<PAGE>
Exhibit 13.1
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Cable Design Technologies Corporation and Subsidiaries
Results of Operations
The following discussion of Cable Design Technologies Corporation's ("the
Company") consolidated historical results of operations and financial condition
should be read in conjunction with the Consolidated Financial Statements of the
Company and the Notes thereto included elsewhere in this report.
The Company effected a three for two stock split in the form of a common stock
dividend in August 2000. Common share information stated herein reflect the
effect of the split.
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, including assembly of products for the wireless marketplace. 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.
Overview
Sales for the year ended July 31, 2000 ("fiscal 2000") increased 17%, to a
record $797.8 million, compared to sales of $684.0 million for the year ended
July 31, 1999 ("fiscal 1999"). Sales for the Network Communication segment
increased 22% to $545.0 million, and represented 68% of total company revenue.
The increase in sales for this segment was led by 100% growth in sales of
enhanced gigabit network cables (Category 5e and Category 6), 53% growth in
sales of central office communication products, 37% growth in sales of wireless
cable and assembly services, 35% growth in sales of computer interconnect
products, and 27% growth in fiber optic connectivity products. Sales for the
Specialty Electronic segment were $252.8 million, an increase of 6% over the
prior year, primarily due to a 16% increase in sales of automation and process
control products. The operating margin for fiscal 2000 improved to 12.9%
compared to 12.5% for fiscal 1999, excluding net nonrecurring items in both
years. Excluding net nonrecurring items in both years, earnings per diluted
share for fiscal 2000 increased 27% to $1.24 compared to $0.98 for fiscal 1999.
The following table presents, for the periods indicated, summary selected
financial data from the Company's consolidated statements of income, and should
be read in conjunction with the following discussion.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
For the Year Ended July 31, 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Sales $ 797,824 $ 683,999 $ 651,668
Gross profit 233,845 204,530 193,901
Selling, general and administrative expenses 126,064 113,610 106,491
Research and development expenses 4,626 5,450 7,863
Income from operations before nonrecurring items 103,155 85,470 79,547
Nonrecurring (income) expense (189) 4,895 6,093
Income from operations 103,344 80,575 73,454
Net income excluding nonrecurring items $ 54,799 $ 42,930 $ 44,426
Net income $ 54,920 $ 39,641 $ 40,481
</TABLE>
12
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Cable Design Technologies Corporation and Subsidiaries
Year Ended 31, 2000 Compared with Year Ended July 31, 1999
Sales increased $113.8 million, or 17%, to a record $797.8 million for fiscal
2000 compared to $684.0 million for fiscal 1999. Sales for the Network
Communication segment grew 22%, to $545.0 million, and sales for the Specialty
Electronic segment increased $15.4 million, or 6%, to $252.8 million.
The growth in sales for the Network Communication segment was lead by a 100%
increase in sales of enhanced gigabit network cables as a result of growth in
demand for higher bandwidth within premise network systems. The increased demand
for these higher margin gigabit network cables was partially offset by a 14%
decline in sales of the lower performance rated Category 5 network cable and,
compared to fiscal 1999, lower average selling prices in the U.S. marketplace
for Category 5 and 5e network cables. Sales of central office communication and
computer interconnect cable products increased 53% and 35%, respectively, over
fiscal 1999. The increase in demand for both central office and computer
interconnect cable products was driven by the growth of competitive local
exchange carriers, Internet service providers and application service providers
within the telecommunication industry. Sales of wireless cable and assembly
services grew 37% as a result of strong demand for cellular communications.
Sales growth in other product lines also contributed to the increase in Network
Communication segment sales, including growth of 27% for fiber optic
connectivity products and 16% for network components (excluding components used
in fiber optic applications).
Excluding acquisitions, growth in the Specialty Electronic segment was primarily
due to a 13% increase in sales of automation and process control products, which
was partially offset by a 17% decline in sales of specialty cable for the
aerospace and transportation marketplaces. Sales attributable to acquired
businesses accounted for $6.1 million of the increase in sales for this segment.
Sales outside of North America increased $23.3 million, or 15%, to $178.6
million in fiscal 2000 compared to $155.3 million in fiscal 1999. The increase
in international sales was primarily due to higher sales of computer
interconnect, wireless cable and assembly services, and central office cable
products in Western Europe and network products in the Pacific Rim.
Gross profit increased $29.3 million, or 14%, to $233.8 million in fiscal 2000
compared to $204.5 million for fiscal 1999. Growth in gross profit for both the
Network Communication and Specialty Electronic segments was primarily due to the
17% increase in sales, which was partially offset by a slightly lower gross
margin percentage.
The overall gross margin for fiscal 2000 was 29.3% compared to 29.9% for fiscal
1999. The decrease in the gross margin was due to a lower margin for the Network
Communication segment, which was partially offset by an improvement in the gross
margin for the Specialty Electronic segment. The lower Network Communication
segment gross margin was primarily due to a lower margin for outside plant
communication cable used in local distribution applications. Factors
contributing to the lower outside plant cable margin were competitive pricing,
particularly in the U.S. marketplace, and increased labor and manufacturing
costs. The improved gross margin for the Specialty Electronic segment was due to
an improved margin for automation and process control products due primarily to
favorable product mix and volume efficiencies.
Selling, general and administrative expenses ("SG&A") increased $12.5 million,
or 11%, to $126.1 million for fiscal 2000 compared to $113.6 million for fiscal
1999. The increase in SG&A was primarily due to higher sales volume and
performance related expenses. SG&A for fiscal 2000 also includes an additional
$1.4 million provision against accounts receivable due to uncertainty regarding
the financial reporting and condition of a customer. SG&A as a percentage of
sales decreased to 15.8% for fiscal 2000 compared to 16.6% for fiscal 1999, as
the percentage growth in sales exceeded the growth in SG&A. Research and
development expenses decreased $0.9 million to $4.6 million compared to $5.5
million in fiscal 1999.
Nonrecurring income of $0.2 million ($0.1 million net of tax) was recognized in
fiscal 2000. In fiscal 1999, net nonrecurring expense of $4.9 million ($3.3
million net of tax) included a charge of $6.3 million incurred in connection
with the purchase of 2.4 million shares of the Company's common stock acquired
by key employees through the exercise of incentive stock options pursuant to a
share purchase plan previously adopted by the Board of Directors (the "Share
Purchase Plan"), and $1.4 million of income which was primarily the result of
the sale of assets related to a previously discontinued product line.
13
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Cable Design Technologies Corporation and Subsidiaries
Income from operations, excluding net nonrecurring items in both years,
increased $17.7 million, or 21%, to $103.2 million in fiscal 2000 compared to
$85.5 million for fiscal 1999, and the operating margin was 12.9% for fiscal
2000 compared to 12.5% for fiscal 1999. Including net nonrecurring items, income
from operations was $103.3 million for fiscal 2000 compared to $80.6 million for
fiscal 1999.
Interest expense for fiscal 2000 decreased $1.5 million to $11.8 million
compared to $13.3 million for fiscal 1999. The decrease was primarily due to the
lower average balance of debt outstanding. The Company reduced outstanding debt
by $52.4 million during fiscal 2000. The effective tax rate for fiscal 2000
decreased to 39.1% compared to 40.3% for fiscal 1999, primarily due to the fact
that approximately $0.9 million of the fiscal 1999 net nonrecurring charge was
non-deductible for income tax purposes. Excluding net nonrecurring items in both
years, the effective tax rate decreased to 39.1% compared to 39.8% for fiscal
1999.
Excluding net nonrecurring items in both years, fiscal 2000 earnings per share
increased 27% to $1.24 per diluted share on net income of $54.8 million,
compared to $0.98 per diluted share for fiscal 1999 on net income of $42.9
million. Including net nonrecurring items, earnings per share increased to $1.25
per diluted share on net income of $54.9 million compared to $0.91 per diluted
share on net income of $39.6 million for fiscal 1999.
Year Ended July 31, 1999 Compared with Year Ended July 31, 1998
Sales increased $32.3 million, or 5%, to $684.0 million for fiscal 1999 compared
to $651.7 million for the year ended July 31, 1998 ("fiscal 1998"). The increase
in fiscal 1999 includes $56.8 million of sales attributable to acquired
businesses, primarily HEW-Kabel/CDT.
Sales for the Network Communication segment were $446.6 million for fiscal 1999
compared to $458.5 million for fiscal 1998. Excluding the unfavorable effects of
foreign currency translation and of the change in the price of copper on sales
of communication cable, there was no change in sales for this segment.
Communication cable selling prices are generally adjusted for changes in the
market price of copper. Reduced demand in the U.S. marketplace for outside plant
communication cable and for plenum Category 5 network cable and competitive
pricing pressure on Category 5 and 5e network cables were partially offset by
increased demand for computer interconnect and wireless cable and assembly
services. Additionally, the product mix improved as the result of an 83%
increase in sales of the higher priced Category 5e and 6 cables.
Fiscal 1999 sales for the Specialty Electronic segment increased $44.3 million,
or 23%, to $237.4 million. Sales attributable to acquired businesses accounted
for $50.6 million of the increase in sales for this segment. The Company
believes that the significant decline in the market price of copper during
fiscal 1999 contributed to lower pricing conditions for this segment,
particularly for automation & process control products, which contributed to the
lack of sales growth for this segment, excluding acquisitions.
Sales outside of North America increased $49.1 million, or 46%, to $155.3
million in fiscal 1999 compared to $106.2 million in fiscal 1998. Sales
attributable to acquired businesses accounted for $50.7 million of the increase
in international sales. Excluding acquisitions, international sales were
unfavorably affected by the sluggish economy in the United Kingdom and economic
turmoil in Russia and Latin America.
