-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Idn1+aS/J37RyonOIvWHveI0SwfZgNSYqD25cfJTNsMTL4V/WYvTpqIxJJB8w0RW gGj6MII98yAg7C+FZPqO+A== 0000950130-99-003617.txt : 19990615 0000950130-99-003617.hdr.sgml : 19990615 ACCESSION NUMBER: 0000950130-99-003617 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990611 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-Q SEC ACT: SEC FILE NUMBER: 001-12561 FILM NUMBER: 99645183 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-Q 1 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED 4/30/1999 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 1999 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 Identification No.) incorporation or organization) Foster Plaza 7 661 Andersen Drive Pittsburgh, PA 15220 (Address of principal executive offices) (412) 937-2300 Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___________ ---------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at 06/7/99 ----- ---------------------- Common Stock, $.01 Par Value 28,154,876 CABLE DESIGN TECHNOLOGIES CORPORATION ------------------------------------- TABLE OF CONTENTS -----------------
Page ---- PART I FINANCIAL INFORMATION Item 1 Financial Statements.......................................... 3 Review Report of Independent Public Accountants for the Three Months and Nine Months Ended April 30, 1999 and 1998 4 Condensed Consolidated Statements of Income-Unaudited for the Three Months and Nine Months Ended April 30, 1999 and 1998....................................... 5 Condensed Consolidated Balance Sheets as of April 30, 1999 (Unaudited), and July 31, 1998........... 6 Condensed Consolidated Statements of Cash Flows-Unaudited for the Nine Months Ended April 30, 1999 and 1998................................. 7 Notes to Condensed Consolidated Financial Statements-Unaudited................................ 8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 11 PART II OTHER INFORMATION Item 1 Legal Proceedings............................................. 18 Item 2 Changes in Securities......................................... 18 Item 3 Defaults upon Senior Securities............................... 18 Item 4 Submission of Matters to a Vote of Security Holders........... 18 Item 5 Other Information............................................. 18 Item 6 Exhibits and Reports on Form 8-K.............................. 18 Signatures .............................................................. 19
PART I. FINANCIAL INFORMATION Item 1. Financial Statements In the opinion of Cable Design Technologies Corporation's (the "Company") management, the unaudited condensed consolidated financial statements included in this filing on Form 10-Q reflect all adjustments which are considered necessary for a fair presentation of financial information for the periods presented. REVIEW BY INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen LLP has made a review, based upon procedures adopted by the American Institute of Certified Public Accountants, of the unaudited condensed consolidated financial statements as of and for the three month and nine month periods ended April 30, 1999 and 1998, contained in this report. As stated on page 4, Arthur Andersen LLP did not audit and accordingly does not express an opinion on the unaudited consolidated financial statements; however as a result of such review, they are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. -3- Report of Independent Public Accountants To the Board of Directors and Stockholders of Cable Design Technologies Corporation: We have reviewed the accompanying condensed consolidated balance sheet of Cable Design Technologies Corporation (a Delaware corporation) and Subsidiaries as of April 30, 1999, and the related condensed consolidated statements of income for the three month and nine month periods ended April 30, 1999 and 1998, and the condensed consolidated statements of cash flows for the nine month periods ended April 30, 1999 and 1998. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Cable Design Technologies Corporation and Subsidiaries as of July 31, 1998, and, in our report dated September 11, 1998, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of July 31, 1998, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. Pittsburgh, Pennsylvania, Arthur Andersen LLP May 24, 1999 -4- CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES -------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED ----------------------------------------------------- (In thousands, except share and per share data) -----------------------------------------------
