========
Diluted earnings per common share $ 0.36 $ 0.30
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Weighted average common shares outstanding 43,662,733 42,294,237
============ ===========
Weighted average common and common equivalent
shares outstanding 45,276,626 43,324,488
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</TABLE>
The accompanying notes are an integral part of these statements.
5
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CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands, except share and per share data)
-----------------------------------------------
<TABLE>
<CAPTION>
As of As of
October 31, July 31,
2000 2000
------------- --------
(unaudited)
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents $ 15,931 $ 16,454
Trade accounts receivable, net of allowance for uncollectible accounts
of $6,654 and $6,180, respectively 140,181 145,717
Inventories 152,156 145,015
Other current assets 18,342 18,974
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Total current assets 326,610 326,160
Property, plant and equipment, net 209,817 205,880
Goodwill, net 71,925 74,539
Other assets, net 8,130 8,774
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Total assets $616,482 $615,353
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Current liabilities $114,608 $109,450
Long-term debt, excluding current maturities 135,290 153,336
Other non-current liabilities 36,056 36,023
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Total liabilities 285,954 298,809
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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, 47,499,199
and 47,362,880 shares issued, respectively 475 316
Paid in capital 195,718 192,956
Common stock issuable, 21,311 and 19,573 shares, respectively 421 367
Retained earnings 199,217 183,166
Treasury stock, at cost, 3,781,828 and 3,867,528 shares, respectively (47,342) (48,415)
Deferred compensation (893) ---
Accumulated other comprehensive deficit (17,068) (11,846)
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Total stockholders' equity 330,528 316,544
--------- --------
Total liabilities and stockholders' equity $616,482 $615,353
========= ========
</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>
Three Months Ended
October 31,
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2000 1999
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<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 24,346 $ 18,437
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (14,042) (5,426)
-------- --------
Net cash used by investing activities (14,042) (5,426)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in revolving note borrowings (12,228) (11,184)
Funds provided by long-term debt 612 131
Funds used to reduce long-term debt (1,137) (877)
Common stock issued or issuable 415 416
Net proceeds from exercise of stock options 1,989 640
-------- --------
Net cash used by financing activities (10,349) (10,874)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS (478) (5)
-------- --------
Net (decrease) increase in cash (523) 2,132
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 16,454 11,424
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 15,931 $ 13,556
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 2,523 $ 2,924
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Income taxes $ 3,396 $ 6,862
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</TABLE>
The accompanying notes are an integral part of these statements.
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CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
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1. BASIS OF PRESENTATION
---------------------
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, 2000.
2. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
Amounts billed to customers for shipping and handling costs are included in net
sales in the accompanying statements of income. Shipping and handling costs
incurred by the Company for the delivery of goods to customers are classified as
a component of either cost of sales or selling, general and administrative
expenses ("SG&A"), according to each specific operating unit's practice.
Shipping and handling costs included in SG&A were $2.7 million and $1.9 million
for the three months ended October 31, 2000 and 1999, respectively.
. INVENTORIES
-----------
Inventories of the Company consist of the following:
October 31, July 31,
2000 2000
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(In thousands)
Raw materials $ 41,938 $ 40,779
Work-in-process 39,197 35,268
Finished goods 71,021 68,968
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$152,156 $145,015
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4. 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,
---------------------------
2000 1999
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(In thousands, except share
and per share data)
<S> <C> <C>
Net income $ 16,209 $ 12,984
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Basic earnings per common share:
Weighted average common shares outstanding 43,662,733 42,294,237
Basic earnings per common share $ 0.37 $ 0.31
=========== ===========
Diluted earnings per common share:
Weighted average common shares outstanding 43,662,733 42,294,237
Shares issuable from assumed exercise of dilutive stock options 1,613,893 1,030,251
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Weighted average common and common equivalent shares outstanding 45,276,626 43,324,488
Diluted earnings per common share $ 0.36 $ 0.30
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</TABLE>
Options to purchase 11,250 and 159,000 shares of common stock were outstanding
during the three month periods ended October 31, 2000 and 1999, 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.