Gross profit increased $10.6 million, or 5%, to $204.5 million in fiscal 1999
compared to $193.9 million for fiscal 1998. Growth in gross profit for the
Specialty Electronic segment, primarily due to acquired businesses, offset a
modest decline in the gross profit for the Network Communication segment. For
the Network Communication segment, an improved sales mix for network cable
products, resulting from an 83% increase in sales of the higher margin enhanced
network cable products, and less product outsourcing partially offset the
unfavorable effects of lower sales of Category 5 network cable and outside plant
communication cable as well as the lower pricing for Category 5 and 5e network
cable products.
14
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Cable Design Technologies Corporation and Subsidiaries
The overall gross margin for fiscal 1999 of 29.9% improved slightly compared to
29.8% for fiscal 1998. A slight improvement in the gross margin for the Network
Communication segment was partially offset by a reduction in the gross margin
for the Specialty Electronic segment. Factors contributing to the improvement in
the gross margin for the Network Communication segment were, for network cable
products, better product mix due to 83% higher sales of enhanced Category 5e and
6 network cable products and lower sales of Category 5 network cable, less
product outsourcing and lower product costs. These improvements were partially
offset by a lower gross margin on wireless products due to product mix. The
lower Specialty Electronic segment gross margin was primarily due to the
inclusion of the comparatively lower gross margins of acquired businesses which
was partially offset by a higher gross margin for automation and process control
cables primarily due to lower copper material costs.
SG&A increased $7.1 million, or 7%, to $113.6 million for fiscal 1999 compared
to $106.5 million for fiscal 1998. Excluding an additional $9.0 million of SG&A
attributable to acquired businesses, SG&A decreased $1.9 million. The lower 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 and the favorable effect of foreign currency
translation, which more than offset increases in certain other SG&A expenses.
SG&A as a percentage of sales was 16.6% for fiscal 1999 compared to 16.3% for
fiscal 1998. Research and development expense decreased $2.4 million to $5.5
million compared to $7.9 million in fiscal 1998, primarily as a result of the
discontinuance of the DynaTraX(TM) product line.
Net nonrecurring charges of $4.9 million ($3.3 million net of tax) were
recognized in fiscal 1999. A charge of $6.3 million was incurred in the second
fiscal quarter in connection with the purchase of 2.4 million shares of the
Company's common stock acquired by key employees through the exercise of
incentive stock options pursuant to the Share Purchase Plan. As a result of the
purchase of such shares, the Company obtained a cash benefit of approximately
$12.8 million realized through the reduction of income taxes payable. Also in
fiscal 1999, nonrecurring income of $1.4 million was recognized which was
primarily due to the sale of assets related to the previously discontinued
DynaTraX(TM) product line. Fiscal 1998 nonrecurring charges of $6.1 million
($3.9 million net of tax) represented a provision for costs associated with the
discontinuance of the DynaTraX(TM) product line and other restructuring
activities.
Income from operations, excluding net nonrecurring charges in both years,
increased $6.0 million, or 7%, to $85.5 million in fiscal 1999 compared to $79.5
million for fiscal 1998, and the operating margin was 12.5% for fiscal 1999
compared to 12.2% for fiscal 1998. Including net nonrecurring charges, income
from operations was $80.6 million for fiscal 1999 compared to $73.5 million for
fiscal 1998.
Interest expense for fiscal 1999 increased $4.7 million to $13.3 million
compared to $8.6 million for fiscal 1998. The increase was primarily the result
of the higher average balance of debt outstanding due to the acquisition of HEW-
Kabel/CDT in August 1998 and the purchase of 3.6 million shares of the Company's
common stock during the first six months of fiscal 1999. The effective tax rate
for fiscal 1999 increased to 40.3% compared to 38.5% for fiscal 1998, partially
due to the fact that approximately $0.9 million of the second quarter
nonrecurring charge was non-deductible for income tax purposes. Excluding net
nonrecurring expense in fiscal 1999, the increase in the effective tax rate to
39.8% compared to 38.5% for fiscal 1998 was primarily the result of lower
Canadian tax credits for 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-Kabel/CDT.
Excluding net nonrecurring charges in both years, fiscal 1999 earnings per share
increased 3% to $0.98 per diluted share on net income of $42.9 million, compared
to $0.95 per diluted share for fiscal 1998 on net income of $44.4 million.
Including net nonrecurring charges, earnings per share increased to $0.91 per
diluted share on net income of $39.6 million compared to $0.86 per diluted share
on net income of $40.5 million for fiscal 1998.
15
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Cable Design Technologies Corporation and Subsidiaries
Liquidity and Capital Resources
During fiscal 2000 operating working capital increased $6.2 million, excluding
increases resulting from the initial recording of the working capital of
acquired businesses. The change in operating working capital was primarily the
result of an increase in accounts receivable of $12.9 million, which was
partially offset by an increase in accounts payable of $8.5 million. The change
in operating working capital excludes changes in cash and current maturities of
long-term debt.
During fiscal 2000 the Company generated $75.7 million of net cash from
operating activities after providing for the increase in working capital. Net
cash used by investing activities during fiscal 2000 of $30.4 million included
$22.0 million for capital projects and $8.3 million for the acquisition of
businesses. Net cash used by financing activities during fiscal 2000 was $39.6
million, including $52.4 million of cash used to reduce debt and $11.2 million
of cash received from the exercise of stock options. The net increase in cash
for fiscal 2000 was $5.0 million.
During fiscal 2000 and fiscal 1999, the Company expended $22.0 million and $25.3
million, respectively, for capital projects. Expenditures were primarily
invested in additional equipment to expand capacity for Network Communication
products, including the purchase of equipment to expand manufacturing capacity
for enhanced bandwidth networking products and, in fiscal 1999, the expansion of
the Company's primary communication cable production facility.
The Company's primary credit agreement ("Credit Agreement") is comprised of a
$121.3 million U.S. revolving facility, (including a $50.0 million Deutschmark
sub-facility), and a CDN $115.0 million Canadian revolving facility. In addition
to the Credit Agreement, the Company has a 364-day, unsecured bank revolving
credit agreement (the "Revolving Facility") with a maximum principal amount of
$15 million, and a foreign credit facility in the United Kingdom (the "European
Credit Agreement") which provides for up to approximately $11.2 million of
borrowings. The Credit Agreement, Revolving Facility and European Credit
Agreement include provisions whereby the applicable margins over the prime rate
and the base rate, as defined, respectively, or the London Inter-Bank Offered
Rate ("LIBOR") are based on the attainment of certain performance factors. The
Revolving Facility expires December 12, 2000. The Credit Agreement and Revolving
Facility contain customary financial and non-financial covenants, except the
Revolving Facility is limited by the terms of the Credit Agreement. On July 31,
2000, the Company had availability of approximately $47.1 million under the
Credit Agreement, $15.0 million under the Revolving Facility and $5.3 million
under the European Credit Agreement. Based on the Company's current expectations
for its business, management believes that its cash flow from operations and the
available portion of its credit facilities will provide it with sufficient
liquidity to meet the current liquidity needs of the Company.
General
During the last several months, there has existed a constrained market supply of
single mode fiber optic glass conductor and of ferrules used in fiber optic
connectors which is expected to continue into fiscal 2001. The Company's
inability to obtain additional allocations, and/or to find additional suppliers,
of these components could limit the growth of products containing these
materials. The Company anticipates moderate price increases on certain raw
materials to occur during the first six months of fiscal 2001. The Company will
incur in the first quarter of fiscal 2001 additional ongoing SG&A expense
associated with the recently established European and Fiber Optic management
groups. The Company's principal customer for wireless assembly services shifted
its business to an overseas contract manufacturer in the last month of fiscal
2000. Sales to this customer averaged approximately $8.5 million per quarter
during fiscal 2000.
Effects of Inflation
The Company does not believe that inflation had a significant impact on the
Company's results of operations for the periods presented. On an ongoing basis,
the Company attempts to minimize any effects of inflation on its operating
results by controlling costs of operations and, whenever possible, seeking to
ensure that selling prices reflect increases in costs due to inflation.
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
16
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Cable Design Technologies Corporation and Subsidiaries
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.
Interest Rate Sensitivity
The table below provides information about the Company's financial instruments,
primarily debt obligations, that are sensitive to changes in interest rates. The
table presents principal cash flows and related weighted average interest rates
for debt obligations by expected maturity date and the currency in which the
instrument's cash flows are denominated. Weighted average variable interest
rates are based on the rates in effect at the reporting date for the respective
debt obligations. No assumptions have been made for future changes in such
variable rates. The fair value of fixed rate debt obligations as determined
under current market interest rate assumptions does not differ materially from
the carrying value as presented below. The information is provided in U.S.
dollar equivalents, which is the Company's reporting currency.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Expected Maturity Date For Periods Ending July 31,
-----------------------------------------------------------------------------------------------------------------------------------
Demand There-
Type* Notes 2001 2002 2003 2004 2005 After Total
-----------------------------------------------------------------------------------------------------------------------------------
(U.S. dollar equivalents in millions) Balance/Average Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand notes payable
British pound VR $4.1/6.6% $ 4.1/6.6%
Swedish krona VR $1.4/4.9% $ 1.4/4.9%
Australian dollar VR $0.3/7.1% $ 0.3/7.1%
Long-term debt
U.S. dollar FR $1.7/9.2% $ 0.1/9.2% $0.0/8.2% $0.0/7.9% $0.0/4.0% $0.1/4.0% $ 1.9/9.0%
Deutschmark FR $1.5/5.4% $ 1.0/5.4% $0.6/5.4% $0.4/5.4% $0.4/5.4% $0.9/5.4% $ 4.8/5.4%
Italian Lira FR $0.4/6.8% $ 0.4/6.8% $0.3/6.8% $0.2/6.8% $0.2/6.8% $0.2/6.8% $ 1.7/6.8%
U.S. dollar VR $47.0/7.1% $47.0/7.1%
Canadian dollar VR $66.6/6.3% $66.6/6.3%
Deutschmark VR $33.8/4.9% $33.8/4.9%
Italian Lira VR $0.1/5.7% $ 0.8/3.8% $0.1/5.7% $0.1/5.7% $0.1/5.7% $0.0/5.7% $ 1.2/4.5%
</TABLE>
* VR-Variable interest rate; FR-Fixed interest rate
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. Additionally, SFAS No. 133 requires that changes in a
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. This statement is effective for the Company's
fiscal year ending July 31, 2001. The Company adopted SFAS No. 133 on August 1,
2000, and such adoption had no impact on the financial statements or results of
operations of the Company.