Three Months Ended Nine Months Ended April 30, April 30, ------------------------- -------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ------------ Net sales $ 165,611 $ 167,647 $ 500,131 $ 485,429 Cost of sales 119,090 119,132 353,003 343,602 ----------- ----------- ----------- ------------ Gross profit 46,521 48,515 147,128 141,827 Selling, general and administrative expenses 27,631 26,447 82,846 78,960 Research and development expenses 1,361 2,157 4,258 5,774 Non-recurring (income) expense (1,148) - 5,159 - ----------- ----------- ----------- ------------ Income from operations 18,677 19,911 54,865 57,093 Interest expense, net 3,424 2,311 9,842 6,142 Other expense (income) 732 285 1,335 (810) ----------- ----------- ----------- ------------ Income before income taxes 14,521 17,315 43,688 51,761 Income tax provision 5,638 6,657 17,635 19,727 ----------- ----------- ----------- ------------ Net income $ 8,883 $ 10,658 $ 26,053 $ 32,034 =========== =========== =========== ============ Per share data: Basic earnings per common share $ 0.32 $ 0.37 $ 0.90 $ 1.12 Diluted earnings per common share $ 0.31 $ 0.34 $ 0.89 $ 1.02 =========== =========== =========== ============ Weighted average common shares - basic 28,149,704 29,050,372 28,995,909 28,682,804 =========== =========== =========== ============ Weighted average common shares - diluted 28,390,853 31,441,457 29,342,199 31,467,919 =========== =========== =========== ============
The accompanying notes are an integral part of these statements. -5- CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES ------------------------------------------------------ CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (In thousands, except share and per share data) -----------------------------------------------
As of As of April 30, July 31, 1999 1998 ----------- --------- (Unaudited) ASSETS - ------ Current Assets: Cash and cash equivalents $ 10,249 $ 11,143 Accounts receivable, net of allowance for uncollectible amounts of $4,426 and $3,995, respectively 117,471 117,265 Inventories 144,983 130,307 Other current assets 22,674 17,830 ----------- --------- Total current assets 295,377 276,545 Property, plant and equipment, net 200,809 160,891 Goodwill, net 73,138 57,656 Other assets 11,760 8,468 ----------- --------- Total assets $581,084 $503,560 =========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Liabilities: Current liabilities $134,819 $101,869 Long-term debt, excluding current maturities 182,532 136,052 Other non-current liabilities 24,733 20,741 ----------- --------- Total liabilities 342,084 258,662 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,30,776,453 and 30,660,472 shares issued, respectively 308 307 Paid in capital 178,948 165,681 Retained earnings 114,658 88,605 Treasury stock, at cost, 2,623,452 and 200,000 shares, respectively (49,262) (4,291) Currency translation adjustment (5,642) (5,394) Minimum pension liability (10) (10) ----------- --------- Total stockholders' equity 239,000 244,898 ----------- --------- Total liabilities and stockholders' equity $581,084 $503,560 =========== =========
The accompanying notes are an integral part of these statements. -6- CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES ------------------------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED --------------------------------------------------------- (In thousands) --------------
Nine Months Ended April 30, --------------------- 1999 1998 ---------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 39,097 $ 27,800 ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (18,805) (38,481) Acquisition of businesses, including transaction costs, net of cash acquired (47,506) (18,905) ---------- --------- Net cash used by investing activities (66,311) (57,386) CASH FLOWS FROM FINANCING ACTIVITIES: Net change in revolving note borrowings 64,246 25,230 Funds provided by long-term debt 11,290 1,199 Funds used to reduce long-term debt (13,859) (3,340) Purchase of treasury stock (44,971) --- Net proceeds from exercise of stock options and related tax benefits 9,737 4,806 Net proceeds from issuance of common stock --- 8 ---------- --------- Net cash provided by financing activities 26,443 27,903 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (123) 88 ---------- --------- Net decrease in cash (894) (1,595) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,143 9,017 ---------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,249 $ 7,422 ========== ========= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest, net $ 8,749 $ 6,033 ========== ========= Income taxes $ 9,561 $ 14,713 ========== =========
The accompanying notes are an integral part of these statements. -7- CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES ------------------------------------------------------ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED ---------------------------------------------------------------- 1. BASIS OF PRESENTATION --------------------- The condensed consolidated financial statements presented herein are unaudited. Certain information and footnote disclosures normally prepared in accordance with generally accepted accounting principles have been either condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Although the registrant believes that all adjustments necessary for a fair presentation have been made, interim period results are not necessarily indicative of the results of operations for a full year. As such, these financial statements should be read in conjunction with the financial statements and notes thereto included in the registrant's most recent Form 10-K which was filed for the fiscal year ended July 31, 1998. 2. INVENTORIES ----------- Inventories of the Company consist of the following:
