0000950130-01-504922.txt : 20011031 0000950130-01-504922.hdr.sgml : 20011031 ACCESSION NUMBER: 0000950130-01-504922 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010731 FILED AS OF DATE: 20011029 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CABLE DESIGN TECHNOLOGIES CORP CENTRAL INDEX KEY: 0000913142 STANDARD INDUSTRIAL CLASSIFICATION: DRAWING AND INSULATING NONFERROUS WIRE [3357] IRS NUMBER: 363601505 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12561 FILM NUMBER: 1769002 BUSINESS ADDRESS: STREET 1: 661 ANDERSON DR STREET 2: FOSTER PLZ 7 CITY: PITTSBURGH STATE: PA ZIP: 15220 BUSINESS PHONE: 4129372300 MAIL ADDRESS: STREET 1: FOSTER PLAZA 7 STREET 2: 661 ANDERSEN DRIVE CITY: PITTSBURGH STATE: PA ZIP: 15220 10-K 1 d10k.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [x] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended July 31, 2001 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 No. 0-22724 CABLE DESIGN TECHNOLOGIES CORPORATION (Exact Name of Registrant as Specified in Its Charter) Delaware 36-3601505 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) Foster Plaza 7 661 Andersen Drive Pittsburgh, PA 15220 (Address of Principal Executive Offices and Zip Code) (412) 937-2300 (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- Common Stock, $.01 par value New York Stock Exchange Preferred Stock Purchase Rights, with respect to Common Stock, par value $.01 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 requirement 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 need not be contained, to the best of 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 of the registrant at October 17, 2001 is $590,023,002. The number of shares outstanding of the registrant's Common Stock at October 17, 2001, is 44,066,412. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Cable Design Technologies Corporation Proxy Statement for the Annual Meeting of Stockholders to be held on December 10, 2001, (the "Proxy Statement") are incorporated by reference into Part III. Portions of the 2001 Cable Design Technologies Corporation Annual Report to Stockholders (the "2001 Annual Report") are incorporated by reference into Parts I, II and IV. CABLE DESIGN TECHNOLOGIES CORPORATION Table of Contents
PART I Page Item 1. Business ...........................................................................................2 Item 2. Properties ........................................................................................10 Item 3. Legal Proceedings .................................................................................11 Item 4. Submission of Matters to a Vote of Security Holders ...............................................11 Item 4.1. Executive Officers of the Registrant ..............................................................11 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters ...................................................................13 Item 6. Selected Financial Data ...........................................................................13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .....................................................13 Item 7a. Quantitative and Qualitative Disclosures About Market Risk .................................................................................13 Item 8. Financial Statements and Supplementary Data .......................................................13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................................................13 PART III Item 10. Directors and Executive Officers of the Registrant ....................................................................................14 Item 11. Executive Compensation ............................................................................14 Item 12. Security Ownership of Certain Beneficial Owners and Management .............................................................................14 Item 13. Certain Relationships and Related Transactions ....................................................14 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ...........................................................................15 Signatures ........................................................................................19
PART I. ITEM 1. BUSINESS General Cable Design Technologies Corporation ("CDT" or "the Company") is a leading worldwide designer and manufacturer of high bandwidth network connectivity products, including gigabit and fiber optic network cables and connectors, network structured wiring components, assemblies, electronic and fiber optic passive and active components, and interconnect cables for computer and communication switching applications, and communication cable products used in local loop, central office, wireless and other applications. We also manufacture electronic cable products that are used in automation, process control and specialty applications. Our sales for the fiscal year ended July 31, 2001 ("fiscal 2001") were $763.2 million as compared to $797.8 million for the same period in fiscal 2000 ("fiscal 2000"), representing a decrease of 4%, and our net income, excluding nonrecurring items, was $37.8 million for fiscal 2001 as compared to $54.8 million for fiscal 2000, representing a decrease of 31%. Nonrecurring charges of $14.3 million, net of tax, were incurred in fiscal 2001 related to restructuring, goodwill impairment, and a loss on the sale of a business. Reported net income after nonrecurring charges was $23.5 million. Fiscal 2001 results were negatively impacted by the slowdown in the network and telecommunication marketplaces, particularly in the United States, which began in the second half of the Company's fiscal year. Business Strategy We have achieved our current market position and success by emphasizing five primary strategies: (i) be the leading worldwide designer and manufacturer of electronic wire and cable and connectivity products; (ii) achieve growth both internally and through acquisition; (iii) grow internationally through acquisition; (iv) be a low cost producer; and (v) differentiate ourselves from our competition through outstanding service. Products. We focus on designing, developing and marketing technologically advanced network connectivity products, communication cable products used in local loop, central office and wireless applications, and specialty electronic cable products that are used in automation, process control and specialty applications. Examples of advanced network connectivity products include gigabit and fiber optic network cable and connectors, network structured wiring components, assemblies, electronic and fiber optic passive and active components, and interconnect cables for computer and communication switching applications. This strategy has enabled us to attain a leading position in the network and specialty electronic cable industries and avoid many price-sensitive, low technology sectors. This leading position has enabled us to establish strategic relationships with many customers. 2 Internal and Acquisition Growth. We continue to focus on internal growth by broadening our product offerings, investing in additional manufacturing capabilities and developing new customer relationships. In addition, we continually evaluate strategic acquisition opportunities. Since 1984, we have made 20 acquisitions. These acquisitions have contributed to our significant growth in revenues and operating profit. We intend to continue to seek acquisitions that will broaden our product mix and international presence, including acquisitions in the fiber optic, passive network component and connector marketplaces. International Expansion. In fiscal 2001, 40% of our sales were in markets outside of the United States and 24% were outside of North America. We believe that the international markets represent a significant opportunity because many systems within these markets need to be upgraded in order to participate in high-speed worldwide communications. We intend to continue to capitalize on the size and potential of the international markets by increasing sales of existing operations and establishing or acquiring additional manufacturing and sales capabilities in these markets. Manufacturing Infrastructure. We focus on consistently expanding and upgrading our manufacturing infrastructure in order to improve efficiencies to maintain a low cost structure as well as to meet current and future product needs. During the last three fiscal years, we have invested over $85 million for plant and machinery. Capital projects included in such spending were: (i) purchase of two buildings which were previously leased; (ii) purchase and expansion of a facility in Sweden for communications and specialty cable production; (iii) expansion of our optical fiber capacity; (iv) upgrade of our network cable facilities worldwide to equip them to manufacture high bandwidth network cables; and (v) expansion of the facility where we manufacture our high performance connectors. Customer Service. We place a great emphasis on providing technical resources to solve customer problems and on R&D efforts to create solutions for our markets and customers. We seek highly qualified employees with significant industry experience and continually invest in R&D and testing resources. In addition, we maintain a synergistic network of internal communications that allows each of our business units to share ideas and innovations company-wide. Customer sales support is a very important part of our business strategy. Each operating unit maintains a highly trained sales support staff and, for certain of our products, we maintain multiple warehouse locations to service customers with same-day or second-day delivery. Network Communication Segment Network Communication segment sales were $512.7 million, $545.0 million and $446.6 million for fiscal 2001, 2000 and 1999, respectively, and represented 67%, 68% and 65% of total revenues for fiscal 2001, 2000 and 1999, respectively. This segment encompasses connectivity products for the electronic transmission of data, voice, and multimedia over local and wide area networks and local loop communication infrastructures. The products include high performance fiber optic and twisted pair and coaxial copper cables and connectors, wiring racks and panels, outlets and interconnecting hardware for end-to-end network structured wiring systems, fiber optic assemblies and patch cords and communication cable products for outside communication and central office switchboard and equipment applications. In addition, through the acquisition of BoseLAN/CDT in fiscal 2000, we added high performance passive and active fiber optic and electronic components to our product portfolio, including multiplexers, switches, media converters and Ethernet test equipment used in a wide array of voice, video and data connectivity applications. Bose LAN/CDT, a relatively small operation, adds diversity to our network product lines and a basis to grow our participation in the network component marketplace. 3 Local Area Network (LAN) Systems. LANs typically consist of one or more computers, peripheral devices, software and interconnecting cables, connectors and accessories. The interconnecting cables can be copper, fiber or a composite cable including both copper and fiber. Due to the expense and increased difficulty of installing fiber cable as compared to copper cables and the cost of transmitters, repeaters and other electronics required for a fiber optic system, fiber cables have generally been limited to riser applications and backbone parts of the local area network. Copper cables, while still used in riser and backbone applications, are predominate in premise wiring and horizontal portions of network systems. In addition, each network system, whether fiber or copper, includes a large number of other structured wiring components, such as connectors, patch panels, outlets and racks. We manufacture and sell fiber optic, copper and composite cables, connectors, rack enclosures and cabinets, fiber optic splitters and couplers and other passive components used in LAN systems. Our connectors include our patented Optimax(TM) and Quick Connect(TM) fiber optic connectors and our industry leading high performance GigaFlex(TM) copper connector series. In addition, we offer "plug & play" fiber optic cabling systems. We are also one of a few companies that offer a fully integrated end-to-end warranted network structured wiring system. The ability to offer a fully warranted end-to-end system is an important marketing feature that differentiates us from many of our competitors. We have invested heavily over the past few years to increase our gigabit network cable manufacturing capacity. Such investment has resulted in our ability to increase our percentage of gigabit network cables to 71% of category 5 and above network cable sales during fiscal 2001 from 30% of category 5 and above network cable sales during fiscal 1999. Interconnect and Central Office Products. Interconnect products refers to transmission cables used inside computers and other electronic equipment, as well as to connect large and small computers to a variety of peripheral devices. Central office products refers to cable used to connect switching and related telecommunications equipment, as well as switchboard cable. We produce both fiber optic and copper cables for such uses and believe that we are one of the leaders in this market. The market is generally defined by the computer OEM specifications and often requires our engineers to work closely with component engineers during the product design and development process. We believe that our strengths in engineering and design, together with our historical relationships and reputation with OEM's, gives us an advantage in this market. Cellular Communication. We believe that the rapid growth of cellular or "wireless" applications presents a significant opportunity. Wireless communications rely on antenna towers, base station transmission and central office switching, with each application requiring high performance cable and other connectivity products. Greater traffic over cellular networks also requires greater switching capabilities and other electronic equipment, which drives demand for our interconnect products. We produce specialized cables used in these applications. Communications. We produce communication distribution cables that are used in the telecommunications industry to service business and residential customers in the local loop. Demands for new services and phone lines due to increased Internet, fax, telecommuting, DSL and other uses, growth of home offices and overdue maintenance of the existing copper local loop infrastructures drive this market. 4 Specialty Electronic Segment Specialty Electronic segment sales were $250.5 million, $252.8 million and $237.4 million for fiscal 2001, 2000 and 1999, respectively, and represented 33%, 32% and 35% of total revenues in fiscal 2001, 2000 and 1999, respectively. The Specialty Electronic segment includes highly engineered wire and cable products covering a broad range of specialized applications and niche markets, including commercial aviation and marine, automotive electronics, medical electronics, electronic testing equipment, robotics and electronically controlled factory equipment. Also included are cables for automation applications, such as climate control, premise video distribution and sophisticated security and signal systems involving motion detection, electronic card and video surveillance technologies, process control applications, such as remote signaling and electronic monitoring systems, sound applications, such as voice activation, evacuation and other similar systems, and safety applications, such as data transmission cable for advanced fire alarm and safety systems, including cable having improved safety and performance attributes under hazardous conditions. Included in the Specialty Electronic segment are non-cable related manufacturing activities encompassing precision tire casting and sheet metal fabrication which are not material to our business. Raw Materials The principal raw materials we use are copper and insulating compounds. Raw materials are purchased on a consolidated basis whenever possible to reduce costs and improve supplier service levels. Copper is purchased from several suppliers. Price terms are generally producers' prices at time of shipment. We do not generally engage in hedging transactions for the purchase of copper. Currently, world stocks of and capacity for copper are adequate to meet our requirements. We purchase insulating compounds, including Teflon(R), from various suppliers and, while from time to time there have been shortages of such material, supplies are currently adequate to meet our needs. Certain of our products also require bulk uncabled optical fiber singles, which are currently purchased primarily from one supplier. While supplies are currently adequate to meet our need, there have, in the past, been periods when the worldwide supply of bulk optical fiber and certain other fiber optic components, such as ferrules, has been limited. Other materials used include reels, tapes, textiles, chemicals and other materials. Currently, supplies of these other materials are adequate to meet our needs. Customers We sell our products directly or through established distributors to a variety of customers, including original equipment manufacturers, regional Bell operating companies, competitive local exchange carriers, and certified system vendors. We support over 10,000 customers. No single customer accounted for more than 10% of sales in fiscal 2001, 2000 or 1999. Competition The markets served by our products are competitive. Although some of our competitors are substantially larger and have greater resources than we do, we believe that we compete successfully in our markets due to our experienced management team, manufacturing expertise, breadth of product offerings and leading edge technology, large number of customer approved specifications, emphasis on quality and established reputation. In all of our markets we compete with a large number of competitors, some of which are significantly larger than us. 5 Backlog Backlog orders believed to be firm were $68.8 million at July 31, 2001, compared to $126.8 million at July 31, 2000. We believe that substantially all of the backlog is shippable within the next twelve months. Generally, customers may cancel orders for standard products without penalty upon thirty days notice. Research and Development We engage in research and development activities including new and existing product development. Research and development costs were $5.2 million, $4.6 million and $5.5 million in fiscal 2001, 2000 and 1999, respectively. Foreign Operations Information regarding the Company's foreign and domestic operations is set forth in Note 14, "Industry and Geographic Segment Information" as presented in the Company's Notes to Consolidated Financial Statements, and is incorporated herein by reference. Environmental Matters We are subject to numerous federal, state, provincial, local and foreign laws and regulations relating to the storage, handling, emission and discharge of materials into the environment, including the United States Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Clean Air Act, the Emergency Planning and Community Right-To-Know Act and the Resource Conservation and Recovery Act. Regulations of particular significance to us include those pertaining to handling and disposal of solid and hazardous waste, discharge of process wastewater and storm water and release of hazardous chemicals. Although we believe that we are in substantial compliance with such laws and regulations, we may from time to time not be in full compliance and may be subject to fines or other penalties for noncompliance. We do not currently anticipate any material adverse effect on our business as a result of compliance with federal, state, provincial, local or foreign environmental laws or regulations. However, some risk of environmental liability and other costs is inherent in the nature of our business, and there can be no assurance that material environmental costs will not arise in the future. The Company was named as a third party defendant in People of the State of ---------------------- California v. M&P Investments and various other parties (CIV-S-00-24411 Eastern ----------------------------- District, CA). The complaint, brought under Federal, State and local statutory provisions, alleges that property previously owned by a predecessor to the Company contributed to ground water pollution in the City of Lodi, California. The Company believes that initial reports prepared on behalf of the City of Lodi show that the property alleged to have been owned by a predecessor to the Company is not one of the potential pollution sources. The Company does not believe that the resolution of this matter will have a material adverse effect on the Company. 