<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
AFC Cable Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
AFC CABLE SYSTEMS, INC.
50 Kennedy Plaza, Suite 1250
Providence, Rhode Island 02903
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 27, 1998
---------------
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of AFC Cable Systems, Inc. (the "Company") will be held at the
Biltmore Grand Heritage Hotel, Kennedy Plaza, Providence, Rhode Island at 10:00
a.m. on Wednesday, May 27, 1998 for the following purposes:
1. To elect two Class II directors.
2. To approve the adoption of the Company's 1998 Equity Incentive Plan.
3. To approve the Amendment to the Restated Certificate of Incorporation to
increase the authorized Common Stock from 15,000,000 to 50,000,000.
4. To transact any other business that may properly come before the Meeting
or any adjournment thereof.
The date of the Meeting has been rescheduled from May 13, 1998, as
currently set forth in the 1997 Annual Report to Stockholders. Stockholders
of record at the close of business on April 6, 1998 are entitled to notice of
and to vote at the Meeting.
If you are unable to be present personally, please sign and date the
enclosed proxy and return it promptly in the enclosed envelope.
By Order of the Board of Directors
Raymond H. Keller
Secretary
May 4, 1998
<PAGE>
ANNUAL MEETING OF STOCKHOLDERS
May 27, 1998
---------------
PROXY STATEMENT
---------------
The enclosed form of proxy is solicited on behalf of the Board of
Directors of AFC Cable Systems, Inc. ("AFC" or the "Company") to be voted at the
Annual Meeting of Stockholders (the "Meeting") to be held at the Biltmore Grand
Heritage Hotel, Kennedy Plaza, Providence, Rhode Island 02903 at 10:00 a.m. on
Wednesday, May 27, 1998 or at any adjournment thereof. The enclosed form of
proxy and this Proxy Statement have been mailed to stockholders on or about
May 5, 1998 and constitutes notice of the Meeting pursuant to Section 222 of
the Delaware General Corporation Law. A proxy may be revoked by a stockholder at
any time before it is voted (i) by returning to the Company another properly
signed proxy bearing a later date, (ii) by otherwise delivering a written
revocation to the Secretary of the Company or (iii) by attending the Meeting or
any adjourned session thereof and voting the shares covered by the proxy in
person. Shares represented by the enclosed form of proxy properly executed and
returned, and not revoked, will be voted at the Meeting.
The expense of soliciting proxies will be borne by the Company.
Officers and regular employees of the Company (who will receive no compensation
therefor in addition to their regular salaries) may solicit proxies. In addition
to the solicitation of proxies by use of the mails, the Company may use the
services of its directors, officers and regular employees to solicit proxies
personally and by mail, telephone or telegram from brokerage houses and other
shareholders. The Company will also reimburse brokers, banks and other
custodians, nominees and fiduciaries and other persons for their reasonable
charges and expenses in forwarding soliciting materials to their principals.
In the absence of contrary instructions, the persons named as
proxies will vote in accordance with the intentions stated below. The holders
of record of shares of the common stock, par value $.01 per share (the
"Common Stock"), of the Company at the close of business on April 6, 1998 are
entitled to receive notice of and to vote at the Meeting. As of that date,
the Company had issued and outstanding 11,463,972 shares of Common Stock.
Holders of shares of Common Stock are entitled to one vote for each share.
Consistent with state law and under the Company's by-laws, a majority
of the shares entitled to be cast on a particular matter, present in person or
represented by proxy, constitutes a quorum as to such matter. Votes cast by
proxy or in person at the Meeting will be counted by persons appointed by the
Company to act as election inspectors for the Meeting. The two nominees for
election as directors at the Meeting who receive the greatest number of votes
properly cast for the election of directors shall be elected directors. Approval
of the 1998 Equity Incentive Plan and the amendment to the Restated Certificate
of Incorporation to increase the authorized common stock will require the
affirmative vote of a majority of the total votes of the outstanding shares of
Common Stock represented at and entitled to vote at the Meeting. The election
inspector will count shares represented by proxies that withhold authority to
vote for the nominees for election as directors, for the 1998 Equity Incentive
Plan, for the amendment to the Restated Certificate of Incorporation or that
reflect abstentions and "broker non-votes" (i.e., shares represented at the
Meeting held by brokers or nominees as to which (i) instructions have not been
received from the beneficial owners or persons entitled to vote and (ii) the
broker or nominee does not have the discretionary voting power on a
2
<PAGE>
particular matter) only as shares that are present and entitled to vote on the
matter for purposes of determining the presence of a quorum, but neither
abstentions nor broker non-votes will have any effect on the outcome of voting
on the matter.
The Annual Report to Stockholders for AFC's fiscal year ended December
31, 1997 accompanies this Proxy Statement. This Proxy Statement and the enclosed
proxy are being mailed to Stockholders on the same date as the date of the
Notice of Annual Meeting. The principal executive offices of AFC are located at
50 Kennedy Plaza, Suite 1250, Providence, Rhode Island 02903.
3
<PAGE>
Item No. 1
ELECTION OF DIRECTORS
The persons named in the enclosed proxy intend to vote each share as to
which a proxy has been properly executed and returned and not revoked in favor
of the election as directors of the two nominees named below, each of whom are
now directors of the Company, unless authority to vote for the election of one
or both of such nominees is withheld by marking the proxy to that effect.
Pursuant to the Company's Restated Certificate of Incorporation, the
Board of Directors is divided into three classes, as nearly equal in number as
possible, so that each director will serve for three years, with one class of
directors being elected each year. Pursuant to the Restated Certificate of
Incorporation and By-Laws, the nominees include only the two directors
designated as Class II Directors, whose terms expire at the Meeting. The
enclosed proxy cannot be voted for a greater number of persons than two.
If Proposal I is approved, Robert R. Wheeler and Anthony J. Santoro
will be elected as directors for a term of three years, expiring at the Annual
Meeting to be held in the year 2001, and until their respective successors are
elected and shall qualify to serve.
It is expected that each of the nominees will be able to serve, but if
any nominee is unable to serve, the proxies reserve discretion to vote, or
refrain from voting, for a substitute nominee or nominees or to fix the number
of directors at a lesser number.
<TABLE>
NOMINEES
<CAPTION>
Name, Age (as of March 31, 1998), Director
Business Experience and Current Directorships Since
--------------------------------------------- -----
<S> <C>
ANTHONY J. SANTORO, 55, has been a Director of the Company since 1993
October 1993. Mr. Santoro has been President of Roger Williams
University and Roger Williams University School of Law since August
1993 and served as Dean of Roger Williams University School of Law from
July 1992 to August 1993. Prior to that time, Mr. Santoro served as
Dean and Professor of Law at Widener University School of Law from 1983
to 1992, Professor of Law at the University of Bridgeport School of Law
from 1976 to 1983 and Dean of the University of Bridgeport School of
Law from 1976 to 1980.
ROBERT R. WHEELER, 53, has been President and Chief Operating Officer 1996
of the Company since December 1995, and a Director of the Company since
March 1996. Mr. Wheeler was Executive Vice President and Chief
Operating Officer of the Company from October 1995 to December 1995.
From 1992 to 1995, Mr. Wheeler served as President and Chief Executive
Officer of The North American Industrial Company of BICC Cable, Inc.
</TABLE>
4
<PAGE>
<TABLE>
CURRENT DIRECTORS
<CAPTION>
Name, Age (as of March 31, 1998) Director Term
Business Experience and Current Directorships Since Expires
--------------------------------------------- ----- -------
<S> <C> <C>
RALPH R. PAPITTO, 71, has been Chairman of the Board and a Director of 1989 1999
the Company since December 1989. Mr. Papitto has been Chief Executive
Officer since 1995. Prior to December 1989, Mr. Papitto was the
Chairman of the Board, Chief Executive Officer and a director of
Nortek, Inc. ("Nortek"), an industrial conglomerate. Mr. Papitto
founded Nortek in 1967. In 1956, Mr. Papitto founded Glass-Tite
Industries, Inc., a manufacturer of electronic semiconductor
components. Mr. Papitto is also a director of Lynch Corporation, a
communications and multi-media services company, and ACS Industries,
Inc., a manufacturer of various industrial products, and is also
Chairman of the Board of Trustees of Roger Williams University.
MALCOLM M. DONAHUE, 76, has been a Director of the Company since March 1996 2000
1996. Mr. Donahue has been a Professor of Law at Suffolk University
Law School since 1956. From 1973 to 1991 Mr. Donahue was the Associate
Dean of Suffolk University Law School.
RAYMOND H. KELLER, 60, has been Vice President and Chief Financial 1989 2000
Officer of the Company since December 1989, and a Director of the
Company since October 1993. From January 1989 he served as the Vice
President and Chief Financial Officer of the American Flexible Conduit
Division of Nortek. Prior to that time, Mr. Keller held several
positions with Microdot, Inc., a multi-industry components
manufacturer. Most recently, Mr. Keller served as Vice President and
Chief Financial Officer of the operating companies of Microdot, Inc.
Mr. Keller had been employed by Microdot, Inc. since 1972.
</TABLE>
5
<PAGE>
Board of Directors and Committees
The Board of Directors held seven meetings during the fiscal year ended
December 31, 1997. Each current director attended at least 75% of the Board
meetings and the meetings held by committees on which he served during fiscal
1997. The Board of Directors currently has two standing committees, the Audit
Committee and the Compensation Committee. The Company does not have a standing
Nominating Committee.
The Audit Committee, composed of Messrs. Santoro and Donahue, held one
meeting during the fiscal year ended December 31, 1997. The Audit Committee
recommends to the Board of Directors the independent auditors of the Company,
reviews the professional services provided by the Company's independent
auditors, the independence of such auditors from management of the company, the
annual financial statements of the Company and the Company's system of internal
accounting controls. The Audit Committee also reviews such other matters with
respect to the accounting, auditing and financial reporting practices and
procedures of the Company as it may find appropriate or as may be brought to its
attention.
The Compensation Committee, composed of Messrs. Santoro and Donahue,
held five meetings during the fiscal year ended December 31, 1997. The
Compensation Committee reviews and establishes the Company's compensation
practices and policies and administers the equity incentive and stock option
plans of the Company.
6
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table and notes thereto set forth certain information
with respect to the beneficial ownership of the Company's Common Stock as of
March 31, 1998 by (i) each person who is known to the Company to beneficially
own more than 5% of the outstanding shares of Common Stock of the Company, (ii)
each of the chief executive officer and all other executive officers of the
Company whose total compensation exceeded $100,000 in fiscal 1997 (the "Named
Executive Officers") and each director of the Company, and (iii) all Named
Executive Officers and directors of the Company as a group. Except as otherwise
indicated, each of the stockholders named below has sole voting and investment
power with respect to the shares of Common Stock beneficially owned. Unless
otherwise indicated below, each person or entity listed maintains a mailing
address of c/o AFC Cable Systems, Inc., 55 Samuel Barnet Boulevard, New Bedford,
MA 02745.
<TABLE>
<CAPTION>
Common Stock
Beneficially Owned
----------------------------------------------------
Percentage of
Names Number of Shares Outstanding Shares(1)
---------------- ---------------------
<S> <C> <C>
Ralph R. Papitto*+(2) 2,498,657 21.8%
Robert R. Wheeler*+(3) 89,081 **
Raymond H. Keller*+(4) 62,399 **
Malcolm M. Donahue+(5) 3,274 **
Anthony J. Santoro+(6) 5,000 **
All Directors and Executive
Officers as a group (5 persons) 2,658,411 23.2%
FMR Corp. 1,479,950 12.9%
82 Devonshire Street
Boston, MA 02109
Wellington Management Company, LLP 637,500 5.6%
75 State Street
Boston, MA 02129
- ----------
<FN>
* Named Executive Officer
+ Director of the Company
** Less than 1 percent
</FN>
</TABLE>
7
<PAGE>
- ----------
(1) Percentage of ownership is based on 11,462,410 shares of Common Stock
outstanding as of March 31, 1998.
(2) Includes 43,750 shares subject to exercisable stock options.
(3) Includes 61,250 shares subject to exercisable stock options, 19,977 shares
of restricted stock on which forfeiture provisions lapse with respect to
9,925 shares on March 11, 1999, and 5,026 shares on each of March 13, 1999
and March 13, 2000, and 1,050 shares held pursuant to the Company's 401(k)
plan.
(4) Includes 48,437 shares subject to exercisable stock options, 9,205 shares
of restricted stock on which forfeiture provisions lapse with respect to
3,358 shares on March 11, 1999, 2,923 shares on March 13, 1999 and 2,924
shares on March 13, 2000 and 672 shares held pursuant to the Company's
401(k) plan.
(5) Includes 2,500 shares subject to exercisable stock options.
(6) Includes 3,750 shares subject to exercisable stock options.
EXECUTIVE COMPENSATION
Report of the Compensation Committee of the Board of Directors
The Compensation Committee, which is responsible for making
recommendations to the Board of Directors on compensation relating to officers
of the Company and administering the Company's equity incentive and stock option
plans, makes the following report on executive compensation for fiscal 1997.
The Company's executive compensation program is designed to reward and
retain executives who are capable of leading the Company in achieving its
strategic and financial objectives.
The Company relies on three compensation components to motivate
executive performance: annual salary, incentive bonuses (in cash and/or Common
Stock) and stock-based incentive compensation. Each of the Named Executive
Officers has an annual base salary, established by an employment agreement or
otherwise, at a level the Company believes is comparable to companies in its
industry and in the mid-range for growth companies traded on the Nasdaq National
Market. In addition to base salary, each executive officer receives an incentive
bonus at the end of each fiscal year based upon corporate performance and that
officer's individual performance. Corporate performance is measured by the
Company's strategic and financial performance in that fiscal year, with
particular emphasis on pre-tax earnings. Individual performance is measured by
the officer's contribution to achieving targeted performance criteria. In
recognition of the Company's improved sales and earnings, Mr. Papitto's 1997
salary and bonus were increased over that earned in 1996 by $48,000 and
$180,000, respectively.
The Compensation Committee believes that short-term fluctuations in
stock price do not necessarily reflect the underlying strength or future
prospects of the Company and therefore, does not emphasize year-to-year changes
in stock price in its evaluation of corporate performance. The Compensation
Committee believes that long-term stock price appreciation more accurately
reflects the Company's achievement of its strategic goals and objectives.
Accordingly, the Company seeks to create long-term performance incentives for
its key employees by aligning their economic interests with the interests of the
Company's long-term shareholders through the Company's stock-based incentive
compensation program. Stock options are granted to key employees generally at a
price equal to the fair market value on the date of grant, and awards are based
on the performance of such employees and anticipated contributions by such
employees in helping the Company achieve its strategic goals and objectives.
Stock option grants are also made by reference to the number of stock options an
employee already holds and actual shareholdings. In fiscal 1997, stock options
were granted to key employees, including three Named Executive Officers, upon
recommendation of management and approval of the Compensation Committee. Details
on stock option and restricted stock grants are included in the tables following
this report.
8
<PAGE>
With respect to the above matters, the Compensation Committee submits this
report.
COMPENSATION COMMITTEE
Anthony J. Santoro
Malcolm M. Donahue
9
<PAGE>
The following tables set forth information with respect to the
compensation of the Named Executive Officers earned during fiscal 1997, 1996 and
1995:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------------------------- -------------------------
Restricted
Name and Principal Other Annual Stock All Other
Position Year Salary($) Bonus($) Compensation($)(1) Award($)(2) Options(#) Compensation($)(3)
- -------- ---- --------- -------- ------------------ ----------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ralph R. Papitto 1997 300,000 280,000 143,750 310
Chairman of the 1996 252,501 100,000 10,914
Board and Chief 1995 189,996 75,000 10,200
Executive Officer
Robert R. Wheeler 1997 200,000 332,199 356,846 100,000 14,710
President and Chief 1996 190,769 81,680 9,131 377,150 50,000 11,251
Operating Officer 1995 30,769 20,000 37,500 1,821
Raymond H. Keller 1997 131,000 140,056 207,569 18,750 11,484
Vice President and 1996 131,000 64,479 127,585 11,223
Chief Financial 1995 131,000 39,415 11,310
Officer
- ----------
<FN>
(1) The amount reported for Mr. Wheeler in 1996 represents a relocation expense
paid on his behalf.
(2) The restricted stock awards for Messrs. Wheeler and Keller in 1997
represent grants of restricted stock, at no cost, under the Company's 1997
Equity Incentive Plan pursuant to the Company's 1997 Bonus Plan. The dollar
value of the restricted stock is based on the closing market price of the
Company's Common Stock on the date of grant. During 1997, the Company
granted an aggregate of 10,052 and 5,847 shares of restricted stock to
Messrs. Wheeler and Keller, respectively, in payment incentive bonuses.
Restrictions on this restricted stock lapse equally over two years
commencing March 13, 1999. The restricted stock awards for Messrs. Wheeler
and Keller in 1996 represent grants of restricted stock, at no cost, under
the Company's 1993 Equity Incentive Plan pursuant to the Company's 1996
Bonus Plan. The dollar value of the restricted stock is based on the
closing market price of the Company's Common Stock on the date of grant.
During 1996, the Company granted an aggregate of 19,850 and 6,715 shares of
restricted stock to Messrs. Wheeler and Keller, respectively, in payment of
1996 incentive bonuses. Restrictions on this restricted stock lapse equally
over two years commencing March 11, 1998. Shares of restricted stock are
entitled to the same dividends as those paid, if any, to holders of
unrestricted shares.
(3) Includes insurance premiums paid by the Company on behalf of the named
executive and, for Messrs. Wheeler and Keller, employer contributions under
the Company's Nonunion Salaried and Hourly Employees 401(k) Savings Plan.
</FN>
</TABLE>
10
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
Individual Grants
------------------------------------------------------------------------------------
<CAPTION>
% of Total Potential Realizable Value
Options at Assumed Annual Rates
Granted to of Stock Price Appreciation
Options Employees in Exercise Expiration for Option Term($)(2)
---------------------
Name Granted(#) Fiscal Year(1) Price($/Sh) Date 5% 10%
---- ---------- -------------- ----------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Ralph R. Papitto 143,750(3) 25.8% $15.40 3/4/07 $1,392,218 $3,528,200
Robert R. Wheeler 100,000(4) 17.9% $15.40 3/4/07 $ 968,500 $2,454,400
Raymond H. Keller 18,750(5) 3.4% $15.40 3/4/07 $ 181,594 $ 460,200
- ----------
<FN>
(1) During fiscal 1997, the Company granted to its employees options covering
557,500 shares of Common Stock.
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation (5% and 10%)
on the market value of the Company's Common Stock on the date of option
grant over the term of the options. These numbers are calculated based on
rules promulgated by the Securities and Exchange Commission and do not
reflect the Company's estimate of future stock price growth. A gains, if
any, on stock option exercises and Common Stock holdings are dependent on
the timing of such exercise and the future performance of the Company's
Common Stock. There can be no assurance that the rates of appreciation
assumed in this table can be achieved or that the amounts reflected will be
received by the individual.
(3) The option is exercisable on October 15, 1997 with respect to 18,750 shares
and in annual increments of 31,250 shares each commencing March 4, 1998
with respect to the remaining shares.
(4) The option is exercisable in annual increments of 25,000 shares each
commencing March 4, 1998.
(5) The option is exercisable in two annual increments of 4,687 shares each
commencing March 4, 1998 and two annual increments of 4,688 shares each
commencing March 4, 2000.
</FN>
</TABLE>
11
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options at
Options at FY-End(#) FY-End($)(1)
-------------------- ------------
Shares Acquired Value
Name on Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ralph R. Papitto - - 0 143,750 0 2,062,813
Robert R. Wheeler - - 18,750 18,750 377,813 377,813
- - 6,250 18,750 123,438 370,313
- - 5,000 20,000 85,750 343,000
- - 0 100,000 0 1,435,000
Raymond H. Keller - - 25,000 6,250 543,750 135,938
- - 18,750 12,500 332,813 221,875
- - 0 18,750 0 269,062
- ----------
<FN>
(1) The closing bid price for the Company's Common Stock on the Nasdaq National
Market on December 31, 1997, the last trading day of the fiscal year, was
$29.75 per share.