April 30, July 31, 1999 1998 --------- --------- (In thousands) Raw materials $ 35,534 $ 40,089 Work-in-process 34,417 27,485 Finished goods 75,032 62,733 -------- -------- $144,983 $130,307 ======== ========
3. EARNINGS PER SHARE ------------------ Basic earnings per common share are computed based on the weighted average common shares outstanding. Diluted earnings per common share are computed based on the weighted average common shares outstanding plus additional shares assumed to be outstanding to reflect the dilutive effect of common stock equivalents. The following table sets forth the computation of basic and diluted earnings per share: -8-
Three Months Ended Nine Months Ended April 30, April 30, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- (In thousands, except share and per share data) Net income $ 8,883 $ 10,658 $ 26,053 $ 32,034 ----------- ----------- ----------- ----------- Basic earnings per common share: Weighted average common shares outstanding 28,149,704 29,050,372 28,995,909 28,682,804 Basic earnings per common share $ 0.32 $ 0.37 $ 0.90 $ 1.12 =========== =========== =========== =========== Diluted earnings per common share: Weighted average common shares outstanding 28,149,704 29,050,372 28,995,909 28,682,804 Shares issuable from assumed conversion of dilutive stock options 241,149 2,391,085 346,290 2,785,115 ----------- ----------- ----------- ----------- Weighted average common shares-diluted 28,390,853 31,441,457 29,342,199 31,467,919 Diluted earnings per common share $ 0.31 $ 0.34 $ 0.89 $ 1.02 =========== =========== =========== ===========
Options to purchase 2,104,225 and 1,906,850 shares of common stock were outstanding during the three and nine month periods, respectively, ended April 30, 1999, but were not included in the computation of diluted EPS as the option's exercise price was greater than the average market price of the common stock for the respective periods. 4. OTHER COMPREHENSIVE INCOME -------------------------- The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") in the first quarter of fiscal 1999. SFAS No. 130 established standards for reporting and displaying comprehensive income and its components in financial statements. Comprehensive income is defined as net income and all nonowner changes in stockholders' equity. The Company's comprehensive income differs from net income due to foreign currency translation adjustments. Total comprehensive income was $7.7 million and $12.2 million for the three months and $25.8 million and $31.4 million for the nine months ended April 30, 1999 and 1998, respectively. 5. BUSINESS ACQUISITIONS --------------------- 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:
(In thousands) Assets acquired, net of cash $ 65,679 Liabilities assumed (22,942) Notes issued (8,566) --------- Net cash paid $ 34,171 =========
On September 25, 1998, the Company acquired the assets of Network Essentials, Inc., ("Red Hawk") based in Milpitas, California. On March 12, 1999, the Company acquired the outstanding stock of the Tennecast Company -9- ("Tennecast/CDT") of Barberton, Ohio. The Red Hawk and Tennecast/CDT acquisitions were accounted for using the purchase method under APB Opinion No. 16. The operations and financial position of HEW/CDT, Red Hawk and Tennecast/CDT are not material to either the consolidated operations or financial position of the Company, therefore, pro forma financial information is not presented. 6. RECLASSIFICATIONS ----------------- Certain reclassifications have been made to the prior year statements to conform with the current year presentation. -10- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cable Design Technologies is a leading manufacturer of technologically advanced electronic data transmission cable for network, communication, specialty electronic, and automation and process control applications, including complete voice and data wiring solutions, fiber optic connective solutions and other components required to build high performance telecommunication infrastructures. This discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Company's unaudited condensed consolidated financial statements and the notes thereto. Results of Operations Overview Sales for the three months ended April 30, 1999 ("third quarter 1999") decreased $2.0 million, or 1%, to $165.6 million compared to $167.6 million for the three months ended April 30, 1998 ("third quarter 