6 Employees As of July 31, 2001, we had approximately 3,300 full-time employees and 550 workers under contract manufacturing arrangements in Mexico, excluding employees under notice periods associated with the Company's restructuring plan announced in the fourth fiscal quarter. Approximately 1,100 of the full-time employees are represented by labor unions. We have not experienced any material work stoppages at our plants and we believe that, in general, our current relations with our employees are good. Union contracts covering approximately 500 employees at various operating units have expired and are currently being negotiated or expire within the next twelve months, including contracts relating to our Nordx/CDT operations in Montreal, Canada. There can be no assurance that conflicts will not arise with unions (whether in the context of contract negotiations or otherwise) or other employee groups or that such conflicts would not have a material adverse effect on our business. Risk Factors We may not be able to successfully identify, finance or integrate acquisitions. Growth through acquisitions is an important part of our strategy. We cannot assure that we will be successful in identifying, financing and closing acquisitions at favorable prices and terms. Many of the areas in which we are looking to expand through acquisition have been characterized by high valuations. These acquisition opportunities may only be feasible if we obtain additional financing, and such financing may not be available on terms acceptable to us, or at all. Further, we cannot assure that we will be successful in integrating any such acquisitions that are completed. Also, integration of any such acquisitions may require substantial management, financial and other resources and may pose risks with respect to production, customer service and market share of existing operations. Because we operate in markets that experience rapid technological change, certain of our products could become obsolete or marketplaces in which we sell could become more competitive. Many of the markets that we serve are characterized by rapid technological change. We believe that our future success will depend in part upon our ability to enhance existing products and to develop or acquire new products that meet or anticipate such changes. The failure to successfully introduce new or enhanced products on a timely and cost-competitive basis could have a material adverse effect on our business. At the same time, however, the introduction of new or enhanced products tends to have the effect of reducing the prices at which we can sell some of our existing product lines, which may harm our net sales and profitability. Many of our network cable products are subject to various industry standards. Many of such standards, particularly for newer high bandwidth cable products, are still being developed. In the event we are unable to meet such standards when adopted, or if the implementation of such standards was delayed, our business could be adversely affected. 7 Fiber optic technology represents a substitute for copper based cable products. A significant decrease in the cost and complexity of installation of fiber optic systems, or increase in the cost of copper based systems, could make fiber optic systems superior on a price performance basis to copper systems and may have a material adverse effect on our business. Also, wireless technology, as it relates to premise network and communication systems, may represent a threat to both copper and fiber optic cable based systems by reducing the need for premise wiring. While we sell fiber optic cable and components and cable that is used in various wireless applications, if fiber optic systems or wireless technology were to significantly erode the markets for copper based systems or, in the case of wireless technology, fiber optic based systems, our sales of fiber optic and wireless products may not be sufficient to offset any decrease in sales or profitability of other products that may occur. Technological advances could require significant capital or other expenditures to manufacture new products or maintain market positions. Our failure to make such capital expenditures on a timely basis or our making capital expenditures in markets that fail to adequately develop could have an adverse effect on us. Further, as other manufacturers make capital expenditures to enable them to manufacture products similar to those manufactured by us, markets for such products may become more competitive resulting in decreases in sales and profits. Price fluctuations or shortages of raw materials could adversely affect our operations. Copper is a principal raw material purchased by us, and our sales may be affected by the market price of copper. Significant fluctuations in the price of copper or other raw materials could have a negative effect on our business. We generally do not engage in hedging transactions for copper or other raw materials and we may not be able to pass on increases in the price of copper and other raw materials to our customers. We also purchase compounds, such as Teflon(R), from various suppliers. From time to time, the supply of such materials has been limited. The inability of suppliers to supply such raw materials could have a material adverse effect on our business until a replacement supplier is found or substitute materials are approved for use. In addition, we purchase bulk uncabled optical fiber singles which we further process and sell. While supplies are currently adequate to meet our need, there have, in the past, been periods when the worldwide supply of bulk optical fiber and certain other fiber optic components, such as ferrules, has been limited. If adequate supplies of such fiber and other components were unavailable and/or additional suppliers could not be obtained, our growth in the fiber optic cable marketplace could be limited. Our business is subject to the economic and political risks of maintaining facilities and selling products in foreign countries. During fiscal 2001, 40% of our sales were in markets outside the United States. Our operations may be adversely affected by significant fluctuations in the value of the U.S. dollar against foreign currencies or by the enactment of exchange controls or foreign governmental or regulatory restrictions on the transfer of funds. Furthermore, our foreign operations are subject to risks inherent in maintaining operations abroad such as economic and political destabilization, international conflicts, restrictive actions by foreign governments, nationalizations and adverse foreign tax laws. Our markets are competitive. We are subject to competition from a substantial number of international and regional competitors, some of which have greater financial, engineering, manufacturing and other resources than we do. Our 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. Furthermore, maintaining our current technological advantages will require continued investment by us in engineering, research and development, marketing and customer service and support. There can be no assurance that we will have sufficient resources to continue to make such investments or that we will be successful in maintaining such advantages. 8 Potential environmental, product, warranty or other liabilities could adversely impact our financial position. Risk of environmental, product and warranty liabilities, and other costs associated therewith, are inherent in the nature of our business. We cannot assure you that material environmental, product or warranty costs will not arise in the future. Losing the services of key personnel or adverse relations with employees could harm our business. Our continued success depends on the efforts and abilities of our executive officers and other key employees. The loss of any of our executive officers or other key employees could adversely affect our operations. We generally do not have employment contracts with our executive officers or other key employees. Our ability to attract and retain quality employees in all disciplines is important to our future success. See also "Business-Employees". The Company's main credit facility expires in April 2002. The Company is working on refinancing such facility and believes that its cash flow, asset base and business plan are sufficient to accomplish such refinancing in the current lending markets. There are risks, however, that due to the current industry conditions, economic slowdown and tight credit markets that the cost, conditions and covenants of such new credit facility could be substantially more onerous than those in the Company's current facility. There is also risk that prior to completing such new facility, events occur with respect to the Company, the economy or the credit markets that close the bank market to the Company. Anti-takeover provisions could delay or prevent a change in control or adversely impact the price of our common stock. Provisions of our Rights Plan and our certificate of incorporation, and provisions of the Delaware General Corporation Law could each have the effect of deterring hostile takeovers or delaying, deterring or preventing a change in control of our company, including transactions in which stockholders might otherwise receive a premium for their shares over current market prices. Disclosure Regarding Forward-Looking Statements This report includes and incorporates by reference "Forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical fact included or incorporated in this report may constitute forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors, including those described under "Risk Factors", could cause actual results to differ materially from the Company's expectations. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements. 9 ITEM 2. PROPERTIES The Company uses various owned or leased properties as manufacturing facilities, warehouses, and sales and administration offices. The Company believes that current facilities, together with planned expenditures for normal maintenance, capacity and technological improvements, will provide adequate production capacity to meet expected demand for its products. Listed below are the principal manufacturing, warehouse and sales facilities operated by the Company. Additionally, the Company also owns or leases approximately 196,000 square feet of other warehouse and sales facilities. Manufacturing facilities of approximately 127,000 and 60,000 square feet are operated on behalf of the Company in Nogales, Mexico and Tijuana, Mexico, respectively, by third parties pursuant to contract manufacturing arrangements.
Owned or Approx. Location Use Leased Sq. Feet Auburn, MA Manufacturing, Sales and Administration Owned 146,000 Auburn, MA Manufacturing and Warehousing Leased 71,000 Bagnacavallo, Italy Manufacturing, Sales and Administration Owned 126,000 Barberton, OH Manufacturing, Sales and Administration Owned 52,000 Chicago, IL Manufacturing Owned 18,000 Ft. Lauderdale, FL Manufacturing, Sales and Administration Owned 46,000 Gjern, Denmark Manufacturing, Sales and Administration Owned 22,000 Irvine, CA Manufacturing, Sales and Administration Leased 77,000 Kingston, Ontario Manufacturing Owned 500,000 Kinna, Sweden Manufacturing, Sales and Administration Owned 108,000 Las Vegas, NV Warehousing Leased 44,000 Leominster, MA Manufacturing, Sales and Administration Owned 202,000 Leominster, MA Manufacturing Leased 101,000 Leominster, MA Warehouse Leased 38,000 Littleborough, United Kingdom Manufacturing Owned 42,000 Longueuil, Quebec Manufacturing, Sales and Administration Leased 50,000 Lugo, Italy Manufacturing and Warehousing Leased 58,000 Manchester, CT Manufacturing Leased 55,000 Manchester, CT Manufacturing, Sales and Administration Leased 150,000 Memphis, TN Warehousing Owned 147,000 Montreal, Quebec Manufacturing, Sales and Administration Owned 300,000 Orebro, Sweden Manufacturing, Sales and Administration Owned 47,000 Skelmersdale, United Kingdom Manufacturing, Sales and Administration Owned 122,000 Wadsworth, OH Manufacturing, Sales and Administration Owned 45,000 Waynesburg, PA Manufacturing Owned 42,000 Washington, PA Manufacturing Leased 82,000 Washington, PA Manufacturing Owned 123,000 Washington, PA Manufacturing, Sales and Administration Owned 85,000 Washington, PA Warehousing Owned 79,000 Wheeling, IL Manufacturing, Sales and Administration Owned 110,000 Wheeling, IL Manufacturing, Sales and Administration Owned 80,000 Wipperfurth, Germany Manufacturing, Sales and Administration Owned 351,000 Wipperfurth, Germany Manufacturing Leased 69,000
10 ITEM 3. LEGAL PROCEEDINGS The Company is a party to various legal proceedings and administrative actions 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 results of operations or financial condition. See also Item I., Business--Environmental Matters. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this report no matter was submitted to a vote of security holders. ITEM 4.1. EXECUTIVE OFFICERS OF THE REGISTRANT Age Present Office and Experience --- ----------------------------- 67 Paul M. Olson has been President and a director of the Company since 1985, and Chief Executive Officer of the Company since 1993. From 1972 to 1984 Mr. Olson was the President of Phalo Corporation, a wire and cable manufacturer, and directed sales and marketing at Phalo Corporation from 1967 to 1972. From 1963 to 1967, Mr. Olson was employed at General Electric and from 1960 to 1963, at General Cable, in wire and cable related sales and marketing positions. Mr. Olson has a Bachelor's Degree in Economics from Hobart College. 59 George C. Graeber has been Chief Operating Officer and a director of the Company since 1998. From 1992 to 1998, Mr. Graeber served in various other positions with the Company, including Executive Vice President of the Company and President of Montrose/CDT. From 1990 to 1992 Mr. Graeber was a Vice President and General Manager of the Energy division of Anixter International, Inc., a distributor of cable and communication equipment. Mr. Graeber also was the President of the Industrial Electronic division of Brintec Corp. and a Vice President of Brand Rex Cable. Mr. Graeber has a Master's Degree in Electrical Engineering from the University of Connecticut. 59 Michael A. Dudley has been an Executive Vice President of the Company and President of CDT International since 1991. From 1988 to 1991 he was the President of Superior Optics, a division of Superior Teletec, Inc., a manufacturer of communication cable. Mr. Dudley has a Doctorate Degree in Material Science from The National College of Rubber Technology in London, England. 51 Normand R. Bourque has been an Executive Vice President of the Company since 1996 and President and Chief Executive Officer of NORDX/CDT since its acquisition. Prior to the acquisition, Mr. Bourque was Vice President-Cable Group at Nortel from 1991 to 1995 and Vice President, Operations-Cable Group from 1989 to 1991. From 1985 to 1988, Mr. Bourque was Vice President and General Manager-Transmission Networks at Nortel, and prior to that, held a number of positions in general management and finance at Nortel. Mr. Bourque has a Bachelor's Degree in Business Administration from the Ecole des Hautes Etudes Commerciales in Montreal, Canada. 11 62 David R. Harden has been a Senior Vice President of CDT and President of West Penn/CDT since 1988. He founded West Penn Wire in 1971, and operated that company until 1984 when it was acquired by the Company. From 1984 until 1988 Mr. Harden was an Executive Vice President of West Penn/CDT. 40 Peter Sheehan has been an Executive Vice President of the Company since 1998. Mr. Sheehan joined the Company in 1995 in the area of international sales and marketing. Prior to joining the company Mr. Sheehan was Senior Vice President of Sales and Marketing of Berk-tek, a wire and cable company. Mr. Sheehan has a Bachelor's Degree from Boston College. 51 Kenneth O. Hale has been Vice President and Chief Financial Officer of the Company since 1987. Mr. Hale holds a Certified Public Accountant's certificate and an MBA in finance from the University of Missouri. 