<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-23070
AFC CABLE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-1517994
(State or other jurisdiction of incorporation or organization) (I.R.S.Employer Identification No.)
50 KENNEDY PLAZA, SUITE 1250, PROVIDENCE, RHODE ISLAND 02903
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (401) 453-2000
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes[X] No[ ].
Indicate the number of shares of the Registrant's Common Stock outstanding as of
the latest practicable date:
Class Outstanding as of November 12, 1999
----- -----------------------------------
Common Stock, $.01 par value 12,845,257
Page 1 of 17 pages
<PAGE>
PART I - FINANCIAL INFORMATION
AFC CABLE SYSTEMS, INC.
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
October 2, December 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................. $ 3,508 $ 2,968
Investments, marketable securities (Note 6) ................ 68,589 75,510
Accounts receivable, net of allowance for doubtful accounts
and sales allowances of $5,136 and $4,802, respectively . 46,221 39,748
Inventories:
Finished goods .......................................... 27,344 26,314
Work-in-process ......................................... 9,695 7,386
Raw materials ........................................... 11,813 7,477
--------- ----------
48,852 41,177
Current deferred taxes ..................................... 3,579 2,335
Other current assets (Note 10) ............................. 10,246 1,984
-------- ----------
Total current assets ....................................... 180,995 163,722
Property, plant and equipment, at cost ....................... 71,236 57,597
Less accumulated depreciation ................................ 20,908 16,459
--------- ----------
Net property, plant and equipment ............................ 50,328 41,138
Goodwill, net of accumulated amortization of $1,583 and
$886, respectively (Note 4) ................................ 33,563 34,230
Other long term assets, net .................................. 2,271 2,457
-------- ----------
Total assets ................................................. $267,157 $241,547
========= ==========
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
2
<PAGE>
AFC CABLE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS--Continued
(In thousands, except share data)
<TABLE>
<CAPTION>
October 2, December 31,
1999 1998
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ........................... $ 2,391 $ 2,426
Revolving credit note payable ............................... 17,000 7,500
Accounts payable ............................................ 19,984 18,388
Accrued expenses:
Payroll and employee benefits ............................ 4,594 4,811
Other .................................................... 7,655 6,242
-------- ---------
Total accrued expenses ................................... 12,249 11,053
-------- --------
Total current liabilities ..................................... 51,624 39,367
Long-term debt ................................................ 12,177 11,098
Deferred income taxes ......................................... 3,412 1,720
Other long-term liabilities ................................... 2,429 3,231
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued
Common stock, $.01 par value, 50,000,000 shares
authorized, 12,842,132 and 12,741,468 shares issued
and outstanding, respectively ............................ 128 127
Paid-in capital ............................................. 120,475 117,621
Accumulated other comprehensive income (loss) (Note 8) ...... (1,022) 580
Treasury stock, 30,732 shares and 14,137 shares,
respectively, at cost .................................... (900) (364)
Retained earnings ........................................... 78,834 68,167
-------- ---------
197,515 186,131
-------- --------
Total liabilities and shareholders' equity .................... $267,157 $241,547
======== ========
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
3
<PAGE>
AFC CABLE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
<TABLE>
<CAPTION>
Quarter ended
October 2, September 26,
1999 1998
---- ----
<S> <C> <C>
Net sales ..................................................... $ 75,493 $67,523
Cost of goods sold ............................................ 50,779 46,374
-------- --------
Gross profit .................................................. 24,714 21,149
Selling, general and administrative expenses .................. 13,304 11,289
-------- --------
Income from operations ........................................ 11,410 9,860
Other income (expense):
Interest expense ............................................ (369) (139)
Net investment and other income ............................. 1,129 1,034
-------- ---------
760 895
-------- ---------
Income before taxes and extraordinary item .................... 12,170 10,755
Income taxes .................................................. 4,805 4,155
-------- ---------
Income before extraordinary item .............................. 7,365 6,600
Extraordinary item, net of tax (Note 10) ...................... (10,957) -
-------- ----------
Net income (loss) (Note 8) .................................... $(3,592) $ 6,600
======== ==========
Basic earnings (loss) per common share (Note 7):
Income before extraordinary item .............................. $ .58 $ .52
Extraordinary item, net of tax ................................ (.86) -
---------- ----------