In December 1999, the Securities and Exchange Commission ("SEC") released Staff
Accounting Bulletin No. 101, "Revenue Recognition" ("SAB No. 101"), to provide
guidance on the recognition, presentation and disclosure of revenue in financial
statements. SAB No. 101 explains the SEC staff's general framework for revenue
recognition. SAB No. 101 does not change existing accounting pronouncements on
revenue recognition, but rather clarifies the SEC's position on pre-existing
rules. SAB No. 101 did not have a significant impact on the Company's financial
position or results of operations at July 31, 2000.
17
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Cable Design Technologies Corporation and Subsidiaries
Year 2000 Update
The Company completed all Year 2000 compliance remediation believed necessary
with respect to its internal information systems ("IT systems") and non-
information systems ("non-IT systems"), such as manufacturing equipment and
control devices, prior to January 1, 2000. The cost of remediation activities,
which included the replacement of certain IT systems to improve functionality
and provide additional system capabilities, totaled approximately $4.0 million.
Management of the Company believes that its Year 2000 plan and related
expenditures incurred have successfully eliminated potential problems associated
with the Year 2000 issue, as the Company has not experienced any significant IT
or non-IT systems interruptions as a result of the Year 2000 date change.
Additionally, the Company is not aware of any significant third parties on which
it relies that have experienced material Year 2000 related problems.
The Company does not anticipate any future disruptions related to Year 2000
issues, however it cannot guarantee that IT and non-IT systems will not undergo
disruptions or generate Year 2000 related errors in the future. Additionally, if
future third party disruptions 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, Italy and
Germany which have customers and suppliers in participating EEMU countries.
These subsidiaries currently have the ability to support transactions in both
the Euro and their respective legacy currencies. The Company's Italian and
German subsidiaries are the only subsidiaries domiciled in participating EEMU
countries. The Company is currently evaluating Euro conversion compliance for
its Italian and German subsidiaries, for which conversion to the Euro as the
functional currency is required to be phased in prior to January 1, 2002. At
this time, costs to address conversion 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 of the statements in this annual report are forward-looking statements,
including, without limitation, statements regarding future financial results and
performance, growth factors, cost savings and other beliefs, expectations or
opinions of the Company and its management. 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 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.
18
<PAGE>
Report of Independent Public Accountants
Cable Design Technologies Corporation and Subsidiaries
To the Board of Directors of
Cable Design Technologies Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Cable Design
Technologies Corporation (a Delaware corporation) and Subsidiaries as of July
31, 2000 and 1999, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended July 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cable Design Technologies
Corporation and Subsidiaries as of July 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended July 31, 2000, in conformity with accounting principles generally accepted
in the United States.
/s/ Arthur Andersen LLP
Pittsburgh, Pennsylvania
September 15, 2000
19
<PAGE>
Consolidated Statements of Income
Cable Design Technologies Corporation and Subsidiaries
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Year Ended July 31, 2000 1999 1998
-----------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share information)
<S> <C> <C> <C>
Sales $797,824 $683,999 $651,668
Cost of sales 563,979 479,469 457,767
-------- -------- --------
Gross profit 233,845 204,530 193,901
Selling, general and administrative expenses 126,064 113,610 106,491
Research and development expenses 4,626 5,450 7,863
Nonrecurring (income) expense, net (189) 4,895 6,093
-------- -------- --------
Income from operations 103,344 80,575 73,454
Interest expense, net 11,770 13,346 8,560
Minority interest in earnings (losses) of subsidiaries, net 986 883 25
Other expense (income), net 377 (18) (947)
-------- -------- --------
Income before income taxes 90,211 66,364 65,816
Income tax provision 35,291 26,723 25,335
-------- -------- --------
Net income $ 54,920 $ 39,641 $ 40,481
======== ======== ========
Per Share Data
Basic earnings per common share $ 1.29 $ 0.92 $ 0.93
======== ======== ========
Diluted earnings per common share $ 1.25 $ 0.91 $ 0.86
======== ======== ========
Weighted average common shares outstanding 42,665 43,176 43,501
======== ======== ========
Diluted weighted average common shares outstanding 44,086 43,693 46,982
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
Consolidated Balance Sheets
Cable Design Technologies Corporation and Subsidiaries
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
July 31, 2000 1999
--------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share information)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 16,454 $ 11,424
Trade accounts receivable, net of allowance for uncollectible
accounts of $6,180 and $4,926, respectively 145,717 130,936
Inventories 145,015 141,762
Prepaid expenses and other 7,140 10,937
Deferred income taxes 11,834 10,926
--------- ----------
Total current assets 326,160 305,985
Property, plant and equipment, net 205,880 201,586
Intangible assets, net 6,253 8,409
Goodwill, net 74,539 76,584
Other assets 2,521 2,536
---------- ----------
Total assets $ 615,353 $ 595,100
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 5,776 $ 33,109
Current maturities of long-term debt 3,692 13,831
Accounts payable 47,996 38,452
Accrued payroll and related benefits 24,264 21,127
Accrued taxes 6,069 10,474
Other accrued liabilities 21,653 25,228
---------- ----------
Total current liabilities 109,450 142,221
Long-term debt 153,336 171,727
Minority interest in subsidiaries 3,615 2,451
Other non-current liabilities 9,002 7,990
Deferred income taxes 23,406 18,609
---------- ----------
Total liabilities 298,809 342,998
---------- ----------
Contingencies (Note 16)
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,
47,362,880 and 46,168,392 shares issued, respectively 316 308
Paid-in capital 192,956 178,979
Common stock issuable, 19,573 and 34,019 shares, respectively 367 253
Retained earnings 183,166 128,246
Treasury stock, at cost, 3,867,528 and 3,935,178 shares, respectively (48,415) (49,262)
Accumulated other comprehensive income (deficit) (11,846) (6,422)
---------- ----------
Total stockholders' equity 316,544 252,102
---------- ----------
Total liabilities and stockholders' equity $ 615,353 $ 595,100
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
Consolidated Statements of Cash Flows
Cable Design Technologies Corporation and Subsidiaries
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Year Ended July 31, 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net income $ 54,920 $ 39,641 $ 40,481
Adjustments for Non-cash Items to Reconcile Net Income
to Cash Provided by Operating Activities:
Depreciation 17,088 14,823 11,079
Amortization 4,361 4,007 2,966
Costs to discontinue DynaTraX(TM) and other restructuring -- -- 6,093
Deferred income taxes 3,308 827 1,830
Tax benefit of option exercises 2,147 12,743 4,949
Stock option compensation expense 68 -- --
Changes in Assets and Liabilities Net of Effects of Businesses Acquired:
Accounts receivable (12,902) (7,644) (12,627)
Inventories (2,967) (1,511) (12,262)
Other current assets 3,632 2,131 (2,141)
Accounts payable 8,494 (9,914) 5,181
Accrued payroll and related benefits 3,326 1,547 (486)
Accrued taxes (4,711) 6,148 983
Other accrued liabilities (2,228) 2,277 1,406
Other non-current assets and liabilities 1,155 2,452 1,117
-------- -------- --------
Net cash provided by operating activities 75,691 67,527 48,569
-------- -------- --------
Cash Flow from Investing Activities:
Purchases of property, plant and equipment (22,028) (25,262) (49,248)
Acquisition of businesses, including transaction costs,
net of cash acquired (8,331) (49,091) (19,092)
-------- -------- --------
Net cash used in investing activities (30,359) (74,353) (68,340)
-------- -------- --------
Cash Flow from Financing Activities:
Net change in demand and revolving note borrowings (39,345) 54,323 27,314
Funds provided by term debt 1,246 12,506 1,316
Funds used to reduce term debt (14,261) (15,152) (4,519)
Common shares issued or issuable 1,484 283 24
Proceeds from exercise of stock options 11,247 211 2,017
Repurchase of common stock -- (44,971) (4,291)
-------- -------- --------
Net cash (used) provided by financing activities (39,629) 7,200 21,861
-------- -------- --------
Effect of currency translation on cash (673) (93) 36
-------- -------- --------
Net increase in cash 5,030 281 2,126
Cash, beginning of year 11,424 11,143 9,017
-------- -------- --------
Cash, end of year $ 16,454 $ 11,424 $ 11,143
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
Consolidated Statements of Stockholders' Equity
Cable Design Technologies Corporation and Subsidiaries
<TABLE>
<CAPTION>
Common Stock
-------------------- Common
Par Paid-in Stock Retained Treasury Deferred
(Dollars in thousands) Shares Value Capital Issuable Earnings Stock Compensation
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1997 42,199,794 $ 188 $158,670 $ -- $ 48,219 $ -- $ (87)
Net income -- -- -- -- 40,481 -- --
Currency translation
adjustments -- -- -- -- -- -- --
Minimum pension liability -- -- -- -- -- -- --
Comprehensive income
Exercise of options and
related tax benefits 3,787,944 24 6,966 -- -- -- --
Stock grants 2,970 -- 45 -- -- -- --
Deferred compensation -- -- -- -- -- -- 87
Stock split -- 95 -- -- (95) -- --
Purchase of 300,000
shares treasury stock -- -- -- -- -- (4,291) --
-----------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1998 45,990,708 307 165,681 -- 88,605 (4,291) --
Net income -- -- -- -- 39,641 -- --
Currency translation
adjustments -- -- -- -- -- -- --
Minimum pension liability -- -- -- -- -- -- --
Comprehensive income
Exercise of options and