</FN>
</TABLE>
Pension Plan
The Company has in effect a Supplemental Executive Retirement Plan
("SERP") for certain key executives. The SERP is designed to supplement the
Company's Nonunion Salaried and Hourly Employees 401(k) Savings Plan and primary
Social Security benefits. Under the SERP, participating key executives who
retire at or after the age of 55 and have participated in the SERP for at least
10 years are provided monthly benefits payable over a period of 180 months after
retirement. The benefits are based on discretionary annual contributions made by
the Company. Such contributions represent a percent of the participants' annual
compensation, which percent is determined annually by the Company. Of the Named
Executive Officers of the Company, Messrs. Wheeler and Keller each participate
in the SERP and their respective estimated annual benefits payable upon normal
retirement are approximately $184,942 and $81,808, respectively.
Compensation of Directors
Directors who are not executive officers of the Company receive annual
compensation of $9,600, payable monthly, plus $500 for each board or committee
meeting attended in person and $250 for each telephonic board meeting.
Additionally, pursuant to the Company's 1993 Directors' Stock Option Plan (the
"Plan") each non-employee director of the Company is awarded a stock option
covering 10,000 shares of Common Stock on the date of his or her first election
as a director. The exercise price of all options granted under the Plan may not
be less than 100% of the fair market value of the Common Stock on the date of
the grant. Options expire 10 years after the date of grant and become
exercisable in equal installments over a five year period starting with the
first anniversary of grant. No options were awarded under the Plan during the
year ended December 31, 1997.
12
<PAGE>
Change in Control Severance Benefit Plan
The Company has entered into severance agreements (the "Severance
Agreements") with Robert R. Wheeler and Raymond H. Keller (collectively the
"Employees" and each an "Employee"). The Severance Agreements provide that if
within twenty-four months following a Change in Control, the Employee's
employment is terminated for any reason, or if there is a material adverse
change (as defined therein) that entitles Employee to treat such change as a
termination, Employee shall be entitled to receive severance pay at an annual
rate equal to (i) his basic salary at the annual rate in effect immediately
prior to any such Change in Control (or, if higher, immediately prior to such
termination), plus (ii) the highest amount of bonus or incentive compensation
paid or payable in cash or stock (valued as of the date of such bonus) to
Employee (irrespective of any decision to defer any payment with respect
thereto) for any one of the three calendar years prior to such Change in Control
(or, if higher, immediately prior to such termination), such severance pay to be
paid for the twenty-four month period following such termination in the same
manner as Employee's basic salary was paid immediately prior to such termination
and to be subject to appropriate tax withholding. The Company is obligated to
provide the Employee with coverage under the Company's group health plans or
substantially similar plans for a period of twenty-four months from the date of
termination, unless Employee elects to be paid the value of such benefits in
cash.
Within thirty (30) days following a Change in Control, regardless of
whether an Employee's employment has been terminated, the Employee will be paid
20% of his basic salary immediately prior to the Change in Control. Payment of
such amount shall be considered severance pay in consideration of past services
during a period while any such Change in Control is pending and thereafter and
is not to be reduced by compensation or income received by Employee from any
other employment or other source.
A Change in Control is generally defined to include (i) certain changes
in the majority membership of the Board of Directors; (ii) the Company ceasing
to be a publicly-owned corporation having at least 500 stockholders; (iii) an
event required to be reported as a Change in Control in certain filings with the
Securities and Exchange Commission; (iv) certain situations in which the Company
executes an agreement of acquisition, merger or consolidation with respect to
substantially all of the business and/or assets of the Company; and (v) certain
acquisitions of securities representing 25% or more of votes that could be cast
for election of the Company's Board of Directors.
Certain Relationships and Related Transactions
During fiscal 1997, the Company paid fees of 50,000 shares of its
Common Stock to an entity affiliated with Mr. Papitto in connection with
acquisitions completed by the Company.
13
<PAGE>
Performance Graph
The following graph compares the cumulative total return on the
Company's Common Stock with the cumulative total return on the Nasdaq National
Market - US Index and the Standard & Poors ("S&P") Electrical Equipment Index
from December 16, 1993, the date the Company's Common Stock began to trade
publicly, through December 31, 1997, the last trading day of fiscal 1997. The
cumulative total shareholder return is based on $100 invested in Common Stock of
the Company and in the respective indices on December 16, 1993 (including
reinvestment of dividends).
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
12/16/93 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AFC CABLE SYSTEMS, INC. 100 94 145 138 239 372
NASDAQ STOCK MARKET - US INDEX 100 103 101 142 175 215
S&P ELECTRICAL EQUIPMENT INDEX 100 101 100 136 181 250
- --------------------------------------------------------------------------------------------
</TABLE>
The stock prices on the Performance Graph are not necessarily
indicative of future stock price performance. Each of the Report of the
Compensation Committee of the Board of Directors and the Performance Graph shall
not be deemed incorporated by reference by any general statement incorporating
this Proxy Statement into any filing under the Securities Act of 1933 or under
the Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such acts.
14
<PAGE>
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission initial reports of beneficial ownership
and reports of changes in beneficial ownership of Common Stock and other equity
securities of the Company. Such persons are required by regulations of the
Securities Exchange Act of 1934 to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such forms furnished to the Company with respect to fiscal 1997, or written
representations that no other reports were required, the Company believes that
all Section 16(a) filing requirements applicable to its officers, directors and
ten percent beneficial owners were complied with.
Item No. 2
APPROVAL OF 1998 EQUITY INCENTIVE PLAN
On April 1, 1998, the Board of Directors approved, subject to
stockholder approval, the 1998 Equity Incentive Plan (the "Plan"), and the
issuance of 600,000 shares of Common Stock pursuant to awards thereunder.
The purpose of the Plan is to advance the interests of the Company and
its subsidiaries by enhancing their ability to attract and retain employees and
other persons or entities who are in a position to make significant
contributions to the success of the Company and its subsidiaries, and to reward
participants for such contributions, through ownership of shares of Common Stock
(the "Stock") of the Company and cash incentives. The Plan is intended to
accomplish these goals by enabling the Company to grant awards in the form of
options, stock appreciation rights, restricted stock, unrestricted stock or
deferred stock, or performance awards, or combinations thereof, all as more
fully described below.
General
The Plan will be administered by a committee of the Board of Directors
designated for such purposes, consisting of at least two directors (the
"Committee"). During such times as the Stock is registered under the Securities
Exchange Act of 1934 (the "1934 Act"), all members of the Committee will be
"non-employee directors" within the meaning of Rule 16b-3 promulgated under the
1934 Act and "outside directors" within the meaning of Section 162(m)(4)(C)(i)
of the Internal Revenue Code of 1986, as amended (the "Code"). Under the Plan,
the Committee may grant stock options, stock appreciation rights, restricted
stock, unrestricted stock, deferred stock, and performance awards (in cash or
stock), or combinations thereof, and may waive the terms and conditions of any
award. A total of 600,000 shares of Stock are reserved for issuance under the
Plan. Employees of the Company and its subsidiaries and other persons or
entities who are in a position to make a significant contribution to the success
of the Company are eligible to receive awards under the Plan.
Section 162(m) of the Code places annual limitations on the
deductibility by public companies of compensation in excess of $1,000,000 paid
to each of the chief executive officer and the other four most highly
compensated officers, unless, among other things, the compensation is
performance-based. For compensation attributable to stock options and stock
appreciation rights to qualify as performance-based, the plan under which they
are granted must state a maximum number of shares with respect to which options
and rights may be granted to an
15
<PAGE>
individual during a specified period and must be approved by the Company's
stockholders. To comply with these requirements, the Plan provides that the
maximum number of shares as to which awards may be granted to any participant in
any one calendar year is 250,000, and the Plan is being submitted for
stockholder approval.
Stock Options. The exercise price of an incentive stock option ("ISO")
granted under the Plan or an option intended to qualify as performance-based
compensation under Section 162(m) of the Code shall not be less than 100% of the
fair market value of the Stock at the time of grant. The exercise price of a
non-ISO granted under the Plan is determined by the Committee. Options granted
under the Plan will expire and terminate 10 years from the date of grant. The
exercise price may be paid in cash or by check, bank draft or money order
payable to the order of the Company. Subject to certain additional limitations,
the Committee may also permit the exercise price to be paid by tendering shares
of Stock, by delivery to the Company an undertaking by a broker to deliver
promptly sufficient funds to pay the exercise price, or a combination of the
foregoing.
Stock Appreciation Rights (SARs). Stock appreciation rights ("SARs")
may be granted either alone or in tandem with stock option grants. Each SAR
entitles the holder on exercise to receive an amount in cash or Stock or a
combination thereof (such form to be determined by the Committee) determined in
whole or in part by reference to appreciation in the fair market value of a
share of Stock. SARs may be based solely on appreciation in the fair market
value of Stock or on a comparison of such appreciation with some other measure
of market growth. The date as of which such appreciation or other measure is
determined shall be the exercise date unless another date is specified by the
Committee. If an SAR is granted in tandem with an option, the SAR will be
exercisable only to the extent the option is exercisable. To the extent the
option is exercised, the accompanying SAR will cease to be exercisable, and vice
versa.
Stock Awards; Deferred Stock. The Plan provides for awards of
nontransferable shares of restricted Stock subject to forfeiture ("Restricted
Stock"), as well as unrestricted shares of Stock. Shares of Restricted Stock may
not be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated until the end of the applicable period and the satisfaction of any
other conditions or restrictions established by the Committee. Except as the
Committee may otherwise determine, if a participant dies or ceases to be an
employee or ceases to continue the consulting or other similar relationship
engaged in by such participant with the Company for any reason during the
restricted period, the Company may purchase the shares of Restricted Stock
subject to certain restrictions and conditions. Other awards under the Plan may
also be settled with Restricted Stock. The Plan also provides for deferred
grants entitling the recipient to receive shares of Stock in the future at such
times and on such conditions as the Committee may specify.
Performance Awards. The Plan provides for performance awards entitling
the recipient to receive cash or Stock following the attainment of performance
goals determined by the Committee. Performance conditions and provisions for
deferred stock may also be attached to other awards under the Plan. In the case
of any performance award intended to qualify for the performance-based
remuneration exception described in Section 162(m) of the Code (an "Exempt
Award"), the Committee will in writing pre-establish specific performance goals
that are based upon any one or more operational, result or event-specific goals.
The maximum Exempt Award payable to an individual in respect of any performance
goal for any year cannot exceed $2,500,000. Payment of performance awards based
upon a performance goal for calendar years 2004 and thereafter is conditioned
upon re-approval by the stockholders of the Company no later than the first
meeting of stockholders in 2003.
Termination. Except as otherwise provided by the Committee, if a
participant dies, options and SARs exercisable immediately prior to death may be
exercised by the participant's executor, administrator or transferee during a
period of one year following such death (or for the remainder of their original
term, if less). Options and
16
<PAGE>
SARs not exercisable at a participant's death terminate. Outstanding awards of
Restricted Stock must be transferred to the Company upon a participant's death,
and deferred stock grants, performance awards and supplemental awards to which a
participant is not irrevocably entitled will be terminated unless otherwise
provided. In the case of termination for reasons other than death, options and
SARs remain exercisable, to the extent they were exercisable immediately prior
to termination, for three months (or for the remainder of their original term,
if less), shares of Restricted Stock must be sold to the Company, and other
awards terminate, except as otherwise provided.
In the case of certain mergers, consolidations or other transactions in
which the Company is acquired or is liquidated, all outstanding awards will
terminate. The Committee may, however, in its discretion cause unvested awards
to vest or become exercisable, remove performance or other conditions on the
exercise of or vested right to an award, or in certain circumstances provide for
replacement awards.
Amendment. The Committee may amend the Plan or any outstanding award at
any time, provided that no such amendment will, without the approval of the
stockholders of the Company, effectuate a change for which stockholder approval
is required in order for the Plan to continue to qualify for the award of ISOs
under Section 422 of the Code or for the award of performance-based compensation
under Section 162(m) of the Code.
New Plan Benefit
The future benefits or amounts that would be received under the Plan by
the executive officers, the non-executive officer directors and the
non-executive officer employees are discretionary and are therefore not
determinable at this time.
Federal Tax Effects
The following discussion summarizes certain federal income tax
consequences of the issuance and receipt of options under the Plan. The summary
does not purport to cover federal employment tax or other federal tax
consequences that may be associated with the Plan, nor does it cover state,
local or non-U.S. taxes.
Incentive Stock Options. In general, an optionee realizes no taxable
income upon the grant or exercise of an ISO. However, the exercise of an ISO may
result in an alternative minimum tax liability to the optionee. With certain
exceptions, a disposition of shares purchased under an ISO within two years from
the date of grant or within one year after exercise produces ordinary income to
the optionee (and a deduction to the Company) equal to the value of the shares
at the time of exercise less the exercise price. Any additional gain recognized
in the disposition is treated as a capital gain for which the Company is not
entitled to a deduction. If the optionee does not dispose of the shares until
after the expiration of these one- and two-year holding periods, any gain or
loss recognized upon a subsequent sale is treated as a long-term capital gain or
loss for which the Company is not entitled to a deduction.
Nonstatutory (Non-ISO) Options. In general, in the case of a non-ISO,
the optionee has no taxable income at the time of grant but realizes income in
connection with exercise of the option in an amount equal to the excess (at the
time of exercise) of the fair market value of the shares acquired upon exercise
over the exercise price. A corresponding deduction is available to the Company.
Upon a subsequent sale or exchange of the shares, appreciation or depreciation
after the date of exercise is treated as capital gain or loss for which the
Company is not entitled to a deduction.
In general, an ISO that is exercised more than three months after
termination of employment (other than termination by reason of death) is treated
as a non-ISO. ISOs are also treated as non-ISOs to the extent they first
17
<PAGE>
become exercisable by an individual in any calendar year for shares having a
fair market value (determined as of the date of grant) in excess of $100,000.
Under the so-called "golden parachute" provisions of the Code, the
vesting or accelerated exercisability of awards in connection with a change in
control of the Company may be required to be valued and taken into account in
determining whether participants have received compensatory payments, contingent
on the change in control, in excess of certain limits. If these limits are
exceeded, a substantial portion of amounts payable to the participant, including
income recognized by reason of the grant, vesting or exercise of awards under
the Plan, may be subject to an additional 20% federal tax and may be
nondeductible to the Company.
Item No. 3
APPROVAL OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION TO
INCREASE THE AUTHORIZED COMMON STOCK FROM 15,000,000 TO 50,000,000
On April 1, 1998 the Board of Directors voted, subject to approval by
the stockholders, to amend Article IV of the Company's Restated Certificate of
Incorporation to increase the authorized number of shares of Common Stock, par
value $.01 per share, from 15,000,000 to 50,000,000 (the "Amendment").
On April 6, 1998, the Company had 11,463,972 shares of Common Stock
outstanding, 1,590,869 shares of Common Stock reserved for issuance upon
exercise of outstanding stock options or for future awards under its equity
incentive plans and 625,000 shares of Common Stock reserved for future grants
under qualified employee savings plans. The Company currently does not have
any plans, commitments or understandings with respect to the issuance of the
additional shares of Common Stock being authorized hereby. The Board of
Directors believes that it is desirable to have available a substantial
number of authorized but unissued shares of Common Stock which may be issued
from time to time, without further action by the stockholders, to provide for
stock splits or stock dividends, stock options and other equity incentives,
to be able to take advantage of acquisition opportunities, to meet future
capital needs, and for other general corporate purposes.
Any issuance of additional shares of Common Stock would have the effect
of reducing the percentage voting interests of previously outstanding Common
Stock. Shares of authorized but unissued Common Stock may be issued from time to
time by the Board of Directors without further stockholder action unless such
action is required by the law of the State of Delaware, under which the Company
is incorporated, the Company's Certificate of Incorporation, or the rules of the
Nasdaq National Market System ("Nasdaq"). Nasdaq currently has a qualification
requirement, the effect of which is to require that a listed company obtain
prior stockholder approval when issuing shares of authorized but unissued Common
Stock in certain transactions in an amount greater than 20% of its then
outstanding Common Stock.
In addition to the foregoing uses for authorized but unissued stock,
additional authorized but unissued shares of Common Stock might be used in the
context of a defense against or response to possible or threatened hostile
takeovers.
The holders of Common Stock do not have preemptive rights to subscribe
to shares of Common Stock or other securities issued by the Company. The
issuance of additional authorized shares of Common Stock may dilute the voting
power and equity interest of present stockholders. It is not possible to predict
in advance whether the issuance of additional shares will have a dilutive effect
on earnings per share as it depends on the specific events associated with a
particular transaction.
18
<PAGE>
If the stockholders approve the Amendment, it will become effective
upon the filing of a Certificate of Amendment with the Secretary of State of
Delaware, which is expected to take place promptly after the stockholders'
meeting. The Amendment does not alter or change the powers, preferences, or
special rights of the holders of shares of Common Stock or any other class of
stock.
AUDIT MATTERS
Ernst & Young LLP has been selected to audit the financial statements
of the Company for the fiscal year ending December 31, 1998, and to report the
results of their examination.
A representative of Ernst & Young LLP is expected to be present at the
Meeting and will be afforded the opportunity to make a statement if he or she
desires to do so and to respond to appropriate questions from stockholders.
STOCKHOLDER PROPOSALS
Proposals of stockholders submitted for consideration at the Annual
Meeting of Stockholders in 1999 must be received by the Company no later than
January 4, 1999.
OTHER BUSINESS
The Board of Directors knows of no business that will come before the
meeting for action except as described in the accompanying Notice of Meeting.
However, as to any such business, the persons designated as proxies will have
discretionary authority to act in their best judgment.
FORM 10-K
A copy of AFC's Annual Report on Form 10-K filed with the Securities
and Exchange Commission is available without charge by writing to: AFC Cable
Systems, Inc., ATTN: Virginia Johnson, Assistant Secretary, 50 Kennedy Plaza,
Suite 1250, Providence, Rhode Island 02903 (Telephone (401) 453-2000).
19
<PAGE>
DETACH HERE
PROXY
ANNUAL MEETING OF AFC CABLE SYSTEMS, INC.
MAY 27, 1998
The undersigned hereby constitutes and appoints Ralph R. Papitto and
Raymond H. Keller, or either of them individually, with power of substitution
to each, proxies to vote and act at the Annual Meeting of Stockholders of AFC
Cable Systems, Inc. to be held on May 27, 1998 at the Biltmore Grand Heritage
Hotel, Kennedy Plaza, Providence, Rhode Island 02903, at 10:00 a.m., and at
any adjournments thereof, upon and with respect to the number of shares of
Common Stock, par value $.01 per share, that the undersigned would be
entitled to vote if personally present. The undersigned instructs such
proxies, or their substitutes, to vote in such manner as they may determine
on any matters which may come before the meeting, all as indicated in the
accompanying Notice of Meeting and Proxy Statement, receipt of which is
acknowledged, and to vote on the following as specified by the undersigned.
All proxies heretofore given by the undersigned in respect of said meeting
are hereby revoked.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. Unless
otherwise specified in the boxes provided on the reverse side hereof, the
proxy will be voted IN FAVOR of the nominees for director, IN FAVOR of the
1998 Equity Incentive Plan, IN FAVOR of the Amendment to the Restated
Certificate of Incorporation to increase the authorized Common Stock, and in
the discretion of the named proxies as to any other matter that may come
before this meeting or any adjournments thereof.
/ SEE REVERSE SIDE /
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
/ SEE REVERSE SIDE/
<PAGE>
DETACH HERE
/ X / Please mark votes as in this example
PLEASE DO NOT FOLD THIS PROXY.
1. Election of Directors
The undersigned hereby grants authority to elect the
following nominees: Robert R. Wheeler and Anthony J. Santoro
FOR / / Withheld / /
/ / _____________________________________
For all nominees except as noted above
FOR AGAINST ABSTAIN
2. Adoption of the 1998 Equity Incentive Plan / / / / / /
3. Amendment to the Restated Certificate of
Incorporation to increase the authorized
Common Stock / / / / / /
4. In their discretion, the proxies are
authorized to vote upon such other business
as may properly come before the Meeting. / / / / / /
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
Please sign exactly as name(s) appear hereon. When signing as attorney,
executor, administrator, trustee, or guardian, please sign your full title as
such. Each joint owner should sign.