1998"). Adjusted for the unfavorable effects of foreign currency translation and the decline in the average price of copper on sales of communication cable, sales for the third quarter 1999 were slightly ahead of last year. Sales attributable to recently acquired businesses, primarily HEW/CDT, Orebro/CDT and Red Hawk, were $13.1 million for the third quarter 1999. Excluding acquisitions, the lower sales for the third quarter 1999 were primarily due to lower sales of communication cable in the U.S. marketplace, lower sales and pricing for certain network structured wiring products, primarily Category 5 network cables, and lower sales of automation and process control cable products. These reductions were partially offset by a 46% increase in sales of Category 5e and 6 advanced network cables, and a 9% increase in specialty cable sales. Net income, excluding a non- recurring gain, for the third quarter 1999 was $8.1 million ($0.29 per diluted share) compared to $10.7 million ($0.34 per diluted share) for the third quarter 1998. Net income for the third quarter 1999 reflects approximately $0.5 million, net of tax, of net foreign currency exchange losses versus $0.2 million, net of tax, a year ago. Reported net income including a non-recurring gain for the third quarter 1999 was $8.9 million ($0.31 per diluted share). Sales for the nine months ended April 30, 1999 ("first nine months 1999") increased $14.7 million, or 3%, to $500.1 million compared to $485.4 million for the nine months ended April 30, 1998 ("first nine months 1998"). Adjusted for the unfavorable effects of foreign currency translation and the decline in the average price of copper on sales of communication cable, the increase in sales was approximately 5%. Sales attributable to the recently acquired businesses were $45.0 million for the first nine months 1999. Income from operations excluding net non-recurring expense increased $2.9 million, or 5%, to $60.0 million for the first nine months 1999 compared to $57.1 million for the first nine months 1998. Net income for the first nine months 1999 excluding net non- recurring expense was $29.5 million ($1.01 per diluted share) compared to net income of $32.0 million ($1.02 per diluted share) for the first nine months 1998. Reported net income including net non-recurring expense for the first nine months 1999 was $26.1 million ($0.89 per diluted share). The increase of $2.9 million in the first nine months 1999 income from operations excluding net non-recurring expense, as compared to the same period last year, was more than offset by a $3.7 million increase in interest expense and a net unfavorable change of $2.1 million in other income/expense, primarily net foreign currency exchange losses. Three Months Ended April 30, 1999 Compared to Three Months Ended April 30, 1998 Sales for the third quarter 1999 of $165.6 million decreased $2.0 million, or 1%, compared to sales of $167.6 million for the third quarter 1998. Adjusted for the unfavorable effects of foreign currency translation and the decline in the average price of copper on sales of communication cable, sales for the third quarter 1999 were slightly ahead of last year. Sales attributable to the recently acquired businesses were $13.1 million for the third quarter 1999. Third quarter 1999 sales for the Network Communication group of $88.9 million, which includes network structured wiring systems products and communication cable, decreased $13.2 million, or 13%, compared to $102.1 million for the third quarter 1998. Adjusted for the unfavorable effects of foreign currency translation and the decline in the average price of copper on communication cable sales, the decrease in sales for this group was 11%. -11- Factors which contributed to the decrease in sales for this product group compared to the third quarter 1998 were lower sales of communication cable, Category 5 network cable, and network structured wiring components, primarily in the U.S. marketplace, and lower average selling prices for certain network cable products, particularly for plenum Category 5 and 5e. However, these reductions were partially offset by an improvement in product mix due to a 46% increase in sales of the higher priced Category 5e and 6 network cables for the third quarter 1999. Third quarter 1999 sales for the Specialty Electronic group increased $11.1 million, or 17%, to $76.7 million compared to $65.6 million for the third quarter 1998. Excluding additional sales of $12.3 million attributable to the recently acquired businesses, Specialty Electronic group sales declined 2% compared to the third quarter 1998 primarily as a result of continued competitive conditions in the marketplace for automation and process control cable products. Sales outside of North America increased $10.0 million, or 36%, to $37.8 million for the third quarter 1999 compared to $27.8 million for the same period last year, including additional sales of $11.9 million attributable to the recently acquired businesses. Excluding acquisitions, sales outside of North America were unfavorably affected by the continued sluggish economy in the United Kingdom and Europe as well as the economic turmoil in the Pacific Rim. Third quarter 1999 gross profit decreased $2.0 million, or 4%, to $46.5 million compared to $48.5 million for the third quarter 1998. Excluding the additional gross profit from the recently acquired businesses, gross profit decreased $4.6 million primarily due to lower sales of communication cable, Category 5 network cable, automation and process control cable, and network structured wiring components, and to lower pricing for Category 5 and 5e network cable products. These reductions were partially offset by, for network cable products, an improved product mix primarily as a result of a 46% increase in sales of higher margin advanced network cable products and lower product costs primarily due to less outsourcing. The gross margin percentage for the third quarter 1999 decreased to 28.1% compared to 28.9% for the third quarter 1998 due to a lower margin for the Specialty Electronic group and, to a lesser extent, the Network Communication group. The lower gross margin for the Specialty Electronic group was primarily due to the inclusion of the recently acquired businesses which have comparatively lower gross margins. The primary factors which contributed to the lower gross margin for the Network Communication group were an increase in product costs for communication cable associated with the expansion of manufacturing capacity, lower pricing for Category 5 and 5e network cable, and increased product costs for structured wiring components due to a shift in product mix and increased product development and revision costs. These reductions were partially offset by, for network cable, an improved product mix including a 46% increase in sales of the higher margin advanced network cable products and lower product costs primarily due to less product outsourcing. Selling, general and administrative expense ("SG&A") for the third quarter 1999 increased $1.2 million, or 4%, to $27.6 million compared to $26.4 million for the third quarter 1998, including $2.2 million of additional SG&A attributable to the recent acquisitions. Excluding acquisitions, the reduction in SG&A of $1.0 million was primarily due to the discontinuance of the DynaTraX(TM) product line and other restructuring activities implemented in July 1998, to continuing cost reduction efforts, and to a lesser extent, the favorable effect of foreign currency translation. As a percentage of sales, SG&A for the third quarter 1999 increased to 16.7% compared to 15.8% for the third quarter 1998, primarily due to the lower level of sales. Third quarter 1999 research and development expense decreased $0.8 million to $1.4 million compared to $2.2 million for the third quarter 1998, primarily as a result of the discontinuance of the DynaTraX(TM)product line. Income from operations for the third quarter 1999 decreased $1.2 million to $18.7 million compared to $19.9 million for the third quarter 1998. Third quarter 1999 income from operations includes a $1.1 million ($0.7 million, net of tax) gain which was recognized on the sale of certain assets related to the previously discontinued DynaTrax(TM) product line. The operating margin, excluding the non-recurring gain, was 10.6% for the third quarter 1999 compared to 11.9% for the third quarter 1998. The lower operating margin was primarily the result of the lower gross margin and the higher SG&A percentage, which were partially offset by lower research and development expense. Interest expense was $3.4 million for the third quarter 1999, an increase of $1.1 million compared to the third quarter 1998. This increase was primarily due to the higher average balance of debt outstanding due to the acquisition of HEW/CDT at the beginning of fiscal 1999 and the purchase of 2.4 million shares of the Company's common stock during the first nine months 1999. Other expense increased $0.4 million to $0.7 million compared to -12- $0.3 million for the third quarter 1998, primarily due to net foreign currency exchange losses. Net income for the third quarter 1999 excluding the non-recurring gain decreased $2.5 million, or 24%, to $8.1 million ($0.29 per diluted share) compared to net income of $10.7 million ($0.34 per diluted share) for the third quarter 1998. Reported net income for the third quarter 1999 including the non-recurring gain was $8.9 million ($0.31 per diluted share). Nine Months Ended April 30, 1999 Compared to Nine Months Ended April 30, 1998 For the nine months ended April 30, 1999, sales increased $14.7 million, or 3%, to $500.1 million compared to $485.4 million for the nine months ended April 30, 1998. Adjusted for the unfavorable effects of foreign currency translation and the decline in the average price of copper on