related tax benefits 137,325 1 12,953 -- -- --
Stock grants 2,142 -- 30 -- -- -- --
Stock issuance 38,217 -- 315 -- -- -- --
Purchase of 3,635,178
shares treasury stock -- -- -- -- -- (44,971) --
Employee stock
purchase plan,
34,019 shares issuable -- -- -- 253 -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1999 46,168,392 308 178,979 253 128,246 (49,262) --
Net income -- -- -- -- 54,920 -- --
Currency translation
adjustments -- -- -- -- -- -- --
Comprehensive income
Exercise of options and
related tax benefits 1,064,913 7 12,606 -- -- -- --
Stock grants 2,490 -- 30 -- -- -- --
Issuance of 67,650 shares
treasury stock -- -- (66) -- -- 847 --
Employee stock purchase
plan shares issued 127,085 1 1,339 (253) -- -- --
Employee stock
purchase plan, 19,573
shares issuable -- -- -- 367 -- -- --
Stock option
compensation expense -- -- 68 -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 2000 47,362,880 $ 316 $192,956 $ 367 $183,166 $(48,415) $ --
<CAPTION>
Accumulated
Other Total
Comprehensive Stockholders'
Income/(Deficit) Equity
-----------------------------------------------------------------------------------
<S>
Balance, July 31, 1997 $ (1,865) $205,125
Net income -- 40,481
Currency translation
adjustments (3,529) (3,529)
Minimum pension liability (10) (10)
Comprehensive income 36,942
Exercise of options and
related tax benefits -- 6,990
Stock grants -- 45
Deferred compensation -- 87
Stock split -- --
Purchase of 300,000
shares treasury stock -- (4,291)
-----------------------------------------------------------------------------------
Balance, July 31, 1998 (5,404) 244,898
Net income -- 39,641
Currency translation
adjustments (1,028) (1,028)
Minimum pension liability 10 10
Comprehensive income 38,623
Exercise of options and
related tax benefits -- 12,954
Stock grants -- 30
Stock issuance -- 315
Purchase of 3,635,178
shares treasury stock -- (44,971)
Employee stock
purchase plan,
34,019 shares issuable -- 253
-----------------------------------------------------------------------------------
Balance, July 31, 1999 (6,422) 252,102
Net income -- 54,920
Currency translation
adjustments (5,424) (5,424)
Comprehensive income 49,496
Exercise of options and
related tax benefits -- 12,613
Stock grants -- 30
Issuance of 67,650 shares
treasury stock -- 781
Employee stock purchase
plan shares issued -- 1,087
Employee stock
purchase plan, 19,573
shares issuable -- 367
Stock option
compensation expense -- 68
-----------------------------------------------------------------------------------
Balance, July 31, 2000 $(11,846) $316,544
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
Notes to consolidated Financial Statements
cable Design Technologies Corporation and Subsidiaries
Note 1. Operations
Cable Design Technologies Corporation ("CDT" or "the Company") is a leading
designer and manufacturer of high bandwidth network connectivity products, fiber
optic cable and connectors, assemblies, components, computer interconnect cables
for communication switching applications, and communication cable products used
in local loop, central office and wireless applications. CDT also manufactures
electronic cable products that are used in automation and process control and
specialty applications.
Note 2. Significant Accounting Policies
The consolidated financial statements reflect the application of the following
significant accounting policies:
Principles of Consolidation
The consolidated financial statements include the accounts of Cable Design
Technologies Corporation and its majority owned subsidiaries. All material
intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market. Inventory costs include material, labor and manufacturing overhead. The
Company's products contain significant amounts of certain raw materials, such as
copper and Teflon(R). The Company believes that adequate sources are available
for these commodities; however, any disruption of the supplies or significant
deviations in market prices could impact the Company's operations.
Property, Plant and Equipment
Property, plant and equipment are carried on the cost basis. Provisions for
depreciation and amortization are computed using the straight-line method based
upon the estimated useful lives of the assets. Maintenance and repair costs are
charged to operations as incurred. Major replacements or betterments are
capitalized. Cost and accumulated depreciation of property sold or retired are
removed from the accounts and any resulting gain or loss is recognized in the
current period statement of income.
Goodwill
Goodwill represents the excess of the purchase price over the fair market value
of identifiable net assets acquired in connection with various business
acquisitions and combinations. Goodwill is being amortized using the straight-
line method over periods of between 20 to 40 years. Accumulated amortization of
goodwill was $10.4 million and $8.2 million at July 31, 2000 and 1999,
respectively.
The Company continually evaluates the carrying value of goodwill on the basis of
whether goodwill is fully recoverable from estimated undiscounted net income,
before the effects of goodwill amortization, over the remaining amortization
period.
Loan Origination Fees
In connection with the issuance of the Company's debt instruments, the Company
defers related credit acquisition costs. These costs are amortized using the
straight-line method over the life of the debt instruments.
24
<PAGE>
Notes to Consolidated Financial Statements
Cable Design Technologies Corporation and Subsidiaries
Translation of Foreign Currency Financial Statements
The financial statements of foreign subsidiaries are translated using the
exchange rate in effect at year end for balance sheet accounts and the average
exchange rate in effect during the year for income and expense accounts.
Unrealized gains or losses arising from translation are charged or credited
directly to accumulated other comprehensive income/(deficit), a component of
stockholders' equity. Gains and losses on foreign currency transactions are
included in income as they occur.
Income Taxes
Income taxes are accounted for in accordance with the liability method, under
which deferred tax assets or liabilities are computed based on the temporary
differences between the financial statement and income tax bases of assets and
liabilities using the enacted marginal tax rate. These differences are
classified as current or non-current based upon the classification of the
related asset or liability. For temporary differences that are not related to an
asset or liability, classification is based upon the expected reversal date of
the temporary difference.
Reclassifications
Certain reclassifications have been made to the prior year statements to conform
with the current year presentation.
Statements of Cash Flows
Supplemental disclosure of cash flow information.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Year Ended July 31, 2000 1999 1998
-------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Cash paid during the year for:
Interest $12,772 $12,014 $ 8,165
Income taxes $30,992 $10,055 $19,707
</TABLE>
Impact of Newly Issued Accounting Standards
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" was issued in June 1998. SFAS No.
133 establishes accounting and reporting standards for derivative instruments
and requires recognition of all derivatives as either assets or liabilities,
measured at fair value, in the balance sheet. This statement is effective for
the Company's fiscal year ending July 31, 2000. The Company adopted SFAS No. 133
on August 1, 2000, and such adoption had no impact on the financial statements
or results of operations of the Company.
In December 1999, the Securities and Exchange Commission ("SEC") released Staff
Accounting Bulletin No. 101, "Revenue Recognition" ("SAB No. 101"), to provide
guidance on the recognition, presentation and disclosure of revenue in financial
statements. SAB No. 101 explains the SEC staff's general framework for revenue
recognition. SAB No. 101 does not change existing accounting pronouncements on
revenue recognition, but rather clarifies the SEC's position on pre-existing
rules. SAB No. 101 did not have a significant impact on the Company's financial
position or results of operations at July 31, 2000.
Note 3. Stockholders' Equity
Prior period common share information has been adjusted to reflect the effect
of a 3-for-2 stock split in the form of a common stock dividend on August 22,
2000.
On May 7, 1997, the Board of Directors approved a program under which up to $30
million of the Company's common stock may be repurchased on the open market or
in privately negotiated transactions. The Company repurchased 1,241,100 and
300,000 common shares during fiscal 1999 and 1998, respectively, under this
program. Additionally, on December 1, 1998, the Board of Directors approved the
purchase of up to 2,850,000 shares of the Company's common stock held by certain
key employees. The stock was acquired by the employees more than six months
previously upon the exercise of certain incentive stock options granted
primarily in 1988 and 1989 and expiring in 1998 and 1999. During fiscal 1999 the
Company repurchased 2,394,078 common shares from such employees (See Note 19).
25
<PAGE>
Notes to Consolidated Financial Statements
Cable Design Technologies Corporation and Subsidiaries
On December 10, 1996, the Board of Directors adopted a Rights Agreement ("Rights
Agreement"). Under the Rights Agreement, one Preferred Share Purchase Right
("Right") for each outstanding share of the Company's common stock was
distributed to stockholders of record on December 26, 1996. Each Right entitles
the holder to buy one-two thousand two hundred fiftieth of a share of a new
series of junior participating preferred stock for an exercise price of $66.67.
The Company has designated 100,000 shares of the previously authorized $0.01 par
value preferred stock as junior participating preferred stock in connection with
the Rights Agreement. The Rights are exercisable only if a person or group (with
certain exceptions) acquires, or announces a tender offer to acquire, 20% or
more of the Company's common stock (the "Acquirer"). If the Acquirer purchases
20% or more of the total outstanding shares of the Company's common stock, or if
the Acquirer acquires the Company in a reverse merger, each Right (except those
held by the Acquirer) becomes a right to buy shares of the Company's common
stock having a market value equal to two times the exercise price of the Right.