Signature:________________ Date:_______ Signature:________________ Date:_______
<PAGE>
[AFC LOGO]
AFC
CABLE SYSTEMS
1997
ANNUAL
REPORT
<PAGE>
AFC
WE'RE WIRING
AMERICA
Public buildings nationwide benefit from the money-saving and labor-saving
products of AFC Cable Systems, Inc. Founded in 1926, the company manufactures
and sells modular wiring systems, armored cable, flexible metal conduit,
fittings, and other electrical and communications products. AFC Cable Systems'
products are used in new construction and renovation of office towers,
factories, hospitals, hotels, and other facilities. These products route power,
voice, and data to computer systems, office and industrial workstations,
scientific and medical instruments, and electronic point-of-sale terminals,
among other equipment.
[Illustration of AC, MC and specialty metal clad cables.]
<PAGE>
(1)
GEORGIA DOME
Atlanta, GA
(2)
ST. LOUIS UNION
STATION
St. Louis, MO
(3)
TRINITY TOWERS
San Francisco, CA
(4)
TRINITY CHURCH
Newport, RI
(5)
SAN BERNADINO
MEDICAL CENTER
San Bernadino, CA
(6)
MGM GRAND
HOTEL & CASINO
Las Vegas, NV
(7)
ENERGY CENTER
New Orleans, LA
(8)
TEXAS COMMERCE
BANK TOWER
Dallas, TX
(9)
THE WORLD TRADE
CENTER
New York, NY
[Illustration of current advertising campaign depicting buildings from across
the U.S. using armored cable.]
(10)
ELLIS ISLAND
VISITOR'S CENTER
New York, NY
(11)
NORWEST BANKS
Denver, CO
(12)
LIBERTY CENTER
Pittsburgh, PA
(13)
NATIONS BANK
Atlanta, GA
(14)
COLUMBIA SEA
FIRST CENTER
Seattle, WA
(15)
ONE ATLANTIC
CENTER
Atlanta, GA
(16)
ROWES WHARF
Boston, MA
(17)
FLEET BANK
Providence, RI
(18)
CONSTITUTION
HALL
Washington, DC
<PAGE>
<TABLE>
<CAPTION>
ANNUAL SALES
(in millions of dollars)
<S> <C> <C> <C> <C>
93 94 95 96 97
-- -- -- -- --
$89.9 $114.4 $139.5 $161.9 $220.3
</TABLE>
To Our Shareholders
1997 was another record year for AFC Cable Systems; sales outpaced the industry,
and profits outpaced sales. Revenues increased 36.1% to a record $220,264,000
and net income gained 59.2% to $18,239,000, also a record.
Historically, our sales have grown at a faster rate than both the nation's
economy and commercial construction. This was true again in 1997. This
uninterrupted growth has increased the value of our shareholders' investment in
the company. In 1993, sales were less than $90 million and pro forma net income
was just over $3.5 million, and we took the company public at $10 per share. At
the close of 1997, sales were about 2.5 times the 1993 level and net income had
increased more than five times, and our common stock was selling at $29.75 per
share, after a 5-for-4 stock split. To put this in perspective, an investment of
$1,000 in AFC stock in 1993 was valued at $3,719 at the end of 1997, a return of
272% over the time period.
We achieved this growth in sales and profits in 1997 by careful attention to
sound business practices. This included: increasing market acceptance of our
core products (armored cable and flexible conduit); continued introduction of
high-margin, specialized cables; improved customer service; acquisition of
niche-market, complementary products; and increased manufacturing capacity to
meet customer demand.
- ----------------------------------------
Increased acceptance of core products
- ----------------------------------------
In 1997, we continued to expand the market for armored cable through our own
marketing efforts and in cooperation with the National Armored Cable
Manufacturers Association. We were successful in securing electrical code
approval for armored cable in Springfield, Ill., South Lake Tahoe, Calif.,
Charleston County, S.C., and Abilene, Lubbock, and San Angelo, Texas. One
challenge to enlarging the market for armored cable is that electricians and
contractors, from the outset of their careers, learn the traditional
pipe-and-wire approach. So, in 1997, we launched an education program designed
to enable instructors in union apprentice programs, community colleges, and
vocational high schools to teach armored-cable installation. We plan to expand
this effort in 1998.
We have increased sales and profits by continuing to introduce specialty
armored cable. In 1997, we launched armored communication cable. With the
proliferation of
- --------------------------------------------------------------------------------
- ----------------------------------------
AFC CABLE SYSTEMS, INC.
- ----------------------------------------
<TABLE>
<CAPTION>
Measure of Performance 1997 1996*
- ---------------------- ---- ----
<S> <C> <C>
Average after-tax return on
shareholder equity 17.8% 17.3%
- --------------------------------------------------------------------------------
Year end book value per share $10.47 $7.79
- --------------------------------------------------------------------------------
Year end cash & securities per share $3.68 $3.36
- --------------------------------------------------------------------------------
Interest coverage 45.3x 24.1x
- --------------------------------------------------------------------------------
Debt/Equity ratio at year end 8% 8%
- --------------------------------------------------------------------------------
* 1996 per share data restated for the 5-4 stock split distributed on October
20, 1997.
- --------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
computer workstations and the need to upgrade existing premise wiring, there is
a strong demand for data communication cable. We also acquired manufacturers of
niche-market, specialty products that complement and extend our lines. Three
early 1997 acquisitions--B&B Electronics, Area Lighting Research, and Madison
Equipment--exceeded their 1997 earnings goals. Late in the year, we also made a
fourth acquisition: Federal Hose Manufacturing, a producer of flexible metal,
plastic, and fabric conduit for diverse applications.
New products--both developed internally and added by acquisition--have been,
and will continue to be, an important ingredient of our success. They not only
contribute to sales and profits, but also make us an increasingly important
source to our customers.
- ----------------------------------------
Meeting increased market demand
- ----------------------------------------
We are committed to excellent customer service and are investing in human and
capital resources to back that up. We added production equipment according to
our five-year capacity plan, financing it with operating profits and a secondary
stock offering. This will enable us to meet surges in demand more
cost-effectively and to maintain the high level of service our customers
require. We also hired the company's first Chief Technology Officer to ensure
that our functional managers have the information and systems to manage the
company. In addition, we strengthened our sales and marketing team with a
Manager of National Accounts and additional Regional Sales Managers who will
train, motivate, and lead the independent sales agents in their territories.
- ----------------------------------------
The year ahead
- ----------------------------------------
We benefited from a strong North American economy in 1997, which fueled
commercial construction nationwide. The fundamentals look positive for 1998, but
AFC Cable Systems has grown in strong economies and weak ones. We enter 1998
confident that we can continue to capitalize on economic growth as long as it
endures, and, in the case of a downturn, outperform the economy to extend our
record of steady growth.
/s/ Ralph R. Papitto /s/ Robert R. Wheeler
Ralph R. Papitto Robert R. Wheeler
Chairman President
ANNUAL NET PROFIT*
(in millions of dollars)
<TABLE>
<CAPTION>
93 94 95 96 97
---- ---- ---- ----- -----
<S> <C> <C> <C> <C>
$3.6 $6.2 $8.1 $11.5 $18.2
</TABLE>
ANNUAL DILUTED
EARNINGS PER SHARE*+
(in dollars)
<TABLE>
<CAPTION>
93 94 95 96 97
---- ---- ---- ----- -----
<S> <C> <C> <C> <C>
$.54 $.90 $.90 $1.23 $1.66
</TABLE>
*1993 net profit and earnings per share are based on pro forma results.
+ Earnings per share for years 1993 through 1996 have been restated for the
5-for-4 stock split distributed on October 20, 1997 and for the adoption of FAS
128, "Earnings Per Share".
Although net profit increased 31% from 1994 to 1995 and 59% from 1996 to 1997,
earnings per share did not increase proportionately because additional stock
offerings were made in 1995 and 1997 resulting in increases in average shares
outstanding in those years.
3
<PAGE>
Modern Office Towers
American Stores Corporation's new corporate headquarters in Salt Lake City,
Utah, required high-quality construction accomplished quickly. AFC MC-Lite(R)
and Red Fire Alarm/Control Cable(TM) (FACC) helped the electrical contractor
deliver both.
American Stores owns 1,700 grocery and drug stores and health-services
operations nationally. The company is building a 24-story office tower with
ceilings five feet higher than the 10-foot standard in the region, according to
Jim Overright of Cache Valley Electric, the electrical contractor.
"During our initial review of the design and construction schedule, it was
apparent that conventional pipe-and-wire installation (bending, fitting,
pulling) in the high, crowded ceiling spaces would be a nightmare," Overright
said. "Armored MC cable simplified coordination issues with other trades and
allowed much greater flexibility of installation details and sequence. This
yields a considerable competitive advantage."
In addition, the office design specified hundreds of workstations requiring
power, light, and communication. Overright said, "the flexible, pre-wired cable
enabled Cache Valley Electric to complete the hundreds of required furniture
feeds on time.
"American Stores was my first experience with flexible, factory-wired,
armored cable," said Overright, "but I'm impressed. The time savings that were
so crucial on this job made a believer out of me."
MC-LITE(R) CABLE, FITTINGS
AND CONNECTORS
MC-Lite(R) cable is also used in retail,
industrial, and multi-unit residential
buildings. It consists of two or more solid
or stranded copper conductors protected by
lightweight, flexible aluminum conduit.
Increasingly, contractors install
MC-Lite (left), Jacketed MC (right), and
other armored cables with quick
snap-in fittings manufactured by AFC.
(ILLUSTRATION OF MC-LITE CABLE)
(ILLUSTRATION OF JACKETED MC CABLE)
[Picture of building owner and project foreman inspecting office building under
construction.]
4
<PAGE>
Health Care Facilities
Schedule impact was the biggest factor in selection of more than 900,000 feet
of green Health Care Facilities (HCF) Cable from AFC for the third-largest
construction contract in California in 1997--the $170 million, 216-bed Valley
Children's Hospital in Madera.
Armored cable also reduced total installed wiring cost, said Monty Clifton of
Rex Moore Electrical Contractors & Engineers, Sacramento. Clifton found his
crews could install armored cable in much less time than required by rigid
conduit with conductors (wires) pulled through.
The contractor specified cable clad in flexible steel, rather than aluminum,
for strength and protection. Once installed, the aluminum protection is more
than sufficient, Clifton explained. But, he said that if someone rolls a cart
over the cable during installation, or if the facility manager moves cable
during expansion or renovation, the steel provides superior protection.
"The advantages of armored cable are just being explored," Clifton said.
"With its time and money savings, use of this alternative to rigid
conduit-and-wire is bound to expand."
SPECIALTY CABLE FOR HOSPITALS AND OTHER HEALTH CARE FACILITIES
Green Health Care Facilities (HCF) Cable
is designed for a variety of uses in
hospitals, nursing homes, clinics,
and medical/dental offices.
Its green armor makes identification
easy, reducing costly mistakes
at the distributor and in the field.
(ILLUSTRATION OF GREEN HEALTH CARE FACILITIES (HCF) CABLE)
[Picture of doctor attending patient receiving MRI.]
5
<PAGE>
Schools
Student safety and historic preservation of the Fairhaven, Mass., High
School, built in 1906, led the electrical contractor on an addition and
renovation project to select red Fire Alarm/Control Cable(TM) (FACC) from AFC.
The $19.4 million project called for new classrooms, laboratories, offices, a
gymnasium, and expanded athletic fields, while preserving what officials called
the "19th century architectural dignity" of the building.
Roger Story of I.B.E.W. Local 223, Dykeman Electric's project foreman, said
the job was difficult because they had to preserve a nearly century-old
structure.
"This type of renovation is faster and easier with armored cable because you
just pull it through, make the connection, and you're done," Story said. AFC's
FACC is color-coded with a red stripe for easy identification that eliminates
costly errors in the warehouse and the field.
At the Ecker Hill Middle School in Park City, Utah, the electrical
contractor's challenge was cost control. TEC Electric Company, Logan, Utah,
answered the demand for "value engineering" with a $30,000 labor savings by
installing metal-clad cable rather than its customary conduit-and-wire approach.
"By wide measure, the most significant electrical savings on the school was
use of metal-clad cable," said Theo Thomson, president, TEC Electric.
PLENUM-RATED RED
FIRE ALARM/CONTROL CABLE(TM)
Fire-resistant, low-smoke FACC
features red striping that makes it stand out
at the distributor warehouse, on site during
construction, and after installation,
eliminating confusion from the
day it is shipped to the day it
is called on to convey an alarm.
This specialty cable is ideal for smoke
detectors, pull stations, bells,
horns, whistles, fire control panels,
and other safety circuits.
(ILLUSTRATION OF RED FIRE ALARM/CONTROL CABLE)
[Picture of students conducting research in high school library.]
6
<PAGE>
Colleges
For the Kline Hall of Science at Messiah College, Grantham, Pa., contractor
John Fullerton had to install communications wiring throughout a 20 year-old,
four-story, 65,000 square-foot building, where the space above the drop ceilings
was crammed with vacuum, gas, and water lines; supply and return ducts; and
other utilities for labs and classrooms. There were no cable trays and no room
to install them. The solution was a modular zone wiring system from AFC's
America Cable Systems Division.
This task was part of the creation of an intranet--an internal computer
network--spanning the 360-acre campus and linking all buildings. Only the
science building presented this particular challenge.
"We had to figure out how to get thousands of feet of copper wire from the
telecommunications closet on the first floor up to all of the floors where it
needed to be," said John Holmes, Messiah College director of physical plant.
"Everyone agreed that America Cable Systems offered the best solution. All we
had to do was plug the cable into the zone box in the ceiling, run the cable
down to the service locations, and come out where we wanted outlets.
"This also turned out to be least expensive, could be done very rapidly, and
offered capacity for future use at no additional charge," Holmes said. "Now that
the decision has been made to build an addition to Kline Hall, we have all the
wiring capacity we need."
MODULAR ZONE WIRING SYSTEMS
Cables, zone wiring boxes, and the
connectors that link them are
manufactured, assembled, and tested in America Cable
Systems' factory, then shipped to the construction-renovation
site in plug-together modules.
(ILLUSTRATION OF MODULAR ZONE WIRING SYSTEM)
[Picture of students studying in college library.]
7
<PAGE>
Hotels
Armored Data Com Cable for communications is one of several AFC products that
helped Everman Electric wire the 32-story Imperial Palace Hotel, adjacent to a
three-story floating casino on Biloxi, Mississippi's back bay.
"Flexible, factory-armored cable cut labor costs by at least 50%," said
Tyrone Everman, "because it eliminated the need to measure, bend, cut, and
install rigid conduit to protect the data and power circuits.
"Even when you factor in a higher purchase price for armored cable, we saved
tens of thousands of dollars in total installed wiring costs," he said.
The Imperial Palace Hotel is the tallest building in Mississippi, with 1,067
rooms and more than 20,000 square feet of meeting and convention facilities, a
movie theater complex, health and fitness spa, specialty restaurants and
lounges, and a swimming pool atop the 12-story parking facility.
Everman installed 400,000 feet of Data Com Cable, along with 85,000 feet of
power cable, and more than 20,000 feet of Fire Alarm/Control Cable,(TM)
color-coded red for easy installation and identification.
Two types of Data Com Cable were used on this job, one for the cable
television service in each guest room and the other for telephones in the casino
and rooms.
Armored cable has proved itself over the decades as a superior wiring method
for power. With facilities like the Imperial Palace Hotel, armored cable has now
demonstrated the same capability for data communications wiring.
DATA COMMUNICATIONS CABLE
AFC Data Com Cable
brings the same
advantages and user benefits to
communications cable that the
company's traditional products bring to conveying
power: quick and easy installation and
protective steel or
aluminum cladding.
(ILLUSTRATION OF DATA COMMUNICATIONS CABLE)
[Picture of customers checking in to hotel.]
8
<PAGE>
1997 Financial Review
- --------------------------------------------------------------------------------
AFC CABLE SYSTEMS, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FORM 10-K
<S> <C> <C>
PART ONE ITEM 1 BUSINESS .......................................... 11
PART ONE ITEM 2 PROPERTIES ........................................ 17
PART ONE ITEM 3 LEGAL PROCEEDINGS ................................. 18
PART ONE ITEM 4 A EXECUTIVE OFFICERS OF THE REGISTRANT .............. 19
PART TWO ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS ................... 20
PART TWO ITEM 6 SELECTED FINANCIAL DATA ........................... 21
PART TWO ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ..... 22
PART TWO ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ....... 27
PART TWO ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE ............ 46
PART FOUR ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K ........................... 47
PART FOUR ITEM 14[d] FINANCIAL STATEMENT SCHEDULE ...................... 48
</TABLE>
FINANCIAL REVIEW 9
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C.
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (the "Act")
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from______ to_____
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
incorporation or organization) Identification No.)
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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class: Common Stock ($.01 Par Value)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's voting stock held by
non-affiliates was approximately $356,391,160 on March 26, 1998, based on the
closing sales price of the registrant's common stock, $.01 par value (the
"Common Stock"), as reported on the Nasdaq National Market System as of such
date.
The number of shares of the registrant's Common Stock outstanding as of March
26, 1998 was 11,408,253 shares.
Documents Incorporated by Reference
Proxy Statement to be filed with the Securities and Exchange Commission in
connection with the 1998 Annual Meeting of Stockholders is incorporated herein
by reference (in Part III).
10 FINANCIAL REVIEW
<PAGE>
- --------------------------------------------------------------------------------
PART ONE ITEM ONE BUSINESS
- --------------------------------------------------------------------------------
General
AFC Cable Systems, Inc. ("AFC" or the "Company") is a designer, manufacturer and
supplier of electrical, voice and data distribution products used primarily in
the construction and modernization of non-residential buildings. The Company's
products include prewired armored cable, flexible conduit, modular wiring
systems, electrical fittings and specialty coated metals. The Company believes
its products offer a total installed cost advantage over traditional, labor
intensive wiring methods by eliminating on-site installation time and labor
costs associated with bending, connecting and pulling wire through metal pipe.
The Company is the leading manufacturer of prewired armored cable in the United
States, with approximately 45% of the sales in the domestic armored cable market
based upon Company estimates.
The Company, through acquisitions made during 1997, also manufactures and
distributes photo controls for the lighting control and fixture industries,
electronic interfaces and connectors that facilitate data communications, and
flexible hoses, ducting and connections for diverse applications.
In order to penetrate higher margin, specialty application niche markets, the
Company has focused on the creation of proprietary value-added products which
utilize the Company's design and engineering expertise and various technologies.
These products include color-coded cables used for fire alarm systems and health
care facilities. In addition, the Company offers premise wiring systems,
including The Intelligent Floor(R) and The Intelligent Ceiling(R), designed for
the modern workstation environment. These premise wiring systems are custom
engineered and pre-assembled by the Company for modular installation and have
the ability to supply the voice, data and electrical requirements throughout an
entire facility.
AFC sells its products principally to leading distributors of electrical
products and actively targets do-it-yourself ("DIY") customers and original
equipment manufacturers ("OEMs"). In an effort to include its products in
preferred project specifications, the Company educates electrical contractors
and inspectors, construction consultants and architects regarding the
technological advantages, compatibility and cost savings of the Company's
products. AFC distributes its products from its eighteen manufacturing,
warehouse and distribution facilities located throughout the country using its
own trucking fleet as well as other carriers and from sales representatives that
carry inventory on consignment.
The Company's products can be separated into two broad categories: armored
cable, flexible conduit, specialty cables, electrical fittings and specialty
coated metals, all manufactured by the Wire and Cable Division, and flexible and
premise wiring systems and related products manufactured by the America Cable
Systems Division. The divisions are vertically integrated in that many of the
products manufactured in the America Cable Systems Division utilize components,
including cable remnants, produced in the Wire and Cable Division. Also included
in the Wire and Cable Division are flexible metal, fabric and plastic hoses,
ducting and connectors manufactured by Federal Hose Manufacturing, Inc., and
electrical fittings sold by Madison Equipment Company, Inc., both of which were
acquired by the Company in 1997. Also included in the America Cable Systems
Division are electronic interfaces and connectors manufactured by B&B
Electronics Manufacturing Company, Inc., and photo controls and electrical
devices for the lighting control and fixture industries manufactured by Area
Lighting Research, Inc., both of which were also acquired in 1997.
