<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JUNE 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-23070
AFC CABLE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-1517994
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
50 KENNEDY PLAZA, SUITE 1250, 02903
PROVIDENCE, RHODE ISLAND (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (401) 453-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes[X] No[ ].
Indicate the number of shares of the Registrant's Common Stock outstanding as of
the latest practicable date:
Class Outstanding as of August 8, 1996
- ---------------------------- --------------------------------
Common Stock, $.01 par value 7,317,362
1
<PAGE>
PART I - FINANCIAL INFORMATION
AFC CABLE SYSTEMS, INC.
----------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except share data)
June 29, December 31,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 334 $ 2,090
Investments, marketable securities (Note 5) 28,609 25,524
Accounts receivable, net of allowance for doubtful accounts
and sales allowances of $1,394 and $2,365, respectively 26,828 20,575
Inventories:
Finished goods 12,184 10,162
Work-in-process 1,497 1,332
Raw materials 6,226 7,868
------- -------
19,907 19,362
Current deferred taxes 896 635
Other current assets 800 1,015
------- -------
Total current assets 77,374 69,201
Property, plant and equipment, at cost 23,601 20,443
Less accumulated depreciation 8,435 7,331
------- -------
Net property, plant and equipment 15,166 13,112
------- -------
Other long term assets 2,487 2,471
------- -------
Total assets $95,027 $84,784
======= =======
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
2
<PAGE>
AFC CABLE SYSTEMS, INC.
----------------------
CONSOLIDATED BALANCE SHEETS--CONTINUED
<TABLE>
<CAPTION>
(In thousands, except share data)
June 29, December 31,
1996 1995
------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit note payable $ 7,540 $ 6,925
Short-term note payable 3,200 -
Accounts payable 12,947 11,840
Accrued expenses:
Payroll and employee benefits 1,458 1,426
Other 1,789 911
------- -------
Total accrued expenses 3,247 2,337
------- -------
Total current liabilities 26,934 21,102
Deferred income taxes 1,480 1,571
Other long term liabilities 928 800
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued - -
Common stock, $.01 par value, 15,000,000 shares
authorized, 7,317,362 and 7,333,750 shares issued
and outstanding, respectively 73 73
Paid-in capital 47,769 47,918
Other 23 40
Treasury stock, 2,488 shares, at cost (30) (30)
Retained earnings 17,850 13,310
------- -------
65,685 61,311
------- -------
Total liabilities and shareholders' equity $95,027 $84,784
======= =======
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
3
<PAGE>
AFC CABLE SYSTEMS, INC.
-----------------------
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(In thousands, except share data)
Quarter ended
June 29, July 1,
1996 1995
------- --------
<S> <C> <C>
Net sales $ 42,218 $ 33,664
Cost of goods sold 31,265 25,232
---------- ----------
Gross profit 10,953 8,432
Selling, general and administrative expenses 6,670 5,399
---------- ----------
Income from operations 4,283 3,033
Other income (expense):
Interest expense (265) (210)
Investment income 386 418
Other, net 289 263
---------- ----------
Income before taxes 4,693 3,504
Income taxes 1,789 1,297
---------- ----------
Net income $ 2,904 $ 2,207
========== ==========
Earnings per common share $.39 $.30
========== ==========
Average shares outstanding and
common stock equivalents 7,396,581 7,426,766
========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
AFC CABLE SYSTEMS, INC.
-----------------------
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(In thousands, except share data)
Six months ended
June 29, July 1,
1996 1995
--------- ---------
<S> <C> <C>
Net sales $ 76,103 $ 66,917
Cost of goods sold 57,166 49,798
---------- ----------
Gross profit 18,937 17,119
Selling, general and administrative expenses 12,607 11,031
---------- ----------
Income from operations 6,330 6,088
Other income (expense):
Interest expense (429) (308)
Investment income 800 623
Other, net 598 264
---------- ----------
Income before taxes 7,299 6,667
Income taxes 2,759 2,538
---------- ----------
Net income $ 4,540 $ 4,129
========== ==========
Earnings per common share $.61 $.59
========== ==========
Average shares outstanding and
common stock equivalents 7,388,321 7,033,571
========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
AFC CABLE SYSTEMS, INC.