Net income (loss) ............................................. $ (.28) $ .52
========= ==========
Diluted earnings (loss) per common share (Note 7):
Income before extraordinary item .............................. $ .56 $ .51
Extraordinary item, net of tax ................................ (.83) -
---------- ----------
Net income (loss) ............................................. $ (.27) $ .51
========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
AFC CABLE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
<TABLE>
<CAPTION>
Nine months ended
October 2, September 26,
1999 1998
---- ----
<S> <C> <C>
Net sales ..................................................... $226,312 $202,275
Cost of goods sold ............................................ 153,427 140,699
--------- ----------
Gross profit .................................................. 72,885 61,576
Selling, general and administrative expenses .................. 39,710 33,491
--------- ----------
Income from operations ........................................ 33,175 28,085
Other income (expense):
Interest expense ............................................ (1,235) (527)
Net investment and other income ............................. 3,567 2,488
--------- ----------
2,332 1,961
--------- ----------
Income before taxes and extraordinary item .................... 35,507 30,046
Income taxes .................................................. 13,882 11,678
--------- ---------
Income before extraordinary item .............................. 21,625 18,368
Extraordinary item, net of tax (Note 10) ...................... (10,957) -
--------- ---------
Net income (Note 8) ........................................... $ 10,668 $ 18,368
========== =========
Basic earnings per common share (Note 7):
Income before extraordinary item .............................. $ 1.70 $ 1.53
Extraordinary item, net of tax ................................ (.86) -
---------- ---------
Net income .................................................... $ .84 $ 1.53
========== =========
Diluted earnings per common share (Note 7):
Income before extraordinary item .............................. $ 1.65 $ 1.47
Extraordinary item, net of tax ................................ (.84) -
---------- ----------
Net income .................................................... $ .81 $ 1.47
========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
AFC CABLE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine months ended
October 2, September 26,
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income .................................................... $ 10,668 $ 18,368
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation ............................................. 4,449 3,153
Amortization of intangibles .............................. 697 402
Net realized gain on available-for-sale securities ....... (683) (33)
Deferred income taxes .................................... 1,341 (467)
Provision for bad debts .................................. 343 188
Provision for sales allowances ........................... 490 (619)
Compensation expense for compensatory options ............ 57 57
Extraordinary item, net of tax, related to
investing activities (Note 10) ........................ 10,957 -
Increase (decrease) in cash arising from changes
in assets and liabilities:
Accounts receivable ................................. (7,306) (5,224)
Inventories ......................................... (7,675) 2,825
Other current assets (Note 10) ...................... (8,262) (283)
Other long-term assets .............................. 210 (388)
Accounts payable .................................... 3,596 787
Accrued payroll and employee benefits ............... (217) 386
Other accrued liabilities ........................... 1,356 (767)
Long-term liabilities ............................... (802) 661
---------- ---------
Net cash provided by operating activities ..................... 9,219 19,046
INVESTING ACTIVITIES
Acquisitions, including expenses, less cash acquired .......... (30) (2,890)
Capital expenditures .......................................... (13,639) (7,712)
Merger expenses paid, net of tax (Note 10) .................... (10,957) -
Purchase of available-for-sale securities ..................... (33,746) (89,649)
Proceeds from sale of available-for-sale securities ........... 38,830 54,349
--------- ---------
Net cash used in investing activities ......................... (19,542) (45,902)
FINANCING ACTIVITIES
Net revolving line of credit borrowings (repayments) .......... 9,500 (6,230)
Net proceeds from long-term debt .............................. 950 -
Payments on long-term debt, including current portion ......... (1,906) (127)
Proceeds from issuance of common stock ........................ 2,855 36,511
Purchase of treasury stock .................................... (536) (272)
--------- ----------
Net cash provided by financing activities ..................... 10,863 29,882
--------- ----------
Net increase in cash and cash equivalents ..................... 540 3,026
Cash and cash equivalents at beginning of period .............. 2,968 2,803
--------- ----------
Cash and cash equivalents at end of period .................... $ 3,508 $ 5,829
========= ==========
Supplemental schedule of cash flow information:
Cash paid during the period for interest .................... $ 1,280 $ 287
========= ==========
Cash paid during the period for income taxes ................ $11,720 $12,230
========= ==========
</TABLE>
See accompanying notes.