The Company's executive offices are located at 50 Kennedy Plaza, Suite 1250,
Providence, Rhode Island 02903, and its telephone number is (401) 453-2000.
Products
Wire and Cable Division
Wire and Cable Division products are utilized for construction (both new and
reconstruction, renovation and tenant improvement projects) of offices,
commercial buildings, industrial plants, shopping centers, multifamily
dwellings, hotels and health care, educational and recreational facilities. Wire
and Cable Division products consist primarily of armored cable, flexible
conduit, specialty cables, electrical fittings and connectors and specialty
processed metals and accounted for $181.0 million, or 82.2%, and $144.3 million,
or 89.1%, of the Company's net sales for the years ended December 31, 1997 and
1996, respectively. The Company is the leading manufacturer of armored cable in
the United States, with approximately 45% of the domestic market based on
current Company estimates. Wire and Cable Division products have been listed and
labeled where required in accordance with Underwriters Laboratories ("UL")
standards and comply with the National Electrical Code ("NEC"). Wire and Cable
Division products also meet the standards of the Canadian Standards Association
("CSA") where required. See "Quality Assurance."
FINANCIAL REVIEW 11
<PAGE>
Products manufactured by the Wire and Cable Division include the following:
Armored Cable is armor sheathed electrical cable that provides a versatile and
economical alternative to traditional pipe and wire. Fully preassembled and
tested, armored cable features excellent mechanical protection, consistent color
coding and a cost effective electrical installation. Armored cable products are
available in steel or aluminum sheathing. Aluminum sheathed armored cable, which
reduces a product's weight by 30%, has gained wide customer acceptance over
recent years due to ease of preparation and installation and resulting cost
savings.
--METAL-CLAD (MC) CABLE is a single, steel clad assembly used for power,
lighting, control and signal circuits. MC has an internal insulated solid
copper ground wire for sensitive applications, including places of public
assembly such as convention halls and auditoriums. MC is available in a
lighter weight aluminum version, MC Lite.
--MC-90 is 90(0) rated for branch circuits and feeders in commercial,
multi-unit residential and industrial applications and for hard wiring
fixtures and other high temperature applications. Designed for higher
thermal capability, AC-90 provides more usable power per conductor size.
AC-90 Lite is the line's lighter weight aluminum version.
Specialty Cable products are specialized applications of the Company's armored
cable designed to meet a particular niche of the commercial construction
industry.
--HCF-90 is AC-90 cable that features a fully insulated ground wire
providing dual path grounding for branch circuits and feeders where a
dedicated ground is required. This product is designed primarily for health
care facilities and has a process-patented green striped armor designed to
enhance ease of installation and identification. HCF-90 is available in a
lighter weight aluminum version, HCF-90 Lite.
--FIRE ALARM/CONTROL CABLE is MC Cable that features a process-patented red
striped armor that is designed to enhance identification by fire inspectors
and prevent accidental disabling of fire security systems.
--SUPER NEUTRAL CABLE is MC Cable containing an oversized neutral conductor
for use in electrical systems in which nonlinear switching loads produce
additive, third order harmonic currents which may overload standard size
neutral conductors. Typical applications include computer systems, business
equipment, variable speed drives, electronic discharge lighting and other
switching mode power supplies.
--JACKETED MC CABLE is MC Cable with an added polyvinyl chloride ("PVC")
jacket designed for maximum physical circuit protection and identification,
and is utilized for installations in wet locations, soil and concrete.
--HOME RUN CABLE is MC Cable that is designed to hold a 6, 8, 12 or 16 wire
insulated conductor assembly inside galvanized steel armor.
--OPTICAL FIBER JACKETED CABLE is MC Cable that features a process patented
orange striped armor that is designed for specific control, signaling and
data communications applications, such as robotics, video conferencing and
local area networkings.
Flexible Conduit is wireless conduit that provides mechanical protection for
electrical wiring where flexibility is required. Flexible conduit can be made of
steel, aluminum or plastic and is used in a variety of construction applications
as an alternative to pipe.
--REDUCED WALL FLEXIBLE CONDUIT provides the strength and durability of
heavy gauge pipe at 40% less weight. It installs easily and is available in
sizes from 5/16" to 4" diameter. The Company also offers a Reduced Wall
Flexible Aluminum Conduit that provides the strength and durability of steel
at one-third the weight.
--LIQUID-TIGHT FLEXIBLE CONDUIT, which is offered in both metallic and
plastic versions, has been designed for use in factories, foundries and
assembly plants. It features a flexible conduit covered by a PVC jacket and
is resistant to oil, gasoline, salt spray and toxic fumes. It is available
in sizes from 3/8" to 4" diameter.
Other products of the Wire and Cable Division include the following:
--SPECIALTY PROCESSED METAL products have developed as a result of the
Company's ability to handle, slit and coil metals and supply galvanized
strip steel and various alloys of aluminum oscillate coils to a variety of
customers primarily in the petroleum drilling industry.
--FITTINGS AND CONNECTORS are designed to connect armored cable and conduit
to electrical junction boxes and to join multiple types of conduit. These
products compliment the Company's AC, MC and Liquid-Tight product lines.
--FLEXIBLE METAL, FABRIC AND PLASTIC HOSES, DUCTING AND CONNECTORS made for
diverse applications including heavy duty vehicles, material handling, and
heating and ventilation systems.
12 FINANCIAL REVIEW
<PAGE>
America Cable Systems Division
America Cable Systems Division products provide an integrated infrastructure for
electrical, voice and data distribution in a modular, plug-in fashion. The
products are used primarily in office buildings and retail centers with
accessible ceilings and/or accessible floors, and can be reused after
retenanting or remodeling. America Cable Systems Division products are
completely preassembled for easy on-site installation and are generally
accompanied by detailed installation drawings produced by computer aided
drafting ("CAD") software. Therefore, these modular wiring products reduce the
time of initial installations, as well as the time required to make changes in
the office layout during the life of the building. The Company continues to
enhance its modular wiring systems used in broader premise wiring markets, which
encompass combined voice, data and electrical distribution. America Cable
Systems Division products have been listed and labeled where required in
accordance with UL and CSA standards and comply with the NEC. See "Quality
Assurance." Sales of America Cable Systems Division products were $38.4 million,
or 17.5%, and $16.7 million, or 10.3%, of the Company's net sales for the years
ended December 31, 1997 and 1996, respectively.
Products manufactured by the America Cable Systems Division include the
following:
--MODULAR WIRING SYSTEMS provide fast and efficient installation for
applications such as offices, health care facilities, industrial facilities
and educational institutions that require repetitive patterns of branch
circuit lighting fixtures and power outlets as well as a high degree of
flexibility to meet future needs. The Company estimates that facilities can
be completely "fitted out" with an integrated building electrical
infrastructure for lighting and power with total installed cost savings of
up to 40%.
--THE INTELLIGENT FLOOR AND THE INTELLIGENT CEILING are modifications to the
standard Modular Wiring System. These products provide an integrated modular
solution by supplying power distribution and optional voice and data
capability from the master distribution box to accessible floor and ceiling
modules and are designed primarily for space efficient installation. The
Intelligent Floor, which utilizes a patented connector component, is
completely modular, providing plug-in access for the modern workstation
under a raised floor. The Company believes that raised floor modular wiring
applications, such as The Intelligent Floor, significantly reduce electrical
related operating costs of office buildings and add to present and resale
value. The Intelligent Ceiling incorporates lighting, power, and
telecommunication systems through ceiling distribution into a single
integrated solution, thereby significantly reducing installation time. The
Intelligent Ceiling is particularly effective in retail malls and health
care facilities, which traditionally do not employ raised floor systems. The
Company has also established strategic alliances with a major national
manufacturer of office furniture and a major manufacturer of raised flooring
in an effort to expand the number of distribution channels for The
Intelligent Ceiling and The Intelligent Floor product offerings.
--CUSTOM CUTS AND FIXTURE WHIPS provide builders with factory cut branch
circuit wiring used to connect convenience power receptacles and lighting
fixtures on the job site. Custom Cuts and Fixture Whips significantly reduce
installation time for branch circuit power distribution systems.
--PDQ SYSTEM COMPONENTS enable prefabrication of the entire electrical
branch circuit distribution network at the factory and complete system
delivery to the job site. PDQ System Components are the electrical devices
and support mechanisms to which Custom Cut wiring is attached. Through the
development of a patented specialized connector, prewired switches and
receptacles already set in electrical boxes can now be plugged together on
either end of the Custom Cut cable and from leads extending from the
prewired electrical boxes.
--ELECTRONIC INTERFACES AND CONNECTORS facilitate data acquisition and
communications in the computer environment.
--PHOTO ELECTRIC CONTROLS AND ELECTRICAL DEVICES are used in the lighting
control and fixture industries.
--OTHER CABLE AND LIGHTING PRODUCTS include temporary construction lights,
power poles, high bay lighting systems and prenumbered and prebundled
conductors.
Marketing
The Company's products are marketed through independent regional sales
representatives, including several located outside the United States. Sales
representatives do not exclusively market the Company's products. At December
31, 1997, 72 of the Company's domestic representatives maintained product
inventories on consignment. The independent sales representatives are trained by
the Company through a comprehensive marketing program that includes a wide range
of product literature, specification sheets and technical brochures. The Company
actively markets its advanced engineering capabilities, including CAD, for
custom designed integrated systems to electrical contractors, construction
engineers and building contractors. The Company also advertises certain of its
product offerings in trade magazines and regularly participates in industry
trade shows. The domestic
FINANCIAL REVIEW 13
<PAGE>
sales representatives are serviced by the Company's fleet of trucks and
trailers, which provide delivery and scheduled stock replenishment. The Company
believes that its internal trucking capability gives it a competitive advantage
by providing prompt delivery to its customers.
Commensurate with its strategy of promoting armored cable, flexible wiring and
flexible conduit as the preferred alternative to traditional labor intensive
pipe and wire installation methods, the Company has specifically focused its
marketing efforts at electrical contractors and inspectors, construction
consultants, architects and other end users. This marketing strategy is
particularly important to the marketing efforts of the America Cable Systems
Division as its products are often developed to custom specifications. The
Company's in-house telemarketing department and field representatives research
pending construction projects in an effort to change project specifications to
allow for the use of the Company's prewired armored cable products. The Wire and
Cable Division has had particular success with this specification strategy in
the area of specialty cable products where competition is relatively limited.
The Company expects to continue this marketing strategy as it develops new
products for broader premise wiring markets.
Use of certain of the Company's armored cable products is not currently
permitted by local building codes in a limited number of municipalities,
including Chicago, IL, San Antonio, TX and Toledo, OH. In several instances, the
Company has successfully illustrated to municipal building code authorities the
benefits and efficiencies of armored cable products over pipe and wire
installations, resulting in favorable changes in the particular municipality's
building code. For example, during the past three years, several municipalities,
including Charleston County, SC, Dade County, FL, Orange County, FL, the city of
Springfield, IL, the city of Tampa, FL and Sacramento County, CA, have amended
their building codes to approve the use of the Company's metal clad cables.
Although the Company expects to continue such efforts, there can be no assurance
that it will be successful in influencing other municipalities in adopting
similar legislation. The failure to obtain a change in these local codes is not
anticipated to have a material adverse effect on the Company's business,
operating results or financial condition.
Customers
The Company sells its products primarily to distributors of electrical products
for resale to end users. Sales to distributors accounted for approximately 81%
and 87% of the Company's net sales during the years ended December 31, 1997 and
1996, respectively. The Company's top ten customers have traditionally accounted
for approximately 30% of the Company's gross sales. In addition to sales to
distributors, the Company directs significant marketing efforts toward DIY
customers. Sales to DIY customers accounted for approximately 6% and 7% of the
Company's gross sales for of the years ended December 31, 1997 and 1996,
respectively, and were comprised mostly of armored cable and flexible conduit.
Competition
The Company faces competition for many of its core armored cable products and
for those products manufactured by the America Cable Systems Division. The
Company, however, has experienced less competition with respect to many of its
specialty cable products. The Company's competitors include both manufacturers
of products similar to those of the Company and producers of alternative
electrical, voice and data distribution systems, predominantly pipe and wire.
The number and size of the Company's competitors varies depending on the product
line. Competition can be generally categorized as either national in scope, with
companies that have substantial financial, research and development,
manufacturing and marketing resources, or regional in scope, with companies that
have more limited product offerings but compete effectively on the basis of
price.
The principal competitive factors in all product markets are price, quality,
product features, availability, customer support and distribution strength. The
relative importance of each of these factors varies depending on the specific
product category. As products mature, such as certain of the Company's core
armored cable products, competitive forces tend to drive down prices. In
contrast, the Company has been able to maintain higher margins on its specialty
cable products and certain of its products manufactured by the America Cable
Systems Division. There can be no assurances, however, that this trend will
continue. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Manufacturing
The Company's manufacturing operations utilize a wide variety of raw materials
for which it has multiple commercial sources, and include a broad variety of
processes reflective of the Company's product diversity. See "Raw Materials."
Operations for cable manufacturing at the Wire and Cable Division include
drawing copper wire; extruding wire; slitting and galvanizing steel and aluminum
used for armor; wrapping, twisting and cutting wire; armoring conductors; and
testing for conductor continuity and grounding. The Company's manufacturing
equipment allows for a wide assortment of product categories with armored cable
diameters ranging from 1/4" to 2" and flexible
14 FINANCIAL REVIEW
<PAGE>
conduit diameters ranging from 5/16" to 4". The America Cable Systems Division
manufacturing operations primarily consist of metal stamping, riveting, custom
wire cutting, custom assembly and packaging operations. This division utilizes
proprietary tooling in its assembly techniques. Manufacturing operations at the
Company's two divisions are vertically integrated. The Company believes that its
armored cable manufacturing operation is the most vertically integrated in the
industry. This enables the Company to source primary raw materials at favorable
prices and terms, control inventories and better manage lead times. The America
Cable Systems Division uses remnants from the Wire and Cable Division in its
manufacturing process, thereby reducing the Company's overall scrap ratio.
Raw Materials
Copper, steel and aluminum used in manufacturing represented approximately 58%
of cost of goods sold for the year ended December 31, 1997. The principal raw
material used by the Company is copper, which is purchased in the form of
redrawn rod from several domestic producers. Price terms are based on monthly
average copper prices, as determined by the New York Commodity Exchange, plus a
premium. The Company believes world stocks and capacity continue to be adequate
to meet market needs. At December 31, 1997, the Company had agreed to purchase
the majority of its 1998 copper usage from two vendors. Other raw materials used
by the Company include aluminum, galvanized steel, molding materials, PVC and
nylon, for which the Company generally has either alternative sources of supply
or access to alternative materials. Supplies of these materials are adequate and
are expected to remain so for the foreseeable future.
Quality Assurance
The Company is committed to the philosophy that meeting industry standards and
codes is critical to its success, and its products are designed to satisfy the
safety and performance standards set by various industrial groups and testing
laboratories. Underwriters Laboratories, a nonprofit, independent organization,
operates a listing service for electrical and electronic materials and
equipment. UL listing is required by national and most local electrical codes in
the United States, and UL conformity assessment includes testing, evaluation and
certification. UL inspectors visit the Company's various facilities on a regular
basis.
The Canadian Standards Association is the UL equivalent in Canada. Like UL
listing, CSA listing is product based and is awarded after testing and
evaluation. The British Approval Service for Cables ("BASEC") provides product
assessment and certification for cable products which are intended for use in
the United Kingdom. Other European Community countries currently rely on UL or
BASEC approval or certification for cable products.
In addition to standards organizations, the Company's products are designed to
comply with required electrical code requirements, particularly the National
Electrical Code and federal specifications. The NEC, administered by the
National Fire Protection Association ("NFPA"), sets the minimum safety standards
to which electrical products are manufactured and installed in the United
States. NEC standards are enforced and supplemented by the appropriate State,
county and municipal authorities having jurisdiction. Federal specifications
detail the requirements for all electric products to be installed in federal
buildings.
The Company has implemented a Total Quality Management ("TQM") program which is
intended to maximize customer satisfaction while implementing cost effective
production methods. The Company's TQM program embodies an interlocking set of
procedures and practices that ensures employees in various departments are
adequately trained and directed to continuously implement improvements in
quality, service and cost savings. In connection with its TQM program, the
Company has obtained ISO 9001 certification at two of its facilities in New
Bedford, Massachusetts and ISO 9002 certification at its Byesville, Ohio
facility. ISO 9001 certification is a standard developed by the International
Standards Organization that provides a management systems model for process
quality assurance in design, development, installation and servicing. ISO 9002
is a quality systems model for quality assurance in production, installation and
servicing. The Company believes that ISO 9001 and 9002 certifications signify
excellence in manufacturing and process integrity, thereby serving as a
competitive advantage and strengthening its marketing efforts. There can be no
assurance, however, that further certifications will be granted. The Company
believes that if additional certifications are not granted at its other
facilities, its business and competitive position will not be materially
adversely affected.
Development, Design and Engineering
The Company employs 53 draftsmen and engineers and 65 professional technicians
that are actively engaged in product and process development. Development and
design efforts often result from informal dialogues with major electrical
contractors, consulting engineers and facility managers, and generally include
product development, testing and analysis, component development and testing,
tooling design and resolution of process problems. The Company fabricates some
of the tooling and key machinery used in its cable production.
FINANCIAL REVIEW 15
<PAGE>
The Company takes an active role in guiding industry standards. The Company has
representatives on the electrical section of the NFPA and the Industry Advisory
Council of UL and maintains ongoing relations with standards enforcement
organizations such as UL, the NFPA, the International Association of Electrical
Inspectors, the National Armored Cable Manufacturers Association and the
National Electrical Manufacturing Association.
Patents, Trademarks and Other
Intellectual Property
The Company believes that its success depends more heavily on name recognition,
technical competence and the marketing abilities of its sales representatives
than on any individual patent, trademark or copyright. Nevertheless, the Company
intends to seek patent coverage for its products and manufacturing technology
where appropriate. The Company holds several patents covering certain of its
products and processes and also has several registered trademarks. The Company
believes its patents and trademarks are of considerable importance to the
manufacturing and marketing of certain products.
The Company also relies upon trade secret protection for its confidential and
proprietary information. The Company routinely enters into confidentiality
agreements with its employees. There can be no assurance, however, that others
will not independently obtain similar information and techniques or otherwise
gain access to the Company's trade secrets or that the Company can effectively
protect its trade secret.
Backlog
The Company's business is characterized by short-term order and shipment
schedules rather than volume purchase contracts. Accordingly, the Company does
not consider backlog at any given date to be indicative of future sales.
Immediate delivery requirements and the nature of the Company's business
preclude any significant backlog.
Employees
At December 31, 1997 the Company had approximately 1,196 full-time employees, of
which 540 employees were represented by labor unions. The Company's union
contracts expire July 31, 1998, June 30, 1999, February 4, 2000 and February 23,
2001. Of the Company's employees, 107 are in administration, 62 in sales and
marketing, 73 in engineering, 889 in manufacturing and 65 in distribution. The
Company has not experienced any work stoppages at its plants and believes its
current relations with its employees are good.