communication cable sales, the increase in sales was approximately 5%. Sales attributable to the recently acquired businesses were $45.0 million for the first nine months 1999. Network Communication group sales for the first nine months 1999 were $269.8 million, a decrease of $24.1 million, or 8%, compared to the first nine months 1998. However, adjusted for the unfavorable effects of foreign currency translation and for the decline in the price of copper on sales of communication cable, the sales for this group only declined 5%. The decrease was primarily the result of reduced demand in the U.S. marketplace for communication cable and for plenum Category 5 network cable as well as competitive pricing pressure on Category 5 and 5e network cables. An improved product mix due to a 70% increase in sales of the higher priced Category 5e and 6 network cables partially offset the reduction in communication cable and Category 5 network cable sales. Specialty Electronic group sales for the first nine months 1999 increased $38.8 million, to $230.3 million, including additional sales of $42.2 million attributable to the recently acquired businesses. Excluding acquisitions, sales for the Specialty Electronic group declined 2%, primarily due to lower sales of automation and process control cable products as a result of continued competitive market conditions in the U.S. and the United Kingdom, which was partially offset by increased sales of specialty cable products. Sales outside of North America for the first nine months 1999 increased $38.0 million, or 48%, to $117.0 million, including additional sales of $41.0 million attributable to the recently acquired businesses, compared to $79.1 million for the first nine months 1998. Excluding acquisitions, sales outside North America were unfavorably affected by the sluggish economy in the United Kingdom and the economic turmoil in Russia, Latin America and the Pacific Rim. Gross profit for the first nine months 1999 increased $5.3 million, or 4%, to $147.1 million compared to $141.8 million for the first nine months 1998. Excluding acquisitions, gross profit declined 5%, primarily due to lower sales of communication cable, Category 5 network cable, automation and process control cable, and network structured wiring components, and to lower pricing for Category 5 and 5e network cable products. These reductions were partially offset by an improved product mix as a result of a 70% increase in sales of higher margin advanced network cable products and less product outsourcing. The gross margin percentage for the first nine months 1999 was 29.4% compared to 29.2% for the first nine months 1998. The increase in the gross margin percentage for the first nine months 1999 is the result of an improved gross margin for the Network Communication group which was partially offset by a lower margin for the Specialty Electronic group. Factors contributing to the increase in the Network Communication group gross margin were, for network cable products, a favorable mix for advanced network cable products, less product outsourcing and lower product costs, which were partially offset by lower pricing on Category 5 and 5e network cables and higher product costs for communication cables and network structured wiring components. The decrease in the Specialty Electronic group gross margin was primarily due to the inclusion of the comparatively lower gross margins of the recently acquired businesses and a lower gross margin on wireless products, which were partially offset by an improved margin for automation and process control cables primarily due to lower copper material costs. SG&A for the first nine months 1999 increased $3.9 million to $82.8 million, including $6.9 million of additional SG&A attributable to the recent acquisitions, compared to $79.0 million for the first nine months 1998. Excluding acquisitions, the $3.0 million reduction in SG&A was primarily the result of significantly lower expenses due to the discontinuance of the DynaTraX(TM)product line and other restructuring activities implemented in July 1998, lower volume related sales expenses, and the favorable effect of foreign currency translation. SG&A as a percentage of sales was 16.6% for the first nine months 1999 compared to 16.3% for the first nine months 1998. First nine -13- months 1999 research and development expense decreased $1.5 million to $4.3 million compared to $5.8 million for the first nine months 1998. The decrease in research and development expense is primarily the result of the discontinuance of the DynaTraX(TM) product line. Income from operations, excluding net non-recurring expense, increased $2.9 million, or 5%, to $60.0 million compared to $57.1 million for the first nine months 1998. Non-recurring expense for the first nine months 1999 includes a $1.1 million gain realized in the third quarter on the sale of assets related to the discontinued DynaTraX(TM) product