-----------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands)
Six months ended
June 29, July 1,
1996 1995
------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,540 $ 4,129
Adjustments to reconcile net income to cash
provided
by operating activities:
Depreciation 1,088 941
Amortization of intangibles 134 108
Deferred income taxes (430) (310)
Provision for bad debts 103 29
Provision for sales allowances (897) 389
Compensation expense for restricted
stock and compensatory options 125 253
Increase (decrease) in cash arising
from changes in assets and liabilities:
Accounts receivable (5,458) (1,717)
Inventories (545) (6,656)
Other current assets 215 (631)
Other long term assets (150) (730)
Accounts payable 1,107 (1,533)
Accrued payroll and employee
benefits 32 (113)
Other accrued liabilities 878 272
Other long term liabilities (182) -
-------- --------
Net cash provided by (used in) operating
activities 560 (5,569)
INVESTING ACTIVITIES
Capital expenditures (3,158) (1,299)
Purchase of available-for-sale securities (28,364) (23,262)
Proceeds from sale of available-for-sale
securities 25,263 267
-------- --------
Net cash used in investing activities (6,259) (24,294)
FINANCING ACTIVITIES
Net revolving line of credit borrowings 615 6,400
Net short-term borrowings 3,200 -
Proceeds from issuance of common stock 128 22,486
-------- --------
Net cash provided by financing activities 3,943 28,886
Net decrease in cash and cash equivalents (1,756) (977)
Cash and cash equivalents at beginning of
period 2,090 2,603
-------- --------
Cash and cash equivalents at end of period $ 334 $ 1,626
======== ========
Supplemental schedule of cash flow information:
Cash paid during the period for interest $ 397 $ 221
======== ========
Cash paid during the period for income
taxes $ 2,226 $ 3,216
======== ========
</TABLE>
See accompanying notes
6
<PAGE>
AFC CABLE SYSTEMS, INC.
-----------------------
NOTES TO FINANCIAL STATEMENTS
JUNE 29, 1996
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of AFC Cable Systems, Inc. (the
"Company" or "AFC") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six month periods ended June 29, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. Certain prior year amounts have been reclassified to conform
to current period presentation. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1995.
NOTE 2. INCOME TAXES
For the six month periods ended June 29, 1996 and July 1, 1995, the Company's
effective tax rates of approximately 37.8% and 38.1%, respectively, were greater
than the statutory rate due primarily to state income taxes.
NOTE 3. CONTINGENCIES
The Company is a defendant in certain claims that relate to matters that
occurred prior to present ownership. In accordance with the purchase and sale
agreement, the prior owner has indemnified the Company for such claims and,
accordingly, the matters are being defended by the prior owner and its insurance
companies. Management is of the opinion that these claims relate to the prior
owners and therefore will not have a material adverse effect on the Company's
financial position or results of operations.
Additionally, the Company is a party to one environmental matter and certain
other legal proceedings not covered by the indemnification. In the
environmental matter, a number of responsible parties entered into a consent
decree with the EPA in 1991 and subsequently, such parties as plaintiffs have
sought contribution from the Company, which was not named as a responsible party
by the EPA. The Company has admitted that a predecessor of the business
currently operated by the Company had disposed of a de minimis amount of waste
at the site. The Company believes that under the applicable law it should not
be jointly and severally liable and believes that it will not be responsible to
pay more than its proportionate share (a de minimis amount) of the cost of
remediation at this site.
NOTE 4. FINANCING AND LEASE
On March 29, 1996, the Company entered into an unsecured revolving line of
credit, which provides for direct borrowings of up to $25.0 million, of which up
to $3.0 million is available for letters of credit. The credit agreement also
provides for a $3.2 million term loan. This line of credit, which terminates on
March 31, 1999, replaced the Company's prior credit facility and gives the
Company greater borrowing flexibility. The line of credit is available for
business acquisitions and up to $10.0 million is available for this purpose
without the lender's prior consent.
Borrowings under the unsecured line of credit are available at interest rates
equal to either the Eurodollar rate plus three quarters of one percent for a
fixed period or the lender's base rate. The Company has the option of electing
the applicable rate upon notification to the lender and as a result, portions of
the outstanding balance accrue interest at different rates. The weighted average
rate of outstanding borrowings under the revolving line of credit was 6.44% at
June 29, 1996. The $3.2 million term loan carries interest at a fluctuating rate
equal to the lender's base rate, which was 8.25% at June 29, 1996. Total letters
of credit issued at June 29, 1996 were $0.8 million.
7
<PAGE>
The line of credit contains certain restrictive covenants, the most restrictive
of which requires the Company to maintain minimum levels of tangible capital and
to meet other specified ratio requirements.
NOTE 5. INVESTMENTS
The following is a summary of securities held by the Company. All securities
are classified as available-for-sale.