6
<PAGE>
AFC CABLE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 2, 1999
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of AFC Cable Systems, Inc.
(the "Company" or "AFC") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended October 2, 1999 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999. Certain prior year amounts have been reclassified to conform to current
period presentation. For further information, refer to the financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1998.
NOTE 2. INCOME TAXES
For the nine month periods ended October 2, 1999 and September 26, 1998,
the Company's effective tax rates of approximately 39.1% and 38.9%,
respectively, were greater than the statutory rate due primarily to state income
taxes.
NOTE 3. CONTINGENCIES
The Company is a defendant in certain claims that relate to matters that
occurred prior to present ownership. In accordance with the purchase and sale
agreement, the prior owner has indemnified the Company for such claims and,
accordingly, the matters are being defended by the prior owners and its
insurance companies. Management is of the opinion that these claims relate to
the prior owners and therefore will not have a material adverse effect on the
Company's financial position or results of operations.
Additionally, the Company is a party to one environmental matter not
covered by the indemnification. In this 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 United States
District Court for the District of Massachusetts entered a judgment in favor of
the Company with respect to this claim. On September 15, 1999, the U.S. Court of
Appeals for the First Circuit affirmed the District Court's judgement in favor
of the Company.
On March 12, 1998, a municipality named one of the Company's wholly-owned
subsidiaries in a suit seeking compensation for expenses allegedly incurred by
the municipality in connection with environmental contamination apparently
caused by the predecessor operator of the business. The Company believes that
any amounts recovered by the municipality and other costs and expenses
associated with this action are, subject to certain limitations, covered by
indemnification from the predecessor entity and its stockholders under the
related asset purchase agreement.
NOTE 4. GOODWILL
Goodwill consists of the excess cost over the fair value of the assets of
acquired businesses and is amortized on a straight-line basis over periods of 20
to 40 years. Accumulated amortization of goodwill totaled $1,583,000 at October
2, 1999 and $886,000 at December 31, 1998.
NOTE 5. FINANCING
Borrowings under the unsecured revolving line of credit were $17.0 million
at October 2, 1999. The weighted average interest rate on outstanding borrowings
under the line of credit as of October 2, 1999 was 5.843%. Total letter of
credit borrowings at October 2, 1999 under the line of credit were $1,547,000.
7
<PAGE>
On February 5, 1999, the Company borrowed $950,000 from a commercial bank
for the purpose of purchasing the Painesville, OH manufacturing facility
formerly leased by the Company for its Federal Hose Manufacturing operation. The
loan is for a term of fifteen years and is secured by a mortgage on the real
estate. Principal is payable in equal monthly installments plus interest
commencing March 1, 1999 and maturing on February 4, 2014. The loan will bear
interest at one half of one percent below the prime rate or, at the Company's
option, at a fixed annual rate equal to the LIBOR rate or a Cost of Funds rate
selected by the Company and approved by the lender. At October 2, 1999, the loan
bears a fixed interest rate of 6.65%.
On March 1, 1999, the Company issued promissory notes for a total of $2.0
million in connection with contingent consideration in the acquisition of
Georgia Pipe Company. Principal is payable in full on March 1, 2001 along with
all accrued interest. The notes bear interest on a floating basis at a rate
equal to the prime rate. Interest is payable quarterly on the first day each of
June, September, December and March commencing June 1, 1999. At October 2, 1999,
the notes carried a rate of 8.25%.
On May 11, 1999, the Company signed a promissory note with a commercial
bank for total borrowings of $1.7 million for the purpose of paying off the
mortgage on the Ottawa, IL facility occupied by B&B Electronics Manufacturing
Company, Inc., and for the construction of an additional facility on the same
site which will accommodate the engineering, information technology and
technical support functions for that business. As of October 2, 1999, advances
taken on this loan totaled approximately $900,000. Approximately $769,000 of
this amount was used to payoff the previous mortgage. During the construction
phase, monthly interest payments will be made at the rate of 7.0%. Upon
conversion to a conventional mortgage on May 7, 2000, which date is an extension
from the original conversion date of November 7, 1999, principal and interest
will be payable monthly and the loan will bear interest at one and one half
percent above the LIBOR rate. The loan will mature in fifteen years and is
secured by a mortgage on the real estate.