40 Charles B. Fromm was appointed Vice President and General Counsel of the Company in October 1997, and Secretary of the Company in 1999. Prior to joining the Company, Mr. Fromm was a Partner at Kirkland & Ellis, New York. Mr. Fromm has a Bachelor's Degree in Business Administration and a Juris Doctor Degree from the University of Michigan. 54 Ian Mack was appointed President of European Operations in August 2000. Prior thereto, Mr. Mack was managing director of Brand Rex Limited, a division of BICC plc, a company based in the United Kingdom. 12 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS As of October 17, 2001, there were 178 holders of record of the Company's Common Stock. Additional information required by this item is set forth under the heading "Directors, Officers, and Corporate Information" on page 38 of the 2001 Annual Report and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Information required by this item is set forth under the heading "Selected Historical Consolidated Financial Data" on page 37 of the 2001 Annual Report and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations appears on pages 9 through 15 of the 2001 Annual Report and is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this item appears under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 14 of the 2001 Annual Report and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information required by this item is set forth on pages 16 through 36 of the 2001 Annual Report and is incorporated herein by reference and filed electronically herewith as Exhibit 13.1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 13 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT a. Information concerning the Registrant's directors is set forth in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission on or before November 16, 2001. Such information is incorporated herein by reference. b. Information concerning executive officers of the Registrant is set forth in Item 4.1 of Part I at page 11 of this Report under the heading "Executive Officers of the Registrant". ITEM 11. EXECUTIVE COMPENSATION Information concerning executive officers of the Registrant is set forth in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission on or before November 16, 2001. Such information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information concerning security ownership of certain beneficial owners and management is set forth in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission on or before November 16, 2001. Such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information concerning certain relationships and related transactions is set forth in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission on or before November 16, 2001. Such information is incorporated herein by reference. 14 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. The following documents are included in the 2001 Annual Report, pages 16 through 36, and are incorporated herein by reference: a. Report of Independent Public Accountants. b. Consolidated Statements of Income for the years ended July 31, 2001, 2000 and 1999. c. Consolidated Balance Sheets as of July 31, 2001 and 2000. d. Consolidated Statements of Cash Flow for the years ended July 31, 2001, 2000 and 1999. e. Consolidated Statements of Stockholders' Equity for the years ended July 31, 2001, 2000 and 1999. f. Notes to Consolidated Financial Statements. 2. The following documents are filed as part of this report: a. Report of Independent Public Accountants on Supplemental Schedule. b. Schedule II: Valuation and Qualifying Accounts for the three years ended July 31, 2001. c. List of Exhibits 3. List of Exhibits 3.1 Amended and Restated Certificate of Incorporation of CDT as filed with the Secretary of State of Delaware on November 10, 1993, incorporated by reference to Exhibit 3.1 to CDT's Registration Statement on Form S-1 (File No. 33-69992), Certificate of Amendment of the Restated Certificate of Incorporation of CDT and Certificate of Designation, Preferences and Rights of Junior Participating Preferred Stock, Series A of CDT, as filed with the Secretary of State of Delaware on December 11, 1996 and incorporated by reference to CDT's Registration Statement on Form 8-A/A, as filed on December 23, 1996. 3.2- By-Laws of CDT, as amended to date, incorporated by reference to Exhibit 3.2 to the Post-Effective Amendment No. 1 to CDT's Registration Statement on Form S-3 (File No. 333-00554), as filed on February 28, 1996. 4.1 Form of certificate representing shares of the Common Stock of CDT. Incorporated by reference to Exhibit 4.1 to CDT's Registration Statement on Form S-1 (File No. 33-69992). 4.2- Rights Agreement dated as of December 11, 1996, between Cable Design Technologies Corporation and The First National Bank of Boston, as Rights Agent, including the form of Certificate of Designation, Preferences and Rights of Junior Participating Preferred Stock, Series A attached thereto as Exhibit A, the form of Rights Certificate attached thereto as Exhibit B and the Summary of Rights attached thereto as Exhibit C. Incorporated herein by reference to CDT's Registration Statement on Form 8-A, as filed on December 11, 1996. 15 10.1 - CDT Long-Term Performance Incentive Plan (adopted on September 23, 1993). Incorporated by reference to Exhibit 10.18 to CDT's Registration Statement on Form S-1 (File No. 33-69992). 10.2 - CDT Stock Option Plan. Incorporated by reference to Exhibit 4.3 to CDT's Registration Statement on Form S-8 as filed on December 22, 1993. 10.3 - Cable Design Technologies Corporation Management Stock Award Plan (adopted on September 23, 1993). Incorporated by reference to Exhibit 4.3 to CDT's Registration Statement on Form S-8, as filed on May 2, 1994. 10.4 - Description of CDT Bonus Plan. Incorporated by reference to Exhibit 10.20 to CDT's Registration Statement on Form S-1 (File No. 33-69992). 10.5 - Lease Agreement between Phalo and First Hartford Realty Corp., dated as of November 9, 1992. Incorporated by reference to Exhibit 10.23 to CDT's Registration Statement on Form S-1 (File No. 33-69992). 10.6 - Employment Agreement dated February 2, 1996, among CDT, NORDX/CDT and Normand Bourque. Incorporated by reference to Exhibit 10.17 to CDT's Report on Form 8-K as filed on February 20, 1996. 10.7 - Collective Labour Agreement dated June 10, 1996, between NORDX/CDT and Canadian Union of Communications Workers Unit 4. Incorporated by reference to Exhibit 10.19 to CDT's Annual Report on Form 10-K, as filed on October 29, 1996. 10.8 - Form of Change in Control Agreement between CDT and each of George C. Graeber, Kenneth O. Hale, Charles B. Fromm, Peter Sheehan, Michael A. Dudley and Ian Mack. Incorporated by reference to Exhibit 10.14 to CDT's Annual Report on Form 10-K, as filed on October 27, 1999. 10.9 - Change in Control Agreement dated June 11, 1999, between CDT and Paul M. Olson. Incorporated by reference to Exhibit 10.15 to CDT's Annual Report on Form 10-K, as filed on October 27, 1999. 10.10 - Cable Design Technologies Corporation 1999 Long-Term Performance Incentive Plan adopted April 19, 1999 and amended June 11, 1999. Incorporated by reference to Exhibit 10.16 to CDT's Annual Report on Form 10-K, as filed on October 27, 1999. 10.11 - Cable Design Technologies Corporation Employee Stock Purchase Plan. Incorporated by reference to Exhibit 4.3 to CDT's Registration Statement on Form S-8 (File No. 333-76351). 10.12 - Form of June 11, 1999 Stock Option Grant under the 1999 Long-Term Performance Incentive Plan. Incorporated by reference to Exhibit 10.18 to CDT's Annual Report on Form 10-K, as filed on October 27, 1999. 16 10.13 - Form of April 23, 1999 Stock Option Grant. Incorporated by reference to Exhibit 10.19 to CDT's Annual Report on Form 10-K, as filed on October 27, 1999. 10.14 Amendment No. 1, dated March 7, 2000, to Cable Design Technologies Corporation Non-Employee Director Stock Plan. Incorporated by reference to Exhibit 10.14 to CDT's Annual Report on Form 10-K, as filed on October 27,2000. 10.15 Amendment No. 2, dated July 13, 2000, to Cable Design Technologies Corporation 1999 Long-Term Performance Incentive Plan. Incorporated by reference to Exhibit 10.15 to CDT's Annual Report on Form 10-K, as filed on October 27,2000. 10.16 Employment agreement dated August 1, 2000, among CDT, Noslo Ltd. and Ian Mack. Incorporated by reference to Exhibit 10.16 to CDT's Annual Report on Form 10-K, as filed on October 27,2000. 10.17 Cable Design Technologies Corporation 2001 Long-Term Performance Incentive Plan adopted December 6, 2000. Incorporated by reference to Exhibit 99.1 to CDT's Report on Form 10-Q as filed March 15, 2001. 10.18 Form of Stock Option Grant under CDT Non-Employee Director Stock Plan. Incorporated by reference to Exhibit 99.2 to CDT's Report on Form 10-Q as filed March 15, 2001. 13.1 - CDT 2001 Annual Report to Stockholders (to the extent incorporated herein by reference).** 21.1 - List of Subsidiaries of CDT.** 23.1 - Consent of Arthur Andersen LLP.** 99.4 - Credit Agreement dated April 10, 1997, among the Company, The First National Bank of Boston, Banque Paribas, Chicago Branch, Paribas Bank of Canada, Bank of America Illinois, Bank of America Canada and other lenders party thereto. Incorporated by reference to CDT's Report on Form 10-Q, as filed on June 16, 1997. 99.5 - First Amendment to Credit Agreement dated July 31, 1998 (effective August 3, 1998) among CDT, BankBoston N.A., Paribas, Paribas Bank of Canada, Bank of America NT & SA, Bank of America Canada and other Lenders party thereto. Incorporated by reference to CDT's Report on Form 10-K as filed on October 29, 1998. 99.6 - Second Amendment to Credit Agreement dated July 31, 1998 (effective August 3, 1998) among CDT, BankBoston N.A., Paribas, Paribas Bank of Canada, Bank of America NT & SA, Bank of America Canada and other Lenders party thereto. Incorporated by reference to CDT's Report on Form 10-K as filed on October 29, 1998. 17 99.7 - Revolving Line of Credit Letter Agreement dated March 9, 2001, between CDT and Fifth Third Bank. Incorporated by reference to Exhibit 99.1 to CDT's Report on Form 10-Q as filed on June 13, 2001. 99.8 - Master Revolving Line of Credit Promissory Note issued by CDT in favor of Fifth Third Bank. Incorporated by reference to Exhibit 99.2 to CDT's Report on Form 10-Q as filed on June 13, 2001. ** Filed Herein (b) Reports on Form 8-K None 18 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized. Cable Design Technologies Corporation By:/s/ Paul M. Olson October 29, 2001 ------------------------------------- Paul M. Olson President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ Bryan C. Cressey Chairman of the Board October 29, 2001 --------------------------------------- Director Bryan C. Cressey /s/ Paul M. Olson Director, President, Chief October 29, 2001 --------------------------------------- Executive Officer (Principal Paul M. Olson Executive Officer) /s/ George C. Graeber Director, Chief Operating October 29, 2001 --------------------------------------- George C. Graeber Officer /s/ Kenneth O. Hale Vice President, Chief Financial October 29, 2001 --------------------------------------- Officer (Principal Financial Kenneth O. Hale and Accounting Officer) /s/ Ferdinand Kuznik Director October 29, 2001 --------------------------------------- Ferdinand Kuznik /s/ Michael F.O. Harris Director October 29, 2001 --------------------------------------- Michael F. O. Harris /s/ Glenn Kalnasy Director October 29, 2001 --------------------------------------- Glenn Kalnasy /s/ Richard C. Tuttle Director October 29, 2001 --------------------------------------- Richard C. Tuttle /s/ Lance Balk Director October 29, 2001 --------------------------------------- Lance Balk
19 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in Cable Design Technologies Corporation and Subsidiaries' annual report to stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated September 26, 2001. Our audits were made for the purpose of forming an opinion on those financial statements taken as a whole. The schedule listed in the accompanying index is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Pittsburgh, Pennsylvania September 26, 2001 20 CABLE DESIGN TECHNOLOGIES CORPORATION SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JULY 31, 2001, 2000 and 1999
Additions to Reserve from Additions Balance at Acquisitions Charged to Balance at Beginning of & Other Costs and Reduction End of Period Adjustments Expenses from Reserve Period ------ ----------- -------- ------------ ------ (Dollars in thousands) Allowance for uncollectible accounts/sales returns: Year Ended July 31, 1999 $3,995 $ 172 $1,479 $ (720) $4,926 Year Ended July 31, 2000 $4,926 $ 13 $3,071 $(1,830) $6,180 Year Ended July 31, 2001 $6,180 $ (94) $8,413 $(8,138) $6,361 Restructuring reserve: Year Ended July 31, 1999 $1,759 $----- $ (264) $(1,247) $ 248 Year Ended July 31, 2000 $ 248 $----- $ (248) $------- $----- Year Ended July 31, 2001 $----- $ 6 $6,128 $ (543) $5,591
21 CABLE DESIGN TECHNOLOGIES CORPORATION INDEX TO EXHIBITS FILED HEREIN JULY 31, 2001 EXHIBIT NUMBER EXHIBIT 13.1 - CDT 2001 Annual Report to Stockholders (to the extent incorporated herein by reference). 21.1 - List of Subsidiaries of CDT. 23.1 - Consent of Arthur Andersen LLP. 22 EX-13.1 3 dex131.txt CDT 2001 ANNUAL REPORT TO STOCKHOLDERS Exhibit 13.1 CDT 2001 Annual Report 9 Management's Discussion and Analysis of Financial Condition and Results of Operations Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- RESULTS OF OPERATIONS The following discussion of Cable Design Technologies Corporation's ("the Company") consolidated historical results of operations and financial condition should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes thereto included elsewhere in this report. Cable Design Technologies is a leading manufacturer of technologically advanced connectivity products for the Network Communication and Specialty Electronic marketplaces. Network Communication encompasses connectivity products used within computer networks and communication infrastructures for the electronic transmission of data, voice and multimedia. Products included in this segment are high bandwidth network and interconnect cables, fiber optic cable and passive components, including connectors, wiring racks and panels, and interconnecting hardware for end-to-end network structured wiring systems, and communication cable products for local loop, central office, wireless and other applications. The Specialty Electronic segment encompasses electronic cable products for automation and process control applications as well as specialized wire and cable products for niche markets, including commercial aviation and automotive electronics. OVERVIEW Sales for the year ended July 31, 2001 ("fiscal 2001") decreased 4%, to $763.2 million compared to sales of $797.8 million for the year ended July 31, 2000 ("fiscal 2000"). Excluding the unfavorable effect of foreign currency translation on sales due to the comparatively strong U.S. dollar in fiscal 2001, the decrease in sales was only 2%. Sales for the year were negatively impacted by the slowdown in the U.S. economy and the telecommunication marketplace that began in the second half of the Company's fiscal year. Year over year sales growth for the first half of fiscal 2001 was 14% compared to a decline of 20% for the second half of the year. Sales for the Network Communication segment decreased 6% to $512.7 million, and represented 67% of total company revenue. The decrease in sales for this segment was primarily due to a 58% decline in sales of wireless products due to the loss of the principal customer for wireless assembly services, as well as lower sales of certain other products for the telecommunication marketplace due to the slowdown. Sales for the Specialty Electronic segment were $250.5 million, a decrease of 1% over the prior year. The operating margin, excluding nonrecurring items in both years, was 9.5% for fiscal 2001 compared to 12.9% for fiscal 2000. Excluding nonrecurring items in both years, earnings per diluted share for fiscal 2001 were $0.84 compared to $1.24 for fiscal 2000. During fiscal 2001, the Company reduced debt by over $28 million, improving its net debt to total capitalization ratio to 25% compared to 32% a year ago. The following table presents, for the periods indicated, summary selected financial data from the Company's statements of income, and should be read in conjunction with the following discussion. -------------------------------------------------------------------------------- Year Ended July 31, 2001 2000 1999 -------------------------------------------------------------------------------- (Dollars in thousands) Sales $ 763,225 $ 797,824 $ 683,999 Gross profit 214,815 233,845 204,530 Selling, general and administrative expenses 134,365 123,582 111,147 Amortization of goodwill 2,378 2,482 2,463 Research and development expenses 5,211 4,626 5,450 Income from operations before nonrecurring items 72,861 103,155 85,470 Nonrecurring expense (income) 17,577 (189) 4,895 Income from operations 55,284 103,344 80,575 Net income excluding nonrecurring items $ 37,781 $ 54,799 $ 42,930 Net income $ 23,456 $ 54,920 $ 39,641 10 CDT 2001 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- YEAR ENDED JULY 31, 2001 COMPARED WITH YEAR ENDED JULY 31, 2000 Sales decreased $34.6 million, or 4%, to $763.2 million for fiscal 2001 compared to $797.8 million for fiscal 2000. Sales attributable to acquisitions represented approximately 1% of fiscal 2001 sales. Network Communication segment sales declined 6%, to $512.7 million for fiscal 2001 compared to sales of $545.0 million in fiscal 2000. The decline in sales for this segment was primarily due to a 58% decline in sales of wireless products attributable to the previously reported loss of the principal customer for wireless assembly services. Additionally, the slowdown in the U.S. economy and the telecommunication market which began in the second half of the fiscal year negatively impacted sales in the Network Communication segment, including sales of computer interconnect products, primarily for telecom switching applications, which declined 23% and central office products which increased only 5% for the full year compared to a 75% increase for the first half of fiscal 2001. An increase of 36% in sales of enhanced gigabit network cables was more than offset by a 44% decline in sales of the lower performance rated Category 5 network cable. Another area of growth was a 46% increase in sales of fiber optic connectivity products, primarily