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
---------------------------------------------------------
(In Thousands)
JUNE 29, 1996
U.S. corporate debt securities $ 1,509 $ 64 $ (3) $ 1,570
U.S. treasury securities and
obligations of U.S.
government agencies 25,559 69 (4) 25,624
Equity securities 1,280 214 (79) 1,415
---------------------------------------------------------
Total investments,
marketable securities $28,348 $347 $(86) $28,609
=========================================================
DECEMBER 31, 1995
Mutual funds included in
cash equivalents $ 3,351 $ - $(184) $ 3,167
=========================================================
U.S. corporate debt securities $ 4,456 $161 $ - 4,617
U.S. treasury securities and
obligations of U.S.
government agencies 8,123 90 - 8,213
Equity securities 12,133 561 - 12,694
---------------------------------------------------------
Total investments,
marketable securities $24,712 $812 $ - $25,524
=========================================================
</TABLE>
U.S. corporate securities generally mature after one year. U.S. Treasury
securities mature both within the year and after one year. Expected maturities
will differ from contractual maturities because the issuers of the securities
may have the right to prepay obligations without prepayment penalties.
Realized gains included in other income amounted to $617,000 in the six months
ended June 29, 1996.
8
<PAGE>
ITEM 2 . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Comparative Results of Operations for the Three and Six Months
Ended June 29, 1996 and July 1, 1995
RESULTS OF OPERATIONS
The Company experienced record sales for the quarter and six months ended June
29, 1996. Net sales for the quarter increased 25.4% to $42.2 million from
$33.7 million for the quarter ended July 1, 1995. For the six months ended
June 29, 1996 net sales increased to a record $76.1 million, or 13.7%, from
sales of $66.9 million for the same period last year. Sales for the AFC Cable
Systems and America Cable Systems divisions as well as for the Company's Kaf-
Tech, Inc. unit all increased for the quarter and six months ended June 29,
1996. AFC Cable Systems' net sales increased 20.6% in the three months ended
June 29, 1996 to $32.3 million from $26.8 million in the quarter ended July 1,
1995. Net sales for this division for the first half of 1996 increased $4.1
million to $58.2 million, or 7.6% higher than sales for the corresponding period
a year ago. The America Cable Systems division had net sales of $4.2 million
in the quarter ended June 29, 1996, up $0.7 million, or 20.1%, from second
quarter 1995 sales of $3.5 million. This division's net sales for the six
months ended June 29, 1996 were $8.2 million, or 25.3% more than sales of $6.6
million for the six months ended July 1, 1995. Kaf-Tech, Inc. posted an
increase in net sales of $1.3 million, or 57.1%, to $3.5 million in the quarter
ended June 29, 1996 from $2.2 million for the three months ended July 1, 1995.
Kaf-Tech's net sales for the six months ended June 29, 1996 increased 28.4% to
$5.9 million from $4.5 million for the first half of 1995. The Company's new
fittings and connectors and specialty metals products divisions had net sales
totalling $2.0 million in the second quarter of 1996, an increase of 117% over
net sales of $0.9 million for the corresponding period last year. Net sales for
these divisions for the first half of 1996 were $3.5 million, or 171% and $2.2
million higher than sales of $1.3 million for the six months ended July 1, 1995.
The overall increase in sales in the second quarter of 1996 is attributed to the
increase in demand for the Company's traditional products, specialty-application
cables and modular wiring systems after the severe winter experienced by the
northern half of the U.S. slowed construction earlier in the year.
Gross profit of $11.0 million for the quarter ended June 29, 1996 increased
29.9% from gross profit of $8.4 million for the three months ended July 1,
1995. For the six months ended June 29, 1996 gross profit increased 10.6% to
$18.9 million from $17.1 million for first half of 1995. As a percent of net
sales, gross profit increased from 25.0% in the quarter ended July 1, 1995 to
25.9% for the second quarter of 1996. Gross profit as a percent of net sales
decreased for the six months ended June 29, 1996 to 24.9% from 25.6% for the six
months ended July 1, 1995. The Company attributes the improved gross profit
percentage for the quarter to better manufacturing efficiencies at all
locations, including the new advanced metals processing facility in Byesville,
Ohio and the new cable fittings operation in New Bedford, Massachusetts, more
favorable purchasing of raw materials and more higher-margin, specialty cable
and system product sales. Less favorable margins in the first quarter of 1996
resulted in the decrease in the gross profit percentage for the six months ended
June 29, 1996 from that in the corresponding 1995 period.