5. INDUSTRY SEGMENT INFORMATION
----------------------------
The Company's operations are organized into two business segments: the Network
Communication segment and the Specialty Electronic segment. The Network
Communication segment 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 and active 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. The Specialty
Electronic segment encompasses electronic cable products 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
net nonrecurring items, after allocation of Corporate expenses.
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The Company has no inter-segment revenues. Summarized financial information for
the Company's business segments is as follows:
<TABLE>
<CAPTION>
Network Specialty
Communication Electronic
Segment Segment Total
-------------- ---------- ---------
Three Months Ended October 31, (In thousands)
<S> <C> <C> <C>
Sales:
2000 $144,894 $69,832 $214,726
1999 $126,014 $61,608 $187,622
Segment Operating Profit:
2000 $ 17,990 $11,179 $ 29,169
1999 $ 15,315 $ 9,835 $ 25,150
</TABLE>
6. 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 due to
foreign currency translation adjustments. Comprehensive income was $11.0 million
and $14.3 million for the three months ended October 31, 2000 and 1999,
respectively.
10
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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
connectivity products 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 and interconnect cables, 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. The Specialty Electronic segment encompasses electronic cable
products 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, 2000 ("first quarter 2001") were
$214.7 million, an increase of 14% compared to the three months ended October
31, 1999 ("first quarter 2000"). Excluding the impact of unfavorable foreign
currency translation, mainly due to weakness of the Euro and British Pound
Sterling, the increase in sales would have been approximately 17%. Sales for the
Network Communication segment increased 15% to $144.9 million, and represented
67% of total revenue. The increase in sales for this segment was led by 48%
growth in sales of enhanced gigabit network cables (Category 5e and Category 6),
68% growth in sales of central office telecommunication cable products, and 56%
growth in fiber optic connectivity product sales. Sales for the Specialty
Electronic segment were $69.8 million, an increase of 13% compared to the first
quarter 2000 primarily due to a 20% increase in sales of automation and process
control cable products. The operating margin was 13.6% for the first quarter
2001 versus 13.4% for the first quarter 2000. Net income for the first quarter
2001 increased $3.2 million, or 25%, to $16.2 million ($0.36 per diluted share)
compared to net income of $13.0 million ($0.30 per diluted share) for the first
quarter 2000.
Three Months Ended October 31, 2000 Compared to
Three Months Ended October 31, 1999
Sales for the first quarter 2001 increased $27.1 million, or 14%, to $214.7
million compared to $187.6 million for the first quarter 2000. Network
Communication segment sales increased $18.9 million, or 15%, to $144.9 million
for the first quarter 2001 compared to $126.0 million for the first quarter
2000, and Specialty Electronic segment sales increased $8.2 million, or 13%, to
$69.8 million for the first quarter 2001 compared to $61.6 million for the first
quarter 2000. For the Network Communication segment, sales of gigabit network
cables increased 48% over the same period last year as a result of growth in
demand for higher bandwidth within premise network systems. The increased demand
for gigabit network cables was partially offset by a 29% decline in sales of the
lower performance rated Category 5 network cable, as the Company continues to
transition its product mix to meet the demand for the higher performance gigabit
network cables. The Company also experienced lower average selling prices
compared to the first quarter 2000 in the U.S. marketplace for Category 5 and 5e
network cables. Sales of central office telecommunication cable products
increased 68% over the same period last year, primarily due to demand from
local exchange carriers, Internet service providers and application
service providers within the telecommunication industry. Sales of fiber optic
connectivity products increased 56% over the first quarter 2000. To a lesser
degree, sales growth in other product lines contributed to the increase in
Network Communication segment sales, including growth of 22% for network
structured wiring components (excluding components used in fiber optic
applications). These increases were partially offset by a 42% decline in sales
of wireless products attributable to lower sales of wireless assembly services
to a principal customer. The increase in sales for the Specialty Electronic
segment was primarily due to an increase in sales of automation and process
control cable products, including sales attributable to the Industria Tecnica
Cavi ("ITC/CDT") acquisition. Sales outside of North America were $46.2 million
for the first quarter 2001, an increase of 13% compared to sales of $41.0
million for the first quarter 2000. The increase in international sales was
primarily due to higher sales of Network Communication products in Western
Europe as well as sales of Specialty Electronic cable products attributable to
the ITC/CDT acquisition.
