<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 MARCH 30, 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, PROVIDENCE, RHODE ISLAND 02903
(Address of principal executive offices) (Zip Code)
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 May 10, 1996
---------------------------- ------------------------------
Common Stock, $.01 par value 7,305,562
1
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PART I - FINANCIAL INFORMATION
AFC CABLE SYSTEMS, INC.
----------------------
ITEM 1. FINANCIAL STATEMENTS
- - -----------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except share data)
March 30, December 31,
1996 1995
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,010 $ 2,090
Investments, marketable securities (Note 5) 25,374 25,524
Accounts receivable, net of allowance for doubtful accounts
and sales allowances of $2,352 and $2,365, respectively 21,370 20,575
Inventories:
Finished goods 13,001 10,162
Work-in-process 738 1,332
Raw materials 7,568 7,868
------- -------
21,307 19,362
Current deferred taxes 728 635
Other current assets 612 1,015
------- -------
Total current assets 70,401 69,201
Property, plant and equipment, at cost 23,103 20,443
Less accumulated depreciation 7,877 7,331
------- -------
Net property, plant and equipment 15,226 13,112
Other long term assets 2,505 2,471
------- -------
Total assets $88,132 $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
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AFC CABLE SYSTEMS, INC.
----------------------
CONSOLIDATED BALANCE SHEETS--CONTINUED
(In thousands, except share data)
<TABLE>
<CAPTION>
March 30, December 31,
1996 1995
---------- -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit note payable $ 6,330 $ 6,925
Short-term note payable 3,200 -
Accounts payable 10,750 11,840
Accrued expenses:
Payroll and employee benefits 1,259 1,426
Other 1,508 911
------- -------
Total accrued expenses 2,767 2,337
------- -------
Total current liabilities 23,047 21,102
Deferred income taxes 1,533 1,571
Other long-term liabilities 784 800
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized, none issued - -
Common stock, $.01 par value, 15,000,000
shares authorized, 7,305,562 and
7,333,750 shares issued and outstanding,
respectively 73 73
Paid-in capital 47,647 47,918
Other 131 40
Treasury stock, 2,488 shares, at cost (30) (30)
Retained earnings 14,947 13,310
------- -------
62,768 61,311
------- -------
Total liabilities and shareholders' equity $88,132 $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.ements.
See accompanying notes.
3
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AFC CABLE SYSTEMS, INC.
-----------------------
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(In thousands, except share data)
Quarter ended
March 30, April 1,
1996 1995
------------ --------
<S> <C> <C>
Net sales $33,885 $33,253
Cost of goods sold 25,901 24,566
------- -------
Gross profit 7,984 8,687
Selling, general and administrative expenses 5,937 5,632
------- -------
Income from operations 2,047 3,055
Other income (expense):
Interest expense (164) (98)
Interest income 414 205
Other, net 309 1
------- -------
559 108
------- -------
Income before taxes 2,606 3,163
Income taxes 970 1,241
------- -------
Net income $1,636 $1,922
======= =======
Earnings per common share $.22 $.29
======= =======
Average shares outstanding and
common stock equivalents 7,379,418 6,637,904
========= =========
</TABLE>
See accompanying notes.
4
<PAGE>
AFC CABLE SYSTEMS, INC.
-----------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands)
Quarter ended
March 30, April 1,
1996 1995
------------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,636 $ 1,922
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 546 471
Amortization of intangibles 67 7
Deferred income taxes (287) (247)
Provision for bad debts 51 15
Provision for sales allowances (64) 60
Compensation expense for restricted stock
and compensatory options 69 79
Increase (decrease) in cash arising from changes
in assets and liabilities:
Accounts receivable (782) (790)
Inventories (1,945) (6,259)
Other current assets 403 (203)
Other long term assets (101) (312)
Accounts payable (1,090) 1,549
Accrued payroll and employee benefits (167) 13
Other accrued liabilities 490 1,552
------- -------
Net cash provided (used in) operating activities (1,174) (2,143)
INVESTING ACTIVITIES
Capital expenditures (2,660) (1,014)
Purchase of available-for-sale securities (8,635) (22,882)
Proceeds from sale of available-for-sale securities 8,784 50
------- -------
Net cash used in investing activities (2,511) (23,846)
FINANCING ACTIVITIES
Net revolving line of credit borrowings (repayments) (595) 2,715
Net short-term borrowings 3,200 -
Proceeds from issuance of common stock - 22,366
------- ------
Net cash provided by financing activities 2,605 25,081
Net increase (decrease) in cash and cash equivalents (1,080) (908)
Cash and cash equivalents at beginning of period 2,090 2,603
------- ------
Cash and cash equivalents at end of period $ 1,010 $ 1,695
======= ========
Supplemental schedule of cash flow information:
Cash paid during the period for interest $ 250 $ 19
======= =======
Cash paid during the period for income taxes $ 580 $ 1,635
======= =======
</TABLE>
See accompanying notes
5
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AFC CABLE SYSTEMS, INC.
-----------------------
NOTES TO FINANCIAL STATEMENTS
MARCH 30, 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 and may be subject to
normal year-end adjustments. 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 months ended
March 30, 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 quarters ended March 30, 1996 and April 1, 1995, the Company's effective
tax rates of approximately 37% and 39%, 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 owners 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 minimus 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
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 6.67% at
March 30, 1996. The $3.2 million term loan carries interest at a fluctuating
rate equal to the lender's base rate, which rate at March 30, 1996 was 8.25%.