On November 3, 1999, the Company borrowed $5,000,000 from a commercial
bank for the purpose of financing the Company's 75,000 square foot
distribution/office facility in New Bedford, Massachusetts, the construction of
which was completed in the second quarter of 1999. The construction was
originally financed with borrowings under the Company's unsecured revolving line
of credit. The loan is secured by a mortgage on the real estate. Principal will
be amortized over twenty years and is payable in equal monthly installments plus
interest commencing December 1, 1999 and maturing on October 28, 2004, with
remaining principal and accrued interest due on that date. The loan will bear
interest at a floating rate equal to the prime rate, or, at the option of the
Company, at a fixed annual rate equal to either the LIBOR rate or a Cost of
Funds rate selected by the Company and approved by the lender. The loan
currently carries a rate of 6.41%.
8
<PAGE>
NOTE 6. INVESTMENTS
The following is a summary of securities held by the Company. All
securities are classified as available-for-sale.
<TABLE>
<CAPTION>
Gross Estimated
Gross Unrealized Fair
Cost Unrealized Gains Losses Value
-------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
(In Thousands)
OCTOBER 2, 1999
U.S. corporate debt ............. $ 21,064 $ 28 $ (1,039) $ 20,053
securities
U.S. treasury securities
and obligations of U.S.
Government agencies ........ 43,440 - (1,485) 41,955
Equity securities ............... 6,131 886 (436) 6,581
============= ================ =============== ==============
Total included in investments ... $ 70,635 $ 914 $(2,960) $ 68,589
============= ================ =============== ==============
DECEMBER 31, 1998
U.S. corporate debt ............. $ 13,806 $ 117 $(442) $ 13,481
securities
U.S. treasury securities
and obligations of U.S.
Government agencies ........ 55,229 108 (187) 55,150
Equity securities ............... 6,002 1,193 (316) 6,879
------------- ---------------- --------------- --------------
Total included in investments ... $ 75,037 $ 1,418 $(945) $ 75,510
============= ================ =============== ==============
</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
$702,000 and $(19,000) in the nine months ended October 2, 1999.
9
<PAGE>
NOTE 7. 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. The following table sets forth the computation
of basic and diluted earnings per share for the three and nine month periods
ended October 2, 1999 and September 26, 1998:
<TABLE>
<CAPTION>
Quarter ended Nine months ended
October 2, September 26, October 2, September 26,
1999 1998 1999 1998
-------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Income before extraordinary item $ 7,365 $ 6,600 $ 21,625 $ 18,368
Extraordinary item, net of tax (10,957) - (10,957) -
-------------- --------------- --------------- ----------------
Net income (loss) $(3,592) $ 6,600 $ 10,668 $ 18,368
Basic average shares 12,811,301 12,653,944 12,758,173 12,026,127
Effect of dilutive securities:
Stock options and stock awards 377,007 360,531 353,615 402,873
Stock warrants - - - 34,079
-------------- --------------- --------------- ----------------
377,007 360,531 353,615 436,952
-------------- --------------- --------------- ----------------
Dilutive average shares 13,188,308 13,014,475 13,111,788 12,463,079
============== =============== =============== ================
Basic earnings per share:
Income before extraordinary
item $ .58 $.52 $1.70 $1.53
============== =============== =============== ================
Extraordinary item, net of tax (.86) - (.86) -
============== =============== =============== ================
Net income (loss) $(.28) $.52 $.84 $1.53
============== =============== =============== ================
Diluted earnings per share:
Income before extraordinary
item $.56 $.51 $1.65 $1.47
============== =============== =============== ================
Extraordinary item, net of tax (.83) - (.84) -
============== =============== =============== ================
Net income (loss) $(.27) $.51 $.81 $1.47
============== =============== =============== ================
</TABLE>
NOTE 8. COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, for the three
and nine month periods ended October 2, 1999 and September 26, 1998 are as
follows:
<TABLE>
<CAPTION>
Quarter ended Nine months ended
October 2, September 26, October 2, September 26,
(In thousands) 1999 1998 1999 1998
------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income (loss) ............... $(3,592) $6,600 $10,668 $18,368
Unrealized gains (losses) on
securities ................... (716) (278) (1,602) (217)
============= =============== ============== ==============
Comprehensive income (loss) ..... $(4,308) $6,322 $ 9,066 $18,151
============= =============== ============== ==============
</TABLE>
10
<PAGE>
NOTE 9. SEGMENT INFORMATION
The Company has thirteen business units which have separate management teams
and infrastructures that in most cases offer different products and services.
