<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 29, 1997
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 May 9, 1997
- ---------------------------- -----------------------------
Common Stock, $.01 par value 9,101,287
Page 1 of 12 pages
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PART I-FINANCIAL INFORMATION
AFC CABLE SYSTEMS, INC.
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
MARCH 29, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 605 $ 980
Investments, marketable securities (Note 5)..................... 18,893 30,508
Accounts receivable, net of allowance for doubtful accounts and
sales allowances of $2,922 and $3,140, respectively........... 30,141 23,919
Inventories:
Finished goods................................................ 12,918 11,559
Work-in-process............................................... 5,468 3,702
Raw materials................................................. 9,159 5,665
---------- ------------
27,545 20,926
Current deferred taxes........................................ 638 637
Other current assets.......................................... 1,232 1,121
---------- ------------
Total current assets.......................................... 79,054 78,091
Property, plant and equipment, at cost........................... 31,067 27,188
Less accumulated depreciation.................................... 10,937 9,482
---------- ------------
Net property, plant and equipment............................. 20,130 17,706
Other long term assets, net...................................... 10,689 2,126
---------- ------------
Total assets....................................................... $ 109,873 $ 97,923
---------- ------------
---------- ------------
</TABLE>
Note: The balance sheet at December 31, 1996 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 29, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................. $ 228 $ 270
Revolving credit note payable...................................... 2,900 2,000
Accounts payable................................................... 13,540 12,471
Accrued expenses:
Payroll and employee benefits...................................... 1,961 2,506
Other.............................................................. 4,834 1,885
---------- ------------
Total accrued expenses............................................. 6,795 4,391
---------- ------------
Total current liabilities.......................................... 23,463 19,132
Long-term debt..................................................... 4,052 3,300
Deferred income taxes.............................................. 1,508 1,547
Other long-term liabilities........................................ 1,634 954
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none issued
Common stock, $.01 par value, 15,000,000 shares
authorized, 7,458,025 and 7,335,025 shares issued and
outstanding, respectively...................................... 75 73
Paid-in capital.................................................. 50,840 48,011
Other.............................................................. 153 218
Treasury stock, 4,825 shares, at cost.............................. (82) (82)
Retained earnings.................................................. 28,230 24,770
---------- ------------
79,216 72,990
---------- ------------
Total liabilities and shareholders' equity......................... $ 109,873 $ 97,923
---------- ------------
---------- ------------
</TABLE>
Note: The balance sheet at December 31, 1996 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
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AFC CABLE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------
<S> <C> <C>
MARCH 29, MARCH 30,
1997 1996
---------- ----------
Net sales........................................................... $ 47,787 $ 33,885
Cost of goods sold.................................................. 34,479 25,901
---------- ----------
Gross profit........................................................ 13,308 7,984
Selling, general and administrative expenses........................ 7,803 5,937
---------- ----------
Income from operations.............................................. 5,505 2,047
Other income (expense):
Interest expense.................................................. (131) (164)
Net investment and other income................................... 250 723
---------- ----------
119 559
---------- ----------
Income before taxes................................................. 5,624 2,606
Income taxes........................................................ 2,164 970
---------- ----------
Net income.......................................................... $ 3,460 $ 1,636
---------- ----------
---------- ----------
Earnings per common share (Note 7).................................. $ .45 $ .22
---------- ----------
---------- ----------
Average shares outstanding and common stock equivalents............. 7,625,063 7,379,418
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
4
<PAGE>
AFC CABLE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------
<S> <C> <C>
MARCH 29, MARCH 30,
1997 1996
----------- -----------
Operating activities
Net income............................................................. $ 3,460 $ 1,636
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation........................................................ 711 546
Amortization of intangibles......................................... 47 67
Net realized gain on available-for-sale securities.................. (31) --
Deferred income taxes............................................... -- (287)
Provision for bad debts............................................. 33 51
Provision for sales allowances...................................... (456) (64)
Compensation expense for restricted stock and compensatory options.. 23 69
Increase (decrease) in cash arising from changes in assets and
liabilities:
Accounts receivable............................................... (2,853) (782)
Inventories....................................................... (3,729) (1,945)
Other current assets.............................................. (54) 403
Other long-term assets............................................ (82) (101)
Accounts payable.................................................. 150 (1,090)