Total letters of credit issued at March 30, 1996 were $0.3 million.
6
<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)
MARCH 30, 1996
Mutual funds included in
cash equivalents $ 3,398 $ - $( 234) $ 3,164
======= ==== ========== =======
U. S. corporate debt securities $ 3,654 $ 43 $ (2) $ 3,695
U.S. treasury securities and
obligations of U.S.
Government agencies 5,477 20 - 5,497
Equity securities 15,839 374 (31) 16,182
------- ---- ---------- -------
Total included in investments $24,970 $437 $ (33) $25,374
======= ==== ========== =======
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 included in investments $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 $407,000 in the quarter ended March
30, 1996.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- - --------------------------------------------------------------------------------
OF OPERATIONS
- - -------------
Comparative Results of Operations for the Three Months
Ended March 30, 1996 and April 1, 1995
RESULTS OF OPERATIONS
Net sales for the quarter ended March 30, 1996 were $33.9 million, or $0.6
million and 1.9% higher than sales of $33.3 million for the quarter ended April
1, 1995. The Company attributes the low sales growth for the 1996 quarter to the
severe winter weather which slowed construction in the northern half of the
U.S., particularly in the Northeast. By division and subsidiary, the AFC Cable
Systems division net sales decreased $1.4 million, or 5.2%, from $27.2 million
in the first quarter ended April 1, 1995 to $25.8 million in the quarter ended
March 30, 1996. First quarter 1996 net sales of $2.3 million for Kaf-Tech, Inc.
were unchanged from the prior year period. Net sales for the America Cable
Systems division increased $0.9 million, or 30.5%, to $4.0 million from $3.1
million for the same period last year. Sales for the Company's new fittings and
connectors and specialty metals products divisions increased $1.1 million over
sales of those product lines in the quarter ended April 1, 1995.
Gross profit of $8.0 million for the quarter ended March 30, 1996 decreased by
$0.7 million, or 8.1%, from gross profit of $8.7 million for the quarter ended
April 1, 1995. As a percent of net sales, gross profit decreased from 26.1% to
23.6%. This decrease is attributable to price competition in traditional cable
products and low margins at the Company's new advanced metals processing
facility in Byesville, Ohio and the new cable fittings operation in New Bedford,
Massachusetts.
Selling, general and administrative expenses ("SG&A") for the quarter ended
March 30, 1996 increased $0.3 million, or 5.4%, to $5.9 million from SG&A of
$5.6 million for the quarter ended April 1, 1995. As a percent of net sales,
SG&A increased 0.6% to 17.5% in the first quarter of 1996 from 16.9% for the
corresponding period in 1995. Included in the $0.3 million increase in SG&A was
a $40,000 increase in freight costs and sales agent commissions, which generally
increase in proportion with net sales. In addition, advertising expense
increased $110,000, bad debt expense increased $30,000, office expense increased
$61,000 and outside services increased $52,000.
Interest expense increased $66,000 from $98,000 for the quarter ended April 1,
1995 to $164,000 for the quarter ended March 30, 1996. This increase is
attributable to a higher level of borrowings used to finance increased inventory
levels. The increase in interest expense was more than offset by higher interest
and dividend income in the quarter ended March 30, 1996 of $414,000 mainly from
the investment of the proceeds of the stock offering which took place on
February 9, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations totalled $1.2 million for the quarter ended March 30,
1996. This is mainly attributable to increased levels of accounts receivable due
to extraordinary sales in late March 1996, increased inventories to support
expected sales growth and a lower level of accounts payable and accrued
expenses. Working capital on March 30, 1996 was $47.4 million and the ratio of
current assets to current liabilities was 3.05 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.
8
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PART II - OTHER INFORMATION
AFC CABLE SYSTEMS, INC.
-----------------------
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 March 30, 1996.
9
<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: May 10, 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
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-30-1996 APR-01-1995
<CASH> 1,010 2,090
<SECURITIES> 25,374 25,524
<RECEIVABLES> 23,722 22,940
<ALLOWANCES> 2,352 2,365
<INVENTORY> 21,307 19,362
<CURRENT-ASSETS> 70,401 69,201
<PP&E> 23,103 20,443
<DEPRECIATION> 7,877 7,331
<TOTAL-ASSETS> 88,132 84,784
<CURRENT-LIABILITIES> 23,047 21,102
<BONDS> 0 0
0 0
0 0
<COMMON> 73 73
<OTHER-SE> 62,695 61,238
<TOTAL-LIABILITY-AND-EQUITY> 88,132 84,784
<SALES> 33,885 33,253
<TOTAL-REVENUES> 33,885 33,253
<CGS> 25,901 24,566
<TOTAL-COSTS> 25,901 24,566
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 51 15
<INTEREST-EXPENSE> 164 98
<INCOME-PRETAX> 2,606 3,163
<INCOME-TAX> 970 1,241
<INCOME-CONTINUING> 1,636 1,922
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,636 1,922
<EPS-PRIMARY> .22 .29
<EPS-DILUTED> 0 0
</TABLE>