The business units have been aggregated into two reportable segments, Wire and
Cable and Modular Wiring and Components.
The Wire and Cable segment produces armored cable, flexible conduit,
specialty cable, electrical fittings, and connectors. These products are sold
mainly to electrical distributors in the domestic market through a network of
independent sales representatives. The Modular Wiring and Components segment
produces flexible and premise wiring systems and related electrical components
and lighting controls. These products are primarily sold to electrical
distributors in the domestic market through a network of independent sales
representatives.
Not included in the Company's two reportable segments are business units
whose revenue consists of the manufacturing and distribution of plastic and
fabric hoses and the manufacturing of special processed metal. These business
units along with corporate investments are included within the "all other"
category in the tables below.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates performance based on income before taxes of the respective business
units.
Intersegment sales, which are immaterial, have been eliminated from sales
data reported below.
Reportable Segment Data (in thousands)
<TABLE>
<CAPTION>
Modular
Wire and Wiring and All
Cable Components Other Total
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
QUARTER ENDED
OCTOBER 2, 1999
Net sales ................. $57,558 $12,386 $5,549 $75,493
Income before taxes
and extraordinary item .. 8,914 1,687 1,569 12,170
Segment assets ............ 147,710 32,759 86,688 267,157
Depreciation .............. 1,222 192 117 1,531
Capital expenditures ...... 2,549 446 65 3,060
QUARTER ENDED
SEPTEMBER 26, 1998
Net sales ................. $50,252 $11,756 $5,515 $67,523
Income before taxes ....... 7,195 1,856 1,704 10,755
Segment assets ............ 100,512 26,417 88,272 215,201
Depreciation .............. 857 156 85 1,098
Capital expenditures ...... 2,288 168 211 2,667
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Modular
Wire and Wiring and All
Cable Components Other Total
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
NINE MONTHS ENDED
OCTOBER 2, 1999
Net sales ................. $175,158 $35,701 $15,453 $226,312
Income before taxes
and extraordinary item .. 26,283 4,743 4,481 35,507
Segment assets ............ 147,710 32,759 86,688 267,157
Depreciation .............. 3,530 572 347 4,449
Capital expenditures ...... 11,334 1,163 1,142 13,639
NINE MONTHS ENDED
SEPTEMBER 26, 1998
Net sales ................. $150,620 $34,122 $17,533 $202,275
Income before taxes ....... 21,334 4,582 4,130 30,046
Segment assets ............ 100,512 26,417 88,272 215,201
Depreciation .............. 2,438 464 251 3,153
Capital expenditures ...... 6,351 819 542 7,712
</TABLE>
NOTE 10. MERGER
On January 27, 1999, the Company entered into a definitive agreement with
Thomas & Betts Corporation ("T&B") whereby the Company would be acquired by T&B
in a stock-for-stock merger to be accounted for as a pooling of interests. The
merger agreement provided that each share of the Company's common stock
outstanding immediately prior to the merger be converted into the right to
receive .83 shares of T&B common stock. On August 27, 1999, the Company notified
T&B that the Company had received a superior proposal from Tyco International
Ltd. ("Tyco"). The Company subsequently terminated the merger agreement with T&B
and paid the $16 million termination fee required under that agreement. On
August 31, 1999, the Company entered into a definitive merger agreement with a
subsidiary of Tyco whereby the Company would be acquired by the subsidiary of
Tyco in a stock-for-stock merger. The Company recognized an extraordinary charge
in the quarter ended October 2, 1999 for the $16 million termination fee plus
other merger-related costs of approximately $1,963,000 resulting in an
extraordinary charge of $10,957,000 ($.84 per diluted share for the nine months
ended October 2, 1999), net of income tax benefit of $7,006,000 which was
recorded as a current asset.