single mode cable. Fiscal 2001 sales for the Specialty Electronic segment decreased $2.3 million, or 1%, to $250.5 million. Incremental sales attributable to businesses acquired during fiscal 2000 contributed $5.7 million to sales for this segment. Excluding acquisitions, the 3% sales decline in this segment was primarily due to lower sales of industrial cables, which the Company believes reflects adjusted inventory levels at electronic equipment distributors in response to the economic slowdown. Sales outside of North America increased $1.7 million, or 1%, to $180.3 million in fiscal 2001 compared to $178.6 million in fiscal 2000. The increase in international sales was primarily due to the acquisition of ITC/CDT in fiscal year 2000, as well as higher first half sales of central office cable products in Western Europe. These increases were partially offset by the unfavorable foreign currency translation effect on sales by the Company's European subsidiaries due to a decline in the value of certain European currencies against the dollar. Gross profit decreased $19.0 million, or 8%, to $214.8 million in fiscal 2001 compared to $233.8 million for fiscal 2000. The decline in gross profit was due to lower sales volume, as well as reduced gross margins for both the Network Communication and Specialty Electronic segments primarily due to volume inefficiencies as a result of the lower sales volume. The overall gross margin for fiscal 2001 was 28.1% compared to 29.3% for fiscal 2000. The lower Network Communication segment gross margin was primarily due to lower margins for network cable, network structured wiring components, computer interconnect, and outside plant communication cable. In addition to volume inefficiencies, the gross margin for this segment was unfavorably impacted by lower pricing on Category 5 and 5e network cable and a shift in product mix for structured wiring components. The reduction in gross margin for the Specialty Electronic segment was due to a lower margin for automation and process control products due primarily to a higher average cost of copper, volume inefficiencies and competitive market conditions, as well as a lower margin for aerospace and automotive cables due to product mix. Selling, general and administrative expenses ("SG&A") increased $10.8 million, or 9%, to $134.4 million for fiscal 2001 compared to $123.6 million for fiscal 2000. The increase in SG&A was primarily due to an increase in bad debt expense, the additional SG&A of acquired businesses and costs associated with the establishment of the European and Fiber Optic management groups in the first fiscal quarter. The increase in bad debt expense was primarily due to the bankruptcy of a large distribution customer, and higher provisions for bad debt, particularly in the fourth fiscal quarter, due to the slowdown in the telecommunication marketplace and the overall economy. SG&A as a percentage of sales increased to 17.6% for fiscal 2001 compared to 15.5% for fiscal 2000, due to the factors noted above combined with the lower sales volume. Research and development expense increased $0.6 million to $5.2 million compared to $4.6 million in fiscal 2000. Nonrecurring charges of $17.6 million ($14.3 million net of tax) were incurred during fiscal 2001 related to restructuring, goodwill impairment, and a loss on the sale of a business. In the fourth quarter of fiscal 2001, a restructuring charge of $6.1 million CDT 2001 Annual Report 11 Management's Discussion and Analysis of Financial Condition and Results of Operations Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- ($3.8 million, net of tax) was incurred representing severance costs associated with a workforce reduction of approximately 600, including workers under contract manufacturing arrangements. Also in the fourth quarter, the Company incurred a non-cash goodwill impairment charge of $9.4 million ($8.4 million, net of tax). The majority of the goodwill impairment charge is not deductible for tax purposes. The goodwill impairment charge reflects the Company's evaluation of the recoverability of the carrying value of goodwill for certain of its operations based on the estimates of future cash flows for the affected operations. Fiscal 2001 nonrecurring charges also include a $2.1 million loss on the sale of a business in the third quarter. Nonrecurring income of $0.2 million ($0.1 million net of tax) was recognized in fiscal 2000. Income from operations, excluding nonrecurring items in both years, decreased $30.3 million, or 29%, to $72.9 million in fiscal 2001 compared to $103.2 million for fiscal 2000, and the operating margin was 9.5% for fiscal 2001 compared to 12.9% for fiscal 2000. Including nonrecurring items, income from operations was $55.3 million for fiscal 2001 compared to $103.3 million for fiscal 2000. Interest expense for fiscal 2001 decreased $2.8 million to $9.0 million compared to $11.8 million for fiscal 2000. The decrease was primarily due to the lower average balance of debt outstanding, as the Company reduced debt by $28.3 million during fiscal 2001. The effective tax rate for fiscal 2001 increased to 48.3% compared to 39.1% for fiscal 2000, primarily due to the fact that $8.9 million of the nonrecurring charges for goodwill impairment and loss on the sale of a business were not deductible for income tax purposes. Excluding nonrecurring items in both years, the effective tax rate was 39.9% for fiscal 2001 compared to 39.1% for fiscal 2000. Excluding nonrecurring items in both years, fiscal 2001 earnings per share decreased 32% to $0.84 per diluted share on net income of $37.8 million, compared to $1.24 per diluted share for fiscal 2000 on net income of $54.8 million. Including nonrecurring items, earnings per share decreased to $0.52 per diluted share on net income of $23.5 million for fiscal 2001 compared to $1.25 per diluted share on net income of $54.9 million for fiscal 2000. YEAR ENDED JULY 31, 2000 COMPARED WITH YEAR ENDED JULY 31, 1999 Sales increased $113.8 million, or 17%, to a record $797.8 million for fiscal 2000 compared to $684.0 million for the year ended July 31, 1999 ("fiscal 1999"). Sales for the Network Communication segment grew 22%, to $545.0 million, and sales for the Specialty Electronic Segment increased $15.4 million, or 6%, to $252.8 million. The growth in sales for the Network Communication segment was lead by a 100% increase in sales of enhanced gigabit network cables as a result of growth in demand for higher bandwidth within premise network systems. The increased demand for these higher margin gigabit network cables was partially offset by a 14% decline in sales of the lower performance rated Category 5 network cable and, compared to fiscal 1999, lower average selling prices in the U.S. marketplace for Category 5 and 5e network cables. Sales of central office communication and computer interconnect cable products increased 53% and 35%, respectively, over fiscal 1999. The increase in demand for both central office and computer interconnect cable products was driven by the growth of competitive local exchange carriers, Internet service providers and application service providers within the telecommunication industry. Sales of wireless cable and assembly services grew 37% as a result of strong demand for cellular communications. Sales growth in other product lines also contributed to the increase in Network Communication segment sales, including 27% sales growth for fiber optic connectivity products and 16% for network components (excluding components used in fiber optic applications). Excluding acquisitions, growth in the Specialty Electronic segment was primarily due to a 13% increase in sales of automation and process control products, which was partially offset by a 17% decline in sales of specialty cable for the aerospace and transportation marketplaces. Sales attributable to acquired businesses accounted for $6.1 million of the increase in sales for this segment. Sales outside of North America increased $23.3 million, or 15%, to $178.6 million in fiscal 2000 compared to $155.3 million in fiscal 1999. The increase in international sales was primarily due to higher sales of computer interconnect, wireless cable and assembly services, and central office cable products in Western Europe and network products in the Pacific Rim. 12 CDT 2001 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- Gross profit increased $29.3 million, or 14%, to $233.8 million in fiscal 2000 compared to $204.5 million for fiscal 1999. Growth in gross profit for both the Network Communication and Specialty Electronic segments was primarily due to the 17% increase in sales, which was partially offset by a slightly lower gross margin percentage. The overall gross margin for fiscal 2000 was 29.3% compared to 29.9% for fiscal 1999. The decrease in the gross margin was due to a lower margin for the Network Communication segment, which was partially offset by an improvement in the gross margin for the Specialty Electronic segment. The lower Network Communication segment gross margin was primarily due to a lower margin for outside plant communication cable used in local distribution applications. Factors contributing to the lower outside plant cable margin were competitive pricing, particularly in the U.S. marketplace, and increased labor and manufacturing costs. The improved gross margin for the Specialty Electronic segment was due to an improved margin for automation and process control products due primarily to favorable product mix and volume efficiencies. SG&A increased $12.5 million, or 11%, to $123.6 million for fiscal 2000 compared to $111.1 million for fiscal 1999. The increase in SG&A was primarily due to higher sales volume and performance related expenses. SG&A for fiscal 2000 also includes an additional $1.4 million provision against accounts receivable due to uncertainty regarding the financial reporting and condition of a large distribution customer. SG&A as a percentage of sales decreased to 15.5% for fiscal 2000 compared to 16.2% for fiscal 1999, as the percentage growth in sales exceeded the growth in SG&A. Research and development expenses decreased $0.9 million to $4.6 million compared to $5.5 million in fiscal 1999. Nonrecurring income of $0.2 million ($0.1 million net of tax) was recognized in fiscal 2000. In fiscal 1999, net nonrecurring expense of $4.9 million ($3.3 million net of tax) included a charge of $6.3 million incurred in connection with the purchase of 2.4 million shares of the Company's common stock acquired by key employees through the exercise of incentive stock options pursuant to a share purchase plan previously adopted by the Board of Directors (the "Share Purchase Plan"), and $1.4 million of income which was primarily the result of the sale of assets related to a previously discontinued product line. Income from operations, excluding net nonrecurring items in both years, increased $17.7 million, or 21%, to $103.2 million in fiscal 2000 compared to $85.5 million for fiscal 1999, and the operating margin was 12.9% for fiscal 2000 compared to 12.5% for fiscal 1999. Including net nonrecurring items, income from operations was $103.3 million for fiscal 2000 compared to $80.6 million for fiscal 1999. Interest expense for fiscal 2000 decreased $1.5 million to $11.8 million compared to $13.3 million for fiscal 1999. The decrease was primarily due to the lower average balance of debt outstanding. The Company reduced outstanding debt by $52.4 million during fiscal 2000. The effective tax rate for fiscal 2000 decreased to 39.1% compared to 40.3% for fiscal 1999, primarily due to the fact that approximately $0.9 million of the fiscal 1999 net nonrecurring charge was not deductible for income tax purposes. Excluding net nonrecurring items in both years, the effective tax rate decreased to 39.1% compared to 39.8% for fiscal 1999. Excluding net nonrecurring items in both years, fiscal 2000 earnings per share increased 27% to $1.24 per diluted share on net income of $54.8 million, compared to $0.98 per diluted share for fiscal 1999 on net income of $42.9 million. Including net nonrecurring items, earnings per share increased to $1.25 per diluted share on net income of $54.9 million compared to $0.91 per diluted share on net income of $39.6 million for fiscal 1999. LIQUIDITY AND CAPITAL RESOURCES During fiscal 2001 operating working capital increased $1.0 million. The increase in operating working capital was primarily the result of a decrease in accounts payable of $19.6 million and increases in inventory of $17.8 million and prepaid and other current assets of $6.6 million, which were partially offset by a decrease in accounts receivable of $43.8 million. The change in operating working capital excludes changes in cash and current maturities of long-term debt. CDT 2001 Annual Report 13 Management's Discussion and Analysis of Financial Condition and Results of Operations Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- During fiscal 2001 the Company generated $57.7 million of net cash from operating activities after providing for the increase in working capital. Net cash used by investing activities during fiscal 2001 of $36.8 million included $38.1 million expended for capital projects and $1.3 million of proceeds from the sale of a business. Net cash used by financing activities during fiscal 2001 of $22.3 million included $28.3 million of cash used to reduce debt and $6.0 million received from the exercise of stock options and issuance of common stock pursuant to the Company's employee stock purchase plan. The net decrease in cash for fiscal 2001 was $1.8 million. During fiscal 2001, the Company expended $38.1 million for capital projects, including approximately $7 million to purchase two previously leased buildings. Expenditures were primarily invested in additional equipment to expand capacity for both Network Communication and Specialty Electronic products. The Company's primary credit agreement ("Credit Agreement") is comprised of a $121.3 million U.S. revolving facility, including a $50.0 million Deutschmark sub-facility, and a CDN $115.0 million Canadian revolving facility. The Credit Agreement matures in April 2002. In addition to the Credit Agreement, the Company has a 364-day, unsecured bank revolving credit agreement (the "364-day Facility") with a maximum principal amount of $15 million, and a foreign credit facility in the United Kingdom (the "European Credit Agreement") that provides for up to approximately $10.7 million of borrowings. The Credit Agreement and 364-day Facility include provisions whereby the applicable margins over the prime rate and the base rate, as defined, respectively, or the London Inter-Bank Offered Rate ("LIBOR") are based on the attainment of certain performance factors. The 364-day Facility expires March 8, 2002. The Credit Agreement and 364-day Facility contain customary financial and non-financial covenants, except the 364-day Facility is limited by the terms of the Credit Agreement. On July 31, 2001, the Company had availability of approximately $76.6 million under the Credit Agreement, $15.0 million under the 364-day Facility and $5.5 million under the European Credit Agreement. The Company is in the process of refinancing its existing credit facilities and expects the refinancing to be completed prior to the maturity date of the existing Credit Agreement. It is anticipated that the Company's current credit facilities, discussed above, will be replaced with up to a $250 million revolving credit facility which would include provisions whereby applicable interest rate margins are based on the attainment of certain performance factors and would contain customary financial and non-financial covenants. The applicable margin over LIBOR, based on the Company's current leverage ratio, is expected to be greater than the present 50 basis point margin, and the applicable commitment fee applied to the unused portion of the facility is also expected to be greater than the present 0.15%. Based on the Company's current expectations for its business, management believes that its cash flow from operations and the available portion of its credit facilities, as well as the Company's anticipated refinancing of such credit facilities, will provide it with sufficient liquidity to meet the current liquidity needs of the Company. EFFECTS OF INFLATION The Company does not believe that inflation had a significant impact on the Company's results of operations for the periods presented. On an ongoing basis, the Company attempts to minimize any effects of inflation on its operating results by controlling costs of operations and, whenever possible, seeking to ensure that selling prices reflect increases in costs due to inflation. FLUCTUATION IN COPPER PRICE The cost of copper in inventories, including finished goods, reflects purchases over various periods of time ranging from one to several months for each of the Company's operations. For certain communication cable products, profitability is generally not significantly affected by volatility of copper prices as selling prices are generally adjusted for changes in the market price of copper, however, differences in the timing of selling price adjustments do occur and may impact near term results. For other products, although selling prices are not generally adjusted to directly reflect changes in copper prices, the relief of copper costs from inventory for those operations having longer inventory cycles may affect profitability from one period to the next following periods of significant movement in the cost of copper. The Company does not engage in activities to hedge the underlying value of its copper inventory. 14 CDT 2001 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- INTEREST RATE SENSITIVITY The table below provides information about the Company's financial instruments, primarily debt obligations, which are sensitive to changes in interest rates. The table presents principal cash flows and related weighted average interest rates for debt obligations by expected maturity date and the currency in which the instrument's cash flows are denominated. Weighted average variable interest rates are based on the rates in effect at the reporting date for the respective debt obligations. No assumptions have been made for future changes in such variable rates. The fair value of fixed rate debt obligations as determined under current market interest rate assumptions does not differ materially from the carrying value as presented below. The information is provided in U.S. dollar equivalents, which is the Company's reporting currency.