Accrued payroll and employee benefits............................. (731) (167)
Other accrued liabilities......................................... 2,280 490
Long-term liabilities............................................. 661 --
--------- ----------
Net cash used in operating activities.................................. (571) (1,174)
Investing activities
Purchase of ALR, less cash acquired (Note 6)........................... (7,616) --
Purchase of B&B, less cash acquired (Note 6)........................... (3,179) --
Capital expenditures................................................... (1,458) (2,660)
Purchase of available-for-sale securities.............................. (2,542) (8,635)
Proceeds from sale of available-for-sale securities.................... 14,079 8,784
----------- -----------
Net cash used in investing activities.................................. (716) (2,511)
Financing activities
Net revolving line of credit borrowings (repayments)................... 900 (595)
Proceeds from term loan................................................ -- 3,200
Payments on long-term debt, including current portion.................. (218) --
Proceeds from issuance of common stock................................. 230 --
----------- -----------
Net cash provided by financing activities.............................. 912 2,605
----------- -----------
Net increase (decrease) in cash and cash equivalents................... (375) (1,080)
Cash and cash equivalents at beginning of period....................... 980 2,090
----------- -----------
Cash and cash equivalents at end of period............................. $ 605 $ 1,010
----------- -----------
----------- -----------
Supplemental schedule of cash flow information:
Cash paid during the period for interest............................. $ 70 $ 250
----------- -----------
----------- -----------
Cash paid during the period for income taxes........................ $ 210 $ 580
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
5
<PAGE>
AFC CABLE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 29, 1997
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 months ended March 29, 1997 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1997. 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, 1996.
NOTE 2. INCOME TAXES
For the quarters ended March 29, 1997 and March 30, 1996, the Company's
effective tax rates of approximately 38.5% and 37.2%, 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 MINIMIS amount of
waste at the site. On December 17, 1996, the U.S. District Court for the
district of Massachusetts entered a judgment in favor of the Company with
respect to this claim. The time during which the Plaintiffs may file an
appeal has not yet lapsed.
NOTE 4. FINANCING AND LEASE
The Company has an unsecured revolving line of credit agreement with a bank
which provides for direct borrowings of up to $25.0 million, of which up to
$10.0 million is available, without the lender's prior consent, for business
acquisitions. The line of credit agreement also provides for letter of credit
borrowings of up to $3.0 million. A monthly fee based on the unused portion of
credit is payable under the agreement.
Borrowings under the line of credit are available at interest rates equal to
either the lender's base rate or the Eurodollar rate plus 0.5% to 1.25% for a
fixed period of one, two, three or six months. 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 7.1% at March 29, 1997. Total letters of credit issued at March 29,
1997 were $816,000. The line of credit contains certain restrictive covenants,
including the requirement that the Company maintain minimum levels of tangible
capital funds and meet other specified ratio requirements.
During 1996, the Company was loaned the proceeds from the issuance of $3.57
million in Industrial Revenue Bonds ("IRBs") by the Massachusetts Industrial
Finance Agency for the purpose of acquiring and refurbishing a 99,000
square-foot manufacturing facility in New Bedford, Massachusetts, which secures
the IRBs. The IRBs mature on July
6
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24, 2016, and carry an average interest rate of approximately 3.5% adjustable
on a weekly basis. In addition, an annual fee of 1.0% of the amount of an
unsecured stand-by letter of credit is payable to the bank holding the letter
of credit and also acting as trustee under the terms of the issuance of the
IRBs. The Company has the right to convert from the weekly interest rate to a
fixed rate established at the time of conversion. The bonds are payable in
nineteen annual installments of $180,000 with a final payment of $150,000 due
at maturity, all funded through monthly payments of $15,000 to the trustee
over the twelve months preceding the installment due dates. At March 29,
1997, $3.3 million of the total was classified as long-term debt. The
carrying value of the bonds approximates market at March 29, 1997.
NOTE 5. INVESTMENTS
THE FOLLOWING IS A SUMMARY OF SECURITIES HELD BY THE COMPANY. All
securities are classified as available-for-sale.
<TABLE>
<CAPTION>
ESTIMATED
GROSS UNREALIZED GROSS UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ------------------- ---------------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
March 29, 1997
U.S. corporate debt securities......................... $ 1,612 $ 75 $ (2) $ 1,685
U.S. Treasury securities and obligations of U.S.
government agencies.................................. 14,749 27 (36) 14,740
Equity securities...................................... 2,414 209 (155) 2,468
--------- ----- ------- -----------
Total investments, marketable securities............... $ 18,775 $ 311 $ (193) $ 18,893
--------- ----- ------- -----------
--------- ----- ------- -----------
December 31, 1996
U.S. corporate debt securities......................... $ 1,509 $ 92 $ -- $ 1,601
U.S. Treasury securities and obligations of U.S.
government agencies.................................. 26,193 52 (6) 26,239
Equity securities...................................... 2,576 168 (76) 2,668
--------- ----- ------- -----------
Total investments, marketable securities............... $ 30,278 $ 312 $ (82) $ 30,508
--------- ----- ------- -----------
--------- ----- ------- -----------
</TABLE>
U.S. corporate debt securities generally mature after one year and U.S.
