<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 July 3, 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 August 16, 1999
----- ----------------------------------
Common Stock, $.01 par value 12,835,882
Page 1 of 16 pages
<PAGE>
PART I - FINANCIAL INFORMATION
AFC CABLE SYSTEMS, INC.
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
July 3, December 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................. $ 1,917 $ 2,968
Investments, marketable securities (Note 6) ............... 75,901 75,510
Accounts receivable, net of allowance for doubtful accounts
and sales allowances of $4,139 and $4,802, respectively 48,013 39,748
Inventories:
Finished goods ......................................... 26,483 26,314
Work-in-process ........................................ 9,033 7,386
Raw materials .......................................... 9,141 7,477
-------- ---------
44,657 41,177
Current deferred taxes .................................... 2,813 2,335
Other current assets ...................................... 3,559 1,984
-------- ---------
Total current assets ...................................... 176,860 163,722
Property, plant and equipment, at cost ...................... 68,176 57,597
Less accumulated depreciation ............................... 19,377 16,459
-------- ---------
Net property, plant and equipment ........................... 48,799 41,138
Goodwill, net of accumulated amortization of $1,370 and
$886, respectively ........................................ 33,782 34,230
Other long term assets, net ................................. 2,356 2,457
-------- --------
Total assets ................................................ $261,797 $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>
July 3, 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 .............................. 13,000 7,500
Accounts payable ........................................... 18,477 18,388
Accrued expenses:
Payroll and employee benefits ........................... 3,590 4,811
Other ................................................... 5,948 6,242
-------- -------
Total accrued expenses ..................................... 9,538 11,053
-------- -------
Total current liabilities .................................... 43,406 39,367
Long-term debt ............................................... 12,461 11,098
Deferred income taxes ........................................ 2,760 1,720
Other long-term liabilities .................................. 2,417 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, 12,826,101 and 12,741,468 shares issued
and outstanding, respectively ........................... 128 127
Paid-in capital ............................................ 119,406 117,621
Accumulated other comprehensive income (Note 8) ............ (307) 580
Treasury stock, 30,732 shares and 14,137 shares,
respectively, at cost ................................... (900) (364)
Retained earnings .......................................... 82,426 68,167
-------- --------
200,753 186,131
-------- --------
Total liabilities and shareholders' equity ................... $261,797 $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
July 3, June 27,
1999 1998
---- ----
<S> <C> <C>
Net sales .................................................. $ 77,931 $ 69,466
Cost of goods sold ......................................... 53,144 48,401
-------- --------
Gross profit ............................................... 24,787 21,065
Selling, general and administrative expenses ............... 13,544 11,400
-------- --------
Income from operations ..................................... 11,243 9,665
Other income (expense):
Interest expense ......................................... (427) (255)
Net investment and other income .......................... 1,350 875
-------- --------
923 620
-------- --------
Income before taxes ........................................ 12,166 10,285
Income taxes ............................................... 4,776 4,007
-------- --------
Net income (Note 8) ........................................ $ 7,390 $ 6,278
======== ========
Basic earnings per common share (Note 7) ................... $ .58 $ .52
======== ========
Diluted earnings per common share (Note 7) ................. $ .56 $ .50
======== ========
</TABLE>
See accompanying notes
4
<PAGE>
AFC CABLE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
<TABLE>
<CAPTION>
Six months ended
July 3, June 27,
1999 1998
---- ----
<S> <C> <C>
Net sales .................................................... $150,819 $134,752
Cost of goods sold ........................................... 102,648 94,325
-------- --------
Gross profit ................................................. 48,171 40,427
Selling, general and administrative expenses ................. 26,406 22,202
-------- --------
Income from operations ....................................... 21,765 18,225
Other income (expense):
Interest expense ........................................... (866) (388)
Net investment and other income ............................ 2,438 1,454
-------- --------
1,572 1,066
-------- --------
Income before taxes .......................................... 23,337 19,291
Income taxes ................................................. 9,077 7,523
-------- --------
Net income (Note 8) .......................................... $ 14,260 $ 11,768