---------------------------------------------------------------------------------------------------------------------- Expected Maturity Date For Periods Ending July 31, ---------------------------------------------------------------------------------------------------------------------- Demand There- Type* Notes 2002 2003 2004 2005 2006 After Total ---------------------------------------------------------------------------------------------------------------------- (U.S. dollar equivalents in millions) Balance/Average Interest Rate Demand notes payable British pound VR $3.3 $ 3.3 6.1% 6.1% Swedish krona VR $1.6 $ 1.6 5.4% 5.4% Australian dollar VR $0.1 $ 0.1 5.9% 5.9% Deutschmark VR $0.4 $ 0.4 6.8% 6.8% Long-term debt U.S. dollar FR $ 0.1 $0.1 $0.0 $ 0.0 $0.0 $0.1 $ 0.3 9.2% 7.9% 6.2% 4.0% 4.0% 4.0% 6.6% Deutschmark FR $ 1.9 $1.5 $1.1 $ 0.4 $0.4 $0.6 $ 5.9 5.2% 5.2% 5.2% 5.2% 5.2% 5.2% 5.2% Italian lira FR $ 0.4 $0.3 $0.2 $ 0.2 $0.1 $0.0 $ 1.2 6.8% 6.8% 6.8% 6.8% 6.8% 6.8% 6.8% U.S. dollar VR $23.5 $23.5 4.3% 4.3% Canadian dollar VR $62.0 $62.0 4.8% 4.8% Deutschmark VR $30.3 $30.3 5.0% 5.0% Italian lira VR $ 0.8 $0.1 $0.1 $ 0.1 $0.0 $ 1.1 3.8% 5.7% 5.7% 5.7% 5.7% 4.3%
*VR-Variable interest rate; FR-Fixed interest rate CDT 2001 Annual Report 15 Management's Discussion and Analysis of Financial Condition and Results of Operations Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- New Accounting Standards The Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141, Business Combinations ("SFAS 141"), No. 142, Goodwill and Other Intangible Assets ("SFAS 142") and No. 143, Accounting for Asset Retirement Obligations ("SFAS 143") in June 2001. SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives (but with no maximum life). The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Company is required to adopt SFAS 142 effective August 1, 2002, and has not yet determined the impact of adoption. The Company recorded $2.4 million of goodwill amortization expense in fiscal 2001. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset. The Company is required to adopt SFAS 143 August 1, 2002 and has not yet determined the impact, if any, of adoption. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 supercedes SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and provides further guidance regarding the accounting and disclosure of long-lived assets. The Company is required to adopt SFAS 144 effective August 1, 2002, and has not yet determined the impact, if any, of adoption. Introduction of the Euro Currency The European Economic Monetary Union's ("EEMU") common currency, the euro, was implemented effective January 1, 1999, at which time fixed exchange rates were established between the legacy currencies of the participating countries and the euro. During the transition period, which extends through June 30, 2002, transactions may be conducted in either the euro or the legacy currencies. The Company has subsidiaries in the United Kingdom, Sweden, Denmark, Italy and Germany which have customers and suppliers in participating EEMU countries. The Company's Italian and German subsidiaries are the only subsidiaries domiciled in participating EEMU countries. The Company's German subsidiary converted to the euro as the functional currency effective August 1, 2001, and conversion to the euro for the Italian subsidiary will be phased in prior to January 1, 2002. The Italian subsidiary currently has the ability to support transactions in both the euro and its respective legacy currency. At this time, the Company believes that the use of the euro will not have a significant impact on the manner in which it conducts business. The EEMU's introduction of the euro may potentially have economic and business implications, such as changes in product pricing and currency exchange risks, for businesses within the EEMU as well as for businesses outside the EEMU that do business with companies within the EEMU. The Company does not believe that such effects will have a material impact on its consolidated results of operations or financial condition, although there can be no assurance that unanticipated effects will not have an adverse impact on the Company's future results of operations. Forward Looking Statements-Under the Private Securities Litigation Act of 1995 Certain of the statements in this annual report are forward-looking statements, including, without limitation, statements regarding future financial results and performance and other beliefs, expectations or opinions of the Company and its management. These statements are subject to various risks and uncertainties, many of which are outside the control of the Company, including the market demand for the Company's products, competitive pressures, the ability to achieve reductions in operating costs and to continue to integrate acquisitions, the ability to refinance the Company's credit facilities, price fluctuations of raw materials and the potential unavailability thereof, foreign currency fluctuations, technological obsolescence, environmental matters and other specific factors discussed in the Company's Annual Report on Form 10-K for the year ended July 31, 2001 and other SEC filings. The information contained herein represents management's best judgment as of the date hereof based on information currently available; however, the Company does not intend to update this information to reflect developments or information obtained after the date hereof and disclaims any legal obligation to the contrary. 16 CDT 2001 Annual Report Report of Independent Public Accountants Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- TO THE BOARD OF DIRECTORS OF CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES: We have audited the accompanying consolidated balance sheets of Cable Design Technologies Corporation (a Delaware corporation) and Subsidiaries as of July 31, 2001 and 2000, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended July 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 financial statements referred to above present fairly, in all material respects, the financial position of Cable Design Technologies Corporation and Subsidiaries as of July 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2001, in conformity with accounting principles generally accepted in the United States. /S/ Arthur Andersen LLP Pittsburgh, Pennsylvania September 26, 2001 CDT 2001 Annual Report 17 Consolidated Statements of Income Cable Design Technologies Corporation and Subsidiaries
-------------------------------------------------------------------------------------------------- Year Ended July 31, 2001 2000 1999 -------------------------------------------------------------------------------------------------- (In thousands, except per share information) Sales $ 763,225 $ 797,824 $ 683,999 Cost of sales 548,410 563,979 479,469 --------- --------- --------- Gross Profit 214,815 233,845 204,530 Selling, general and administrative expenses 134,365 123,582 111,147 Amortization of goodwill 2,378 2,482 2,463 Research and development expenses 5,211 4,626 5,450 Nonrecurring expense (income), net 17,577 (189) 4,895 --------- --------- --------- Income from operations 55,284 103,344 80,575 Interest expense, net 9,018 11,770 13,346 Minority interest in earnings of subsidiaries, net 684 986 883 Other expense (income), net 223 377 (18) --------- --------- --------- Income before income taxes 45,359 90,211 66,364 Income tax provision 21,903 35,291 26,723 --------- --------- --------- Net income $ 23,456 $ 54,920 $ 39,641 --------- --------- --------- Basic earnings per common share $ 0.54 $ 1.29 $ 0.92 --------- --------- --------- Diluted earnings per common share $ 0.52 $ 1.25 $ 0.91 --------- --------- --------- Weighted average common shares outstanding - basic 43,743 42,665 43,176 --------- --------- --------- Weighted average common shares outstanding - diluted 44,927 44,086 43,693 --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. 18 CDT 2001 Annual Report Consolidated Balance Sheets Cable Design Technologies Corporation and Subsidiaries
------------------------------------------------------------------------------------------------------------ July 31, 2001 2000 ------------------------------------------------------------------------------------------------------------ (Dollars in thousands, except per share information) ASSETS Current assets: Cash and cash equivalents $ 14,625 $ 16,454 Trade accounts receivable, net of allowance for uncollectible accounts of $6,361 and $6,180, respectively 99,238 145,717 Inventories 158,415 145,015 Prepaid expenses and other current assets 13,618 7,140 Deferred income taxes 12,183 11,834 ---------- ---------- Total current assets 298,079 326,160 Property, plant and equipment, net 218,993 205,880 Intangible assets, net 4,836 6,253 Goodwill, net 59,001 74,539 Other assets 3,487 2,521 ---------- ---------- Total assets $ 584,396 $ 615,353 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable to banks $ 5,354 $ 5,776 Current maturities of long-term debt 118,902 3,692 Accounts payable 26,821 47,996 Accrued payroll and related benefits 18,634 24,264 Accrued taxes 4,227 6,069 Other accrued liabilities 25,621 21,653 ---------- ---------- Total current liabilities 199,559 109,450 Long-term debt 5,413 153,336 Minority interest in subsidiaries 3,053 3,615 Other non-current liabilities 11,721 9,002 Deferred income taxes 23,725 23,406 ---------- ---------- Total liabilities 243,471 298,809 ---------- ---------- Commitments and contingencies Stockholders' equity: Preferred stock, par value $.01 per share-- authorized 1,000,000 shares, no shares issued -- -- Common stock, par value $.01 per share-- authorized 100,000,000 shares, 47,672,133 and 47,362,880 shares issued, respectively 477 316 Paid-in capital 198,056 192,956 Common stock issuable, 28,000 and 19,573 shares, respectively 358 367 Deferred compensation (600) -- Retained earnings 206,464 183,166 Treasury stock, at cost, 3,652,138 and 3,867,528 shares, respectively (45,719) (48,415) Accumulated other comprehensive deficit (18,111) (11,846) ---------- ---------- Total stockholders' equity 340,925 316,544 ---------- ---------- Total liabilities and stockholders' equity $ 584,396 $ 615,353 ---------- ----------
The accompanying notes are an integral part of these consolidated financial statements. CDT 2001 Annual Report 19 Consolidated Statements of Cash Flows Cable Design Technologies Corporation and Subsidiaries
---------------------------------------------------------------------------------------------------- Year Ended July 31, 2001 2000 1999 ---------------------------------------------------------------------------------------------------- (Dollars in thousands) CASH FLOW FROM OPERATING ACTIVITIES: Net income $ 23,456 $ 54,920 $ 39,641 ADJUSTMENTS FOR NON-CASH ITEMS TO RECONCILE NET INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation 18,574 17,088 14,823 Amortization 3,969 4,361 4,007 Goodwill impairment charge 9,391 -- -- Loss on sale of assets 2,064 -- -- Deferred income taxes 440 3,308 827 Tax benefit of option exercises 832 2,147 12,743 Stock option compensation expense 16 68 -- CHANGES IN ASSETS AND LIABILITIES NET OF EFFECTS OF BUSINESSES ACQUIRED: Accounts receivable 43,783 (12,902) (7,644) Inventories (17,825) (2,967) (1,511) Prepaid and other current assets (6,609) 3,632 2,131 Accounts payable (19,558) 8,494 (9,914) Accrued payroll and related benefits (5,095) 3,326 1,547 Accrued taxes (1,652) (4,711) 6,148 Other accrued liabilities 4,361 (2,228) 2,277 Other non-current assets and liabilities 1,580 1,155 2,452 ---------- ----------- ---------- Net cash provided by operating activities 57,727 75,691 67,527 ---------- ----------- ---------- CASH FLOW FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (38,082) (22,028) (25,262) Acquisition of businesses, including transaction costs, net of cash acquired -- (8,331) (49,091) Proceeds on sale of assets 1,327 -- -- ---------- ----------- ---------- Net cash used in investing activities (36,755) (30,359) (74,353) ---------- ----------- ---------- CASH FLOW FROM FINANCING ACTIVITIES: Net change in demand and revolving note borrowings (27,842) (39,345) 54,323 Funds provided by term debt 5,219 1,246 12,506 Funds used to reduce term debt (5,705) (14,261) (15,152) Common shares issued or issuable 1,654 1,484 283 Proceeds from exercise of stock options 4,388 11,247 211 Repurchase of common stock -- -- (44,971) ---------- ----------- ---------- Net cash (used) provided by financing activities (22,286) (39,629) 7,200 ---------- ----------- ---------- Effect of currency translation on cash (515) (673) (93) ---------- ----------- ---------- Net (decrease) increase in cash (1,829) 5,030 281 Cash, beginning of year 16,454 11,424 11,143 ---------- ----------- ---------- Cash, end of year $ 14,625 $ 16,454 $ 11,424 ---------- ----------- ----------
The accompanying notes are an integral part of these consolidated financial statements. 20 CDT 2001 Annual Report Consolidated Statements of Stockholders' Equity Cable Design Technologies Corporation and Subsidiaries
------------------------------------------------------------------------------------------------------------------------------------ Common Stock Accumulated ---------------- Common Other Total Par Paid-In Stock Retained Treasury Deferred Comprehensive Stockholders (Dollars in thousands) Shares Value Capital Issuable Earnings Stock Compensation Income/(Deficit) Equity ------------------------------------------------------------------------------------------------------------------------------------ Balance, July 31, 1998 45,990,708 $307 $165,681 $-- $ 88,605 $ (4,291) $ -- $ (5,404) $244,898 Net income -- -- -- -- 39,641 -- -- -- 39,641 Currency translation adjustments -- -- -- -- -- -- -- (1,028) (1,028) Minimum pension liability -- -- -- -- -- -- -- 10 10 ---------- Comprehensive income 38,623 Exercise of options and related tax benefits 137,325 1 12,953 -- -- -- -- -- 12,954 Stock grants 2,142 -- 30 -- -- -- -- -- 30 Stock issuance 38,217 -- 315 -- -- -- -- -- 315 Purchase of 3,635,178 shares treasury stock -- -- -- -- -- (44,971) -- -- (44,971) Employee stock purchase plan, 34,019 shares issuable -- -- -- 253 -- -- -- -- 253 ------------------------------------------------------------------------------------------------------------------------------------ Balance, July 31, 1999 46,168,392 308 178,979 253 128,246 (49,262) -- (6,422) 252,102 Net income -- -- -- -- 54,920 -- -- -- 54,920 Currency translation adjustments -- -- -- -- -- -- -- (5,424) (5,424) ---------- Comprehensive income 49,496 Exercise of options and related tax benefits 1,064,913 7 12,606 -- -- -- -- -- 12,613 Stock grants 2,490 -- 30 -- -- -- -- -- 30 Issuance of 67,650 shares treasury stock -- -- (66) -- -- 847 -- -- 781 Employee stock purchase plan shares issued 127,085 1 1,339 (253) -- -- -- -- 1,087 Employee stock purchase plan, 19,573 shares issuable -- -- -- 367 -- -- -- -- 367 Stock option compensation expense -- -- 68 -- -- -- -- -- 68 ------------------------------------------------------------------------------------------------------------------------------------ Balance, July 31, 2000 47,362,880 316 192,956 367 183,166 (48,415) -- (11,846) 316,544 Net income -- -- -- -- 23,456 -- -- -- 23,456 Currency translation adjustments -- -- -- -- -- -- -- (6,265) (6,265) ---------- Comprehensive income 17,191 Stock split -- 158 -- -- (158) -- -- -- -- Exercise of options and related tax benefits 173,119 2 2,558 -- -- -- -- -- 2,560 Stock grants 3,816 -- 90 -- -- -- -- -- 90 Deferred compensation 38,163 -- 900 -- -- -- (600) -- 300 Issuance of 215,390 shares treasury stock -- -- (36) -- -- 2,696 -- -- 2,660 Employee stock purchase plan shares issued 94,155 1 1,572 (367) -- -- -- -- 1,206 Employee stock purchase plan, 28,000 shares issuable -- -- -- 358 -- -- -- -- 358 Stock compensation expense -- -- 16 -- -- -- -- -- 16 ------------------------------------------------------------------------------------------------------------------------------------ Balance, July 31, 2001 47,672,133 $477 $198,056 $358 $206,464 $(45,719) $(600) $(18,111) $340,925