line, and a charge of $6.3 million incurred in connection with the December 1998 Share Purchase Plan. The operating margin percentage excluding net non-recurring expense was 12.0% for the first nine months 1999 compared to 11.8% for the first nine months 1998. Income from operations for the first nine months 1999 decreased $2.2 million to $54.9 million, including net non-recurring expense of $5.2 million. Interest expense for the first nine months 1999 was $9.8 million, an increase of $3.7 million compared to the first nine months 1998. The increase was primarily the result of the higher average balance of debt outstanding due to the acquisition of HEW/CDT in August, 1998 and the purchase of 2.4 million shares of the Company's common stock during the first half 1999. The effective tax rate increased to 40.4% for the first nine months 1999 compared to 38.1% for the first nine months 1998. The increase in the effective tax rate for the first nine months 1999 was primarily due to the fact that approximately $0.9 million of the second quarter 1999 non-recurring charge is non-deductible for income tax purposes. Excluding net non-recurring expense, the increase in the effective tax rate to 39.6% compared to 38.1% for the first nine months 1998 was primarily the result of lower Canadian research and development and a change in the tax rate mix among domestic and foreign statutory entities primarily due to the inclusion of the recently acquired German subsidiary, HEW/CDT. Net income excluding net non-recurring charges for the first nine months 1999 was $29.5 million ($1.01 per diluted share) compared to the first nine months 1998 net income of $32.0 million ($1.02 per diluted share). The increase of $2.9 million in the first nine months 1999 income from operations excluding net non-recurring expense compared to the first nine months 1998 was more than offset by the $3.7 million increase in interest expense, and a $2.1 million net unfavorable change in other income/expense, primarily net foreign currency exchange losses. Reported net income for the first nine months 1999 including net non-recurring expense was $26.1 million ($0.89 per diluted share). Financial Condition Liquidity and Capital Resources - ------------------------------- The Company's primary bank credit agreement (the "Credit Agreement") is comprised of a U.S. revolving facility of $121.3 million, which includes a USD $50.0 million Deutschmark sub-facility, and a CDN $115.0 million Canadian revolving facility equivalent to $79.0 million. The Company also maintains a bank credit facility in the United Kingdom equivalent to $12.1 million (the "Foreign Facility"). At April 30, 1999, the Company had $170.2 million and $9.7 million outstanding under the Credit Agreement and Foreign Facility, respectively. Effective December 14, 1998, the Company entered into a 364-day, unsecured bank revolving credit agreement (the "Revolving Facility") which provides for maximum borrowings of $35.0 million. At April 30, 1999, the Company had $28.5 million outstanding under the Revolving Facility. Based on an analysis of current expectations for its business, management believes that the Company's cash flow from operations, funds available under its credit agreements, and ability to attract short term and long term capital will provide it with sufficient liquidity to meet its current liquidity needs. Working Capital During the first nine months 1999, operating working capital - --------------- increased $2.6 million, excluding increases resulting from the initial recording of the working capital of acquired businesses. The change in operating working capital was primarily the net result of a decrease in accounts payable of $11.2 million and an increase in inventories of $3.0 million, which were partially offset by a decrease in accounts receivable of $7.8 million. The change in operating working capital excludes changes in cash and cash equivalents and current maturities of long- -14- term debt. Cash Flow The Company generated $39.1 million of net cash from operating - --------- activities during the first nine months 1999, after providing for the $2.6 million increase in operating working capital. Net cash provided by financing activities during the first nine months 1999 of $26.4 million included $61.7 million from debt sources and $9.7 million from the exercise of stock options, which were partially offset by $45.0 million used for the purchase of 2,423,452 shares of the Company's common stock. Net cash used by investing activities of $66.3 million included $47.5 million for the acquisition of businesses, primarily HEW/CDT, and $18.8 million for capital projects, including expenditures for equipment and machinery to expand production capacity, particularly for communication cable and advanced network cable products. 