The merger agreement with the subsidiary of Tyco provides that AFC
stockholders will receive a fraction of a Tyco common share for each share of
AFC common stock. The fraction is designed to give AFC stockholders $45.00 in
value of Tyco common shares. If, however, the price of Tyco shares is below
$91.18 (before giving effect to the October 21, 1999 2-for-1 split of Tyco's
common stock) during a measuring period prior to the merger, AFC stockholders
could receive less than $45.00 in Tyco stock. Stockholders of the Company must
approve the transaction with Tyco before it can take place. The Company has
scheduled a special meeting of its stockholders for November 22, 1999 to vote on
this matter. Upon the consummation of the merger, the Company will pay a
contingent fee to its investment banker and recognize certain other merger
related costs.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Comparative Results of Operations for the Three and Nine Months
Ended October 2, 1999 and September 26, 1998
This report contains certain forward-looking statements within the meaning
of section 21E of the Securities Exchange Act of 1934, as amended. These
statements include, among others, statements relating to future events or the
future financial performance of the Company. Such statements are only
expectations and actual events or results may differ materially. Factors which
could cause actual results to differ materially from those indicated in such
forward-looking statements are set forth in "Factors That May Affect Future
Performance" in the Company's Annual Report on Form 10-K for the year 1998.
MERGER
On January 27, 1999, the Company entered into an agreement with Thomas &
Betts Corporation ("T&B") whereby the Company would become, through a
stock-for-stock merger, a wholly-owned subsidiary of T&B. On August 31, 1999,
the Company entered into a merger agreement with a subsidiary of Tyco
International Ltd. ("Tyco"), terminated the merger agreement with T&B and paid
the $16 million termination fee to T&B provided for under the T&B agreement. The
agreement that the Company entered into with Tyco provides that the Company will
become, through a stock-for-stock merger, a subsidiary of Tyco. The transaction
is subject to the approval of the Company's stockholders. A special meeting of
the Company's stockholders has been scheduled for November 22, 1999 for the
purpose of considering and voting upon a proposal to approve and adopt the
merger agreement with Tyco.
RESULTS OF OPERATIONS
NET SALES. Net sales for the quarter ended October 2, 1999 increased $8.0
million, or 11.9%, to $75.5 million from $67.5 million for the quarter ended
September 26, 1998. Net sales for the nine months ended October 2, 1999
increased $24.0 million, or 11.9%, to $226.3 million from $202.3 million for the
nine months ended September 26, 1998. Net sales for the Wire and Cable Segment
increased $7.3 million, or 14.5%, to $57.6 million for the quarter ended October
2, 1999 from $50.3 million for the quarter ended September 26, 1998. For the
nine months ended October 2, 1999, net sales for the Wire and Cable Segment
increased $24.6 million, or 16.3%, to $175.2 million from $150.6 million for the
nine months ended September 26, 1998. These increases are mainly attributable to
the addition of sales by Spiraduct and Georgia Pipe, which were acquired in May
and October of 1998, respectively.
Net sales for the Modular Wiring and Components segment increased $0.6
million, or 5.1%, to $12.4 million for the quarter ended October 2, 1999 from
$11.8 million for the quarter ended September 26, 1998. For the nine months
ended October 2, 1999, net sales for this segment increased $1.6 million, or
4.7%, to $35.7 million from $34.1 million for the nine months ended September
26, 1998. These increases are attributable primarily to higher sales of photo
controls, other lighting products and electronic interfaces and connectors for
the computer industry.
Net sales of other products for the quarter ended October 2, 1999 were $5.5
million, approximately equal to net sales for the quarter ended September 26,
1998. For the nine months ended October 2, 1999, net sales of other products
decreased $2.0 million, or 11.4%, to $15.5 million from $17.5 million for the
nine months ended September 26, 1998. This decrease is attributable mainly to
the slow-down in the oil drilling industry, which is the largest market for the
Company's specialty coated metals products. Resulting excess capacity in the
Company's specialty coated metals operation, however, was used for internal
manufacturing requirements in the Wire and Cable segment.