Treasury securities generally mature 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 investment income amounted to $31,000 in
the quarter ended March 29, 1997.
NOTE 6. ACQUISITIONS
On January 28, 1997, the Company acquired all of the outstanding stock of
Illinois-based B&B Electronics Manufacturing Company ("B&B"), a manufacturer and
distributor of electronic interfaces and connectors that facilitate data
communications. The purchase price consisted of $4.2 million in cash and 60,000
shares of the Company's Common Stock. On January 31, 1997, the Company acquired
certain assets and assumed certain liabilities of New Jersey-based Area Lighting
Research, Inc. ("ALR"), a designer, manufacturer and distributor of photo
controls and electrical devices for lighting control and fixture industries.
Assets acquired include inventories, accounts receivable, equipment, tooling,
patents and other intangible assets. The purchase price, funded from the
liquidation of marketable securities, was $7.7 million (plus $0.9 million of
assumed liabilities). In both instances, additional consideration will be paid
by the Company if certain financial targets are achieved by the acquired
companies.
The acquisitions are accounted for as purchases, therefore, the income
statement of the Company reflects operations of B&B and ALR from the acquisition
date through March 29, 1997. Purchase price allocations are preliminary and the
resulting goodwill is being amortized over forty years.
The first quarter pro forma statements of income assuming the stock of
B&B and the assets and liabilities of ALR
7
<PAGE>
had been acquired at the beginning of 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------
<S> <C> <C>
MARCH 29, MARCH 30,
1997 1996
---------- ----------
Net sales........................................................... $ 49,578 $ 37,913
Cost of goods sold.................................................. 35,680 28,285
---------- ----------
Gross profit........................................................ 13,898 9,628
Selling, general and administrative expenses........................ 8,203 7,312
---------- ----------
Income from operations.............................................. 5,695 2,316
Other income (expense):
Interest expense.................................................... (136) (163)
Net investment and other income..................................... 253 726
---------- ----------
Income before taxes................................................. 5,812 2,879
Income taxes........................................................ 2,238 1,071
---------- ----------
Net income.......................................................... $ 3,574 $ 1,808
---------- ----------
---------- ----------
Earnings per common share $ .47 $ .24
---------- ----------
---------- ----------
Average shares outstanding and common stock equivalents (1)......... 7,643,473 7,439,418
---------- ----------
---------- ----------
</TABLE>
(1) Adjusted for the issuance of 60,000 shares of the Company's Common Stock
included in the purchase price of ALR.
The above pro forma information does not purport to represent what the
Company's results of operations would actually have been had the acquisitions of
B&B and ALR in fact occurred at the beginning of the periods indicated or to
project the Company's results for any future periods.
NOTE 7. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" ("SFAS 128"), which is required to be adopted for
fiscal years ending after December 15, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under SFAS 128, the dilutive effect of stock
options will be excluded in calculating basic earnings per share. There is no
material impact on earnings per share for the quarters ended March 29, 1997 and
March 30, 1996 from the adoption of SFAS 128.
NOTE 8. SUBSEQUENT EVENT
On April 23, 1997, the Company completed the issuance of 1,250,000 shares of
common stock at a price of $19.25 per share. As part of this offering, the
Company granted the underwriters an option to purchase a maximum of 300,000
additional shares to cover over-allotments, which was exercised in full on April
29, 1997.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparative Results of Operations for the Three Months
Ended March 29, 1997 and March 30, 1996
This report contains certain forward-looking statements within the meaning
of section 21E of the Securities Exchange Act of 1934, as amended. These
statements include, among others, statements relating to future events or the
future financial performance of the Company. Such statements are only
expectations and actual events or results may differ materially. Factors which
could cause actual results to differ materially from those indicated in such
forward-looking statements are set forth in "Factors That May Affect Future
Performance" in the Company's Annual Report on Form 10-K for the year 1996.
RESULTS OF OPERATIONS
NET SALES. Net sales for the quarter ended March 29, 1997 increased $13.9
million, or 41.0%, to a record $47.8 million from $33.9 million for the
quarter ended March 30, 1996. Net sales for the Wire and Cable Division
increased $10.7 million, or 35.8%, to $40.3 million for the quarter ended
March 29, 1997 from $29.6 million for the quarter ended March 30, 1996.