16 FINANCIAL REVIEW
<PAGE>
- --------------------------------------------------------------------------------
PART ONE ITEM TWO PROPERTIES
- --------------------------------------------------------------------------------
The following table provides information with respect to the Company's
facilities:
<TABLE>
<CAPTION>
Owned/
Location Facility Type Square Feet Leased
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
New Bedford, MA (1) Assembly-America Cable Systems
Division, Fittings and Connectors,
Administration, Engineering 123,200 Owned
New Bedford, MA Manufacturing-Conduit and Cable 71,700 Owned
New Bedford, MA Manufacturing-Wire, Administration,
Engineering 64,000 Owned
New Bedford, MA Trucking, Warehousing, Administration 48,000 Leased
New Bedford, MA Warehousing 15,000 Leased
Fullerton, CA Manufacturing-Conduit and Cable,
Warehousing 59,800 Leased
Largo, FL Manufacturing-Conduit and Cable 39,800 Leased
Largo, FL Distribution Center 25,500 Leased
Ottawa, IL Manufacturing-Modems and Connectors 21,000 Owned
Reno, NV Warehousing 28,000 Leased
Burlington, NJ Manufacturing-Conduit and Cable,
Warehousing 84,500 Leased
Hackettstown, NJ Manufacturing-Photo Controls and
Electrical Devices, Warehousing 40,000 Leased
Linden, NJ Distribution Center 23,800 Leased
Byesville, OH Manufacturing-Metal Processing 37,000 Leased
Cleveland, OH Warehousing, Office-Connectors 20,700 Leased
Painesville, OH Manufacturing-Conduit, Administration 49,000 Leased
Bensalem, PA Manufacturing-Metal Processing 28,800 Leased
Providence, RI Administration 2,500 Leased
Garland, TX Manufacturing-America Cable Systems
Division 45,300 Leased
</TABLE>
(1) This property secures the repayment of the proceeds received from the
issuance of the Industrial Revenue Bonds issued by the Massachusetts
Industrial Finance Agency in July 1996. See Item 7--"Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The Company believes that its facilities are suitable for their present
intended purposes and adequate for the Company's current level of
operations. The Company, however, is operating at close to existing capacity
levels and anticipates additional investments in plant and equipment over
the next twenty-four months.
FINANCIAL REVIEW 17
<PAGE>
- --------------------------------------------------------------------------------
PART ONE ITEM THREE LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
The Company is a party to various nonenvironmental legal proceedings and
administrative actions, all of which are incidental to the operations of the
Company. In the opinion of the Company's management, such proceedings and
actions should not, individually or in the aggregate, have a material adverse
effect on the Company's financial condition or results of operations.
Regarding environmental matters, owners and operators of sites containing
hazardous substances, as well as generators of hazardous substances, are subject
to broad liability under various federal and state environmental laws and
regulations, including liability for clean up costs and damages arising out of
past disposal activity. The principal raw material used by the Company is
copper, which is classified as a hazardous substance. In addition, prior to the
Company's acquisition of its present business, it was engaged in certain
activities that may have utilized other hazardous substances. Governmental
authorities may seek to impose liability regardless of fault or the legality of
the original disposal activity and regardless of whether the Company is
otherwise currently responsible for liabilities with respect to such activities.
The Company has been named in connection with certain proceedings relating to
various properties currently being investigated or remediated for environmental
problems arising therefrom. The Company's business was formerly operated as
American Flexible Conduit Company Inc. ("American"), a manufacturer of flexible
conduit and armored cable products, which commenced operations in 1926. In 1969,
Nortek, Inc. ("Nortek") purchased the assets and liabilities of American and
subsequently transferred the business to its Monogram Industries, Inc.
("Monogram") subsidiary, incorporated in Delaware in September 1969. In December
1989, a corporation controlled by Mr. Papitto purchased Monogram from Nortek.
The purchasing corporation and Monogram were subsequently merged, with Monogram
becoming the surviving corporation. In October 1993, the Company changed its
name to AFC Cable Systems, Inc. Prior to the sale of the stock of Monogram by
Nortek in December 1989, Monogram transferred to another subsidiary of Nortek
all the assets and liabilities associated with the businesses not related to the
Company's present business operations. In connection with the sale of the stock
of Monogram, Nortek agreed to indemnify the Company, subject to certain
limitations, for liabilities and obligations of Monogram unrelated to the
business operations of Nortek's American Flexible Conduit Division, which had
been transferred to the Company in connection with such sale. With the exception
of property discussed below located in New Bedford, Massachusetts (the
"Sullivan's Ledge Site") all of the properties being investigated or remediated
are unrelated to the business operations acquired.
In 1984, the United States Environmental Protection Agency ("EPA") placed the
Sullivan's Ledge Site on the National Priorities List, which is a list of sites
that the EPA has ranked in terms of priority for remedial action pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"). Under CERCLA, all owners and operators (former and current) and
generators can be found jointly and severally liable with respect to the
Sullivan's Ledge Site. In March 1990, the EPA requested information from the
Company, and the Company admitted that between 1960 and 1969, American, the
predecessor of the business currently operated by the Company, had disposed of
waste metal at the site. A number of responsible parties entered into a consent
decree with regard to a portion of the Sullivan's Ledge Site in June 1991 and,
subsequently, such parties as plaintiffs (the "Plaintiffs") have sought
contribution in the United States District Court for the District of
Massachusetts from twelve corporations, including the Company and Nortek,
neither of which were named as potentially responsible parties by the EPA. In
the consent decree, the EPA estimated the cost of remediation at the Sullivan's
Ledge Site to be approximately $10-$12 million. The Company has defended and
will continue to defend the action based upon its belief that its predecessors
contributed only de minimis amounts of waste material. On December 17, 1996, the
United States District Court for The District of Massachusetts entered a
judgment in favor of the Company with respect to this claim. As of December 31,
1997, there is an appeal pending with the U.S. Court of Appeals for the First
Circuit.
The Company is not able to predict with certainty the extent of its ultimate
liability with respect to any pending or future environmental matters. However,
the Company does not believe that any such liability with respect to the
aforementioned environmental matters would have a material adverse effect upon
its financial condition or results of operations.
The Company did not submit any matters during the fourth quarter of the fiscal
year covered by this report to a vote of the security holders through the
solicitation of proxies or otherwise.
18 FINANCIAL REVIEW
<PAGE>
- --------------------------------------------------------------------------------
PART ONE ITEM FOUR SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
The Company did not submit any matters during the fourth quarter of the fiscal
year covered by this report to a vote of the security holders through the
solicitation of proxies or otherwise.
- --------------------------------------------------------------------------------
PART ONE ITEM FOUR A EXECUTIVE OFFICERS OF THE REGISTRANT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name Age Position Since
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Ralph R. Papitto 71 Chairman of the Board and Chief
Executive Officer December 1989
Robert R. Wheeler 53 President and Chief Operating Officer October 1995
Raymond H. Keller 60 Vice President and Chief Financial
Officer December 1989
</TABLE>
Business Experience of Executive Officers
RALPH R. PAPITTO has been Chairman of the Board and a Director of the Company
since December 1989. Mr. Papitto has been Chief Executive Officer since 1995.
Until 1990 Mr. Papitto was the Chairman of the Board, Chief Executive Officer
and a director of Nortek, an industrial conglomerate. Mr. Papitto founded Nortek
in 1967. In 1956, Mr. Papitto founded Glass-Tite Industries, Inc.
("Glass-Tite"), a manufacturer of electronic semiconductor components.
Glass-Tite was acquired by GTI Corporation ("GTI") in 1963. Mr. Papitto served
as Chairman of the Board of GTI Corporation until 1966. Mr. Papitto is also a
director of Lynch Corporation, a communications and multi-media services
company, and is also Chairman of the Board of Trustees of Roger Williams
University.
ROBERT R. WHEELER has been President and Chief Operating Officer of the Company
since December 1995 and a Director of the Company since March 1996. Mr. Wheeler
was Executive Vice President and Chief Operating Officer of the Company from
October 1995 to December 1995. From 1992 to 1995, Mr. Wheeler had been President
and Chief Executive Officer of The North American Industrial Company of BICC
Cable, Inc.
RAYMOND H. KELLER has been Vice President and Chief Financial Officer of the
Company since December 1989 and a Director of the Company since October 1993.
From January 1989, he served as the Vice President and Chief Financial Officer
of the American Flexible Conduit Division of Nortek. Prior to that time, Mr.
Keller held several positions with Microdot, Inc., a multi-industry components
manufacturer, most recently as Vice President and Chief Financial Officer of the
Microdot, Inc. operating companies. Mr. Keller had been employed by Microdot,
Inc. since 1972.
FINANCIAL REVIEW 19
<PAGE>
- --------------------------------------------------------------------------------
PART TWO ITEM FIVE MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol "AFCX." The following table sets forth for the two most recently
completed fiscal years the high and low closing sale prices for the Common Stock
as reported on the Nasdaq National Market. The prices below reflect the October
20, 1997 five-for-four stock split.
<TABLE>
<CAPTION>
- ---------------------------------------------
High Low
- ---------------------------------------------
<S> <C> <C>
1996
First Quarter............. 11.80 9.50
Second Quarter............ 14.00 10.60
Third Quarter............. 14.80 12.40
Fourth Quarter............ 19.10 13.60
1997
First Quarter............. 21.40 16.00
Second Quarter............ 22.40 15.50
Third Quarter............. 28.40 21.10
Fourth Quarter............ 31.88 22.50
</TABLE>
Since its initial public offering in 1993, the Company has not declared or paid
a cash dividend on its Common Stock and does not intend to do so in the
foreseeable future. The Company's current policy is to retain its earnings, if
any, to finance expansion and product development. Payment of dividends in the
future will depend on the earnings and financial condition of the Company and
such other factors as the Company's Board of Directors may consider or deem
appropriate at the time.
As of March 26, 1998, there were approximately 103 holders of record of the
Company's Common Stock and approximately 800 beneficial Shareholders.
20 FINANCIAL REVIEW
<PAGE>
- --------------------------------------------------------------------------------
PART TWO ITEM SIX SELECTED FINANCIAL DATA
(in thousands, except per share data)
- --------------------------------------------------------------------------------
The following financial information is qualified in its entirety by reference
to, and should be read in conjunction with, the Company's financial statements,
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
report. For the short tax year from January 1 through December 16, 1993, the
consummation date of the Company's initial public offering ("IPO"), the Company
elected to be treated for income tax reporting purposes as an S corporation
under the Internal Revenue Code.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1993 1994 1995 1996 1997
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net Sales .................................. $89,890 $114,386 $139,483 $161,868 $220,264
Cost of Goods Sold ......................... 66,775 82,497 107,087 118,487 156,479
------- -------- -------- -------- --------
Gross profit ............................... 23,115 31,889 32,396 43,381 63,785
Selling, general and administrative expenses 16,460 21,491 21,926 26,384 35,483
Owners' compensation (1) ................... 3,141 -- -- -- --
------- -------- -------- -------- --------
Income from operations ..................... 3,514 10,398 10,470 16,997 28,302
Other income (expense), net ................ (23) 160 39 (48) (192)
Investment income .......................... 14 80 3,001 2,339 2,141
Interest expense ........................... 1,142 176 614 728 620
------- -------- -------- -------- --------
Income before taxes ........................ 2,363 10,462 12,896 18,560 29,631
Income taxes ............................... 1,209 4,269 4,791 7,100 11,392
------- -------- -------- -------- --------
Net income (2) ............................. $ 1,154 $ 6,193 $ 8,105 $ 11,460 $ 18,239
------- -------- -------- -------- --------
------- -------- -------- -------- --------
Basic earnings per share (3) ............... $ 0.27 $ 0.90 $ 0.92 $ 1.25 $ 1.71
------- -------- -------- -------- --------
------- -------- -------- -------- --------
Basic average shares (3) ................... 4,346 6,881 8,851 9,134 10,664
------- -------- -------- -------- --------
------- -------- -------- -------- --------
Diluted earnings per share (3) ............. $ 0.27 $ 0.90 $ 0.90 $ 1.23 $ 1.66
------- -------- -------- -------- --------
------- -------- -------- -------- --------
Dilutive average shares (3) ................ 4,346 6,909 9,047 9,288 11,024
------- -------- -------- -------- --------
------- -------- -------- -------- --------
Balance Sheet Data:
Cash and cash equivalents .................. $ 2,986 $ 2,571 $ 2,090 $ 980 $ 2,803
Working capital ............................ 14,485 17,789 48,099 58,959 88,141
Total assets ............................... 33,953 50,254 84,784 97,923 161,129
Short-term debt ............................ 1,250 3,500 6,952 2,270 6,457
Long-term debt ............................. -- -- -- 3,300 3,893
Total liabilities .......................... 12,155 19,867 23,473 24,933 37,994
Stockholders' equity ....................... 21,798 30,387 61,311 72,990 123,135
</TABLE>
(1) Represents amounts distributed to the Company's stockholders as additional
compensation, a portion of which was to provide those stockholders with
funds to pay their income taxes, which included income taxes on the
Company's income. The portion of such additional compensation in excess of
the stockholders' income tax obligations was loaned back to the Company.
(2) Pro Forma net income for the year ended December 31, 1993 after considering
the following adjustments is $3,584,000 or $.54 per common share (6,675,806
dilutive average shares) assumed to be outstanding after the IPO. The
adjustments (i) reduce the level of compensation to the Company's
stockholders by $2.5 million in 1993, based upon current compensation
practices as determined by written agreement and the Company's compensation
committee, (ii) provide related income taxes (at an assumed rate of 40%)
based on pro forma income before income taxes as if the Company were taxed
as a C corporation and (iii) reflect the reduction in interest expense of
$1.1 million in 1993 resulting from the conversion of certain of the
Company's subordinated debt to equity and the repayment of certain debt from
proceeds of the IPO.
(3) Restated to include the effect of the October 20, 1997 five-for-four stock
split and the adoption in 1997 of Financial Accounting Standard No. 128,
"Earnings Per Share." See Notes 1, 10 and 11 to Consolidated Financial
Statements.
FINANCIAL REVIEW 21
<PAGE>
- --------------------------------------------------------------------------------
PART TWO ITEM SEVEN
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
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."
Acquisitions
As more fully discussed in Note 2 to Consolidated Financial Statements, the
Company completed the acquisitions of four companies in 1997, B&B Electronics
Manufacturing Company, Inc. ("B&B"), Area Lighting Research, Inc. ("ALR"),
Madison Equipment Company, Inc. (Madison) and Federal Hose Manufacturing, Inc.
("Federal Hose").
On a pro forma basis, the above acquisitions would contribute $15.1 million to
sales and $.04 to diluted earnings per share for the year ended December 31,
1997 and $35.6 million to sales and $.13 to diluted earnings per share for the
year ended December 31, 1996.
Results of Operations
Year ended December 31, 1997 versus year ended December 31, 1996
- --NET SALES
Net sales for the year ended December 31, 1997 increased $58.4 million, or
36.1%, to $220.3 million from $161.9 million for the year ended December 31,
1996. Net sales for the Wire and Cable Division increased by $36.7 million, or
25.4%, to $181.0 million for the year ended December 31, 1997 from $144.3
million for the year ended December 31, 1996. Contributing to the increase were
additional sales of the Company's traditional armored cable and flexible conduit
products, increased sales of the higher margin specialty application cables,
higher sales of fittings and connectors, including sales by Madison, increased
sales of the Company's line of specialty coated metals products and sales by
Federal Hose. Net sales for the America Cable Systems Division increased by
$21.7 million, or 129.9%, to $38.4 million for the year ended December 31, 1997
from $16.7 million for the year ended December 31, 1996. This increase is
attributable to sales by ALR and B&B as well as higher sales of modular wiring
systems, including The Intelligent Floor and The Intelligent Ceiling products.
- --GROSS PROFIT
Gross profit for the year ended December 31, 1997 increased $20.4 million, or
47.0% to $63.8 million from $43.4 million for the year ended December 31, 1996.
Gross margin increased to 29.0% for the year ended December 31, 1997 from 26.8%
for the year ended December 31, 1996. This increase is attributable to (i)
efficiencies arising from operating near manufacturing capacity (ii) more
efficient manufacturing processes resulting in better yields on materials (iii)
decreased cost of raw materials through better purchasing practices (iv)
increased sales of the Company's higher margin specialty application cables and
(v) higher margins on products sold by the companies acquired in 1997.
- --INCOME FROM OPERATIONS
Income from operations for the year ended December 31, 1997 increased $11.3
million, or 66.5%, to $28.3 million from $17.0 million for the year ended
December 31, 1996. Income from operations as a percentage of net sales increased
to 12.8% for the year ended December 31, 1997 from 10.5% for the year ended
December 31, 1996. This increase resulted from improved gross margin, but was
partially offset by an increase in selling, general and administrative expenses
attributable to increases in freight costs and sales agent commissions, which
generally rise in proportion with net sales, and compensation expense.
- --NET INCOME
Net income for the year ended December 31, 1997 increased $6.7 million, or
59.2%, to $18.2 million from $11.5 million for the year ended December 31, 1996.
Net income as a percentage of net sales increased to 8.3% for the year ended
December 31, 1997 from 7.1% for the year ended December 31, 1996. This increase
was primarily due to increased income from operations.
Year ended December 31, 1996 versus year ended December 31, 1995
- --NET SALES
Net sales for the year ended December 31, 1996 increased $22.4 million, or
16.1%, to $161.9 million from $139.5 million for the year ended December 31,
1995. Net sales for the Wire and Cable Division increased by $19.9 million, or
16.0%, to $144.3 million for the year ended December 31, 1996 from $124.4
million for the year ended December 31, 1995. Contributing to the increase were
additional 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
22 FINANCIAL REVIEW
<PAGE>
connectors and specialty coated metal products introduced by the Company in
early 1995. Net sales for the America Cable Systems Division increased by $2.5
million, or 17.6%, to $16.7 million for the year ended December 31, 1996 from
$14.2 million for the year ended December 31, 1995. This increase is
attributable to improved demand for modular wiring systems, including The
Intelligent Floor and The Intelligent Ceiling products.
- --GROSS PROFIT
Gross profit for the year ended December 31, 1996 increased $11.0 million, or
33.9%, to $43.4 million from $32.4 million for the year ended December 31, 1995.
Gross margin increased to 26.8% for the year ended December 31, 1996 from 23.2%
for the year ended December 31, 1995. This increase is attributable to (i)
decreased cost of raw materials through more efficient purchasing, lower market
prices of commodities and improved manufacturing processes resulting in better
yields on materials and (ii) increased sales of higher margin specialty
application products.
- --INCOME FROM OPERATIONS
Income from operations for the year ended December 31, 1996 increased $6.5
million, or 62.3%, to $17.0 million from $10.5 million for the year ended
December 31, 1995. Income from operations as a percentage of net sales increased
to 10.5% for the year ended December 31, 1996 from 7.5% for the year ended
December 31, 1995. This increase resulted from improved gross margin, but was
partially offset by an increase in selling, general and administrative expenses
attributable to increases in freight costs, sales agent commissions,
compensation expense and fees for professional services.
- --NET INCOME
Net income for the year ended December 31, 1996 increased $3.4 million, or
41.4%, to $11.5 million from $8.1 million for the year ended December 31, 1995.
Net income as a percentage of net sales increased to 7.1% for the year ended
December 31, 1996 from 5.8% for the year ended December 31, 1995. This increase
was primarily due to increased income from operations, partially offset by a
slight decline in other income, which consisted primarily of income on
investments in securities, and a higher effective tax rate of 38.2% for the year
ended December 31, 1996 compared to 37.2% for the year ended December 31, 1995
which was due to a higher marginal tax rate in 1996.
Liquidity and Capital Resources
The Company's short-term liquidity needs have generally consisted of operating
capital necessary to finance inventories and receivables. Long-term liquidity
needs generally relate to capital expenditures necessary to expand the
production capacity of its manufacturing operations. The Company has satisfied
its short- and long-term liquidity needs with cash generated from operations and
proceeds from the public offerings of its Common Stock in 1995 and 1997,
supplemented by available borrowings under its revolving line of credit. The
excess proceeds from the 1995 and 1997 stock offerings are included in the
Company's portfolio of marketable securities at December 31, 1997. The Company
expects that it will meet its ongoing working capital needs for the next
twenty-four months primarily with remaining stock offering proceeds and cash
generated from operations.
Cash generated from operations totaled $5.1 million and $11.5 million for the
years ended December 31, 1997 and 1996, respectively, and was attributable
primarily to increased profitability, although cash generated for the year ended
December 31, 1997 was partially offset by an increase in inventories and
accounts receivable. Cash used in operations was $1.3 million for the year ended
December 31, 1995, again primarily due to an increase in inventories and
accounts receivable. Working capital on December 31, 1997 was $88.1 million and
the ratio of current assets to current liabilities was 3.93 to 1.00. The
Company's average inventory of $32.9 million (including inventories of companies
acquired in 1997) for the year ended December 31, 1997 represented an increase
of $12.9 million over the average inventory of $20.0 million for the year ended
December 31, 1996.
Accounts receivable at December 31, 1997 were $8.2 million higher than the
balance at December 31, 1996 due primarily to increased sales and to accounts
receivable of companies acquired in 1997. For the year ended December 31, 1997
average day sales outstanding were 55 compared to 56 for the year ended December
31, 1996. At December 31, 1997, accounts receivable over 60 days represented
3.8% of accounts receivable.