GROSS PROFIT. Gross profit for the quarter ended October 2, 1999 increased
$3.6 million, or 17.1%, to $24.7 million from $21.1 million for the quarter
ended September 26, 1998. Gross profit for the nine months ended October 2, 1999
increased $11.3 million, or 18.3%, to $72.9 million from $61.6 million for the
nine months ended September 26, 1998. Gross margin increased to 32.7% for the
quarter ended October 2, 1999 from 31.3% for the quarter ended September 26,
1998. Gross margin for the nine months ended October 2, 1999 increased to 32.2%
from 30.4% for the nine months ended September 26, 1998. The increased gross
margin is attributable to (i) improved operating efficiencies, (ii) more
efficient material utilization resulting from improved manufacturing processes,
(iii) increased sales of the Company's higher margin specialty application
cables and electronic interface products and (iv) favorable margins on sales of
the Company's line of rigid polyvinyl chloride conduit.
13
<PAGE>
INCOME FROM OPERATIONS. Income from operations for the quarter ended October
2, 1999 increased $1.5 million, or 15.2%, to $11.4 million from $9.9 million for
the quarter ended September 26, 1998. Income from operations for the nine months
ended October 2, 1999 increased $5.1 million, or 18.1%, to $33.2 million from
$28.1 million for the nine months ended September 26, 1998. Income from
operations as a percentage of net sales increased to 15.1% for the quarter ended
October 2, 1999 from 14.6% for the quarter ended September 26, 1998. For the
nine months ended October 2, 1999, income from operations as a percentage of net
sales increased to 14.7% from 13.9% for the nine months ended September 26,
1998. These increases resulted from improved gross margin, partially offset by
increases in freight costs, compensation expense, advertising expense and new
product development costs.
INCOME BEFORE EXTRAORDINARY ITEM. Income before extraordinary item for the
quarter ended October 2, 1999 increased $0.8 million, or 12.1%, to $7.4 million
from $6.6 million for the quarter ended September 26, 1998. For the nine months
ended October 2, 1999, income before extraordinary item increased $3.2 million,
or 17.4%, to $21.6 million from $18.4 million for the nine months ended
September 26, 1998. Income before extraordinary item as a percentage of net
sales for the quarter ended October 2, 1999 was 9.8%, equal to that for the
quarter ended September 26, 1998. For the nine months ended October 2, 1999,
income before extraordinary item as a percentage of net sales increased to 9.6%
from 9.1% for the nine months ended September 26, 1998. For the quarter ended
October 2, 1999, increased income from operations was offset by higher interest
expense and an increased effective income tax rate due to an increase in state
tax expense. For the nine months ended October 2, 1999, the increase is
primarily due to increased income from operations and increased income from
investments in marketable securities partially offset by an increase in interest
expense and a slight increase in the effective income tax rate.
EXTRAORDINARY ITEM. In connection with the termination of the merger
agreement with T&B the Company paid a termination fee of $16 million to T&B as
provided for in the merger agreement. This fee plus approximately $1,963,000 in
other merger related expenses were charged against earnings in the quarter ended
October 2, 1999, resulting in an after tax charge of $10,957,000, or $.83 per
diluted share and $.84 per diluted share for the three and nine month periods
ended October 2, 1999, respectively.
INTEREST EXPENSE. Interest expense for the quarter ended October 2, 1999
increased to $369,000 from $139,000 for the quarter ended September 26, 1998.
Interest expense for the nine months ended October 2, 1999 increased to
$1,235,000 from $527,000 for the nine months ended September 26, 1998. These
increases are attributable to (i) an increase in average borrowings under the
Company's revolving line of credit resulting from increased accounts receivable,
inventories and capital additions and (ii) higher long-term debt resulting from
acquisitions consummated in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations totaled $9.2 million for the nine months ended
October 2, 1999 and was mainly attributable to increased profitability and
accounts payable partially offset by an increase in accounts receivable
resulting from higher sales, increased inventories and an increase in other
current assets resulting from the tax benefit associated with the extraordinary
item. Working capital on October 2, 1999 was $129.4 million and the ratio of
current assets to current liabilities was 3.51 to 1.00.
The Company believes that existing cash and marketable securities, cash
generated from operations and available borrowings under its revolving line of
credit will be sufficient to meet its on-going working capital and capital
expenditure requirements for the foreseeable future.