======== ========
Basic earnings per common share (Note 7) ..................... $ 1.12 $ 1.00
======== ========
Diluted earnings per common share (Note 7) ................... $ 1.09 $ .96
======== ========
</TABLE>
See accompanying notes
5
<PAGE>
AFC CABLE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six months ended
July 3, June 27,
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income .................................................. $ 14,260 $ 11,768
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation ........................................... 2,918 2,055
Amortization of intangibles ............................ 484 258
Net realized gain on available-for-sale securities ..... (636) (43)
Deferred income taxes .................................. 1,044 (428)
Provision for bad debts ................................ 260 121
Provision for sales allowances ......................... (412) (1,169)
Compensation expense for restricted stock
and compensatory options ............................ 38 38
Increase (decrease) in cash arising from changes
in assets and liabilities:
Accounts receivable ............................... (7,736) (5,412)
Inventories ....................................... (3,480) 1,970
Other current assets .............................. (1,575) (408)
Other long-term assets ............................ 213 (266)
Accounts payable .................................. 2,089 2009
Accrued payroll and employee benefits ............. (1,221) (264)
Other accrued liabilities ......................... (294) (1,149)
Long-term liabilities ............................. (814) 577
--------- ---------
Net cash provided by operating activities ................... 5,138 9,657
INVESTING ACTIVITIES
Acquisition, including expenses, less cash acquired ......... (36) (2,847)
Capital expenditures ........................................ (10,579) (5,045)
Purchase of available-for-sale securities ................... (24,454) (69,642)
Proceeds from sale of available-for-sale securities ......... 22,802 38,463
--------- ---------
Net cash used in investing activities ....................... (12,267) (39,071)
FINANCING ACTIVITIES
Net revolving line of credit borrowings (repayments) ........ 5,500 (3,230)
Net proceeds from long-term debt ............................ 950 -
Payments on long-term debt, including current portion ....... (1,622) (105)
Proceeds from issuance of common stock ...................... 1,786 36,476
Purchase of treasury stock .................................. (536) (272)
-------- ---------
Net cash provided by financing activities ................... 6,078 32,869
-------- ---------
Net increase (decrease) in cash and cash equivalents ........ (1,051) 3,455
Cash and cash equivalents at beginning of period ............ 2,968 2,803
-------- ---------
Cash and cash equivalents at end of period .................. $ 1,917 $ 6,258
======== =========
Supplemental schedule of cash flow information:
Cash paid during the period for interest $ 920 $ 206
======== =========
Cash paid during the period for income taxes $ 9,622 $ 8,266
======== =========
</TABLE>
See accompanying notes
6
<PAGE>
AFC CABLE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 3, 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 six month periods ended July 3, 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 six month periods ended July 3, 1999 and June 27, 1998, the
Company's effective tax rates of approximately 38.9% and 39.0%, 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. As of July 3, 1999, there is an appeal
pending with the U.S. Court of Appeals for the First Circuit.
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 $1,370,000 at July 3,
1999 and $886,000 at December 31, 1998.
NOTE 5. FINANCING
Borrowings under the unsecured revolving line of credit were $13.0 million
at July 3, 1999. The weighted average interest rate on outstanding borrowings
under the line of credit as of July 3, 1999 was 6.012%. Total letter of credit
borrowings at July 3, 1999 under the line of credit were $1,738,000.
On February 5, 1999, the Company borrowed $950,000 from a commercial bank
7
<PAGE>
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 July 3, 1999, the loan
bears an 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 July 3, 1999,
the notes carried a rate of 8.0%.
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 July 3, 1999, advances
taken on this loan totaled approximately $772,000, and were used primarily for
the payoff of 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 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.
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)
JULY 3, 1999
U.S. corporate debt securities $ 20,956 $ 71 $ (610) $ 20,417
U.S. treasury securities
and obligations of U.S.
Government agencies ......... 49,336 0 (1,386) 47,950
Equity securities ............. 6,618 1,192 (276) 7,534
------------ --------------- ------------- -------------
Total included in investments . $ 76,910 $ 1,263 $(2,272) $ 75,901
============ =============== ============= =============
DECEMBER 31, 1998
U.S. corporate debt securities $ 13,806 $ 117 $(442) $ 13,481
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
$642,000 and $(6,000) in the six months ended July 3, 1999.