The accompanying notes are an integral part of these consolidated financial statements. CDT 2001 Annual Report 21 Notes to Consolidated Financial Statements Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- NOTE 1. OPERATIONS Cable Design Technologies Corporation ("CDT" or "the Company") is a leading worldwide designer and manufacturer of high bandwidth network connectivity products, including gigabit and fiber optic network cables and connectors, network structured wiring components, assemblies, electronic and fiber optic passive and active components, and interconnect cables for computer and communication switching applications, and communication cable products used in local loop, central office, wireless and other applications. CDT also manufactures electronic cable products that are used in automation, process control and specialty applications. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements reflect the application of the following significant accounting policies: Principles of Consolidation The consolidated financial statements include the accounts of Cable Design Technologies Corporation and its majority owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition Revenue is recognized when all significant contractual obligations have been satisfied and collectibility of the resulting receivable is reasonably assured, which generally occurs in the period in which title to product passes to the customer. The Company accrues for anticipated sales returns and other allowances based on historical experience. Shipping and Handling Fees and Costs Amounts billed to customers for shipping and handling costs are included in net sales in the accompanying statements of income. Shipping and handling costs incurred by the Company for the delivery of goods to customers are classified as a component of either cost of sales or selling, general and administrative expenses ("SG&A"), depending on the specific operating unit. Shipping and handling costs included in SG&A were $9.8 million, $8.0 million and $6.8 million for the years ended July 31, 2001, 2000 and 1999, respectively. Inventories Inventories are stated at the lower of first-in, first-out (FIFO) cost or market. Inventory costs include material, labor and manufacturing overhead. The Company's products contain significant amounts of certain raw materials, such as copper and Teflon(R). The Company believes that adequate sources are available for these commodities; however, any disruption of the supplies or significant deviations in market prices could impact the Company's operations. Property, Plant and Equipment Property, plant and equipment are carried on the cost basis. Provisions for depreciation and amortization are computed using the straight-line method based upon the estimated useful lives of the assets. Maintenance and repair costs are charged to operations as incurred. Major replacements or betterments are capitalized. Cost and accumulated depreciation of property sold or retired are removed from the accounts and any resulting gain or loss is recognized in the current period statement of income. 22 CDT 2001 Annual Report Notes to Consolidated Financial Statements Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- Goodwill Goodwill represents the excess of the purchase price over the fair market value of identifiable net assets acquired in connection with various business acquisitions and combinations. Goodwill is being amortized using the straight-line method over periods of between 20 to 40 years. Accumulated amortization of goodwill was $11.1 million and $10.4 million at July 31, 2001 and 2000, respectively. The Company continually evaluates the carrying value of goodwill on the basis of whether goodwill is fully recoverable from estimated undiscounted net income, before the effects of goodwill amortization, over the remaining amortization period (See Note 19). Loan Origination Fees In connection with the issuance of the Company's debt instruments, the Company defers related credit acquisition costs. These costs are amortized to interest expense using the straight-line method over the life of the debt instruments. Translation of Foreign Currency Financial Statements The financial statements of foreign subsidiaries are translated using the exchange rate in effect at period end for balance sheet accounts and the average exchange rate in effect during the period for income and expense accounts. Unrealized gains or losses arising from translation are charged or credited directly to accumulated other comprehensive income/(deficit), a component of stockholders' equity. Gains and losses on foreign currency transactions are included in income as they occur. Income Taxes Income taxes are accounted for in accordance with the liability method, under which deferred tax assets or liabilities are computed based on the temporary differences between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. These differences are classified as current or non-current based upon the classification of the related asset or liability. For temporary differences that are not related to an asset or liability, classification is based upon the expected reversal date of the temporary difference. Reclassifications Certain reclassifications have been made to the prior year statements to conform with the current year presentation. Statements of Cash Flows Supplemental disclosure of cash flow information. -------------------------------------------------------------------------------- Year Ended July 31, 2001 2000 1999 -------------------------------------------------------------------------------- (Dollars in thousands) Cash paid during the year for: Interest $ 9,596 $ 12,772 $ 12,014 Income taxes $ 28,072 $ 30,992 $ 10,055 Impact of Newly Issued Accounting Standards The Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141, Business Combinations ("SFAS 141"), No. 142, Goodwill and Other Intangible Assets ("SFAS 142") and No. 143, Accounting for Asset Retirement Obligations ("SFAS 143") in June 2001. SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives (but with no maximum life). The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Company is required to adopt SFAS 142 effective August 1, 2002, and has not yet determined the impact of adoption. The Company recorded $2.4 million of goodwill amortization expense in fiscal 2001. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset. The Company is required to adopt SFAS 143 August 1, 2002 and has not yet determined the impact, if any, of adoption. CDT 2001 Annual Report 23 Notes to Consolidated Financial Statements Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 supercedes SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and provides further guidance regarding the accounting and disclosure of long-lived assets. The Company is required to adopt SFAS 144 effective August 1, 2002, and has not yet determined the impact, if any, of adoption. NOTE 3. STOCKHOLDERS' EQUITY A three for two stock split in the form of a common stock dividend was effected on August 22, 2000. The Company has a program under which up to $30 million of the Company's common stock may be repurchased on the open market or in privately negotiated transactions. The Company has repurchased 1,541,100 common shares under this program. Additionally, on December 1, 1998, the Board of Directors approved the purchase of up to 2,850,000 shares of the Company's common stock held by certain key employees. The stock was acquired by the employees more than six months previously upon the exercise of certain incentive stock options granted primarily in 1988 and 1989 and expiring in 1998 and 1999. During fiscal 1999 the Company repurchased 2,394,078 common shares from such employees (See Note 19). On December 10, 1996, the Board of Directors adopted a Rights Agreement ("Rights Agreement"). Under the Rights Agreement, one Preferred Share Purchase Right ("Right") for each outstanding share of the Company's common stock was distributed to stockholders of record on December 26, 1996. Each Right entitles the holder to buy one-two thousand two hundred fiftieth of a share of a new series of junior participating preferred stock for an exercise price of $66.67. The Company has designated 100,000 shares of the previously authorized $0.01 par value preferred stock as junior participating preferred stock in connection with the Rights Agreement. The Rights are exercisable only if a person or group (with certain exceptions) acquires, or announces a tender offer to acquire, 20% or more of the Company's common stock (the "Acquirer"). If the Acquirer purchases 20% or more of the total outstanding shares of the Company's common stock, or if the Acquirer acquires the Company in a reverse merger, each Right (except those held by the Acquirer) becomes a right to buy shares of the Company's common stock having a market value equal to two times the exercise price of the Right. If the Company is acquired in a merger or other business combination, or 50% or more of the Company's assets or earning power is sold or transferred, each Right (except those held by the Acquirer) becomes a right to buy shares of the common stock of the Acquirer having a market value of two times the exercise price. The Company may exchange the Rights for shares of the Company's common stock on a one-to-one basis at any time after a person or group has acquired 20% or more of the outstanding stock. The Company is entitled to redeem the Rights at $0.01 per Right (payable in cash or common stock of the Company, at the Company's option) at any time before public disclosure that a 20% position has been acquired. The Rights expire on December 11, 2006, unless previously redeemed or exercised. NOTE 4. INVENTORIES Inventories of the Company consist of the following: -------------------------------------------------------------------------------- July 31, 2001 2000 -------------------------------------------------------------------------------- (Dollars in thousands) Raw materials $ 40,959 $ 40,779 Work in process 29,095 35,268 Finished goods 88,361 68,968 ---------- ---------- Total inventories $ 158,415 $ 145,015 ---------- ---------- 24 CDT 2001 Annual Report Notes to Consolidated Financial Statements Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- NOTE 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment of the Company consist of the following: -------------------------------------------------------------------------------- July 31, 2001 2000 -------------------------------------------------------------------------------- (Dollars in thousands) Asset (Asset lives): Land $ 12,259 $ 10,946 Buildings and improvements (10 - 40 years) 73,670 64,649 Machinery and equipment (3 - 15 years) 195,125 180,567 Furniture and fixtures (5 - 10 years) 14,204 12,791 Construction in progress 9,738 6,828 --------- --------- Total 304,996 275,781 Less: accumulated depreciation 86,003 69,901 --------- --------- Net property, plant and equipment $ 218,993 $ 205,880 --------- --------- NOTE 6. INTANGIBLE ASSETS Intangible assets consist of patents, trademarks, loan origination fees and non-compete agreements. Patents, trademarks and non-compete agreements are being amortized over periods ranging from five to ten years. Loan origination fees are amortized over the term of the related loan. Accumulated amortization for intangible assets was $4.4 million and $5.5 million at July 31, 2001 and 2000, respectively. NOTE 7. FINANCING ARRANGEMENTS Notes payable to banks consist of an unsecured, 364-day revolving credit agreement entered into on March 9, 2001 (the "364-day Facility"), and borrowings by certain of the Company's foreign subsidiaries under revolving credit agreements in the United Kingdom (the "European Credit Agreement") and Australia (the "Australian Facility") (collectively, "the Foreign Facilities") to support the financing needs of its subsidiaries located in the United Kingdom, Sweden and Australia. The 364-day Facility provides for maximum borrowings of $15 million. Outstanding borrowings bear floating interest rates of either the London Inter-Bank Offered Rate ("LIBOR") plus the applicable margin or the base rate, as defined, at the Company's election. A facility fee is payable quarterly on the maximum facility amount. The applicable margin over LIBOR ranges from 0.60% to 1.25%, and the facility fee ranges from 0.15% to 0.50%, with both rates determined based on the attainment of specified leverage ratios. The 364-day Facility contains customary financial and non-financial covenants, except as limited by the terms of the Company's primary credit agreement. The Company had a 364-day facility agreement which expired December 10, 2000 (the "Expired Facility"). There were no borrowings under the 364-day Facility or Expired Facility for the year ended July 31, 2001. Maximum and weighted average outstanding borrowings under the Expired Facility were $23.0 million and $6.3 million, respectively, and the effective interest rate was 6.2% for the year ended July 31, 2000. The European Credit Agreement is comprised of a sterling overdraft and multi-currency demand facility in an aggregate amount of approximately $10.7 million. Terms of the facility permit overdraft borrowings at an applicable margin of 1.00% over the base rate, as defined, and other borrowings at 0.875% over LIBOR. The Australian Facility is a revolving demand facility with maximum availability of approximately $0.6 million. The Foreign Facilities are guaranteed by the Company. The Company had outstanding borrowings of $5.4 million and $5.8 million and maximum borrowings of $6.6 million and $10.4 million under the Foreign Facilities as of and for the years ended July 31, 2001 and 2000, respectively. Weighted average outstanding borrowings were $5.6 million and $8.3 million, and the effective interest rates were 6.3% and 6.1% for the years ended July 31, 2001 and 2000, respectively. CDT 2001 Annual Report 25 Notes to Consolidated Financial Statements Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- Long-term debt consists of the following: -------------------------------------------------------------------------------- July 31, 2001 2000 -------------------------------------------------------------------------------- (Dollars in thousands) U.S. revolver, due April 10, 2002, bears interest at LIBOR plus 0.50%, or approximately 4.3% at July 31, 2001 $ 23,500 $ 47,000 Deutschmark sub-facility, due April 10, 2002, bears interest at LIBOR plus 0.50%, or approximately 5.0% at July 31, 2001 30,320 33,790 Canadian revolver, due April 10, 2002, bears interest at LIBOR plus 0.50%, or approximately 4.8% at July 31, 2001 61,950 66,568 Other indebtedness 8,545 9,670 --------- --------- 124,315 157,028 Less: current portion 118,902 3,692 --------- --------- Total long-term debt $ 5,413 $ 153,336 --------- --------- The Company's primary credit agreement, (the "Credit Agreement"), as amended, is comprised of a $121.3 million U.S. revolving facility, including a $50.0 million Deutschmark sub-facility (the "U.S. Revolver"), and a CDN $115.0 million revolver (the "Canadian Revolver"). The Credit Agreement includes a provision whereby the applicable margins over prime rate or LIBOR are based on the attainment of certain performance factors. A commitment fee of 0.15% to 0.375% is applied to the unused portion of each revolver. The terms of the Credit Agreement contain various customary financial and non-financial covenants including the maintenance of minimum consolidated net worth and restrictions on payment of dividends. The Company is in compliance with all applicable covenants. The Credit Agreement matures in April 2002 and the Company is in the process of refinancing its existing credit facilities and expects the refinancing to be completed prior to the maturity date of the existing Credit Agreement. On July 31, 2001 the Company had approximately $76.6 million of availability under the Credit Agreement, $15.0 million of availability under the 364-day Facility, and $6.0 million of availability under its Foreign Facilities. The scheduled aggregate annual principal payments of long-term debt as of July 31, 2001, are as follows: -------------------------------------------------------------------------------- Year Ended July 31, Long-term Debt -------------------------------------------------------------------------------- (Dollars in thousands) 2002 $ 118,902 2003 1,914 2004 1,456 2005 735 2006 671 Thereafter 637 --------- Total $ 124,315 --------- 26 CDT 2001 Annual Report Notes to Consolidated Financial Statements Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- NOTE 8. RETIREMENT AND OTHER EMPLOYEE BENEFITS The Company and its subsidiaries have various defined contribution and defined benefit plans covering substantially all of its employees. Benefits provided under the Company's defined benefit pension plans are primarily based on years of service and the employee's compensation. The defined contribution plans provide benefits primarily based on compensation levels. Defined Benefit Plans The Company maintains defined benefit plans for one of its U.S. locations (the "U.S. Plan") and for certain employees in Canada (the "Canadian Plans"). The following sets forth the changes in benefit obligations and plan assets, and reconciles amounts recognized in the Company's consolidated balance sheets:
------------------------------------------------------------------------------------------------------------ U.S. Plan Canadian Plans ------------------------------------------------------------------------------------------------------------ Year Ended July 31, 2001 2000 2001 2000 ------------------------------------------------------------------------------------------------------------ (Dollars in thousands) Benefit obligation at beginning of year $ 2,159 $ 1,979 $ 13,396 $ 7,679 Service cost 44 48 2,321 2,064 Interest cost 146 142 1,008 666 Plan amendments -- 93 (899) 2,618 (Gain) loss (10) 29 (1,098) 458 Benefits paid (140) (132) (259) (127) Effect of currency translation -- -- (404) 38 -------- -------- --------- -------- Benefit obligation at end of year $ 2,199 $ 2,159 $ 14,065 $ 13,396 -------- -------- --------- -------- Fair value of plan assets at beginning of year $ 2,734 $ 2,589 $ 7,955 $ 4,678 Company contributions -- -- 1,976 2,206 Actual return on plan assets (39) 277 (799) 1,148 Benefits paid (140) (132) (116) (102) Effect of currency translation -- -- (240) 25 -------- -------- --------- -------- Fair value of plan assets at end of year $ 2,555 $ 2,734 $ 8,776 $ 7,955 -------- -------- --------- -------- Funded status $ 356 $ 575 $ (5,289) $ (5,441) Unrecognized net actuarial loss (gain) 202 (72) 138 (318) Unrecognized prior service cost 111 127 1,424 2,622 -------- -------- --------- -------- Net amount recognized $ 669 $ 630 $ (3,727) $ (3,137) -------- -------- --------- --------
CDT 2001 Annual Report 27 Notes to Consolidated Financial Statements Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- Amounts recognized in the consolidated balance sheets consist of: -------------------------------------------------------------------------------- U.S. Plan Canadian Plans -------------------------------------------------------------------------------- July 31, 2001 2000 2001 2000 -------------------------------------------------------------------------------- (Dollars in thousands) Prepaid benefit cost $ 669 $ 630 $ -- $ -- Accrued benefit liability -- -- (4,967) (3,137) Intangible asset -- -- 1,240 -- ------ ------ ------- -------- Net amount recognized $ 669 $ 630 $(3,727) $ (3,137) ------ ------ ------- -------- Assets of the U.S. and Canadian plans are invested primarily in equity and fixed income securities. The weighted-average assumptions as of the end of the periods were as follows: -------------------------------------------------------------------------------- U.S. Plan Canadian Plans -------------------------------------------------------------------------------- July 31, 2001 2000 1999 2001 2000 1999 -------------------------------------------------------------------------------- (Dollars in thousands) Weighted average discount rate 7.00% 7.00% 7.00% 7.50% 7.00% 6.75% Weighted average expected long term rate of return 8.50% 8.50% 8.50% 8.00% 8.00% 8.00% The components of pension expense for fiscal 2001, 2000 and 1999 were as follows:
------------------------------------------------------------------------------------------------------ U.S. Plan Canadian Plans ------------------------------------------------------------------------------------------------------ Year Ended July 31, 2001 2000 1999 2001 2000 1999 ------------------------------------------------------------------------------------------------------ (Dollars in thousands) Service cost $ 44 $ 48 $ 47 $ 2,321 $ 2,064 $ 2,131 Interest cost 146 142 130 1,008 666 507 Expected return on plan assets (227) (213) (231) (722) (467) (307) Net amortization (2) (3) (9) 196 28 97 ------- ------- ------- ------- ------- ------- Net periodic benefit (credit) expense $ (39) $ (26) $ (63) $ 2,803 $ 2,291 $ 2,428 ------- ------- ------- ------- ------- -------