If the Company is acquired in a merger or other business combination, or 50% or
more of the Company's assets or earning power is sold or transferred, each Right
(except those held by the Acquirer) becomes a right to buy shares of the common
stock of the Acquirer having a market value of two times the exercise price. The
Company may exchange the Rights for shares of the Company's common stock on a
one-to-one basis at any time after a person or group has acquired 20% or more of
the outstanding stock. The Company is entitled to redeem the Rights at $0.01 per
Right (payable in cash or common stock of the Company, at the Company's option)
at any time before public disclosure that a 20% position has been acquired. The
Rights expire on December 11, 2006, unless previously redeemed or exercised.
Note 4. Inventories
Inventories of the Company consist of the following:
<TABLE>
<CAPION>
---------------------------------------------------------------------------
July 31, 2000 1999
---------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Raw materials $ 40,779 $ 36,851
Work-in-process 35,268 32,297
Finished goods 68,968 72,614
---------- ----------
Total inventories $ 145,015 $ 141,762
========== ==========
</TABLE>
Note 5. Property, Plant and Equipment
Property, plant and equipment of the Company consist of the following:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
July 31, 2000 1999
---------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Asset (Asset lives):
Land $ 10,946 $ 10,812
Buildings and improvements (10 - 40 years) 65,248 64,412
Machinery and equipment (3 - 15 years) 186,711 168,563
Furniture and fixtures (5 - 10 years) 12,876 11,866
---------- ----------
Total 275,781 255,653
Less: accumulated depreciation (69,901) (54,067)
---------- ----------
Net property, plant and equipment $ 205,880 $ 201,586
========== ==========
</TABLE>
Note 6. Intangible Assets
Intangible assets consist of patents, trademarks, loan origination fees and non-
compete agreements. Patents, trademarks and non-compete agreements are being
amortized over periods ranging from five to ten years. Loan origination fees are
amortized over the term of the related loan. Accumulated amortization for
intangible assets was $5.5 million and $4.2 million at July 31, 2000 and 1999,
respectively.
26
<PAGE>
Notes to Consolidated Financial Statements
Cable Design Technologies Corporation and Subsidiaries
Note 7. Financing Arrangements
Notes payable to banks consist of an unsecured, 364 day revolving credit
agreement (the "Revolving Facility"), and borrowings by certain of the Company's
foreign subsidiaries under credit agreements entered into on September 18, 1995
(the "European Credit Agreement") and on March 14, 1997 (the "Australian
Facility") (collectively, "the Foreign Facilities") to support the financing
needs of its subsidiaries located in the United Kingdom, Sweden and Australia.
The Revolving Facility provides for maximum borrowings of $15 million.
Outstanding borrowings bear floating interest rates of either the London Inter-
Bank Offered Rate ("LIBOR") plus the applicable margin or the base rate, as
defined, at the Company's election. The applicable margin over LIBOR ranges from
1.2% to 2.2% and is determined based on the attainment of specified leverage
ratios. A facility fee of .30% is payable quarterly on the maximum facility
amount. The Revolving Facility contains customary financial and non-financial
covenants, except as limited by the terms of the Company's primary credit
agreement. As of July 31, 2000, there were no amounts outstanding under the
Revolving Facility. The Company had outstanding borrowings of $23.0 million as
of July 31, 1999, and maximum borrowings of $23.0 and $28.5 million under the
Revolving Facility for the years ended July 31, 2000 and 1999, respectively.
Weighted average outstanding borrowings were $6.3 million and $24.6 million, and
the effective interest rates were 6.2% and 5.9% for the years ended July 31,
2000 and 1999, respectively.
The European Credit Agreement is comprised of a sterling overdraft and multi-
currency demand facility in an aggregate amount of approximately $11.2 million.
Terms of the facility permit borrowings based on a percentage of certain
accounts receivable and inventory at applicable margins over LIBOR. The
Australian Facility is a revolving demand facility with maximum availability of
approximately $0.6 million. The Foreign Facilities are guaranteed by the
Company. The Company had outstanding borrowings of $5.8 million and $10.1
million and maximum borrowings of $10.4 and $11.3 million under the Foreign
Facilities as of and for the years ended July 31, 2000 and 1999, respectively.
Weighted average outstanding borrowings were $8.3 million and $10.5 million, and
the effective interest rates were 6.1% and 7.1% for the years ended July 31,
2000 and 1999, respectively.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
July 31, 2000 1999
----------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
U.S. revolver, due April 10, 2002, bears interest at
LIBOR plus 0.50%, or approximately 7.1% at July 31, 2000 $ 47,000 $ 66,500
Deutschmark sub-facility, due April 10, 2002, bears interest at
LIBOR plus 0.50%, or approximately 4.9% at July 31, 2000 33,790 23,306
Canadian revolver, due April 10, 2002, bears interest at
LIBOR plus 0.50%, or approximately 6.3% at July 31, 2000 66,568 73,628
Other indebtedness 9,670 22,124
---------- ----------
157,028 185,558
Less: current portion 3,692 13,831
---------- ----------
Total long-term debt $ 153,336 $ 171,727
========== ==========
</TABLE>
The Company's primary credit agreement, (the "Credit Agreement"), as amended, is
comprised of a $121.3 million U.S. revolving facility, including a $50.0 million
Deutschmark sub-facility (the "U.S. Revolver"), and a CDN $115.0 million
revolver (the "Canadian Revolver"). The Credit Agreement includes a provision
whereby the applicable margins over the prime rate or LIBOR are based on the
attainment of certain performance factors. A commitment fee of 0.15% to 0.375%
is applied to the unused portion of each revolver. The terms of the Credit
Agreement contain various customary financial and non-financial covenants
including the maintenance of minimum consolidated net worth and restrictions on
payment of dividends. The Company is in compliance with all applicable
covenants.
27
<PAGE>
Notes to Consolidated Financial Statements
Cable Design Technologies Corporation and Subsidiaries
On July 31, 2000 the Company had approximately $47.1 million of availability
under the Credit Agreement, $15.0 million of availability under the
Revolving Facility, and $5.7 million of availability under its Foreign
Facilities.
The scheduled aggregate annual principal payments of long-term debt as of July
31, 2000, are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Year Ended July 31, Long-term Debt
--------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C>
2001 $ 3,692
2002 149,626
2003 1,008
2004 741
2005 707
Thereafter 1,254
--------
Total $157,028
========
</TABLE>
Note 8. Retirement and Other Employee Benefits
The Company and its subsidiaries have various defined contribution and defined
benefit plans covering substantially all of its employees. Benefits provided
under the Company's defined benefit pension plans are primarily based on years
of service and the employee's compensation. The defined contribution plans
provide benefits primarily based on compensation levels.
Defined Benefit Plans
The Company maintains defined benefit plans for one of its U.S. locations (the
"U.S. Plan") and for certain employees in Canada (the "Canadian Plans").
The following sets forth the changes in benefit obligations and plan assets, and
reconciles amounts recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
U.S. Plan Canadian Plans
-----------------------------------------------------------------------------------------------------------------
Year Ended July 31, 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year $ 1,979 $ 1,984 $ 7,679 $ 5,954
Service cost 48 47 2,064 2,131
Interest cost 142 130 666 507
Plan amendments 93 -- 2,618 --
Loss (gain) 29 (60) 458 (845)
Benefits paid (132) (122) (127) (94)
Effect of currency translation -- -- 38 26
-------- -------- -------- --------
Benefit obligation at end of year $ 2,159 $ 1,979 $ 13,396 $ 7,679
-------- -------- -------- --------
Fair value of plan assets at beginning of year $ 2,589 $ 2,496 $ 4,678 $ 3,186
Company contributions -- -- 2,206 1,342
Actual return on plan assets 277 215 1,148 196
Benefits paid (132) (122) (102) (61)
Effect of currency translation -- -- 25 15
-------- -------- -------- --------
Fair value of plan assets at end of year $ 2,734 $ 2,589 $ 7,955 $ 4,678
-------- -------- -------- --------
Funded status $ 575 $ 610 $ (5,441) $ (3,001)
Unrecognized net actuarial gain (loss) (72) (56) 2,304 (37)
Unrecognized prior service cost 127 50 -- --
-------- -------- -------- --------
Net prepaid benefit (accrued liability) $ 630 $ 604 $ (3,137) $ (3,038)
-------- -------- -------- --------
</TABLE>
28
<PAGE>
Notes to Consolidated Financial Statements
Cable Design Technologies Corporation and Subsidiaries
Amounts recognized in the consolidated balance sheets consist of:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
U.S. Plan Canadian Plans
-----------------------------------------------------------------------------------------------------------------
July, 31, 2000 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Prepaid benefit cost $ 630 $ 604 $ -- $ --
Accrued benefit liability -- -- (3,137) (3,038)
------- ------- ------- -------
Net prepaid benefit (accrued liability) $ 630 $ 604 $(3,137) $(3,038)
======= ======= ======= =======
</TABLE>
Assets of the U.S. and Canadian plans are invested primarily in equity and fixed
income securities.