Capital expenditures for the year ended December 31, 1997 of $7.7 million were
for new or replacement production equipment to increase manufacturing capacity.
Capital expenditures amounted to $7.0 million and $2.3 million for the years
ended December 31, 1996 and 1995, respectively. For the years ended December 31,
1997, 1996 and 1995, the Company leased certain manufacturing equipment valued
at $0.1 million, $1.7 million and $2.0 million, respectively. Capital
expenditures for 1998 are expected to be approximately $11.0 million, primarily
for the expansion of manufacturing capacity and to upgrade management
information systems.
FINANCIAL REVIEW 23
<PAGE>
At December 31, 1997, bank indebtedness under the Company's unsecured revolving
line of credit was $6.2 million. This revolving line of credit terminates on
March 31, 1999 and provides for direct borrowings of up to $25.0 million,
including letter of credit borrowings up to $3.0 million. Up to $10.0 million of
the line of credit may be used without the lender's prior consent for business
acquisitions. At December 31, 1997, letters of credit totaling approximately
$0.8 million were outstanding under the line of credit. Borrowings under the
line of credit averaged $3.8 million for the year ended December 31, 1997.
Borrowings under the revolving 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, six months or one year. At December 31,
1997, the weighted average cost of borrowings under the line of credit was 8.5%.
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 24, 2016 and carry an average interest rate
adjustable on a weekly basis. The IRBs carried an average interest rate of
approximately 3.75% and 3.5% for the years ended December 31, 1997 and 1996,
respectively. 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 IRB issuance. The Company has
the right to convert from the variable 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.
Inflation and Foreign Exchange Fluctuation
The Company believes that inflation has not had a material effect on its
business, operating results or financial condition during the three-year period
ended December 31, 1997. While the Company does not believe that its business is
highly sensitive to inflation, there can be no assurance that future increases
in the rate of inflation would not have a material adverse effect on the
Company's operations.
The Company is currently not exposed to foreign exchange risk because foreign
sales are denominated in U.S. dollars to U.S.-based trading companies. The
Company may seek to manage any such future risk by entering into foreign
exchange contracts as management deems appropriate.
Year 2000
The Company continues to assess its exposure related to the impact of the Year
2000 date issue. The Year 2000 date issue arises from the fact that many
computer programs use only two digits to identify a year in a date field, thus
computer programs having time-sensitive software will recognize a date using
"00" as the year 1900 rather than the year 2000. The Company's key financial and
operational systems are being reviewed and, where required, detailed plans have
been, or are being developed and implemented on a schedule intended to permit
the Corporation's computer systems and products to continue to function
properly. This effort has been combined with the upgrading or replacement of
current computer systems for infrastructure and technology enhancement reasons.
Maintenance or modification costs will be expensed as incurred, while the costs
of new information technology will be capitalized and amortized in accordance
with Company policy. Management does not believe the costs associated with the
information systems upgrades will have a material adverse impact on the
Company's financial position, results of operations or cash flows. However, the
Company could be adversely impacted by the Year 2000 date issue if suppliers,
customers and other businesses do not address this issue successfully.
Management continues to assess these risks and ensure Year 2000 compliance from
the Company's suppliers and customers in order to reduce the impact on the
Company.
Factors That May Affect Future Performance
Substantial Price Competition, Margin Maintenance and Prices of Raw Materials
Price competition for the Company's core products is significant, and the
Company sells its products in accordance with prevailing market prices. Copper
rod is the principal raw material used in the Company's manufacturing
operations, accounting for approximately 28% of cost of goods sold for the year
ended December 31, 1997. The Company expects that copper will continue to
account for a significant portion of the cost of goods sold in the future.
Historically, the price of copper has fluctuated significantly (i.e. between
$76.60 and $122.00, and $86.85 and $130.10 per 100 pounds in 1997 and 1996,
respectively). The Company's other principal raw materials include steel and
aluminum, which collectively accounted for approximately 30% of cost of goods
sold for the year ended December 31, 1997.
24 FINANCIAL REVIEW
<PAGE>
Although in the past these raw materials have not been subject to the same
degree of price volatility as copper, there can be no assurance that significant
fluctuations will not occur in the future. The Company attempts to insulate its
products from these price fluctuations through improved purchasing procedures
and appropriate selling price adjustments. There can be no assurance, however,
that the Company will be able to maintain acceptable gross profit margins on
product sales in the future and, if it is unable to do so, its business,
operating results and financial condition could be adversely affected. The
Company does not currently engage in metal futures trading or other hedging
activities, but does have a producer supply contract, which currently expires on
December 31, 1998 and under which the Company purchases copper in any given
month at a price equal to the average copper selling prices, as determined by
the New York Commodity Exchange, for the month of shipment plus a premium. In
addition, the Company has an aluminum supply contract which expires on December
31, 1998 that provides for technical assistance and other special terms. The
Company may engage in hedging activities in the future as management deems
appropriate.
Management of Growth
The Company has experienced rapid growth, particularly during the last four
years. The continued rapid growth of the Company could place a significant
strain on its management and other resources. The Company anticipates that
continued growth, if any, will require it to continue to recruit, hire, train
and retain a substantial number of new and highly skilled product development,
administrative, information technology, finance, sales and marketing and support
personnel. The Company's ability to compete effectively and to manage future
growth, if any, will depend on its ability to continue to implement and improve
operational, financial and management information systems on a timely basis and
to expand, train, motivate and manage its work force. Should the Company
continue to experience rapid growth, there can be no assurance that the
Company's personnel, systems, procedures and controls will be adequate to
support the Company's operations or that management will adequately anticipate
all demands that growth will place on the Company. If the Company's management
is unable to manage growth effectively, the quality of the Company's products
and its business, operating results and financial condition could be materially
adversely affected. See "--Integration of Acquisitions."
Integration of Acquisitions.
The Company intends to supplement its growth by pursuing selective acquisitions
of companies with products complementary to its existing business. During the
year ended December 31, 1997, the Company acquired four companies and intends to
consider future acquisitions in the industry, some of which may be material to
the Company. Acquisitions involve numerous risks, including difficulties in the
assimilation of the operations, technologies and products, the diversion of
management's attention from other business concerns, risks of entering markets
in which the Company has no or limited direct prior experience, operating
companies in different geographical locations, and the potential loss of key
employees of the acquired company. Future acquisitions by the Company could
result in potentially dilutive issuances of equity securities, the incurrence of
debt and contingent liabilities and amortization expenses related to goodwill
and other intangible assets, which could materially adversely affect the
Company's operating results and financial condition. There can be no assurance
that future acquisitions can be successfully integrated or that management will
be successful in managing the combined operations. See "--Management of Growth."
Dependence on New Products and
Product Improvements
The commercial construction industry and the evolution of the modern workstation
are characterized by advances in electrical distribution and communications
systems which require ongoing improvements in the capabilities of wire and cable
products. The Company believes that its future success will depend in part upon
its ability to enhance existing products and to develop and manufacture new
products that meet or anticipate such changes. The failure to introduce new or
enhanced products on a timely and cost competitive basis could have an adverse
impact on the Company's business, operating results or financial condition.
Manufacturing Capacity
The Company is currently operating near capacity in some of its manufacturing
facilities. Although the Company has plans to open additional facilities and
expand its capacity at others, there can be no assurance that these additional
facilities or expansions will be completed on time and/or on budget, that the
Company will not experience manufacturing delays or problems, or that adequate
equipment and personnel will be available to operate these new facilities. The
additional facilities and equipment will also require substantial funds. The
Company anticipates that borrowings and existing cash will be adequate to fund
its planned expansions. See "Management Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." If the
Company experiences significant delays or problems in implementing its current
plans, such delays or problems could have a material adverse effect on the
Company's business, results of operations or financial condition.
FINANCIAL REVIEW 25
<PAGE>
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE [continued]
Volatility of New Construction Market
The volatility of the nonresidential new construction market has a direct impact
on sales of certain of the Company's products. Certain regions of the United
States have experienced, and in the future may experience, significant economic
recessions that have reduced, or may reduce, the number of nonresidential new
construction projects, which in turn could adversely affect the Company's
business, operating results and financial condition. The Company has
historically derived a substantial portion of its sales from the building
modernization market, which has not been significantly adversely affected by
downturns in the nonresidential new construction market. There can be no
assurance, however, that the modernization market will not enter a downturn or
that the Company's sales will not be affected by future downturns in the
nonresidential new construction market. The Company's sales have also been
impacted from time to time by unseasonable and excessive weather conditions that
delay new construction. There can be no assurance that such conditions will not
have a material adverse effect on the Company's operating results in the future.
Competition
The Company faces competition from a number of national and regional
competitors, both in the armored cable and pipe and wire industries, some of
which have greater financial, engineering, research and development,
manufacturing and other resources than the Company. The Company's competitors
can be expected to continue to improve the design and performance of their
products and to introduce new products with competitive price and performance
characteristics. Although the Company believes that it has certain technological
and other advantages over its competitors, maintaining and leveraging any such
advantages will require continued investment by the Company in design and
engineering, development, marketing and customer service and support. There can
be no assurance that the Company will have sufficient resources to continue to
make such investments or that the Company will be successful in maintaining and
leveraging any such advantages. See "--Management of Growth" and
"Business--Competition."
Reliance on Independent Sales Representatives
and Nonexclusive Distributors
The Company sells its products to distributors through a network of independent
sales representatives who generally work on a commission basis. The Company's
top ten sales representatives accounted for approximately 45% of sales for the
year ended December 31, 1997. These representatives are not under direct control
of the Company, are not subject to minimum purchase requirements and are not
contractually obligated to carry the Company's product lines exclusively or for
any period of time. Although the Company believes that the loss of any one
representative would not have a material adverse impact on the Company's
business, there can be no assurance that the Company will be able to maintain
its existing relationships with these representatives. In addition, the
distributors which ultimately sell the Company's products could purchase and
distribute products that compete with the Company's products or cease purchasing
the Company's products at any time. There can be no assurance that the
distributors will continue to distribute or recommend the Company's products or
do so successfully.
Dependence on Key Management Personnel
The Company's long-term success and its growth strategy depend on its senior
management, particularly Ralph R. Papitto, the Company's Chairman and Chief
Executive Officer, Robert R. Wheeler, the Company's President and Chief
Operating Officer, and Raymond H. Keller, the Company's Chief Financial Officer.
The loss of service of one or more of the Company's key senior management
personnel could have an adverse effect on the Company's business, financial
condition and results of operations. See "Executive Officers of the Registrant."
Antitakeover Provisions
Certain provisions of the Company's Restated Certificate of Incorporation, as
amended, and By-Laws and of the Delaware General Corporation Law (the "DGCL")
could discourage potential acquisition proposals and could delay or prevent a
change in control of the Company. Such provisions, which include supermajority
voting requirements for specified business combinations, a staggered Board of
Directors, and the right of the Board of Directors, without further stockholder
approval, to issue preferred stock (the "Preferred Stock") upon such terms and
conditions, and having such rights, privileges and preferences as the Board of
Directors may determine, may have the effect of deferring hostile takeovers or
delaying or preventing changes in control or management of the Company. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of any holders of Preferred Stock that may be issued in
the future. The Company has no present plans to issue any Preferred Stock.
26 FINANCIAL REVIEW
<PAGE>
- --------------------------------------------------------------------------------
PART TWO ITEM EIGHT FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Contents
Audited Consolidated Financial Statements
Consolidated Balance Sheets...................................................28
Consolidated Statements of Income.............................................30
Consolidated Statements of Shareholders' Equity...............................31
Consolidated Statements of Cash Flows.........................................32
Notes to Consolidated Financial Statements....................................34
Report of Independent Auditors................................................45
</TABLE>
FINANCIAL REVIEW 27
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1997 1996
----------------------
($ in thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents (Note 1) $ 2,803 $ 980
Marketable securities (Note 3) 40,434 30,508
Accounts receivable, net of allowance for doubtful accounts
and sales allowances of $3,870 in 1997 and $3,140 in 1996 32,127 23,919
Inventories:
Finished goods 26,333 11,559
Work-in-process 7,385 3,702
Raw materials 6,219 5,665
----------------------
39,937 20,926
Current deferred taxes (Note 9) 1,491 637
Other current assets 1,439 1,121
----------------------
Total current assets 118,231 78,091
Property, plant and equipment:
Land 1,190 510
Buildings and improvements 10,173 8,754
Machinery and equipment 23,207 16,050
Furniture and fixtures 2,412 1,791
Construction in progress 364 83
----------------------
37,346 27,188
Less accumulated depreciation 12,409 9,482
----------------------
Net property, plant and equipment 24,937 17,706
Goodwill, net of accumulated amortization of $373 in 1997 and $122 in 1996 16,497 1,175
Other long-term assets, net 1,464 951
----------------------
Total assets $161,129 $ 97,923
----------------------
</TABLE>
28 FINANCIAL REVIEW
<PAGE>
CONSOLIDATED BALANCE SHEETS [continued]
<TABLE>
<CAPTION>
December 31
1997 1996
----------------------
($ in thousands)
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Current portion of long-term debt $ 227 $ 270
Revolving credit note payable (Note 4) 6,230 2,000
Accounts payable 12,536 12,471
Accrued expenses:
Payroll and employee benefits 3,609 2,506
Other (Note 6) 7,488 1,885
----------------------
Total accrued expenses 11,097 4,391
----------------------
Total current liabilities 30,090 19,132
Long-term debt (Note 4) 3,893 3,300
Deferred income taxes (Note 9) 1,570 1,547
Other long-term liabilities 2,441 954
Commitments and contingencies (Notes 7 and 8) -- --
Shareholders' equity (Note 10):
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none issued -- --
Common stock, $.01 par value, 15,000,000 shares authorized,
11,397,854 and 9,168,781 shares issued and outstanding in 1997
and 1996, respectively 114 73
Paid-in capital 79,110 48,011
Other 1,021 218
Treasury stock, 6,411 and 6,031 shares in 1997 and 1996,
respectively, at cost (92) (82)
Retained earnings 42,982 24,770
----------------------
Total shareholders' equity 123,135 72,990
----------------------
Total liabilities and shareholders' equity $161,129 $ 97,923
----------------------
----------------------
</TABLE>
See accompanying notes.
FINANCIAL REVIEW 29
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years ended December 31
1997 1996 1995
---------------------------------
($ in thousands, except per share data)
<S> <C> <C> <C>
Net sales $220,264 $161,868 $139,483
Cost of goods sold 156,479 118,487 107,087
---------------------------------
Gross profit 63,785 43,381 32,396
Selling, general and administrative expenses 35,483 26,384 21,926
---------------------------------
Income from operations 28,302 16,997 10,470
Other income (expense):
Interest expense (620) (728) (614)
Investment income 2,141 2,339 3,001
Other, net (192) (48) 39
---------------------------------
1,329 1,563 2,426
---------------------------------
Income before income taxes 29,631 18,560 12,896
Income taxes (Note 9) 11,392 7,100 4,791
---------------------------------
Net income $ 18,239 $ 11,460 $ 8,105
---------------------------------
---------------------------------
Basic earnings per common share (Note 11) $1.71 $1.25 $.92
---------------------------------
---------------------------------
Diluted earnings per common share (Note 11) $1.66 $1.23 $.90
---------------------------------
---------------------------------
</TABLE>
See accompanying notes.
30 FINANCIAL REVIEW
<PAGE>
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Retained Earnings
Common Paid-in Treasury (Accumulated
Stock Capital Other Stock Deficit) Total
------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 55 $ 25,871 $ (744) $ -- $ 5,205 $ 30,387
Net income for 1995 -- -- -- -- 8,105 8,105
Proceeds from issuance of 2,203,125
shares of common stock 18 21,906 -- -- -- 21,924
Repurchase of restricted stock, net -- -- -- (30) -- (30)
Amortization of compensation (Note 10) -- -- 191 -- -- 191
Exercise of stock options (Note 10) -- 140 -- -- -- 140
Adjustment to unrealized gains (losses)
on available-for-sale securities, net of tax -- -- 593 -- -- 593
Other -- 1 -- -- -- 1
------------------------------------------------------------------------------
Balance at December 31, 1995 73 47,918 40 (30) 13,310 61,311
Net income for 1996 -- -- -- -- 11,460 11,460
Repurchase of restricted stock, net -- -- -- (52) -- (52)
Amortization of compensation (Note 10) -- -- 189 -- -- 189
Cancellation of 32,375 restricted shares -- (276) 276 -- -- --
Exercise of stock options and related tax
benefit (Note 10) -- 369 -- -- -- 369
Adjustment to unrealized gains (losses)
on available-for-sale securities, net of tax -- -- (287) -- -- (287)
------------------------------------------------------------------------------
Balance at December 31, 1996 73 48,011 218 (82) 24,770 72,990
Net income for 1997 -- -- -- -- 18,239 18,239
Proceed from issuance of 1,937,500 shares
of common stock 16 27,552 -- -- -- 27,568
Repurchase of restricted stock, net -- -- -- (10) -- (10)
Amortization of compensation (Note 10) -- -- 15 -- -- 15
Employee stock awards 1 651 -- -- -- 652
Exercise of stock options and warrants
and related tax benefit (Note 10) -- 647 -- -- -- 647
Issuance of 136,364 shares of common stock
for acquisitions and related fees (Note 2) 1 2,249 -- -- -- 2,250
Adjustment to unrealized gains (losses) on
available-for-sale securities, net of tax -- -- 788 -- -- 788
Five-for-four stock split effected in the
form of a dividend 23 -- -- -- (27) (4)
------------------------------------------------------------------------------
Balance at December 31, 1997 $114 $ 79,110 $ 1,021 $(92) $ 42,982 $ 123,135
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
FINANCIAL REVIEW 31
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31
1997 1996 1995
----------------------------------
($ in thousands)
<S> <C> <C> <C>
Operating activities
Net income $ 18,239 $ 11,460 $ 8,105
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 2,927 2,235 1,860
Amortization of intangibles 251 776 195
Net gain on sale of property, plant and equipment -- (54) --
Net gain realized on available-for-sale securities (88) (618) (1,720)
Deferred income taxes (428) 77 12
Provision for bad debts 209 263 76
Provision for sales allowances 193 719 480
Compensation expense for restricted stock and
compensatory options 91 239 292
Increase (decrease) in cash arising from changes in assets
and liabilities:
Accounts receivable (2,935) (4,326) (2,694)
Inventories (14,001) (1,564) (6,732)
Other current assets (197) (106) (289)
Other long-term assets (403) (431) (996)
Accounts payable (2,958) 631 899
Accrued payroll and employee benefits 969 1,030 (80)
Other accrued liabilities 1,747 974 (703)
Other long-term liabilities 1,486 154 --
----------------------------------
Net cash provided by (used in) operating activities 5,102 11,459 (1,295)
Investing activities
Acquisitions, including expenses, less cash acquired (Note 2) (20,598) -- --
Capital expenditures, net (7,687) (6,970) (2,340)
Proceeds from sale of property, plant and equipment -- 195 --
Purchase of available-for-sale securities (47,505) (29,063) (44,907)
Proceeds from sale of available-for-sale securities 40,350 24,349 22,601
----------------------------------
Net cash used in investing activities (35,440) (11,489) (24,646)
</TABLE>
32 FINANCIAL REVIEW
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW [continued]
<TABLE>
<CAPTION>
Years ended December 31
1997 1996 1995
----------------------------------
($ in thousands)
<S> <C> <C> <C>
Financing activities
Proceeds from revolving line of credit borrowings 94,375 60,615 52,948
Repayments of revolving line of credit borrowings (90,145) (65,540) (49,523)
Proceeds from term loan -- 3,200 --
Repayment of term loan -- (3,200) --
Proceeds from long-term debt -- 3,570 --
Payments on long-term debt, including current portion (271) -- --
Proceeds from issuance of common stock 28,212 327 22,065
Purchase of treasury stock (10) (52) (30)
----------------------------------
Net cash provided by (used in) financing activities 32,161 (1,080) 25,460
----------------------------------
Net increase (decrease) in cash and cash equivalents 1,823 (1,110) (481)
Cash and cash equivalents at beginning of year 980 2,090 2,571
----------------------------------
Cash and cash equivalents at end of year $ 2,803 $ 980 $ 2,090
----------------------------------
----------------------------------
Supplemental schedule of cash flow information:
Cash paid during the year for interest $ 580 $ 814 $ 614
----------------------------------
----------------------------------
Cash paid during the year for income taxes $ 10,103 $ 6,058 $ 5,863
----------------------------------
----------------------------------
</TABLE>
See accompanying notes.