The gross margin for the first quarter 2001 was 29.9% compared to 30.0% for the
first quarter 2000. The change in the gross margin was due to a lower margin
for the Specialty Electronic segment which was partially offset by a slight
increase in the Network Communication segment gross margin. The decrease in the
gross margin for the Specialty Electronic segment was
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primarily due to product mix and a higher average cost of copper. The increase
in the Network Communication segment gross margin was primarily due to a higher
margin for computer interconnect products as a result of volume efficiencies.
Selling, general and administrative expense ("SG&A") for the first quarter 2001
was $33.9 million compared to $30.0 million for the first quarter 2000. The
increase in SG&A was primarily due to the additional SG&A of businesses
acquired, higher sales volume and the costs associated with the recently
established European and Fiber Optic management groups. As a percentage of
sales, SG&A for the first quarter 2001 declined to 15.8% compared to 16.0% for
the first quarter 2000.
Income from operations for the first quarter 2001 increased $4.0 million, or
16%, to $29.2 million compared to $25.2 million for the first quarter 2000. The
operating margin increased to 13.6% for the first quarter 2001 compared to 13.4%
for the first quarter 2000.
Interest expense decreased $0.6 million to $2.4 million for the first quarter
2001 compared to $3.0 million for the first quarter 2000, primarily due to the
lower average balance of debt outstanding. The effective tax rate of 39.0% for
the first quarter 2001 was unchanged from the same period last year.
Net income for the first quarter 2001 increased $3.2 million, or 25%, to $16.2
million ($0.36 per diluted share) compared to net income of $13.0 million ($0.30
per diluted share) for the first quarter 2000.
Financial Condition
Liquidity and Capital Resources
-------------------------------
The Company generated $24.3 million of net cash from operating activities during
the first quarter 2001, including a $1.8 million decrease in operating working
capital. The change in operating working capital was primarily the result of
increases in accounts payable and other accrued liabilities of $7.4 million and
a decrease in accounts receivable of $3.2 million, which were partially offset
by an increase in inventories of $9.9 million. The change in operating working
capital excludes changes in cash and cash equivalents and current maturities of
long-term debt.
The Company invested $14.0 million during the first quarter 2001 in facilities
and machinery and equipment, including the purchase of a building which was
previously leased. Net cash used by financing activities of $10.3 million
included $12.8 million used to reduce outstanding debt partially offset by $2.0
million received from the exercise of stock options.
The Company's primary bank credit agreement (the "Credit Agreement") consists of
a $121.3 million U.S. revolving facility and a CDN $115.0 million Canadian
revolving facility equivalent to approximately $75.5 million. The U.S. revolving
facility includes a $50.0 million Deutschmark sub-facility. The Company also
maintains a demand bank credit facility in the United Kingdom equivalent to
approximately $10.9 million (the "Foreign Facility"). As of October 31, 2000,
the Company had availability of $61.9 million and $5.5 million under the Credit
Agreement and Foreign Facility, respectively. The Company also has a 364-day,
unsecured bank revolving credit agreement (the "364-day Facility") with a
maximum principal amount of $15 million, which will expire on December 10, 2000.
As of October 31, 2000, 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 and funds available under
its credit agreements will provide it with sufficient liquidity to meet its
current liquidity needs.
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 certain communication cable products, profitability is
generally not significantly affected by volatility of copper prices as selling
prices are generally adjusted for changes in the market price of copper,
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.
12
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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, 2000, and other Securities and Exchange Commission
filings. The information contained herein represents management's best judgment
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
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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
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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 8, 2000 Paul M. Olson
President and Chief Executive Officer
/s/ Kenneth O. Hale
-------------------------------------
December 8, 2000 Kenneth O. Hale
Vice President and Chief Financial Officer
15