The weighted average assumptions as of the end of the periods were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
U.S. Plan Canadian Plans
---------------------------------------------------------------------------------------------------------------------------------
July 31, 2000 1999 1998 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted average
discount rate 7.00% 7.00% 7.00% 7.00% 6.75% 6.30%
Weighted average expected
long term rate of return 8.50% 8.50% 9.50% 8.00% 8.00% 8.00%
</TABLE>
The components of pension expense for fiscal 2000, 1999, and 1998 were as
follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
U.S. Plan Canadian Plans
-----------------------------------------------------------------------------------------------------------------------------------
Year Ended July 31, 2000 1999 1998 2000 1999 1998
-----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 48 $ 47 $ 28 $2,064 $2,131 $1,817
Interest cost 142 130 133 666 507 421
Expected return on plan assets (213) (231) (220) (467) (307) (198)
One time adjustment -- -- -- -- -- (174)
Net amortization (3) (9) (12) 28 97 9
------ ------ ------ ------ ------ ------
Net periodic benefit expense (credit) $ (26) $ (63) $ (71) $2,291 $2,428 $1,875
====== ====== ====== ====== ====== ======
</TABLE>
Defined Contribution Plans
The Company also maintains defined contribution and profit-sharing plans for
eligible employees. Certain contributions are made under the matching provision
of 401(k) plans, while the remainder are made at the discretion of the Company's
Board of Directors. Expenses incurred by the Company in connection with these
profit-sharing plans were $5.3 million, $3.8 million and $4.3 million for the
years ended July 31, 2000, 1999, and 1998, respectively.
29
<PAGE>
Notes to Consolidated Financial Statements
Cable Design Technologies Corporation and Subsidiaries
Note 9. Postretirement Benefits Other Than Pensions
Certain of the Company's operations are covered by postretirement health and
life insurance benefits under unfunded plans.
The components that comprise the changes in the benefit obligation were as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Year Ended July 31, 2000 1999
------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Benefit obligation at beginning of year $ 6,053 $ 4,291
Service cost 278 270
Interest cost 436 362
Actuarial (gain) loss (217) 1,125
Benefits paid (29) (16)
Effect of currency translation 73 21
------- -------
Benefit obligation at end of year $ 6,594 $ 6,053
======= =======
</TABLE>
Amounts recognized in the consolidated balance sheets consist of:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
July 31, 2000 1999
------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Funded status $(6,594) $(6,053)
Unrecognized net loss 976 1,320
------- -------
Accrued postretirement benefit liability $(5,618) $(4,733)
======= =======
</TABLE>
The components of postretirement expense for fiscal 2000, 1999, and 1998 were as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Year Ended July 31, 2000 1999 1998
------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Service cost $ 278 $ 270 $ 218
Interest cost 436 362 335
Net amortization 149 43 22
------- ------- -------
Net postretirement benefit expense $ 863 $ 675 $ 575
======= ======= =======
</TABLE>
Future benefits were estimated assuming medical costs would increase at
approximately an 8.00% annual rate for 2001, decreasing gradually to 4.00% in
year 2005 and thereafter, and dental costs would increase at approximately 4.00%
for 2001 and thereafter.
Assuming a 1.00% increase in this annual trend, the accumulated postretirement
benefit obligation would have increased by $793,000 and $732,000 at July 31,
2000 and 1999, respectively and the postretirement benefit expense would have
increased by approximately $98,000, $96,000 and $51,000 for fiscal 2000, 1999
and 1998, respectively. The weighted average discount rate used to estimate the
accumulated postretirement benefit obligation was 7.00% and 6.75% for the years
ended July 31, 2000 and 1999, respectively.
30
<PAGE>
Notes to Consolidated Financial Statements
Cable Design Technologies Corporation and Subsidiaries
Note 10. Stock Benefit Plans
During fiscal 1999 the Company established the CDT Employee Stock Purchase Plan
(the "ESPP") which provides eligible employees the right to purchase common
stock of the Company on a quarterly basis at the lower of 85% of the common
stock's fair market value on the first business day of a fiscal quarter or on
the last business day of a fiscal quarter. There are 750,000 shares of common
stock reserved for issuance under the ESPP. As of July 31, 2000, 603,342 shares
of common stock remain available for issuance under the ESPP.
In December 1995, the Company adopted the Non-Employee Director Stock Plan (the
"Non-Employee Plan"). The Non-Employee Plan provides that shares of common stock
having a fair market value of $15,000 be granted annually to each non-employee
director each August 1. Shares granted under the Non-Employee Plan were 2,490 in
fiscal 2000, 2,142 in fiscal 1999 and 2,970 in fiscal 1998.
The Company maintains a Stock Purchase and Option Plan (the "Former Plan") which
was terminated as to future grants effective upon completion of the Company's
initial public offering on November 24, 1993 (the "Initial Public Offering"). As
of the grant termination date, 6,249,816 options had been granted under the
Former Plan to directors, executives and other key employees of the Company.
Options issued under the Former Plan expire on the earlier of ten years after
the date of grant (July 1988 through September 1992) or ten days after
termination of employment. Substantially all of the outstanding options became
fully vested as of the date of the Initial Public Offering. Substantially all of
the options granted under the Former Plan were exercised prior to July 31, 1998.
A Long Term Performance Incentive Plan (the "Stock Option Plan") was adopted in
September 1993 and provides for the granting to employees and other key
individuals stock options, stock appreciation rights, restricted stock,
performance units and other types of incentive awards. The Stock Option Plan is
scheduled to terminate in ten years from the date of adoption but may be
extended another five years by the Company's Board of Directors for the grant of
awards other than incentive stock options. Employee rights to grants pursuant to
the Stock Option Plan are forfeited if a recipient's employment terminates
within a specified period following the grant. An aggregate of 982,625 shares of
common stock were reserved for issuance pursuant to the Stock Option Plan, and
63,102 remained available for issuance as of July 31, 2000.
A Supplemental Long Term Performance Incentive Plan (the "Supplemental Plan")
was adopted in December 1995 and authorizes the grant of awards with respect to
2,700,000 shares of common stock, of which 1,687,500 shares are to be reserved
for grants only to new members of the Company's management who are employed in
connection with acquisitions by the Company. As of July 31, 2000, 324,683 shares
of common stock remain available for grant under the Supplemental Plan,
including 13,433 available for issuance to employees of acquired companies.
A Long Term Performance Incentive Plan (the "1999 Plan") was adopted in April
1999 and amended in June 1999 and authorizes the grant of various types of
incentive awards with respect to 2,260,500 shares of the Company's common stock.
As of July 31, 2000, 31,230 shares remain available for issuance under the 1999
Plan.
The terms of stock options issued under the Former Plan, Stock Option Plan,
Supplemental Plan and 1999 Plan (collectively "the Option Plans") include
vesting over periods ranging from three to five years and an exercise price
equal to the fair market value of the stock at the date of grant.
31
<PAGE>
Notes to Consolidated Financial Statements
Cable Design Technologies Corporation and Subsidiaries
Certain information regarding stock option transactions is summarized below:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Year Ended July 31, 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 5,454,068 $ 10.73 2,944,596 $ 9.16 6,589,553 $ 4.02
Granted/reissued 262,500 20.63 2,768,400 11.83 148,500 17.45
Exercised (1,132,563) 9.93 (137,325) 1.54 (3,787,944) 0.54
Canceled/forfeited (48,165) 9.63 (121,603) 8.05 (5,513) 12.28
---------------------- ---------------------- ----------------------
Outstanding, end of year 4,535,840 $ 11.51 5,454,068 $ 10.73 2,944,596 $ 9.16
Exercisable at end of year 1,299,764 $ 9.66 1,182,150 $ 7.93 771,003 $ 4.56
---------------------- ---------------------- ----------------------
Weighted average fair value of
options granted $ 11.77 $ 3.70 $ 9.00
</TABLE>
Information regarding stock options outstanding as of July 31, 2000 is
summarized below:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Range of Exercise Prices Options Contractual Life Price Options Price
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.22 - $ 4.14 295,377 2.4 years $ 2.40 295,377 $ 2.40
$ 8.13 - $12.28 2,362,932 7.8 years $ 9.85 502,665 $ 9.53
$13.83 - $21.79 1,877,531 8.8 years $15.03 501,722 $14.05
</TABLE>
The Company accounts for the Option Plans and the ESPP in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees" under which no
compensation cost has been recognized. The supplemental information presented
below discloses pro forma net income and net income per common share as if the
Company had determined the cost of stock options in accordance with the fair
value method under SFAS No. 123, "Accounting for Stock-Based Compensation".
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Year Ended July 31, 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Net income: As reported $54,920 $39,641 $40,481
Pro forma $51,023 $37,649 $38,550
Basic EPS: As reported $ 1.29 $ 0.92 $ 0.93
Pro forma $ 1.20 $ 0.87 $ 0.89
Diluted EPS: As reported $ 1.25 $ 0.91 $ 0.86
Pro forma $ 1.18 $ 0.86 $ 0.82
</TABLE>
32
<PAGE>
Notes to Consolidated Financial Statements
Cable Design Technologies Corporation and Subsidiaries
The fair value of each option grant is estimated as of the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions for grants issued in 2000, 1999, and 1998, respectively: risk-free
interest rates of 6.36%, 5.87% and 5.93%; expected volatility of 59.0%, 58.5%
and 53.0%; expected life of 5 years for all options; and an expected dividend
yield of zero for all options. The Black-Scholes option valuation model was
developed for use in valuing stock options with significantly different
characteristics from those issued under the Option Plans, therefore, the model
may not necessarily provide a reliable estimate of the fair value of the
Company's employee stock options. Additionally, the SFAS No. 123 method of
accounting is effective for options granted after August 1, 1995, and the above
pro forma net income does not reflect any compensation cost that may have
resulted if SFAS No. 123 had been applied to options granted prior to August 1,
1995. Incentive stock awards are granted at the discretion of the Company's
Board of Directors, therefore, the type and number of awards previously issued
may not be indicative of those to be granted in future periods.
Note 11. Income Taxes
Except for the effects of the reversal of net deductible temporary differences,
the Company is not aware of any factors which would cause any significant
differences between book and taxable income in future years. Although there can
be no assurances that the Company will generate any earnings or specific level
of continuing earnings in future periods, management believes that it is more
likely than not that the net deductible differences will reverse during periods
when the Company generates sufficient net taxable income.