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the Canadian pension plans with accumulated benefit obligations in excess of plan assets were $10.7 million, $9.9 million and $5.2 million, respectively, as of July 31, 2001, and $4.3 million, $3.2 million and zero, respectively, as of July 31, 2000. Defined Contribution Plans The Company also maintains defined contribution and profit-sharing plans for eligible employees. Certain contributions are made under the matching provision of 401(k) plans, while the remainder are made at the discretion of the Company's Board of Directors. Expenses incurred by the Company in connection with these profit-sharing plans were $5.7 million, $5.3 million and $3.8 million for the years ended July 31, 2001, 2000 and 1999, respectively. 28 CDT 2001 Annual Report Notes to Consolidated Financial Statements Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- NOTE 9. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Certain of the Company's operations are covered by postretirement health and life insurance benefits under unfunded plans. The components that comprise the changes in the benefit obligation were as follows: -------------------------------------------------------------------------------- Year Ended July 31, 2001 2000 -------------------------------------------------------------------------------- (Dollars in thousands) Benefit obligation at beginning of year $ 6,594 $ 6,053 Service cost 276 278 Interest cost 466 436 Actuarial gain (621) (217) Benefits paid (29) (29) Effect of currency translation (199) 73 -------- -------- Benefit obligation at end of year $ 6,487 $ 6,594 -------- -------- Amounts recognized in the consolidated balance sheets consist of: -------------------------------------------------------------------------------- July 31, 2001 2000 -------------------------------------------------------------------------------- (Dollars in thousands) Funded status $ (6,487) $ (6,594) Unrecognized net loss 204 976 -------- -------- Accrued postretirement benefit liability $ (6,283) $ (5,618) -------- -------- The components of postretirement expense for fiscal 2001, 2000 and 1999 were as follows: -------------------------------------------------------------------------------- Year Ended July 31, 2001 2000 1999 -------------------------------------------------------------------------------- (Dollars in thousands) Service cost $ 276 $ 278 $ 270 Interest cost 466 436 362 Net amortization 120 149 43 ------- -------- -------- Net postretirement benefit expense $ 862 $ 863 $ 675 ------- -------- -------- Future benefits were estimated assuming medical costs would increase at approximately a 7.00% annual rate for fiscal 2002, decreasing gradually to 4.00% in fiscal year 2005 and thereafter, and dental costs would increase at approximately 4.00% for fiscal 2002 and thereafter. Assuming a 1.00% increase in this annual trend, the accumulated postretirement benefit obligation would have increased by $783,000 and $793,000 at July 31, 2001 and 2000, respectively and the postretirement benefit expense would have increased by approximately $100,000, $98,000 and $96,000 for fiscal 2001, 2000 and 1999, respectively. Conversely, assuming a 1.00% decrease in this annual trend, the accumulated postretirement benefit obligation would have decreased by $629,000 and $636,000 at July 31, 2001 and 2000, respectively, and the postretirement benefit expense would have decreased by approximately $79,000, $78,000 and $76,000 for fiscal 2001, 2000 and 1999, respectively. The weighted average discount rate used to estimate the accumulated postretirement benefit obligation was 7.50% and 7.00% for the years ended July 31, 2001 and 2000, respectively. CDT 2001 Annual Report 29 Notes to Consolidated Financial Statements Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- NOTE 10. STOCK BENEFIT PLANS During fiscal 1999 the Company established the CDT Employee Stock Purchase Plan (the "ESPP") which provides eligible employees the right to purchase common stock of the Company on a quarterly basis at the lower of 85% of the common stock's fair market value on the first business day of a fiscal quarter or on the last business day of a fiscal quarter. There are 750,000 shares of common stock reserved for issuance under the ESPP. As of July 31, 2001, 500,760 shares of common stock remain available for issuance under the ESPP. In December 1995, the Company adopted the Non-Employee Director Stock Plan (the "Non-Employee Plan"). The Non-Employee Plan provides that shares of common stock having a fair market value of $15,000 be granted annually to each non-employee director each August 1. Shares granted under the Non-Employee Plan were 3,816 in fiscal 2001, 2,490 in fiscal 2000, and 2,142 in fiscal 1999. A Long Term Performance Incentive Plan (the "2001 Plan") was approved by the shareholders in December 2000, and authorizes the grant of various types of incentive awards with respect to 1,800,000 shares of the Company's common stock. As of July 31, 2001, 1,753,000 shares remain available for issuance under this plan. A Long Term Performance Incentive Plan (the "1999 Plan") was adopted in April 1999 and amended in June 1999 and authorizes the grant of various types of incentive awards with respect to 2,260,500 shares of the Company's common stock. As of July 31, 2001, 37,730 shares remain available for issuance under the 1999 Plan. A Supplemental Long Term Performance Incentive Plan (the "Supplemental Plan") was adopted in December 1995 and authorizes the grant of awards with respect to 2,700,000 shares of common stock, of which 1,687,500 shares are reserved for grants only to new members of the Company's management who are employed in connection with acquisitions by the Company. As of July 31, 2001, 31,970 shares of common stock remain available for grant under the Supplemental Plan. A Long Term Performance Incentive Plan (the "Stock Option Plan") was adopted in September 1993 and provides for the granting to employees and other key individuals stock options, stock appreciation rights, restricted stock, performance units and other types of incentive awards. An aggregate of 982,625 shares of common stock were reserved for issuance pursuant to the Stock Option Plan, and 60,852 remained available for issuance as of July 31, 2001. The Company maintains a Stock Purchase and Option Plan (the "Former Plan") which was terminated as to future grants effective upon completion of the Company's initial public offering on November 24, 1993 (the "Initial Public Offering"). Options issued under the Former Plan expire on the earlier of ten years after the date of grant (July 1988 through September 1992) or ten days after termination of employment. Substantially all of the options granted under the Former Plan were exercised prior to July 31, 1998. The terms of stock options issued under the Former Plan, Stock Option Plan, Supplemental Plan, 1999 Plan and 2001 Plan (collectively "the Option Plans") include vesting over periods ranging from three to five years and an exercise price equal to the fair market value of the stock at the date of grant. 30 CDT 2001 Annual Report Notes to Consolidated Financial Statements Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- Certain information regarding stock option transactions is summarized below:
------------------------------------------------------------------------------------------------------------ Year Ended July 31, 2001 2000 1999 ------------------------------------------------------------------------------------------------------------ Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------------------------------------------------------------------------------------------------------------ Outstanding, beginning of year 4,535,840 $11.51 5,454,068 $10.73 2,944,596 $ 9.16 Granted 359,250 21.88 262,500 20.63 2,768,400 11.83 Exercised (388,567) 11.29 (1,132,563) 9.93 (137,325) 1.54 Canceled/forfeited (61,950) 13.80 (48,165) 9.63 (121,603) 8.05 --------- --------- --------- --------- --------- --------- Outstanding, end of year 4,444,573 $12.34 4,535,840 $11.51 5,454,068 $10.73 Exercisable at end of year 2,185,331 $10.83 1,299,764 $ 9.66 1,182,150 $ 7.93 --------- --------- --------- --------- --------- --------- Weighted average fair value of options granted $12.79 $11.77 $ 3.70
Information regarding stock options outstanding as of July 31, 2001 is summarized below:
------------------------------------------------------------------------------------------ Options Outstanding Options Exercisable ------------------------------------------------------------------------------------------ Weighted Weighted Weighted Average Average Average Remaining Exercise Exercise Range of Exercise Prices Options Contractual Life Price Options Price ------------------------------------------------------------------------------------------ $1.22 - $4.15 267,366 1.9 years $ 2.37 267,366 $ 2.37 $8.33 - $12.28 2,108,177 6.8 years $ 9.77 978,610 $ 9.72 $13.83 - $19.25 1,605,780 7.7 years $14.41 906,355 $14.13 $20.12 - $27.06 463,250 8.9 years $22.60 33,000 $21.69
The Company accounts for the Option Plans and the ESPP in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees" under which no compensation cost has been recognized. The supplemental information presented below discloses pro forma net income and net income per common share as if the Company had determined the cost of stock options in accordance with the fair value method under SFAS No. 123, "Accounting for Stock-Based Compensation".
-------------------------------------------------------------------------------------------- Year Ended July 31, 2001 2000 1999 -------------------------------------------------------------------------------------------- (Dollars in thousands, except per share data) Net income: As reported $23,456 $54,920 $39,641 Pro forma $18,899 $51,023 $37,649 Basic earnings per share: As reported $ 0.54 $ 1.29 $ 0.92 Pro forma $ 0.43 $ 1.20 $ 0.87 Diluted earnings per share: As reported $ 0.52 $ 1.25 $ 0.91 Pro forma $ 0.42 $ 1.18 $ 0.86
The fair value of each option grant is estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for grants issued in fiscal 2001, 2000, and 1999, respectively: risk-free interest rates of 5.78%, 6.36% and 5.87%; expected volatility of 64.1%, 59.0% and 58.5%; expected life of three to five years for all options; and an CDT 2001 Annual Report 31 Notes to Consolidated Financial Statements Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- expected dividend yield of zero for all options. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option pricing models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the Company's stock options. Incentive stock awards are granted at the discretion of the Company's Board of Directors, therefore, the type and number of awards previously issued may not be indicative of those to be granted in future periods. During fiscal 2001, the Company granted an employee award of 38,163 shares of restricted stock. The award vests over a three year period from the date of grant, and the associated compensation expense is amortized over the vesting period. Compensation expense related to this award was $0.3 million in fiscal 2001. NOTE 11. INCOME TAXES Except for the effects of the reversal of net deductible temporary differences, the Company is not aware of any factors which would cause any significant differences between book and taxable income in future years. Although there can be no assurances that the Company will generate any earnings or specific level of continuing earnings in future periods, management believes that it is more likely than not that the net deductible differences will reverse during periods when the Company generates sufficient net taxable income. Income before income taxes, as shown in the accompanying consolidated statements of income, includes the following components:
-------------------------------------------------------------------------------- Year Ended July 31, 2001 2000 1999 -------------------------------------------------------------------------------- (Dollars in thousands) Domestic $ 32,910 $ 54,914 $ 35,133 Foreign 12,449 35,297 31,231 --------- --------- --------- Income before income taxes $ 45,359 $ 90,211 $ 66,364 --------- --------- ---------
Taxes on income, as shown in the accompanying consolidated statements of income, include the following components: -------------------------------------------------------------------------------- Year Ended July 31, 2001 2000 1999 -------------------------------------------------------------------------------- (Dollars in thousands) Current provision: Federal $ 13,122 $ 16,154 $ 13,893 State 2,811 3,541 2,381 Foreign 5,530 12,279 9,622 -------- --------- --------- Total current provision 21,463 31,974 25,896 Deferred provision (benefit): Domestic (193) 2,607 (1,353) Foreign 633 710 2,180 -------- --------- --------- Total deferred provision 440 3,317 827 -------- --------- --------- Income tax provision $ 21,903 $ 35,291 $ 26,723 -------- --------- ---------
The effective rate differs from the statutory rate for the following reasons: -------------------------------------------------------------------------------- Year Ended July 31, 2001 2000 1999 -------------------------------------------------------------------------------- (Dollars in thousands) Tax provision based on the U.S. federal statutory tax rate $ 15,876 $ 31,574 $ 23,227 State income taxes, net of federal income tax benefit 1,827 2,302 1,548 Research and development tax credit (Canada) (254) (224) (302) Foreign tax rates different from U.S. federal statutory rate 1,424 857 1,127 Goodwill and other nondeductible expenses 3,460 584 829 All other, net (430) 198 294 -------- -------- -------- Income tax provision $ 21,903 $ 35,291 $ 26,723 -------- -------- --------
32 CDT 2001 Annual Report Notes to Consolidated Financial Statements Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- The components of the deferred tax assets and liabilities recorded in the accompanying consolidated balance sheets at July 31, 2001 and 2000, which include net deferred tax liabilities recorded in connection with acquisitions and reflect reclassifications as a result of finalization of purchase accounting under Accounting Principles Board Opinion No. 16, "Business Combinations" ("APB 16"), were as follows:
-------------------------------------------------------------------------------- July 31, 2001 2000 -------------------------------------------------------------------------------- (Dollars in thousands) Deferred Tax Assets: Accruals $ 5,803 $ 4,989 Postretirement and pension accruals 3,061 2,822 Asset valuations 6,359 6,624 Uniform cost capitalization 1,361 1,050 Other 101 180 -------- -------- Total deferred tax assets $ 16,685 $ 15,665 -------- -------- Deferred Tax Liabilities: Excess of book basis over tax basis of fixed assets $(28,179) $(27,164) Other (48) (73) -------- -------- Total deferred tax liabilities (28,227) (27,237) -------- -------- Net deferred tax liabilities (11,542) $(11,572) -------- -------- Reconciliation to the consolidated balance sheets: Current deferred tax asset, net $ 12,183 $ 11,834 Non-current deferred tax liability, net (23,725) (23,406) -------- -------- Net deferred tax liability $(11,542) $(11,572) -------- --------
NOTE 12. NET INCOME PER SHARE OF COMMON STOCK Basic net income per share of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding. Diluted net income per share of common stock is computed based on the weighted average common shares outstanding plus incremental common stock equivalent shares (shares issuable upon exercise of options and vesting of restricted stock grants). Incremental common stock equivalent shares are calculated for each measurement period based on the treasury stock method, under which the repurchases are assumed to be made at the average fair market value price per share of the Company's common stock during the period. The following table sets forth the computation of basic and diluted earnings per share:
-------------------------------------------------------------------------------------------- Year Ended July 31, 2001 2000 1999 -------------------------------------------------------------------------------------------- (Dollars in thousands, except per share data) Numerator: Net income $ 23,456 $ 54,920 $ 39,641 Denominator: Weighted average shares - basic 43,742,832 42,665,123 43,175,804 Effect of dilutive stock options and grants 1,184,453 1,421,076 517,012 ---------- ---------- ----------- Weighted average shares - diluted 44,927,285 44,086,199 43,692,816 Basic earnings per common share $ 0.54 $ 1.29 $ 0.92 Diluted earnings per common share $ 0.52 $ 1.25 $ 0.91
Options to purchase 526,000 and 247,500 shares of common stock were outstanding during fiscal 2001 and 2000, respectively, but were not included in the computation of diluted earnings per common share as the options' exercise prices were greater than the average market price of the common stock for the respective periods. CDT 2001 Annual Report 33 Notes to Consolidated Financial Statements Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- NOTE 13. ACQUISITIONS On March 31, 2000, the Company acquired the outstanding stock of Hamilton USA, Inc. ("BoseLAN/CDT"), a Silicon Valley company located in Milpitas, California. BoseLAN/CDT is a developer of high performance electronic and fiber optic components. On February 24, 2000, the Company purchased 85% of the outstanding stock of Industria Tecnica Cavi S.R.L. ("ITC/CDT"), and entered into an agreement to purchase the remaining 15% of the stock at a later date. ITC/CDT is an Italian manufacturer of coaxial cable. On March 12, 1999, the Company acquired the outstanding stock of the Tennecast Company ("Tennecast/CDT") of Barberton, Ohio, a manufacturer of precision aluminum tire castings and computer designed and machined mold models utilized for tire castings. On September 25, 1998, the Company acquired the assets of Network Essentials, Inc., ("Red Hawk/CDT") based in Milpitas, California, a provider of fiber optic products for voice, video and data networks. The acquisitions of BoseLAN/CDT, ITC/CDT, Tennecast/CDT, and Red Hawk/CDT were accounted for under the purchase method of accounting. Under the purchase method, the Company allocates the purchase price based on the estimated fair market value of the assets and liabilities acquired. On August 3, 1998, the Company acquired an 80% interest in HEW-Kabel Heinz Eilentropp GmbH & Co. KG, and related entities, ("HEW/CDT") located in Wipperfurth, Germany. The acquisition was accounted for using the purchase method under APB Opinion No. 16 and the assets and liabilities assumed were as follows: -------------------------------------------------------------------------------- HEW/CDT -------------------------------------------------------------------------------- (Dollars in thousands) Assets acquired, net of cash $ 67,458 Liabilities assumed (22,980) Notes issued (10,307) -------- Net cash paid $ 34,171 -------- NOTE 14. INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION The Company's operations are organized into two business segments: the Network Communication segment and the Specialty Electronic segment. The Network Communication segment encompasses connectivity products used within computer networks and communication infrastructures for the electronic transmission of data, voice, and multimedia. Products included in this segment are high performance network cable, fiber optic cable and passive and active components, including connectors, wiring racks and panels, and interconnecting hardware for end-to-end network structured wiring systems, and communication cable products for local loop, central office, wireless and other applications, including assembly of products for the wireless marketplace. The Specialty Electronic segment encompasses electronic cable products that are used in automation and process control applications as well as specialized wire and cable products for niche markets, including commercial aviation and automotive electronics. The accounting policies of the reportable segments are the same as those described in "Significant Accounting Policies" (Note 2). The Company evaluates segment performance based on operating profit excluding nonrecurring income and expense, after allocation of Corporate expenses. Corporate assets, which primarily consist of cash, deferred income taxes and other deferred costs, are immaterial and are allocated to the operating segments. 34 CDT 2001 Annual Report Notes to Consolidated Financial Statements Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- The Company has no inter-segment revenues. Summarized financial information for the Company's operating segments as of and for the years ended July 31, is as follows:
-------------------------------------------------------------------------------- Network Specialty Communication Electronic Segment Segment Total -------------------------------------------------------------------------------- (Dollars in thousands) Sales: 2001 $ 512,694 $ 250,531 $ 763,225 2000 545,021 252,803 797,824 1999 446,580 237,419 683,999 Depreciation and amortization expense: 2001 14,346 8,197 22,543 2000 13,697 7,752 21,449 1999 11,535 7,295 18,830 Segment operating profit: 2001 39,318 33,543 72,861 2000 62,191 40,964 103,155 1999 50,264 35,206 85,470 Total assets: 2001 356,686 227,710 584,396 2000 376,966 238,387 615,353 1999 359,910 235,190 595,100 Capital expenditures: 2001 28,359 9,723 38,082 2000 16,003 6,025 22,028 1999 18,943 6,319 25,262
The following summarizes external sales to customers and long-lived assets located in the Company's country of domicile and certain foreign countries:
-------------------------------------------------------------------------------- July 31, 2001 2000 1999 -------------------------------------------------------------------------------- (Dollars in thousands) Sales: United States $ 454,835 $ 497,319 $ 410,744 Canada 128,050 121,882 117,994 Other 180,340 178,623 155,261 ---------- --------- ---------- Total $ 763,225 $ 797,824 $ 683,999 ---------- --------- ---------- Long-lived assets: United States $ 90,631 $ 77,832 $ 75,304 Canada 72,737 74,160 71,815 Germany 26,844 27,086 30,677 Other 31,028 29,323 26,326 ---------- --------- ---------- Total $ 221,240 $ 208,401 $ 204,122 ---------- --------- ----------
Note 15. Lease Commitments Rental expense under noncancelable leases was approximately $5.9 million, $5.3 million and $5.0 million for the years ended July 31, 2001, 2000 and 1999, respectively. Operating leases relate principally to manufacturing, warehouse and office space. Minimum annual rents payable under noncancelable leases in each of the next five years and thereafter are as follows:
-------------------------------------------------------------------------------- Year Ended July 31, Total -------------------------------------------------------------------------------- (Dollars in thousands) 2002 $ 5,475 2003 4,434 2004 3,323 2005 2,691 2006 2,104 Thereafter 784 ------- Total future minimum lease payments $18,811 -------
CDT 2001 Annual Report 35 Notes to Consolidated Financial Statements Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- Note 16. Commitments and Contingencies Certain claims have been asserted against the Company in connection with patent and trademark matters. In management's opinion, any liability that might be incurred in connection with these claims would not have a material effect upon the Company's financial position, or results of operations or cash flows. As of July 31, 2001, the Company had outstanding letters of credit of $3.1 million in connection with the purchase of ITC/CDT (see Note 13), and $0.8 million under its workers' compensation policy. The Company also maintains a $1.2 million bond in connection with workers' compensation self-insurance in the state of Massachusetts. Note 17. Related Party Transactions In the normal course of business the Company enters into transactions for the purchase of materials, equipment and services with entities that are affiliated with or owned by an officer/stockholder. Such transactions totaled $0.3 million, $0.9 million and $1.2 million for the years ended July 31, 2001, 2000, and 1999, respectively. During fiscal 1999 the Company had an agreement to pay management fees to each of two beneficial stockholders. Selling, general and administrative expenses include $100,000 in fiscal 1999 for fees paid under this agreement. Note 18. Nature of Business and Disclosures About Fair Value of Financial Instruments Concentrations of credit risk with respect to trade receivables are limited due to the Company's wide variety of customers and the many markets into which the Company's products are sold, as well as the many different geographic areas in which such customers and markets are located. As a result, at July 31, 2001, the Company does not believe it has any significant concentrations of credit risk. The fair values and carrying amounts of the Company's financial instruments, primarily accounts receivable and debt, are approximately equivalent. The debt instruments bear interest at floating rates which are based upon market rates or fixed rates which approximate market rates. All other financial instruments are classified as current and will be utilized within the next operating cycle. Note 19. Nonrecurring Income and Expense In the fourth quarter of fiscal 2001, the Company recorded a restructuring charge of $6.1 million ($3.8 million after tax) comprised of severance costs associated with a workforce reduction of approximately 600 hourly and salaried employees, including workers under contract manufacturing arrangements, the majority of whom were terminated as of July 31, 2001. The Company paid $0.5 million of such costs in fiscal 2001. The restructuring charge related to a company-wide workforce reduction rather than to a specific business segment, and is therefore excluded from segment operating profit (see Note 14). However, had these costs been allocated to the Company's business segments in a manner consistent with other Corporate expenses, the Network Communication and Specialty Electronic segments operating profit for fiscal 2001 would have been reduced by $4.1 million and $2.0 million, respectively. During fiscal 2001, the Company recorded goodwill impairment charges of $9.4 million ($8.4 million after tax) as a result of the Company's evaluation of the recoverability of the carrying value of goodwill for certain of its operations based on the estimates of future cash flows for these operations. Of the total goodwill impairment charge, $3.8 million net of tax represented goodwill associated with operations in the Network Communication segment, and $4.6 million net of tax with operations in the Specialty Electronic segment. Fiscal 2001 sales for these operations were less than $20.0 million. Also in fiscal 2001, the Company sold substantially all the assets of a network distribution business located in the United Kingdom. The Company incurred a $2.1 million net of tax loss on the sale of assets. During fiscal 1999, the Company purchased 2,394,078 shares of common stock held by certain key employees. The stock was acquired by the employees more than six months previously upon the exercise of incentive stock options granted primarily in 1988 and 1989 and expiring in 1998 and 1999. In connection with the purchase of this stock, the Company incurred a $6.3 million nonrecurring charge representing incentive payments which were made to partially compensate the employees for the difference between the income tax rates for ordinary income and for long term capital gains. As a result of this transaction, the Company received a cash benefit of approximately $12.8 million realized through the reduction of income taxes payable. Also in fiscal 1999, the Company realized a nonrecurring gain of $1.1 million on the sale of certain assets related to the discontinued DynaTraXTM product line. 36 CDT 2001 Annual Report Notes to Consolidated Financial Statements Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- Note 20. Quarterly Financial Information (unaudited) Quarterly financial data are summarized as follows:
------------------------------------------------------------------------------------------------------------------- Fiscal Year 2001 First Second Third Fourth ------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share data) Sales $ 214,726 $ 202,645 $ 181,384 $ 164,470 Gross profit 64,271 58,855 48,320 43,369 Income from operations before nonrecurring items 29,169 21,279 14,130 8,283 Income (loss) from operations 29,169 21,279 12,065/1/ (7,229)/1/ Net income (loss) 16,209 11,524 4,489/2/ (8,766)/2/ Per share information: Basic earnings (loss) per common share $ 0.37 $ 0.26 $ 0.10 $ (0.20) Diluted earnings (loss) per common share $ 0.36 $ 0.26 $ 0.10/2/ $ ( 0.20)/2/
1 Includes $2.1 million and $15.5 million of nonrecurring expense in the third and fourth quarters, respectively (see Note 19). 2 Excluding nonrecurring expense (see Note 19), net income was $6.6 million, or $0.15 per diluted share for the third quarter, and $3.4 million, or $0.08 per diluted share for the fourth quarter.
-------------------------------------------------------------------------------------------------------------- Fiscal Year 2000 First Second Third Fourth -------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share data) Sales $187,622 $178,179 $204,900 $227,123 Gross profit 56,286 50,465 58,969 68,125 Income from operations before nonrecurring items 25,150 20,721 26,183 31,101 Income from operations 25,150 20,721 26,183 31,290/1/ Net income 12,984 10,423 14,017 17,496/2/ Per share information: Basic earnings per common share $ 0.31 $ 0.25 $ 0.33 $ 0.40 Diluted earnings per common share $ 0.30 $ 0.24 $ 0.32 $ 0.39/2/
/1/ Includes $0.2 million of nonrecurring income (see Note 19). /2/ Excluding nonrecurring income (see Note 19), net income was $17.4 million, or $0.39 per diluted share. Note 21. Subsequent Event In August 2001, the Company acquired the assets of A.W. Industries, based in Ft. Lauderdale, Florida, a designer and manufacturer of connectors for the telecommunication and other industries. In October 2001, the Company entered into an agreement to purchase 79% of the outstanding stock of Kabelovna Decin-Podmokly, a.s., based in the Czech Republic, a manufacturer of communication, fiber optic, medical, signal and control cable and cable harnesses. CDT 2001 Annual Report 37 Notes to Consolidated Financial Statements Cable Design Technologies Corporation and Subsidiaries
---------------------------------------------------------------------------------------------------------------------------- For the Year Ended July 31, 2001 2000 1999 1998 1997 ---------------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) Income Statement Data: Sales $ 763,225 $ 797,824 $ 683,999 $ 651,668 $ 516,996 Income from operations 55,284/1/ 103,344/2/ 80,575/1/ 73,454/1/ 62,602 Net income 23,456 54,920 39,641 40,481 36,035 Net income per share of common stock: Basic 0.54 1.29 0.92 0.93 0.87 Diluted 0.52 1.25 0.91 0.86 0.78 Weighted average shares outstanding: Basic 43,743 42,665 43,176 43,501 41,397 Diluted 44,927 44,086 43,693 46,982 46,332 Income Statement Data - Excluding Nonrecurring Items: Income from operations 72,861 103,155 85,470 79,547 62,602 Net income 37,781 54,799 42,930 44,426 36,035 Net income per share of common stock: Basic 0.86 1.28 0.99 1.02 0.87 Diluted 0.84 1.24 0.98 0.95 0.78 ---------------------------------------------------------------------------------------------------------------------------- July 31, 2001 2000 1999 1998 1997 ---------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) Balance Sheet Data: Total assets $ 584,396 $ 615,353 $ 595,100 $ 505,427 $ 429,499 Long-term debt $ 5,413 $ 153,336 $ 171,727 $ 136,052 $ 126,661
1 Includes $17.6, $4.9 and $6.1 million of nonrecurring charges in fiscal 2001, 1999 and 1998, respectively. 2 Includes $0.2 million of nonrecurring income in fiscal 2000. 38 CDT 2001 Annual Report Directors, Officers and Corporate Information Cable Design Technologies Corporation and Subsidiaries -------------------------------------------------------------------------------- Directors Lance Balk Partner, Kirkland & Ellis Bryan C. Cressey* Partner, Thoma Cressey Equity Partners George C. Graeber Chief Operating Officer, Cable Design Technologies Corporation Michael F. O. Harris Managing Director, The Northern Group Glenn Kalnasy Managing Director, The Northern Group Ferdinand Kuznik Executive Vice President Motorola, Inc. President of Motorola Europe, Middle East and Africa Paul M. Olson President and Chief Executive Officer, Cable Design Technologies Corporation Richard C. Tuttle Principal, Prospect Partners *Chairman of the Board of Directors, Cable Design Technologies Corporation Director Emeritus Myron S. Gelbach Jr. Independent Financial Consultant Executive and Corporate Officers Paul M. Olson President and Chief Executive Officer George C. Graeber Chief Operating Officer Kenneth O. Hale Vice President Chief Financial Officer Michael A. Dudley Executive Vice President President, CDT International Normand R. Bourque Executive Vice President President, NORDX/CDT Peter Sheehan Executive Vice President Ian Mack Group President, Europe David R. Harden Senior Vice President President, West Penn/CDT Charles B. Fromm Vice President General Counsel and Secretary Annual Meeting Monday, December 10, 2001 2:30 P.M. (Eastern Time) Pittsburgh Hilton and Towers Gateway Center 600 Commonwealth Place Pittsburgh, Pennsylvania 15222 A copy of the Company's annual report to the Securities and Exchange Commission on Form 10-K for fiscal 2001 is available without charge to stockholders upon written request to Investor Relations at the Company's headquarters. Stock Transfer Agent & Registrar Questions regarding stock certificates, replacement of lost certificates, address changes, account consolidation and transfer procedures should be addressed to: EquiServe Trust Company, N.A. P.O. Box 43010 Providence, Rhode Island 02940-3010 (781) 575-3400 Allow three weeks for a reply. Inquiries Cable Design Technologies Corporation welcomes questions and comments from its stockholders, potential investors, financial professionals, institutional investors and security analysts. Interested parties should contact Investor Relations at the Company's headquarters by telephone at (412) 937-2300. CDT maintains a Web site at www.cdtc.com Common Stock The Company's common stock is listed on the New York Stock Exchange under the ticker symbol "CDT." The following table sets forth the high and low closing price per share of the common stock during the applicable fiscal quarters indicated. The Company did not pay cash dividends on the common stock during the periods set forth. Fiscal 2001 -------------------------------------------------------------------------------- High Low -------------------------------------------------------------------------------- First $29.33 $20.25 Second $24.38 $14.00 Third $21.50 $11.30 Fourth $16.31 $12.85 Fiscal 2000 -------------------------------------------------------------------------------- High Low -------------------------------------------------------------------------------- First $15.92 $11.04 Second $18.67 $13.17 Third $22.88 $15.42 Fourth $25.83 $17.50 [LOGO] EX-21.1 4 dex211.txt LIST OF SUBSIDIARIES Exhibit 21.1 CABLE DESIGN TECHNOLOGIES CORPORATION SUBSIDIARIES OF THE REGISTRANT Anglo-American Cables Limited (Incorporated - United Kingdom) A.W. Industries (Incorporated - Florida) Barcel/CDT, Inc. (Incorporated - California) Cable Design Technologies Inc. (Incorporated - State of Washington) CDT (Deutschland) GMBH (Incorporated - Germany) CDT International Holdings Inc. (Incorporated - Delaware) CDT Italia, S.R.L. (Incorporated - Italy) Industria Tecnica Cavi S.R.L. (Incorporated - Italy, 85% ownership) Cekan/CDT A/S (Incorporated - Denmark) Dearborn/CDT, Inc. (Incorporated - Delaware) Hamilton USA, Inc. (d/b/a BoseLAN/CDT) (Incorporated - California) HEW-Kabel/CDT GmbH & Co. KG (German Partnership, 80% ownership) HEW-Kabel/CDT Verwaltungs GMBH (Incorporated - Germany, 80% ownership) HEW Skandinaviska AB (Incorporated - Sweden, 80% ownership) NEK Kabel AB (Incorporated - Sweden) Network Essentials, Inc. (d/b/a Red Hawk/CDT) (Incorporated - Delaware) NORDX/CDT Australia Pty Limited (Incorporated - Australia) NORDX/CDT Asia Limited (Incorporated - Hong Kong) NORDX/CDT, Corp. (Incorporated - Delaware) NORDX/CDT do Brasil Ltda (Incorporated - Brazil) NORDX/CDT, Limited (Incorporated - United Kingdom) NORDX/CDT, Inc. (Incorporated - Canada) NORDX/CDT - IP Corp. (Incorporated - Delaware) NorLAN/CDT, Inc. (Incorporated - Canada) Noslo Limited (Incorporated - United Kingdom) Orebro Kabel AB (Incorporated - Sweden) Raydex/CDT Limited (Incorporated - United Kingdom) SKL, S.A.S. (Incorporated - France, joint venture) Stronglink/CDT Pty. Ltd. (Incorporated - Australia, 76% ownership) Tennecast Company (Incorporated - Ohio) Thermax/CDT, Inc. (Incorporated - Delaware) Wire Group International, Limited (Incorporated - United Kingdom) X-Mark/CDT Inc. (Incorporated - Pennsylvania)
EX-23.1 5 dex231.txt CONSENT OF ARTHUR ANDERSEN LLP. Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated September 26, 2001, included in Cable Design Technologies Corporation and Subsidiaries' annual report for the year ended July 31, 2001. It should be noted that we have not audited any financial statements of the Company subsequent to July 31, 2001, or performed any audit procedures subsequent to the date of our report. We also consent to the incorporation of our reports, incorporated by reference in this Form 10-K, into the Company's previously filed Form S-8 Registration Statements File No. 333-80229, File No. 333-76351, File No. 33-78418, File No. 33-73272, File No. 333-02450, File No. 333-06743, and File No. 333-17443 and Form S-3 Registration Statements File No. 333-00554, and File No. 333-45896. /s/ Arthur Andersen LLP Pittsburgh, Pennsylvania October 23, 2001