Contributing to this increase were higher sales of the Company's traditional
armored cable and flexible conduit products as well as increased sales of the
Company's higher margin specialty application cables. Also contributing to
this increase were higher sales of fittings and connectors and specialty
coated metal products introduced by the Company in early 1995. Net sales for
the project-related America Cable Systems Division decreased by $0.5 million,
or 11.7%, to $3.6 million for the quarter ended March 29, 1997 from $4.1
million for the quarter ended March 30, 1996. Net sales for B&B Electronics
Manufacturing Company and Area Lighting Research, Inc., both of which were
acquired early in the quarter ended March 29, 1997, were $1.0 million and
$2.8 million, respectively.
GROSS PROFIT. Gross profit for the quarter ended March 29, 1997 increased
$5.3 million, or 66.7%, to $13.3 million from $8.0 million for the quarter ended
March 30, 1996. Gross margin increased to 27.8% for the quarter ended March 29,
1997 from 23.6% for the quarter ended March 30, 1996. This increase is mainly
attributable to (i) decreased cost of raw materials through more efficient
purchasing and improved manufacturing processes resulting in better yields on
materials (ii) increased sales of higher margin specialty application products
and (iii) benefits arising from producing at near capacity.
INCOME FROM OPERATIONS. Income from operations for the quarter ended March
29, 1997 increased $3.5 million, or 168.9%,to $5.5 million from $2.0 million for
the quarter ended March 30, 1996. Income from operations as a percentage of net
sales increased to 11.5% for the quarter ended March 29, 1997 from 6.0% for the
quarter ended March 30, 1996. This increase resulted from improved gross margin
combined with a decrease in selling, general and administrative expenses as a
percent of net sales in the first quarter of 1997 compared to the first quarter
of 1996.
NET INCOME. Net income for the quarter ended March 29, 1997 increased $1.9
million, or 111.5%, to $3.5 million from $1.6 million for the quarter ended
March 30, 1996. Net income as a percentage of net sales increased to 7.2% for
the quarter ended March 29, 1997 from 4.8% for the quarter ended March 30, 1996.
This increase was primarily due to increased income from operations, partially
offset by (i) a decrease in investment income and (ii) a 1.3% higher effective
tax rate which was due to a higher marginal income tax rate for the first
quarter 1997.
INTEREST EXPENSE. Interest expense for the quarter ended March 29, 1997
decreased $33,000 to $131,000 from $164,000 for the quarter ended March 30,
1996. This decrease is attributable to a lower level of borrowings during the
first quarter of 1997 compared to the first quarter of 1996 and the favorable
borrowing rate on the IRBs.
LIQUIDITY AND CAPITAL RESOURCES
Investments in marketable securities decreased by $11.6 million, primarily
as a result of the acquisitions of B&B Electronics Manufacturing Company and
Area Lighting Research, Inc.
Cash used in operations totaled $0.6 million for the quarter ended March 29,
1997 and is mainly attributable to increased levels of accounts receivable and
inventories partially offset by an increase in accrued expenses, all a
result of higher net sales. Working capital on March 29, 1997 was $55.6 million
and the ratio of current assets to current liabilities was 3.37 to 1.00.
9
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The Company believes that funds generated from operations, proceeds from the
April 23, 1997 sale of common stock described in Note 8 to the financial
statements 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 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 29, 1997.
11
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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 13, 1997
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>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-29-1997
<CASH> 605
<SECURITIES> 18,893
<RECEIVABLES> 33,063
<ALLOWANCES> 2,922
<INVENTORY> 27,545
<CURRENT-ASSETS> 79,054
<PP&E> 31,067
<DEPRECIATION> 10,937
<TOTAL-ASSETS> 109,873
<CURRENT-LIABILITIES> 23,463
<BONDS> 0
0
0
<COMMON> 75
<OTHER-SE> 79,141
<TOTAL-LIABILITY-AND-EQUITY> 109,873
<SALES> 47,787
<TOTAL-REVENUES> 47,787
<CGS> 34,479
<TOTAL-COSTS> 34,479
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 33
<INTEREST-EXPENSE> 131
<INCOME-PRETAX> 5,624
<INCOME-TAX> 2,164
<INCOME-CONTINUING> 3,460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,460
<EPS-PRIMARY> .45
<EPS-DILUTED> 0
</TABLE>