Income before income taxes, as shown in the accompanying consolidated statements
of income, includes the following components:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Year Ended July 31, 2000 1999 1998
-----------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Domestic $54,914 $35,133 $49,084
Foreign 35,297 31,231 16,732
------- ------- -------
Income before income taxes $90,211 $66,364 $65,816
======= ======= =======
</TABLE>
Taxes on income, as shown in the accompanying consolidated statements of income,
include the following components:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Year Ended July 31, 2000 1999 1998
-----------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Current provision:
Federal $16,154 $13,893 $16,080
State 3,541 2,381 3,533
Foreign 12,279 9,622 3,892
------- ------- -------
Total current provision 31,974 25,896 23,505
Deferred provision (benefit):
Domestic 2,607 (1,353) 153
Foreign 710 2,180 1,677
------- ------- -------
Total deferred provision 3,317 827 1,830
------- ------- -------
Income tax provision $35,291 $26,723 $25,335
======= ======= =======
</TABLE>
33
<PAGE>
Notes to Consolidated Financial Statements
Cable Design Technologies Corporation and Subsidiaries
The effective rate differs from the statutory rate for the following reasons:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Year Ended July 31, 2000 1999 1998
-----------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Tax provision based on the U.S. federal statutory tax rate $31,574 $23,227 $23,035
State income taxes, net of federal income tax benefit 2,302 1,548 2,296
Research and development tax credit (Canada) (224) (302) (877)
Foreign tax rates different from U.S. federal statutory rate 857 1,127 586
Permanent items 584 829 169
All other, net 198 294 126
------- ------- -------
Income tax provision $35,291 $26,723 $25,335
======= ======= =======
</TABLE>
The components of the deferred tax assets and liabilities recorded in the
accompanying consolidated balance sheets at July 31, 2000 and 1999, which
include net deferred tax liabilities recorded in connection with acquisitions
and reflect reclassifications as a result of finalization of purchase accounting
under APB 16, were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
July 31, 2000 1999
-----------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Deferred Tax Assets:
Accruals $ 4,989 $ 5,222
Postretirement and pension accruals 2,822 2,246
Asset valuations 6,624 4,979
Uniform cost capitalization 1,050 1,167
Other 180 1,322
-------- --------
Total deferred tax assets $ 15,665 $ 14,936
-------- --------
Deferred Tax Liabilities:
Excess of book basis over tax basis of fixed assets $(27,164) $(22,042)
Other (73) (360)
-------- --------
Total deferred tax liabilities (27,237) (22,402)
-------- --------
Net deferred taxes before valuation allowance (11,572) (7,466)
Valuation allowance (foreign NOL) -- (217)
-------- --------
Net deferred tax liability $(11,572) $ (7,683)
======== ========
Reconciliation to the consolidated balance sheets -
Current deferred tax asset, net $ 11,834 $ 10,926
Non-current deferred tax liability, net (23,406) (18,609)
-------- --------
Net deferred tax liability $(11,572) $ (7,683)
======== ========
</TABLE>
34
<PAGE>
Notes to Consolidated Financial Statements
Cable Design Technologies Corporation and Subsidiaries
Note 12. Net Income Per Share of Common Stock
Basic net income per share of common stock is computed by dividing net income by
the weighted average number of shares of common stock outstanding. Diluted net
income per share of common stock is computed based on the weighted average
common shares outstanding plus incremental common stock equivalent shares
(shares issuable upon exercise of options). Incremental common stock equivalent
shares are calculated for each measurement period based on the treasury stock
method, under which the repurchases are assumed to be made at the average fair
market value price per share of the Company's common stock during the period.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Year Ended July 31, 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Numerator:
Net income $ 54,920 $ 39,641 $ 40,481
Denominator:
Denominator for basic earnings per share 42,665,123 43,175,804 43,500,741
Shares issuable from assumed conversion
of dilutive stock options 1,421,076 517,012 3,481,473
----------- ----------- -----------
Denominator for diluted earnings per share 44,086,199 43,692,816 46,982,214
Basic earnings per common share $ 1.29 $ 0.92 $ 0.93
Diluted earnings per common share $ 1.25 $ 0.91 $ 0.86
</TABLE>
Options to purchase 247,500 and 2,843,963 shares of common stock were
outstanding during fiscal 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.
Note 13. 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>
--------------------------------------------------------------------------------------------------------------------
HEW/CDT
--------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C>
Assets acquired, net of cash $ 67,458
Liabilities assumed (22,980)
Notes issued (10,307)
--------
Net cash paid $ 34,171
========
</TABLE>
On March 31, 2000, the Company acquired the outstanding stock of Hamilton USA,
Inc. ("BoseLAN/CDT"), a Silicon Valley company located in Fremont, California.
BoseLAN/CDT is a developer of high performance electronic and fiber optic
components.
On February 24, 2000, the Company purchased 85% of the outstanding stock of
Industria Tecnica Cavi S.R.L. ("ITC/CDT"), and entered into an agreement to
purchase the remaining 15% of the stock at a later date. ITC/CDT is an Italian
manufacturer of coaxial cable.
35
<PAGE>
Notes to Consolidated Financial Statements
Cable Design Technologies Corporation and Subsidiaries
On March 12, 1999 the Company acquired the outstanding stock of the Tennecast
Company ("Tennecast/CDT") of Barberton, Ohio, a manufacturer of precision
aluminum tire castings and computer designed and machined mold models utilized
for tire castings.
On September 25, 1998, the Company acquired the assets of Network Essentials,
Inc., ("Red Hawk/CDT") based in Milpitas, California, a provider of fiber optic
products for voice, video and data networks.
On March 17, 1998, the Company acquired the outstanding stock of Orebro Kabel AB
("Orebro/CDT") of Orebro, Sweden. Orebro/CDT is a manufacturer of custom
designed wire and cable for wireless communication, robotics and other
industries.
On September 10, 1997, the Company acquired the outstanding stock of Barcel
Acquisition Corporation, and its subsidiaries, ("Barcel/CDT") based in Irvine,
California. Barcel/CDT is a manufacturer of high performance specialty wire and
cable for the commercial aerospace, military and satellite industries.
The acquisitions of BoseLAN/CDT, ITC/CDT, Tennecast/CDT, Red Hawk/CDT,
Barcel/CDT, and Orebro/CDT were accounted for under the purchase method of
accounting. Under the purchase method, the Company allocates the purchase price
based on the estimated fair market value of the assets and liabilities acquired.
Note 14. Industry and Geographic 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, 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, including
assembly of products for the wireless marketplace. The Specialty Electronic
segment encompasses electronic cable products that are used in automation and
process control applications as well as specialized wire and cable products for
niche markets, including commercial aviation and automotive electronics.
The accounting policies of the reportable segments are the same as those
described in "Significant Accounting Policies" (Note 2). The Company evaluates
segment performance based on operating profit excluding nonrecurring income and
expense, after allocation of Corporate expenses. Corporate assets, which
primarily consist of cash, deferred income taxes and other deferred costs, are
immaterial and are allocated to the operating segments.
36
<PAGE>
Notes to Consolidated Financial Statements
Cable Design Technologies Corporation and Subsidiaries
The Company has no inter-segment revenues. Summarized financial information for
the Company's operating segments for the years ended July 31, is as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Network Specialty
Communication Electronic
Segment Segment Total
--------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Sales:
2000 $545,021 $252,803 $797,824
1999 446,580 237,419 683,999
1998 458,506 193,162 651,668
Depreciation and amortization expense:
2000 13,697 7,752 21,449
1999 11,535 7,295 18,830
1998 9,812 4,233 14,045
Segment operating profit:
2000 62,191 40,964 103,155
1999 50,264 35,206 85,470
1998 55,121 24,426 79,547
Total assets:
2000 376,966 238,387 615,353
1999 359,910 235,190 595,100
1998 335,824 169,603 505,427
Capital expenditures:
2000 16,003 6,025 22,028
1999 18,943 6,319 25,262
1998 37,132 12,116 49,248
</TABLE>
The following summarizes external sales to customers and long-lived assets
located in the Company's country of domicile and certain foreign countries:
<TABLE>
--------------------------------------------------------------------------------------------------
July 31, 2000 1999 1998
--------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Sales:
United States $497,319 $410,744 $426,337
Canada 121,882 117,994 119,087
Other 178,623 155,261 106,244
-------- -------- --------
Total $797,824 $683,999 $651,668
======== ======== ========
Long-lived assets:
United States $ 77,832 $ 75,304 $ 71,519
Canada 74,160 71,815 64,927
Germany 27,086 30,677 --
Other 29,323 26,326 26,178
-------- -------- --------
Total $208,401 $204,122 $162,624
======== ======== ========
</TABLE>
37
<PAGE>
Notes to Consolidated Financial Statements
Cable Design Technologies Corporation and Subsidiaries
Note 15. Lease Commitments
Rental expense under noncancelable leases was approximately $5.3 million, $5.0
million and $5.4 million for the years ended July 31, 2000, 1999 and 1998,
respectively. Operating leases relate principally to manufacturing, warehouse
and office space. Minimum annual rents payable under noncancelable leases in
each of the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Year Ended July 31, Total
-----------------------------------------------------------------------------
(Dollars in thousands)
<S> <C>
2001 $ 5,516
2002 4,206
2003 3,469
2004 2,380
2005 1,536
Thereafter 637
-------
Total future minimum lease payments $17,744
=======
</TABLE>
Note 16. Commitments and Contingencies
Certain claims have been asserted against the Company in connection with patent
and trademark matters. In management's opinion, any liability that might be
incurred in connection with these claims would not have a material effect upon
the Company's financial position, or results of operations or cash flows.