FINANCIAL REVIEW 33
<PAGE>
Notes to Financial Statements - December 31 1997 and 1996
1. Summary of Significant Accounting Policies
Business
AFC Cable Systems, Inc. (the Company) is a manufacturer of electrical
distribution products, including prewired armored cable, flexible conduit and
modular wiring systems used in the non-residential construction electrical
wiring industry. The Company, through its wholly-owned subsidiaries, also
manufacturers and distributes photo controls for the lighting control and
fixture industries, electronic interfaces and connectors that facilitate data
communications, and flexible hoses, ducting and connections for diverse
applications. The Company's customers primarily consist of electrical supply
wholesalers located throughout the United States. The Company performs credit
evaluations on all new customers and generally does not require collateral.
Credit losses are provided for in the financial statements and consistently have
been within management's expectations.
Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated.
Cash Equivalents
Cash equivalents are defined as all short-term, highly-liquid investments with
an original maturity of three months or less.
Marketable Securities
Management determines the appropriate classification of marketable securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. All debt and equity securities have been classified as available-for-sale.
Available-for-sale securities are carried at fair value based on quoted market
prices, with the unrealized gains and losses, net of tax, reported in a separate
component of shareholders' equity. The amortized cost of debt securities in this
category is adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization is included in investment income. Realized gains and
losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in investment income. The cost of
securities sold is based on the specific identification method. Interest and
dividends on securities classified as available-for-sale are included in
investment income.
Inventories
Inventories are stated at the lower of cost or market. Cost of substantially all
of the inventory is determined on a first-in, first-out (FIFO) basis.
Property, Plant and Equipment and Depreciation
Property, plant and equipment are stated at cost. Depreciation is computed on
the straight-line method over the estimated lives of the assets as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements 5 to 30 years
Machinery and equipment 3 to 10 years
Furniture and fixtures 5 to 10 years
</TABLE>
Goodwill
Goodwill consists of the excess cost over the fair value of the assets of
acquired businesses (see Note 2) and is being amortized using the straight-line
method over periods of twenty to forty years.
Self-Insurance
The Company is self-insured for its employee health and workers' compensation
plans. The plans, which are administered by insurance companies, contain certain
stop loss provisions that limit the Company's liability in the event of
catastrophic losses. Claims are accrued for as incurred based on available claim
information and management's estimate of claims incurred but not yet reported.
Stock Compensation
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock Issued to Employees."
Revenue Recognition
The Company recognizes sales when goods are shipped to the customer.
Advertising Costs
Advertising costs are expensed as incurred and were $1,567,000, $950,000, and
$854,000 in 1997, 1996 and 1995, respectively.
Earnings Per Share
The Company has adopted Financial Accounting Standards Board Statement No. 128,
"Earnings Per Share" ("FAS 128"), which was issued in 1997. FAS 128 requires the
presentation of "basic earnings per share" and "diluted earnings per share."
Basic earnings per share represents net income divided by the weighted average
number of shares of common stock outstanding during the year. Diluted earnings
per share represents net income divided by weighted average shares outstanding
adjusted for the dilutive effect of the assumed exercise of outstanding options
and warrants. Earnings per share amounts for all periods have been presented,
and where appropriate, restated to conform to the requirements of FAS 128.
34 FINANCIAL REVIEW
<PAGE>
1. Summary of Significant Accounting Policies [continued]
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" and Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company is currently
evaluating the effects of implementing these statements which are effective
beginning in 1998.
Reclassification
Certain reclassifications were made to the 1996 and 1995 financial statements in
order that they may be consistent with the 1997 presentation.
2. Acquisitions
During the year ended December 31, 1997, the Company made the acquisitions set
forth below, each of which has been accounted for as a purchase. The
consolidated financial statements of the Company include the operating results
of each business from the date of acquisition.
B&B ELECTRONICS MANUFACTURING COMPANY, INC.
On January 28, 1997, the Company acquired all of the outstanding stock of
Illinois-based B&B Electronics Manufacturing Company, Inc. ("B&B"), a
manufacturer and direct marketer of electronic interfaces and connectors that
facilitate data communications. The cost of B&B consisted of $4.2 million in
cash, 75,000 shares of the Company's common stock ($960,000), plus fees of
approximately $73,000, and assumed debt. Contingent consideration, which is in
addition to the above acquisition costs, will be paid to the seller of B&B for
certain earnings targets achieved by B&B for the year ended December 31, 1997,
and will be payable for subsequent annual periods if certain earnings targets
are met for such periods. The contingent consideration payable for the period
ended December 31, 1997, is approximately $600,000. Contingent consideration is
recorded as additional purchase price when the future earnings targets have been
met.
AREA LIGHTING RESEARCH, INC.
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 the lighting control and fixture industries. The cost of ALR consisted of
$7.7 million in cash plus 50,000 shares of common stock issued in payment of
fees (approximately $1 million). Contingent consideration, in addition to the
above costs, is payable to the seller of ALR for certain financial targets
achieved by ALR for the year ended December 31, 1997. The contingent
consideration payable for the year ended December 31, 1997 is approximately
$400,000 and was recorded as additional purchase price.
MADISON EQUIPMENT COMPANY, INC.
On April 1, 1997, the Company acquired all of the outstanding stock of
Ohio-based Madison Sale Corporation, a supplier of fittings for the electrical
industry. Upon purchase, the name of the company was changed to Madison
Equipment Company, Inc. ("Madison"). The cost of Madison consisted of $2.0
million in cash plus approximately $85,000 in fees.
FEDERAL HOSE MANUFACTURING, INC.
On November 22, 1997, the Company acquired the assets and assumed certain
liabilities of Ohio-based Federal Hose Manufacturing, Inc. ("FHI"), a
manufacturer and distributor of flexible metal, plastic and fabric hoses,
ducting and connectors for diverse applications. The cost of FHI consisted of
$7.2 million in cash, 11,364 shares of the Company's common stock ($300,000)
plus fees of approximately $265,000. Contingent consideration is payable to the
seller of FHI based upon future earnings targets through December 31, 2000. The
purchase price allocation of FHI is preliminary.
The goodwill resulting from the above acquisitions will be amortized over 40
years, with the exception of the goodwill from the Madison acquisition, which
will be amortized over a 20-year period. Pro forma income statement data
assuming the acquisitions above were made at the beginning of 1997 and 1996, is
as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31
1997 1996
-------------------------
($ in thousands,
except per share data)
<S> <C> <C>
Net sales $235,356 $197,427
Income from operations 29,117 19,352
Net income 18,754 12,795
Diluted earnings per common share $1.70 $1.36
</TABLE>
The above pro forma information does not purport to represent the Company's
results of operations that would have been attained had the above acquisitions
in fact occurred at the beginning of the periods indicated or to project the
Company's results for any future period.
FINANCIAL REVIEW 35
<PAGE>
NOTES TO FINANCIAL STATEMENTS [continued]
3. Marketable Securities
The following is a summary of securities held by the Company. All securities are
classified as available-for-sale.
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
-------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C>
December 31, 1997
U.S. corporate debt securities $ 9,464 $ 329 $ (3) $ 9,790
U.S. treasury securities and obligations of
U.S. Government agencies 24,713 55 (2) 24,766
Equity securities 4,894 1,096 (112) 5,878
-------------------------------------------------
Total included in investments $39,071 $1,480 $(117) $40,434
-------------------------------------------------
-------------------------------------------------
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 included in investments $30,278 $ 312 $ (82) $30,508
-------------------------------------------------
-------------------------------------------------
</TABLE>
36 FINANCIAL REVIEW
<PAGE>
NOTES TO FINANCIAL STATEMENTS [continued]
3. Marketable Securities [continued]
The cost and fair market value of debt securities at December 31, 1997 and 1996,
by contractual maturities, are shown below:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Available-for-Sale
Fair Market
Cost Value
------------------------
($ in thousands)
<S> <C> <C>
December 31, 1997
Debt securities:
Maturing in one year or less $15,031 $15,296
Maturing between one year
and five years 17,931 17,983
Maturing after five years 1,215 1,277
------------------------
34,177 34,556
Equity securities 4,894 5,878
------------------------
Total investments $39,071 $40,434
------------------------
------------------------
December 31, 1996
Debt securities:
Maturing in one year or less $23,884 $23,948
Maturing between one year
and five years 2,762 2,780
Maturing after five years 1,056 1,112
------------------------
27,702 27,840
Equity securities 2,576 2,668
------------------------
Total investments $30,278 $30,508
------------------------
------------------------
</TABLE>
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 and (losses) included in investment income amounted to
$173,000 and $(85,000) in 1997, $859,000 and $(241,000) in 1996, and $1,720,000
in 1995.
4. Short and Long-Term Debt
Revolving Credit Note Payable
The Company has an unsecured revolving line of credit agreement which provides
for direct borrowings of up to $25,000,000 of which up to $10,000,000 is
available for business acquisitions, without the lender's prior consent. The
line of credit agreement provides for letter of credit borrowings of up to
$3,000,000, of which $821,000 is outstanding at December 31, 1997. A monthly fee
based on the unused portion of the credit facility 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 one half of one
percent to one and one quarter percent for a fixed period of one, two, three or
six months or one year. 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 short-term borrowings is 8.5% and 6.3% at December 31, 1997
and 1996, respectively. The carrying value of the line of credit approximates
its fair value.
The line of credit contains certain restrictive covenants, which require that
the Company maintain minimum levels of tangible capital funds and meet other
specified ratio requirements.
Long-Term Debt
During 1996, the Company received the proceeds from the issuance of $3.57
million in Industrial Revenue Bonds through 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 24, 2016 and carry an interest rate adjustable on a
weekly basis. The IRBs carried an average interest rate of approximately 3.75%
and 3.5% for the years ended December 31, 1997 and 1996, respectively.
Additionally, an annual fee of 1.0% on the letter of credit securing the bonds
($3.6 million at December 31, 1997) is paid to the bank acting as a trustee in
the issuance of the bonds. 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 19 annual installments of $180,000 with a final payment of
$150,000 due at maturity funded through monthly payments of $15,000 to the
trustee over the twelve months preceding the installment due dates. At December
31, 1997 and 1996, $3.1 million and $3.3 million, respectively, of the total was
classified as long-term debt. The carrying amount of the bonds approximates fair
value at December 31, 1997.
In addition, $774,000 of the $828,000 in debt assumed in the B&B acquisition was
classified as long-term at December 31, 1997. This represents a mortgage on the
facility occupied by B&B. The mortgage carries a fixed rate of 8% and matures on
February 20, 2012. The carrying amount approximates fair value at December 31,
1997.
FINANCIAL REVIEW 37
<PAGE>
NOTES TO FINANCIAL STATEMENTS [continued]
Long-Term Debt [continued]
The following is a schedule of the principal portion of long-term debt payments
for the years beginning December 31, 1997, and after:
<TABLE>
<CAPTION>
($ in thousands)
<S> <C>
1998 $ 227
1999 214
2000 218
2001 221
2002 224
Thereafter 3,016
-------------
$ 4,120
-------------
-------------
</TABLE>
5. Employee Benefit Plans
The Company sponsors a Supplemental Executive Retirement Plan ("the Plan") for
senior management. The Plan is a defined contribution plan whereby participant
accounts are credited in an amount equal to a percentage, determined by the
Company, of each participant's compensation plus the participant's allocable
share of net earnings of the Plan. At December 31, 1997 and 1996, the Company
has assets (market value of $1,304,000 and $900,000, respectively), segregated
in a trust, available to meet the obligations of the Plan. Expenses for this
plan were approximately $276,000 for each of the years ended December 31, 1997
and 1996, and $190,000 for the year ended December 31, 1995. The total liability
under the plan was approximately $1,334,000 and $976,000 at December 31, 1997
and 1996, respectively.
The Company also has seven defined contribution (401(k)) plans covering
substantially all employees. Contributions to the plans are based on a
percentage of the employee's compensation. The Company also participates in a
multi-employer defined contribution plan covering certain union employees. The
Company's expense under the 401(k) and multi-employer plans was approximately
$699,000, $449,000, and $437,000, for the years ended December 31, 1997, 1996,
and 1995, respectively.
6. Other Accrued Expenses
At December 31, 1997 and 1996, other accrued expenses consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
--------------------
($ in thousands)
<S> <C> <C>
Accrued federal and state
income taxes $1,634 $ 257
Investment margin liability 1,550 --
Other 4,304 1,628
--------------------
$7,488 $1,885
--------------------
--------------------
</TABLE>
The investment margin liability, which bears interest, represents borrowings
secured by the Company's marketable securities.
7. Commitments
The Company has various operating lease agreements for buildings and equipment
extending through December 2006. The following is a schedule of the future
minimum rental payments due under these leases:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
($ in thousands)
<C> <S>
1998 $ 3,335
1999 2,535
2000 2,165
2001 1,862
2002 1,520
Thereafter 2,218
-----------------
$13,635
-----------------
-----------------
</TABLE>
38 FINANCIAL REVIEW
<PAGE>
NOTES TO FINANCIAL STATEMENTS [continued]
7. Commitments [continued]
Rent expense amounted to $3,863,045, $3,738,390, and $3,088,056, in 1997, 1996,
and 1995, respectively.
In the normal course of business, the Company enters into purchase agreements
with certain raw material vendors. At December 31, 1997, the Company has agreed
to purchase approximately 100% of the 1998 copper usage from two vendors.
8. Contingencies
The Company is a defendant in certain claims that relate to matters that
occurred prior to the present ownership. In accordance with the purchase and
sale agreement of the Company, 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. As of December 31, 1997, there is an appeal pending with the U.S. Court
of Appeals for the First Circuit.
9. Income Taxes
Deferred income taxes are recognized for the expected consequences of temporary
differences by applying enacted statutory rates, applicable to future years, to
differences between the financial reporting basis and tax basis of assets and
liabilities.
The principal reasons that the aggregate income tax provisions differ from the
U.S. statutory rate of 35% for the year ended December 31, 1997, and 34% for the
years ended December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------------------------
($ in thousands) ($ in thousands) ($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Income tax provision at statutory rate $10,371 35.0% $6,310 34.0% $4,385 34.0%
State taxes, net of federal benefit 1,082 3.7% 666 3.6% 380 3.0%
Other (61) (.2)% 124 .7% 26 .2%
----------------------------------------------------------------------------
$11,392 38.5% $7,100 38.3% $4,791 37.2%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
FINANCIAL REVIEW 39
<PAGE>
NOTES TO FINANCIAL STATEMENTS [continued]
9. Income Taxes [continued]
The components of the provision for income taxes for the years ended December
31, 1997, 1996, and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------
($ in thousands)
<S> <C> <C> <C>
Current:
Federal $10,072 $6,018 $4,154
State 1,748 1,005 625
-----------------------------------------
Total current 11,820 7,023 4,779
Deferred:
Federal (344) 58 53
State (84) 19 (41)
-----------------------------------------
Total deferred (428) 77 12
-----------------------------------------
Total $11,392 $7,100 $4,791
-----------------------------------------
-----------------------------------------
</TABLE>
A summary of the significant components of the Company's deferred tax
liabilities and assets as of December 31, 1997 and 1996, follows:
<TABLE>
<CAPTION>
1997 1996
------------------------
($ in thousands)
<S> <C> <C>
Deferred tax liabilities:
Fixed assets $1,976 $1,857
Marketable securities 604 134
------------------------
Total deferred tax liabilities 2,580 1,991
Deferred tax assets:
Supplemental executive
retirement plan 523 389
Goodwill 34 13
Stock compensation 90 19
Inventory 702 315
Allowance for doubtful accounts 342 142
Accrued liabilities 810 203
------------------------
Total deferred tax assets 2,501 1,081
------------------------
Net deferred tax liabilities $ 79 $ 910
------------------------
------------------------
</TABLE>
10. Shareholders' Equity and Stock Award Plans
Shareholders' Equity
In the Company's Initial Public Offering in December 1993, the Company sold to
the underwriters warrants to purchase up to 206,925 shares of common stock
(prior to giving effect to the October 20, 1997 five-for-four stock split) at an
exercise price equal to $12.00 per share. Such warrants are not transferable and
are exercisable through December 14, 1998. During 1997, warrants to purchase
103,462 shares (prior to giving effect to the October 20, 1997 five-for-four
stock split) were exercised. After giving effect to the October 20, 1997 stock
split explained below, there are 129,328 shares of common stock issuable upon
exercise of remaining warrants at an exercise price of $9.60 per share.
40 FINANCIAL REVIEW
<PAGE>
NOTES TO FINANCIAL STATEMENTS [continued]
10. Shareholders' Equity and Stock Award Plans [continued]
As more fully described below, on September 16, 1997, the Company's Board of
Directors authorized a five-for-four split of the Company's common stock. All
references to number of shares, per share amounts, stock option data and prices
of the Company's common stock have been restated to present the effect of the
stock split.
On February 9, 1995, the Company completed the issuance of 1,875,000 shares of
common stock at a price of $10.80 per share. As part of this offering, the
Company granted the underwriters an option to purchase a maximum of 328,125
additional shares to cover over-allotments, which was exercised on February 9,
1995. Also on February 9, 1995, 312,500 shares of common stock were sold to the
public by certain shareholders of the Company at a price of $10.80.
On April 23, 1997, the Company completed the issuance of 1,562,500 shares of
common stock at a price of $15.40 per share. As part of this offering, the
Company granted the underwriters an option to purchase a maximum of 375,000
additional shares to cover over-allotments which was exercised in full on April
29, 1997. Also, on April 23, 1997, 937,500 shares of common stock were sold to
the public by certain shareholders of the Company at a price of $15.40.
On September 16, 1997, the Company's Board of Directors authorized a
five-for-four split of the Company's common stock effected in the form a 25
percent stock dividend distributed on October 20, 1997, to shareholders of
record on October 6, 1997. Shareholders' equity has been adjusted by
reclassifying from retained earnings to common stock the par value of the
additional shares arising from the split. The amount of cash paid in lieu of
fractional shares resulting from the split was also charged to retained
earnings.
Stock Award Plans
The Company has two equity incentive plans covering employees of the Company;
the AFC Cable Systems, Inc. 1993 Equity Incentive Plan and the AFC Cable
Systems, Inc. 1997 Equity Incentive Plan (collectively, the "Plans"). Under the
Plans, the Company may grant stock options, stock appreciation rights,
restricted stock, unrestricted stock, deferred stock and performance stock
awards to key employees. Each of the Plans provides for the issuance of 500,000
shares of common stock. Options awarded under the Plans generally vest in equal
annual installments over either the four or the five years subsequent to the
date of grant. The options expire ten years after the date of grant.
The Company also has a stock plan covering non-employee directors; the AFC Cable
Systems, Inc. 1993 Stock Option Plan for Non-Employee Directors (the "Directors'
Plan"). Under the Directors' Plan, the Company may grant stock options to
non-employee directors which vest in equal annual installments over the five
years subsequent to the date of grant and expire ten years after date of grant.
The Directors' Plan provides for the issuance of 125,000 shares of common stock.