8
<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 six month periods
ended July 3, 1999 and June 27, 1998:
<TABLE>
<CAPTION>
Quarter ended Six months ended
July 3, June 27, July 3, June 27,
1999 1998 1999 1998
-------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net income (in thousands) ........ $7,390 $6,278 $14,260 $11,768
Basic average shares ............. 12,744,492 12,060,875 12,731,610 11,712,219
Effect of dilutive securities:
Stock options and stock awards . 341,941 462,018 340,828 424,044
Stock warrants ................. 0 10,406 0 51,118
------------- -------------- -------------- --------------
341,941 472,424 340,828 475,162
------------- -------------- -------------- --------------
Dilutive average shares .......... 13,086,433 12,533,299 13,072,438 12,187,381
============= ============== ============== ==============
Basic earnings per share ......... $.58 $0.52 $1.12 $1.00
============= ============== ============== ==============
Diluted earnings per share ....... $.56 $0.50 $1.09 $0.96
============= ============== ============== ==============
</TABLE>
NOTE 8. COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, for the
three and six month periods ended July 3, 1999 and June 27, 1998 are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
July 3, June 27, July 3, June 27,
(In thousands) 1999 1998 1999 1998
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net income $7,390 $6,278 $14,260 $11,768
Unrealized gains (losses) on securities (655) 162 (887) 61
============ =========== ========== ==========
Comprehensive income $6,735 $6,440 $13,373 $11,829
============ =========== ========== ==========
</TABLE>
9
<PAGE>
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, are made on a basis intended to
reflect the market value of products recognizing prevailing market prices and
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
JULY 3, 1999
Net sales ................ $61,272 $11,671 $4,988 $77,931
Income before taxes ...... 9,075 1,611 1,480 12,166
Segment assets ........... 136,534 31,320 93,943 261,797
Depreciation ............. 1,166 193 115 1,474
Capital expenditures ..... 3,829 335 49 4,213
QUARTER ENDED
JUNE 27, 1998
Net sales ................ $51,590 $11,929 $5,947 $69,466
Income before taxes ...... 7,628 1,390 1,267 10,285
Segment assets ........... 98,565 25,238 87,904 211,707
Depreciation ............. 783 162 85 1,030
Capital expenditures ..... 2,499 282 187 2,968
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Modular
Wire and Wiring and All
Cable Components Other Total
----------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
SIX MONTHS ENDED
JULY 3, 1999
Net sales ............... $117,600 $23,316 $9,903 $150,819
Income before taxes ..... 17,369 3,056 2,912 23,337
Segment assets .......... 136,534 31,320 93,943 261,797
Depreciation ............ 2,308 380 230 2,918
Capital expenditures .... 8,785 717 1,077 10,579
SIX MONTHS ENDED
JUNE 27, 1998
Net sales ............... $100,368 $22,366 $12,018 $134,752
Income before taxes ..... 14,139 2,726 2,426 19,291
Segment assets .......... 98,565 25,238 87,904 211,707
Depreciation ............ 1,581 308 166 2,055
Capital expenditures .... 4,063 651 331 5,045
</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 provides that each share of the Company's common stock
outstanding immediately prior to the merger, except for treasury stock or stock
owned by T&B (which immediately prior to the merger will be canceled and
retired) will, at the time of the merger, be converted into the right to receive
.83 shares of T&B common stock. The merger agreement has been amended to
extend the termination date of the merger agreement from June 30, 1999 to August
30, 1999. Upon the consummation of the merger, the Company will pay a
contingent fee to its investment banker and recognize certain other merger
related costs. During the quarter ended July 3, 1999, the Company received two
unsolicited third party proposals to acquire a majority of the outstanding
common stock of the Company. The Company is currently evaluating these
proposals.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Comparative Results of Operations for the Three and Six Months
Ended July 3, 1999 and June 27, 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. The transaction is
intended to be accounted for as a pooling of interests. The transaction is
subject to the approval of the shareholders of both companies. During the
quarter ended July 3, 1999, the Company received two unsolicited third party
proposals to acquire a majority of the outstanding common stock of the Company.
The Company is currently evaluating these proposals.
RESULTS OF OPERATIONS
NET SALES. Net sales for the quarter ended July 3, 1999 increased $8.4
million, or 12.1%, to $77.9 million from $69.5 million for the quarter ended
June 27, 1998. Net sales for the six months ended July 3, 1999 increased $16.0
million, or 11.9%, to $150.8 million from $134.8 million for the six months
ended June 27, 1998. Net sales for the Wire and Cable Segment increased $9.7
million, or 18.8%, to $61.3 million for the quarter ended July 3, 1999 from
$51.6 million for the quarter ended June 27, 1998. For the six months ended July
3, 1999, net sales for the Wire and Cable Segment increased $17.2 million, or
17.1%, to $117.6 million from $100.4 million for the six months ended June 27,
1998. These increases are attributable primarily to the addition of sales
by Spiraduct and Georgia Pipe, which were acquired in May and October of 1998,
respectively, and to higher sales of the Company's (a) line of fittings and
connectors, (b) specialty application cables and (c) flexible conduit products,
mainly liquidtight conduit.