As of July 31, 2000, the Company had outstanding letters of credit of $3.1
million in connection with the purchase of ITC/CDT (see Note 13), and $0.8
million under its workers' compensation policy. The Company also maintains a
$1.2 million bond in connection with workers' compensation self-insurance in the
state of Massachusetts.
Note 17. Related Party Transactions
In the normal course of business the Company enters into transactions for the
purchase of materials, equipment and services with entities that are affiliated
with or owned by an officer/stockholder. Such transactions totaled $0.9 million,
$1.2 million and $1.1 million for the years ended July 31, 2000, 1999 and 1998,
respectively.
During fiscal 1999 and 1998 the Company had an agreement to pay management fees
to each of two beneficial stockholders. Selling, general and administrative
expenses include $100,000 in 1999 and 1998 for fees paid under this agreement.
Note 18. Nature of Business and Disclosures About Fair Value of Financial
Instruments
Concentrations of credit risk with respect to trade receivables are limited due
to the Company's wide variety of customers and the many markets into which the
Company's products are sold, as well as the many different geographic areas in
which such customers and markets are located. As a result, at July 31, 2000, the
Company does not believe it has any significant concentrations of credit risk.
The fair values and carrying amounts of the Company's financial instruments,
primarily accounts receivable and debt, are approximately equivalent. The debt
instruments bear interest at floating rates which are based upon market rates or
fixed rates which approximate market rates. All other financial instruments are
classified as current and will be utilized within the next operating cycle.
38
<PAGE>
Notes to Consolidated Financial Statements
Cable Design Technologies Corporation and Subsidiaries
Note 19. Nonrecurring Income and Expense
During fiscal 1999, the Company purchased 2,394,078 shares of common stock held
by certain key employees. The stock was acquired by the employees more than six
months previously upon the exercise of incentive stock options granted primarily
in 1988 and 1989 and expiring in 1998 and 1999. In connection with the purchase
of this stock, the Company incurred a $6.3 million nonrecurring charge
representing incentive payments which were made to partially compensate the
employees for the difference between the income tax rates for ordinary income
and for long term capital gains. As a result of this transaction, the Company
received a cash benefit of approximately $12.8 million realized through the
reduction of income taxes payable.
Also in fiscal 1999, the Company realized a nonrecurring gain of $1.1 million on
the sale of certain assets related to the discontinued DynaTraX(TM) product
line.
A nonrecurring charge of $6.1 million was incurred in fiscal 1998 to provide for
costs related to the discontinuance of the DynaTraX(TM) product line and other
restructuring activities at NORDX/CDT. These costs primarily represented asset
valuation provisions and employee separation costs. The Company recognized $0.2
million and $0.3 million of nonrecurring income in fiscal 2000 and 1999,
respectively, upon revision of estimates of the remaining costs to be incurred
in connection with these activities. As of July 31, 2000, no amounts remain to
be paid.
Note 20. Quarterly Financial Information (unaudited)
Quarterly financial data are summarized as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Fiscal Year 2000 First Second Third Fourth
----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Sales $187,622 $178,179 $204,900 $227,123
Gross profit 56,286 50,465 58,969 68,125
Income from operations 25,150 20,721 26,183 31,290/1/
Net income 12,984 10,423 14,017 17,496/2/
Per share information:
Basic earnings per common share $ 0.31 $ 0.25 $ 0.33 $ 0.40
Diluted earnings per common share $ 0.30 $ 0.24 $ 0.32 $ 0.39/2/
</TABLE>
/1/ Includes $0.2 million of nonrecurring income (see Note 19).
/2/ Excluding nonrecurring income (see Note 19), net income was $17.4 million,
or $0.39 per diluted share.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Fiscal Year 1999 First Second Third Fourth
----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Sales $173,624 $160,896 $165,611 $183,868
Gross profit 53,741 46,866 46,521 57,402
Income from operations 24,070 12,118/1/ 18,677/1/ 25,710/1/
Net income 12,364 4,806/2/ 8,883/2/ 13,588/2/
Per share information:
Basic earnings per common share $ 0.27 $ 0.11 $ 0.21 $ 0.32
Diluted earnings per common share $ 0.27 $ 0.11/2/ $ 0.21/2/ $ 0.32/2/
</TABLE>
/1/ Includes $6.3 million of nonrecurring expense, $1.1 million of nonrecurring
income, and $0.3 million of nonrecurring income in the second, third and
fourth quarters, respectively (see Note 19).
/2/ Excluding nonrecurring items (see Note 19), net income was $9.0 million, or
$0.21 per diluted share, $8.1 million, or $0.19 per diluted share and $13.4
million, or $0.31 per diluted share for the second, third and fourth
quarters, respectively.
39
<PAGE>
Selected Historical Consolidated Financial Data
Cable Design Technologies Corporation and Subsidiaries
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
For the Year Ended July 31, 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Sales $797,824 $683,999 $651,668 $516,996 $357,352
Income from operations 103,344/1/ 80,575/2/ 73,454/2/ 62,602 31,527/2/
Income before extraordinary items 54,920 39,641 40,481 36,035 15,881
Extraordinary loss on early
extinguishment of debt -- -- -- -- (596)
Net income 54,920/3/ 39,641/3/ 40,481/3/ 36,035 15,285/3/
Net Income Per Share of Common Stock:
Basic 1.29 0.92 0.93 0.87 0.43
Diluted 1.25/3/ 0.91/3/ 0.86/3/ 0.78 0.36/3/
Weighted Average Shares Outstanding:
Basic 42,665 43,176 43,501 41,397 35,949
Diluted 44,086 43,693 46,982 46,332 41,910
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
As of July 31, 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $615,353 $595,100 $505,427 $429,499 $320,105
Long-term debt 153,336 171,727 136,052 126,661 71,384
</TABLE>
/1/ Includes $0.2 million of nonrecurring income in fiscal 2000.
/2/ Includes $4.9, $6.1 and $16.7 million of nonrecurring charges in fiscal
1999, 1998 and 1996, respectively.
/3/ Excluding nonrecurring and extraordinary items, net income was $54.8,
$42.9, $44.4 and $26.4 million in fiscal 2000, 1999, 1998 and 1996,
respectively, and net income per diluted share was $1.24, $0.98, $0.95 and
$0.63 in fiscal 2000, 1999, 1998 and 1996, respectively.
40
<PAGE>
Directors, Officers and Corporate Information
Cable Design Technologies Corporation and Subsidiaries
Directors
Lance Balk
Partner, Kirkland & Ellis
Bryan C. Cressey*
Partner, Thoma Cressey
Equity Partners
George C. Graeber
Chief Operating Officer,
Cable Design Technologies Corporation
Michael F. O. Harris
Managing Director,
The Northern Group
Glenn Kalnasy
Managing Director,
The Northern Group
Ferdinand Kuznik
President of Motorola
Europe, Middle East and Africa
Paul M. Olson
President and Chief Executive Officer,
Cable Design Technologies Corporation
Richard C. Tuttle
Principal, Prospect Partners
*Chairman of the Board of Directors,
Cable Design Technologies Corporation
Director Emeritus
Myron S. Gelbach Jr.
Independent Financial
Consultant
Executive and Corporate Officers
Paul M. Olson
President and Chief
Executive Officer
George C. Graeber
Chief Operating Officer
Michael A. Dudley
Executive Vice President
President, CDT International
Normand R. Bourque
Executive Vice President
President, NORDX/CDT
Peter Sheehan
Executive Vice President
Ian Mack
Group President, Europe
David R. Harden
Senior Vice President
President, West Penn/CDT
Kenneth O. Hale
Vice President
Chief Financial Officer
Charles B. Fromm
Vice President
General Counsel
and Secretary
Annual Meeting
Wednesday, December 6, 2000
10:00 A.M. (Eastern Time)
DoubleTree Hotel Pittsburgh
1000 Penn Avenue
Pittsburgh, Pennsylvania 15222
A copy of the Company's annual report to the Securities and Exchange Commission
on Form 10-K for fiscal 2000 is available without charge to stockholders upon
written request to Investor Relations at the Company's headquarters.
Stock Transfer Agent & Registrar
Questions regarding stock certificates, replacement of lost certificates,
address changes, account consolidation and transfer procedures should be
addressed to:
Fleet National Bank
c/o EquiServe Limited Partnership
P.O. Box 8040
Boston, Massachusetts 02266
(781) 575-3120
Allow three weeks for a reply.
Inquiries
Cable Design Technologies Corporation welcomes questions and comments from its
stockholders, potential investors, financial professionals, institutional
investors and security analysts. Interested parties should contact Investor
Relations at the Company's headquarters by telephone at (412) 937-2300. CDT
maintains a Web site on the Internet at http://www.cdtc.com
Common Stock
The Company's common stock is listed on the New York Stock Exchange under the
ticker symbol "CDT."
The following table sets forth the high and low sales price per share of the
common stock during the applicable fiscal quarters indicated. The Company did
not pay cash dividends on the common stock during the periods set forth.
<TABLE>
<CAPTION>
Fiscal 2000
-----------------------------------------------------------------------------
High Low
-----------------------------------------------------------------------------
<S> <C> <C>
First 15 15/16 11 1/16
Second 18 11/16 13 3/16
Third 22 7/8 15 3/8
Fourth 25 13/16 17 1/2
<CAPTION>
Fiscal 1999
-----------------------------------------------------------------------------
High Low
-----------------------------------------------------------------------------
<S> <C> <C>
First 14 1/16 6 3/8
Second 16 9/16 11
Third 12 11/16 7 5/16
Fourth 12 15/16 8 3/8
</TABLE>
41