YEAR 2000
The Company has identified four areas of the business on which the year 2000
("Y2K") issue will have an impact. The company's work on the Y2K compliance
initiative began in 1997 with the assessment process which defined the following
four Y2K impact areas: computer systems and hardware, manufacturing support
processes, plant facility HVAC systems and manufactured products.
The risk assessment and exposure analysis was completed in 1997 and each of
the four areas was ranked as high, medium or low. The only high-risk area
identified was computer systems and hardware. As a result, the Company has
replaced its former computer infrastructure with an Enterprise Resource Planning
("ERP") information system. The software and computer hardware have been
installed and implementation scheduled for the third quarter 1999 was completed
during the third quarter 1999. Additional software systems have been upgraded to
a Y2K compliant version of the software. These systems became fully compliant in
the second quarter of 1999.
14
<PAGE>
Project expenditures to date total approximately $5.1 million which includes
the purchase of new mainframe computer hardware, ERP application software and
consulting services. These costs have been funded through operating cash flows
and most have been capitalized. The Company expects to incur an additional $1.0
million of incremental costs throughout the 1999 fiscal year. This will cover
hardware platforms, personnel costs related to software configuration,
conversion and training of the workforce. Management feels that replacing the
Company's information system addresses the majority of the Company's Y2K
computer issues, reducing the likelihood that a contingency plan will be
necessary. In addition, management will implement a company-wide program to
strictly control and limit changes to major information technology ("IT")
systems during the fourth quarter of 1999 to reduce potential additional
exposures and to concentrate IT resources on integration testing and other
Y2K-related efforts.
The three remaining areas, manufacturing support processes, plant facility
HVAC systems and manufactured products, which have no embedded microprocessors,
have been assessed and remediation was completed in the second quarter of 1999.
The Company currently does not anticipate the need to develop an extensive
contingency plan for these areas.
The Company has completed a supplier survey which was undertaken to validate
that the Company's largest suppliers will be Y2K compliant before the end of
calendar year 1999. Based upon the results of this survey, the Company
anticipates that these suppliers will be Y2K compliant by the end of calendar
year 1999. The Company's financial institutions and third party providers have
been surveyed and the Company believes that they are Y2K compliant, or will be
before the end of the calendar year 1999.
The Company believes its Y2K program is adequate to detect year 2000
compliance issues, and that it has the necessary resources to remedy them.
However, the Y2K problem has many aspects and potential consequences, some of
which are not reasonably foreseeable. The Company could be adversely impacted by
the Y2K issue if suppliers, customers and other businesses do not address this
issue successfully. There can be no assurance that unforeseen circumstances will
not arise.
15
<PAGE>
PART II - OTHER INFORMATION
AFC CABLE SYSTEMS, INC.
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 2.Agreement and Plan of Merger dated August 31, 1999 by and
among AFC Cable Systems, Inc., Tyco International (NV) Inc. and
Tyco Acquisition Corp. XXII (Incorporated herein by reference to
Exhibit 2.1 of the Current Report on Form 8-K/A filed by AFC
Cable Systems, Inc. on September 9, 1999, File No.
000-23070).
Exhibit 27. Financial Data Schedule.
(b) Current Report on Form 8-K filed with the Commission on September 7, 1999.
Under Item 5 of Form 8-K, AFC Cable Systems, Inc. reported the merger agreement
by and among AFC Cable Systems, Inc., Tyco International (NV) Inc. and Tyco
Acquisition Corp. XXII entered into on August 31, 1999.
Current Report on Form 8-K/A filed with the Commission on September 9, 1999.
Under Item 5 of Form 8-K/A, AFC Cable Systems, Inc. reported the merger
agreement by and among AFC Cable Systems, Inc., Tyco International (NV) Inc. and
Tyco Acquisition Corp. XXII entered into on August 31, 1999.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: November 12, 1999
AFC CABLE SYSTEMS, INC.
By:/s/Ralph R. Papitto
------------------------------
Ralph R. Papitto
Chairman of the Board and
Chief Executive Officer
By:/s/Raymond H. Keller
----------------------------
Raymond H. Keller
Vice President and
Chief Financial Officer
17
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