Net sales for the Modular Wiring and Components segment decreased $0.2
million, or 1.7%, to $11.7 million for the quarter ended July 3, 1999 from $11.9
million for the quarter ended June 27, 1998. For the six months ended July 3,
1999, net sales for this segment increased $0.9, or 4.0%, to $23.3 million from
$22.4 million for the six months ended June 27, 1998. Higher sales of photo
controls, other lighting products and electronic interfaces and connectors for
the computer industry in the quarter and six months ended July 3, 1999 were
offset by decreased sales of modular wiring systems.
Net sales of other products decreased $0.9 million, or 15.3%, to $5.0
million for the quarter ended July 3, 1999 from $5.9 million for the quarter
ended June 27, 1998. For the six months ended July 3, 1999, net sales of other
products decreased $2.1 million, or 17.5%, to $9.9 million from $12.0 million
for the six months ended June 27, 1998. These decreases are 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 July 3, 1999 increased $3.7
million, or 17.5%, to $24.8 million from $21.1 million for the quarter ended
June 27, 1998. Gross profit for the six months ended July 3, 1999 increased $7.8
million, or 19.3%, to $48.2 million from $40.4 million for the six months ended
June 27, 1998. Gross margin increased to 31.8% for the quarter ended July 3,
1999 from 30.3% for the quarter ended June 27, 1998. Gross margin for the six
months ended July 3, 1999 increased to 31.9% from 30.0% for the six months ended
June 27, 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.
INCOME FROM OPERATIONS. Income from operations for the quarter ended July 3,
12
<PAGE>
1999 increased $1.5 million, or 15.5%, to $11.2 million from $9.7 million for
the quarter ended June 27, 1998. Income from operations for the six months ended
July 3, 1999 increased $3.6 million, or 19.8%, to $21.8 million from $18.2
million for the six months ended June 27, 1998. Income from operations as a
percentage of net sales increased to 14.4% for the quarter ended July 3, 1999
from 13.9% for the quarter ended June 27, 1998. For the six months ended July 3,
1999, income from operations as a percentage of net sales increased to 14.4%
from 13.5% for the six months ended June 27, 1998. These increases resulted from
improved gross margin, partially offset by increases in freight costs,
compensation expense, advertising expense and new product development costs.
NET INCOME. Net income for the quarter ended July 3, 1999 increased $1.1
million, or 17.5%, to $7.4 million from $6.3 million for the quarter ended June
27, 1998. Net income for the six months ended July 3, 1999 increased $2.5
million, or 21.2%, to $14.3 million from $11.8 million for the six months ended
June 27, 1998. Net income as a percentage of net sales increased to 9.5% for the
quarter ended July 3, 1999 from 9.0% for the quarter ended June 27, 1998. For
the six months ended July 3, 1999, net income as a percentage of net sales
increased to 9.5% from 8.7% for the six months ended June 27, 1998. These
increases are primarily due to increased income from operations and increased
income from investments in marketable securities.
INTEREST EXPENSE. Interest expense for the quarter ended July 3, 1999
increased to $427,000 from $255,000 for the quarter ended June 27, 1998.
Interest expense for the six months ended July 3, 1999 increased to $866,000
from $388,000 for the six months ended June 27, 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 $5.1 million for the six months ended
July 3, 1999 and was mainly attributable to increased profitability and accounts
payable partially offset by an increase in accounts receivable resulting from
higher sales and increased inventories. Working capital on July 3, 1999 was
$133.5 million and the ratio of current assets to current liabilities was 4.07
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 is
replacing its existing computer infrastructure with an Enterprise Resource
Planning ("ERP") information system. The software and computer hardware have
been installed and implementation configuration is in process with an antici-
pated production date in the third quarter 1999. Additional software systems
have been upgraded to a Y2K compliant version of the currently operational
software. These systems were substantially compliant in the first quarter of
1999.
Project expenditures to date total approximately $3.1 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 second half of 1999 to reduce potential additional exposures
and to concentrate IT resources on integration testing and other Y2K-related
efforts.
13
<PAGE>
The three remaining areas, manufacturing support processes, plant facility
HVAC systems and manufactured products 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 are currently being surveyed
and the Company anticipates that they are Y2K compliant, or will be before the
end of 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.
14
<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 27. Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended July 3, 1999.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: August 16, 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
16
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