A summary of the status of stock options granted under all plans as of December
31, 1997, 1996 and 1995, and changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Fixed Options Shares Price Shares Price Shares Price
- ------------------------------------------------------------ -------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 400,000 $9.03 370,000 $8.42 331,250 $7.98
Granted 557,500 16.70 100,000 10.80 56,250 10.80
Exercised (39,062) 8.61 (40,000) 8.20 (17,500) 8.00
Canceled (17,187) 8.71 (30,000) 8.40 -- --
-------------------- -------------------- -------------------
Outstanding at end of year 901,251 $13.80 400,000 $9.03 370,000 $8.42
-------------------- -------------------- -------------------
-------------------- -------------------- -------------------
Options exercisable at year end 174,062 $8.53 128,125 $8.19 91,250 $7.99
-------------------- -------------------- -------------------
-------------------- -------------------- -------------------
Weighted-average fair value of options
granted during year $6.98 $4.47 $4.46
----- ----- -----
----- ----- -----
</TABLE>
FINANCIAL REVIEW 41
<PAGE>
NOTES TO FINANCIAL STATEMENTS [continued]
10. Shareholders' Equity and Stock Award Plans [continued]
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
at Remaining Average at Average
Range of December 31 Contractual Exercise December 31 Exercise
Exercise Prices 1997 Life (Yrs.) Price 1997 Price
- --------------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
$5.60 to $10.60 268,751 6.98 $ 8.14 142,812 $ 7.69
$12.00 to $17.80 556,250 8.96 15.06 31,250 12.38
$19.40 to $27.06 76,250 9.67 24.54 -- --
---------- ---------
901,251 174,062
---------- ---------
---------- ---------
</TABLE>
As discussed above, common stock may be granted to officers and key employees on
a restricted or unrestricted basis. At December 31, 1997, 1996, and 1995,
restricted stock awards covering 67,350, 1,250 and 61,875 shares, respectively,
were outstanding. During 1997, 1996 and 1995, the restrictions lapsed on 1,250,
28,250 and 29,375 shares, respectively, and 32,375 restricted shares were
forfeited during 1996.
Employees vest in these restricted shares ratably over periods of two to three
years. The difference between the par value and the fair market value of the
stock on the date of grant was considered compensation and was amortized ratably
over the vesting period. The Company repurchased, at fair market value, 380
shares, 2,917 shares and 3,110 shares of vested restricted stock during 1997,
1996 and 1995, respectively, to provide certain employees with the funds
necessary to cover their tax withholdings from the receipt of vested restricted
shares.
The 67,350 shares of restricted stock outstanding at December 31, 1997, which
represent performance-based compensation for 1996, were awarded to officers and
key employees under the 1997 Plan.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 (FAS No. 123), "Accounting for Stock-Based
Compensation." Accordingly, compensation cost has been recognized in the
financial statements only for stock options that are compensatory as defined
under APB 25. Had compensation cost for the Company's three stock option plans
been determined based on the fair value at the grant date for awards made in
1997, 1996 and 1995 consistent with the provisions of FAS No. 123, the Company's
net earnings and earnings per share would have been the pro forma amounts
indicated below:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------
($ in thousands,
except per share data)
<S> <C> <C> <C>
Net income, as reported $18,239 $11,460 $8,105
Net income, pro forma 17,765 11,383 8,093
Basic earnings per common
share, as reported $1.71 $1.25 $.92
Basic earnings per common
share, pro forma 1.67 1.25 .91
Diluted earnings per
common share, as reported $1.66 $1.23 $.90
Diluted earnings per
common share, pro forma 1.62 1.23 .90
</TABLE>
42 FINANCIAL REVIEW
<PAGE>
NOTES TO FINANCIAL STATEMENTS [continued]
The fair values of the options were estimated at the date of grant using the
Black-Scholes option pricing model. The following assumptions were used for the
1997, 1996 and 1995 stock option grants:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
1997 1996 1995
Grants Grants Grants
- --------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.7% 5.8% 5.8%
Expected option life 4.4 years 4.4 years 4.3 years
Expected market
price volatility 41% 40% 40%
Expected dividend yield 0% 0% 0%
</TABLE>
The effects on pro forma net income and earnings per common share of expensing
the estimated fair value of stock options are not necessarily representative of
the effects on reported net income for future years due to such things as the
vesting period of the stock options and the potential for issuance of additional
stock options in future years. Additionally, because FAS No. 123 is applicable
only to options granted subsequent to December 31, 1994, its pro forma effect
will not be fully reflected until 1998.
Shares of capital stock reserved for possible future issuance are as follows:
- --------------------------------------------------
<TABLE>
<CAPTION>
December 31
1997 1996
------------------------
<S> <C> <C>
Options granted 901,251 400,000
Options as yet ungranted 163,462 108,625
Qualified employee
savings plans 625,000 625,000
------------------------
1,689,713 1,133,625
------------------------
------------------------
</TABLE>
11. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------
<S> <C> <C> <C>
Net income (in thousands) $18,239 $11,460 $8,105
Basic average shares 10,663,876 9,133,650 8,851,403
Effect of dilutive securities:
Stock options and stock awards 263,505 90,874 132,312
Stock warrants 89,162 63,791 63,640
Contingently issuable shares 6,998 -- --
----------------------------------------
359,665 154,665 195,952
Dilutive average shares 11,023,541 9,288,315 9,047,355
----------------------------------------
----------------------------------------
Basic earnings per share $1.71 $1.25 $.92
----------------------------------------
----------------------------------------
Diluted earnings per share $1.66 $1.23 $.90
----------------------------------------
----------------------------------------
</TABLE>
FINANCIAL REVIEW 43
<PAGE>
NOTES TO FINANCIAL STATEMENTS [continued]
12. Quarterly Results of Operations [Unaudited]
The following is a summary of the unaudited quarterly results of operations for
1997 and 1996 (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------- ------------
March June September December Full
29 28 27 31 Year
-------------------------------------------- ------------
<S> <C> <C> <C> <C> <C>
1997
Net sales $47,787 $54,210 $56,704 $61,563 $220,264
Income from operations 5,505 6,820 7,681 8,296 28,302
Net income 3,460 4,387 4,978 5,414 18,239
Basic earnings per common share 0.37 0.41 0.44 0.48 1.71
Diluted earnings per common share 0.36 0.40 0.43 0.46 1.66
<CAPTION>
Quarter Ended
-------------------------------------------- ------------
March June September December Full
30 29 28 31 Year
-------------------------------------------- ------------
<S> <C> <C> <C> <C> <C>
1996
Net sales $33,885 $42,218 $41,559 $44,206 $161,868
Income from operations 2,047 4,283 5,259 5,408 16,997
Net income 1,636 2,904 3,350 3,570 11,460
Basic earnings per common share 0.18 0.32 0.37 0.39 1.25
Diluted earnings per common share 0.18 0.31 0.36 0.38 1.23
</TABLE>
44 FINANCIAL REVIEW
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
AFC Cable Systems, Inc.
We have audited the accompanying consolidated balance sheets of AFC Cable
Systems, Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of AFC
Cable Systems, Inc. at December 31, 1997 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
February 17, 1998
FINANCIAL REVIEW 45
<PAGE>
- --------------------------------------------------------------------------------
PART TWO ITEM NINE
- --------------------------------------------------------------------------------
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
- --------------------------------------------------------------------------------
None.
- --------------------------------------------------------------------------------
PART THREE ITEM TEN DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- --------------------------------------------------------------------------------
Information relating to the current executive officers of the Company is
included in Item 4A of Part I.
Information relating to the Directors of the Company is incorporated herein by
reference to the "Election of Directors" section of the Company's Proxy
Statement to be filed with the Commission in connection with the 1998 Annual
Meeting of Stockholders (the "Proxy Statement").
- --------------------------------------------------------------------------------
PART THREE ITEM ELEVEN EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
Information relating to executive compensation is incorporated herein by
reference to the "Executive Compensation" section of the Proxy Statement.
- --------------------------------------------------------------------------------
PART THREE ITEM TWELVE SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
- --------------------------------------------------------------------------------
Information relating to security ownership is incorporated herein by reference
to the "Security Ownership of Certain Beneficial Owners and Management" section
of the Proxy Statement.
- --------------------------------------------------------------------------------
PART THREE ITEM THIRTEEN CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
Information relating to certain relationships and related transactions is
incorporated herein by reference to the "Certain Relationships and Related
Transactions" section of the Proxy Statement.
46 FINANCIAL REVIEW
<PAGE>
- --------------------------------------------------------------------------------
PART FOUR ITEM FOURTEEN EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
(1) The following financial statements of AFC Cable Systems, Inc. are
included in Item 8:
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Income for the Years Ended December 31, 1997,
1996 and 1995
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended December
31,1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) The following financial statement schedule of AFC Cable Systems, Inc. is
included in Item 14(d):
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
related instructions or are inapplicable and therefore have been omitted.
(b) Reports on Form 8-K
None
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate section
of this report. See Exhibit Index on page 50.
FINANCIAL REVIEW 47
<PAGE>
- --------------------------------------------------------------------------------
PART FOUR ITEM FOURTEEN [d] FINANCIAL STATEMENT SCHEDULE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additions
-----------------------------------------------------------
Balance Charged to Balance
at Charge to Other at
Beginning Costs and Accounts -- Deductions -- End of
Description of Period Expenses Describe Describe Period
- --------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Deducted from asset accounts:
Allowance for doubtful accounts ............ $ 356 $ 209 $ 607(3) $ 279(1) $ 893
Reserve for sales allowances ............... 2,784 5,291 -- 5,098(2) 2,977
------ ------ ------- ------ ------
Totals ..................................... $3,140 $5,500 $ 607 $5,377 $3,870
------ ------ ------- ------ ------
------ ------ ------- ------ ------
Year ended December 31, 1996
Deducted from asset accounts:
Allowance for doubtful accounts ............ $ 300 $ 263 -- $ 207(1) $ 356
Reserve for sales allowances ............... 2,065 4,148 -- 3,429(2) 2,784
------ ------ ------- ------ ------
Totals ..................................... $2,365 $4,411 -- $3,626 $3,140
------ ------ ------- ------ ------
------ ------ ------- ------ ------
Year ended December 31, 1995
Deducted from asset accounts:
Allowance for doubtful accounts ............ $ 316 $ 76 -- $ 92(1) $ 300
Reserve for sales allowances ............... 1,585 3,008 -- 2,528(2) 2,065
------ ------ ------- ------ ------
Totals ..................................... $1,901 $3,084 -- $2,620 $2,365
------ ------ ------- ------ ------
------ ------ ------- ------ ------
</TABLE>
(1) Uncollectible accounts written off, net of any recoveries.
(2) Represents allowances given in the form of credit memos.
(3) Represents $607,000 of allowances attributable to companies acquired in
1997.
48 FINANCIAL REVIEW
<PAGE>
- --------------------------------------------------------------------------------
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of Section 13 or 15(d) 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.
AFC CABLE SYSTEMS, INC.
BY: /s/ RALPH R. PAPITTO
-----------------------------
Ralph R. Papitto
Chairman of the Board and
Chief Executive Officer
DATE: MARCH 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------------------------------------------------------------
<S> <C> <C>
/s/RALPH R. PAPITTO Chairman of the Board, Chief March 30, 1998
- ------------------------ Executive Officer and Director
Ralph R. Papitto (Principal Executive Officer)
/s/ROBERT R. WHEELER President and Director March 30, 1998
- ------------------------
Robert R. Wheeler
/s/RAYMOND H. KELLER Vice President, Chief Financial March 30, 1998
- ------------------------ Officer and Director (Principal
Raymond H. Keller Financial and Accounting
Officer)
/s/ANTHONY J. SANTORO Director March 30, 1998
- ------------------------
Anthony J. Santoro
/s/MALCOLM M. DONAHUE Director March 30, 1998
- ------------------------
Malcolm M. Donahue
</TABLE>
FINANCIAL REVIEW 49
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT INDEX
- --------------------------------------------------------------------------------
The following designated exhibits are, as indicated below, either filed herewith
of have heretofore been filed with the Securities and Exchange Commission under
the Securities Act of 1933 or the Securities Exchange Act of 1934 and are
referred to and incorporated herein by reference to such filings. As indicated,
various exhibits are incorporated herein by reference to (i) the Registrant's
Registration Statement on Form S-1 (No. 33-70234), (referred to herein below as
"33-70234"), (ii) the Registrant's Form 10-K for the year ended December 31,
1993 (File No. 0-23070) (referred to herein below as "1993 10-K"), (iii) the
Registrant's Form 10-Q for the quarter ended April 2, 1994 (File No.0-23070)
(referred to herein below as "4/2/94 10-Q"), (iv) the Registrant's Form 8-K
(File No. 023070) dated October 14, 1994 (referred to herein below as"10/14/94
8-K"), (v) the Registrant's Form 10-Q for the quarter ended October 1,1994 (File
No. 0-23070) (referred to herein below as "10/1/94 10-Q"), (vi) the Registrant's
Registration Statement on Form S-1 (No. 33-87884) (referred to herein below as
"33-87884"), (vii) the Registrant's Form 10-K for the year ended December 31,
1994 (File No. 0-23070) (referred to herein below as "1994 10-K"), (viii) the
Registrant's Form 10-K for the year ended December 31, 1995 (File No. 0-23070)
(referred to herein below as "1995 10-K"), (ix) the Registrant's Form 10-Q for
the quarter ended September 28, 1996 (File No. 0-23070) (referred to herein
below as "9/28/96 10-Q"), (x) the Registrant's Form 10-K for the year ended
December 31, 1996 (File No. 0-23070) (referred to herein below as "1996 10-K")
and (xi) the Registrant's Registration Statement on Form S-3 (No. 333-23779)
(referred to herein below as "333-23779").
<TABLE>
<CAPTION>
SEC Exhibit Exhibit Number Docket
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Exhibit 3. Articles of Incorporation and Bylaws
3.1 Restated Certificate of Incorporation, as amended 3.1 33-87884
3.2 Bylaws of the Company 3.2 33-70234
Exhibit 4. Instruments defining the rights of security holders
4.1 Specimen Certificate of Common Stock 4.1 33-70234
Exhibit 10. Material Contracts
10.1 Representatives' Warrants 10.1 1993 10-K
10.2 Selective Retirement Plan of the Registrant, dated
December 31, 1991, including Trust Agreement relating thereto 10.2 33-70234
10.3 1993 Equity Incentive Plan 10.3 33-70234
10.4 1993 Directors' Stock Option Plan 10.4 33-70234
10.5 Lease dated November 1, 1988 (including amendment)
between the Registrant and Bensalem II Enterprises, relating to
property at State Road, Bensalem, PA 10.18 33-70234
10.6 Lease dated June 30, 1992 between the Registrant and E&M
Equities, relating to property at Edward Street, Linden, NJ 10.19 33-70234
10.7 Lease dated July 22, 1993 between the Registrant and Fleet Center
Associates, relating to property at Fleet Center, Providence, RI 10.20 33-70234
10.8 Stock Purchase Agreement dated as of December 22, 1989
by and between Nortek, Inc. and Bristol Industries, Inc. 10.22 33-70234
</TABLE>
50 FINANCIAL REVIEW
<PAGE>
<TABLE>
<CAPTION>
SEC Exhibit Exhibit Number Docket
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
10.9 Lease dated December 21, 1993 between the Registrant and
Whitesell Enterprises, relating to property at Dulty's Lane,
Burlington, NJ 10.23 1993 10-K
10.10 Lease dated March 18, 1994 between the Registrant and
William L. Baker and Nancy A. Baker, relating to property at
Leyshon Drive, Byesville, OH 10.1 4/2/94 10-Q
10.11 Master Lease Agreement dated February 8, 1993 by and
between BancBoston Leasing, Inc. and the Registrant 10.5 4/2/94 10-Q
10.12 Equipment Acquisition Agreement dated April 15, 1994 by and
between BancBoston Leasing, Inc. and the Registrant 10.6 4/2/94 10-Q
10.13 Asset Purchase Agreement dated September 30, 1994 by and among
the Registrant, AFC Acquisition, Inc., Kaf-Tech, Inc. and David Kruse 2.1 10/14/94 8-K
10.14 Lease dated as of September 30, 1994 by and between AFC
Acquisition, Inc. and Kaf-Tech, Inc., relating to property in Largo, FL 10.1 10/1/94 10-Q
10.15 Lease dated February 1, 1995 by and between the Registrant and
H. Glenn Butler, relating to property at 2660 Brenner Dr., Dallas, TX 10.25 1994 10-K
10.16 Lease dated December 7, 1994 by and between the Registrant and
TRST Orange County, Inc. relating to property at
1425 S. Acacia, Fullerton, CA 10.26 1994 10-K
10.17 Purchase and sale agreement dated March 7, 1996 by and between
the Registrant and L.J. Menco, Inc. 10.27 1995 10-K
10.18 Credit Agreement dated as of March 29 1996 by and between the
Registrant and Fleet National Bank 10.28 1995 10-K
10.19 Revolving Credit Note in the aggregate principal amount of
$25,000,000 dated as of March 29, 1996 by the Registrant to
Fleet National Bank 10.29 1995 10-K
10.20 Term Note in the amount of $3,200,000 dated as of March 29, 1996
by the Registrant to Fleet National Bank 10.30 1995 10-K
10.21 Loan and Trust Agreement among Massachusetts Industrial
Finance Agency, the Registrant and Fleet National Bank, as Trustee,
dated July 1, 1996 10.1 9/28/96 10-Q
10.22 Reimbursement Agreement between the Registrant and
Fleet National Bank, dated July 1, 1996 10.2 9/28/96 10-Q
10.23 Letter of Credit issued by Fleet National Bank for the account
of the Registrant, for the benefit of Massachusetts Industrial
Finance Agency, dated July 24, 1996 10.3 9/28/96 10-Q
</TABLE>
FINANCIAL REVIEW 51
<PAGE>
<TABLE>
<CAPTION>
SEC Exhibit Exhibit Number Docket
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
10.24 Mortgage and Security Agreement issued by the Registrant to
Fleet National Bank, dated July 1, 1996 10.4 9/28/96 10-Q
10.25 Pledge Agreement by and between the Registrant and
Fleet National Bank, dated July 1, 1996 10.5 9/28/96 10-Q
10.26 Stock Purchase Agreement dated January 28, 1997 by and
between the Registrant and the Stockholders of B&B Electronics
Manufacturing Co., Inc. 10.26 1996 10-K
10.27 Asset Purchase Agreement dated January 31, 1997 by and
between AFC Acquisition, Inc. and Area Lighting Research, Inc. 10.27 1996 10-K
10.28 1997 Equity Incentive Plan 10.1 333-23779
10.29 Asset Purchase Agreement dated December 2, 1997 by and
among Flexfab Horizons International, Inc., the Registrant
and AFC Madison Acquisition Corp. *
Exhibit 21. Subsidiaries of the Registrant
21.1 Subsidiaries of the Registrant *
Exhibit 23. Consents of experts and counsel
23.1 Consent of Ernst & Young LLP *
</TABLE>
* Filed herewith
52 FINANCIAL REVIEW
<PAGE>
[LOGO]
AFC
CABLE SYSTEMS
<PAGE>
[AFC LOGO]
AFC
CABLE SYSTEMS
CORPORATE OFFICES
50 Kennedy Plaza
Suite 1250
Providence, RI 02903-2360
Telephone: (401) 453-2000
Fax: (401) 453-2009
E-mail: [email protected]
Internet: http://www.afcweb.com
BOARD OF DIRECTORS
Ralph R. Papitto
Chairman of the Board
Chief Executive Officer
Robert R. Wheeler
President
Raymond H. Keller
Vice President and
Chief Financial Officer
Anthony J. Santoro
President, Roger Williams University
Dr. Malcolm M. Donahue
Professor of Law,
Suffolk University Law School
CORPORATE OFFICERS
Ralph R. Papitto
Robert R. Wheeler
Raymond H. Keller
ANNUAL MEETING
The annual meeting of shareholders
of AFC Cable Systems, Inc. will be
held at 10:00 AM, May 13, 1998, at
the Providence Biltmore Grand
Heritage Hotel, Providence, R.I.
REGISTRAR AND TRANSFER AGENT
Boston EquiServe, L.P.
150 Royall Street
Canton, MA 02021
Telephone: (781) 575-2393
INDEPENDENT AUDITORS
Ernst & Young LLP
40 Westminster Street, Suite 800
Providence, RI 02903
Telephone: (401) 457-3700
SHAREHOLDER AND INVESTOR INQUIRIES
Ms. Virginia Johnson
AFC Cable Systems, Inc.
50 Kennedy Plaza, Suite 1250
Providence, RI 02903-2360
Telephone: (401) 453-2000
Fax: (401) 453-2009
E-mail: [email protected]
COMMON STOCK LISTING
Nasdaq National Market System: AFCX
For current stock price quotations,
access the Nasdaq internet site
at: http://www.nasdaq.com
Enter our trading symbol (AFCX),
and you will receive the stock price
information and see a link directly to
the AFC Cable Systems' internet site.