Selling, general and administrative expenses ("SG&A") of $6.7 million for the
quarter ended June 29, 1996 were $1.3 million, or 23.5% higher than SG&A of $5.4
million in the quarter ended July 1, 1995. For the six month period, SG&A
increased $1.6 million, or 14.3%, to $12.6 million from SG&A of $11.0 million
for the same period in 1995. As a percent of net sales, SG&A decreased to
15.8% for the quarter ended June 29, 1996 from 16.0% in the quarter ended July
1, 1995. For the six months ended June 29, 1996, SG&A, as a percent of net
sales, were 16.6%, virtually unchanged from the six month period ended July 1,
1995. Freight costs and sales agent commissions, which generally rise in
proportion with net sales, increased $460,000 in the first half of 1996 over
the six months ended July 1, 1995. In addition, advertising expense increased
$142,000, bad debt expense increased $70,000, office expense increased $76,000,
telephone expense increased $52,000, outside services increased $153,000 and
professional fees increased $171,000, each for the six month period.
Compensation expense increased $377,000 in the six months ended June 29, 1996 as
a result of the current growth of the Company.
9
<PAGE>
Interest expense of $265,000 for the quarter ended June 29, 1996 was $55,000
greater than interest expense of $210,000 in the quarter ended July 1, 1995.
For the six months ended June 29, 1996, interest expense increased $121,000 to
$429,000 from $308,000 for the same period in the prior year. This increase is
attributable to a higher level of borrowings in the first quarter of 1996 used
to finance increased inventory levels and the borrowing of $3.2 million late in
the first quarter for the Company's purchase of a 99,000 square-foot
manufacturing facility in New Bedford, Massachusetts. The effect of this
increase in interest expense on earnings was more than offset by higher interest
and dividend income in the six months ended June 29, 1996 of $800,000. Other
income of $598,000 for the six months ended June 29, 1996 was mainly
attributable to gains on the sale of marketable securities.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations totalled $560,000 for the six month period ended
June 29, 1996 and is mainly attributable to increased levels of accounts payable
and accrued expenses resulting from the enhanced level of business. Working
capital on June 29, 1996 was $50.4 million and the ratio of current assets to
current liabilities was 2.87 to 1.00.
The Company believes that funds generated from operations, proceeds from the
February 9, 1995 sale of common stock and available borrowings under its
revolving line of credit will be sufficient to meet its on-going working capital
and capital expenditure requirements for the foreseeable future.
10
<PAGE>
PART II - OTHER INFORMATION
AFC CABLE SYSTEMS, INC.
- -----------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The Annual Meeting of stockholders of the Company was held on May 8, 1996 (the
"Annual Meeting"). Proxies for the Annual Meeting were solicited pursuant to
Regulation 14 under the Securities Act of 1933, as amended. At the Annual
Meeting Mr. Ralph R. Papitto was elected a Class III director of the Company for
a term of three years. A total of 6,216,856 shares of common stock were
represented at the Annual Meeting by proxy. The nominee received 6,182,456
votes and 34,400 votes were withheld from the nominee.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
None
(b) No Reports on Form 8-K were filed during the quarter ended June 29, 1996.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: August 8, 1996
AFC CABLE SYSTEMS, INC.
By:/s/Ralph R. Papitto
--------------------------------
RALPH R. PAPITTO
Chairman of the Board and
Chief Executive Officer
By:/s/Raymond H. Keller
------------------------------
RAYMOND H. KELLER
Vice President and
Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> JUN-29-1996 JUL-01-1995
<CASH> 334 2,090
<SECURITIES> 28,609 25,524
<RECEIVABLES> 28,222 22,940
<ALLOWANCES> 1,394 2,365
<INVENTORY> 19,907 19,362
<CURRENT-ASSETS> 77,374 69,201
<PP&E> 23,601 20,443
<DEPRECIATION> 8,435 7,331
<TOTAL-ASSETS> 95,027 84,784
<CURRENT-LIABILITIES> 26,934 21,102
<BONDS> 0 0
0 0
0 0
<COMMON> 73 73
<OTHER-SE> 65,612 61,238
<TOTAL-LIABILITY-AND-EQUITY> 95,027 84,874
<SALES> 76,103 66,917
<TOTAL-REVENUES> 76,103 66,917
<CGS> 57,166 49,798
<TOTAL-COSTS> 57,166 49,798
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 103 29
<INTEREST-EXPENSE> 429 308
<INCOME-PRETAX> 7,299 6,667
<INCOME-TAX> 2,759 2,538
<INCOME-CONTINUING> 4,540 4,129
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,540 4,129
<EPS-PRIMARY> .61 .59
<EPS-DILUTED> 0 0
</TABLE>