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 individual operating units. For communication cable products, profitability is generally not significantly affected by volatility of copper prices as changes in copper prices are generally passed along to customers, however, differences in the timing of selling price adjustments do occur and may impact near term results. For other product lines, although selling prices are not generally adjusted to directly reflect changes in copper prices, the relief of copper costs from inventory for those operating units 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. New Accounting Standards The FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131") in June 1997. SFAS No. 131 establishes standards for reporting information about operating segments. SFAS No. 131 is effective for the Company's fiscal year ending July 31, 1999. Adoption of this standard will not change the reported results of operations or financial position of the Company, however compliance with the provisions of this standard will add, expand and/or modify various disclosures made in conjunction with the financial statements. The Company will provide appropriate financial statement disclosure under SFAS No. 131 in its Form 10-K for the fiscal year ended July 31, 1999. In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). This statement establishes accounting and reporting standards for derivative instruments and requires recognition in the balance sheet of all derivative instruments as either assets or liabilities, measured at fair value. SFAS No. 133 is effective for the Company's fiscal year ending July 31, 2000. The Company does not believe the adoption of SFAS No. 133 will have a material effect on the Company's results of operations, financial position or cash flows. Year 2000 Compliance Readers are cautioned that forward-looking statements contained in the Year 2000 discussion below should be read in conjunction with the Company's disclosures under the heading "Forward-Looking Statements". Each of the Company's operating units has established a Year 2000 project leader and, in the case of the larger units, a project team. In addition, CDT's corporate headquarters has established a Year 2000 project team. The function of each unit's project team is to identify and remediate Year 2000 issues at their respective facilities. The function of the corporate team is to review and remediate any corporate-wide Year 2000 issues and monitor the status of the remediation activities of the operating units. Each operating unit has assessed their internal information systems ("IT systems") and non-IT systems, such as manufacturing equipment and control devices. Operating units representing approximately 77% of the Company's consolidated revenues have completed any Year 2000 remediation believed necessary with respect to their IT -15- systems. The remaining operating units have either purchased and are in the process of implementing compliant hardware and/or software or identified compliant hardware and/or software and are in the process of obtaining such items. All units, with the exception of two units representing less than 3% of the Company's consolidated revenues, are expected to complete their remediation activities by fiscal year-end, July 31, 1999. The two remaining units are expected to complete their remediation activities by September 30, 1999. The remediation of such IT systems has included the purchase of new hardware and software or the modification of existing software. In certain cases, new IT systems were acquired to improve functionality and provide additional system capabilities, as well as address Year 2000 issues. The cost to maintain or modify existing IT systems is expensed as incurred, while the cost of new and functionally improved IT systems are capitalized and amortized over their estimated useful lives. As of April 30, 1999, the Company has expended $3.0 million with respect to IT systems, which represents approximately 85% of the total costs expected to be incurred. Based on management's review, expenditures associated with modifying or replacing existing IT systems to resolve the Year 2000 issue will not have a material adverse effect on the Company's results of operations, liquidity or capital resources. The Company does not anticipate any material issues or delays regarding implementation schedules for IT system remediations. Each of the operating units has undertaken an assessment of non-IT systems. Such reviews are substantially completed. While certain items of equipment have been found to contain potentially non-compliant components, neither the number or function of such items are material. Such equipment is either being modified or replaced. The Company does not anticipate material Year 2000 compliance issues with respect to non-IT systems, and does not expect expenditures to remediate non-compliant non-IT systems to have a material adverse effect on the Company's results of operations, liquidity or capital resources. The Company and its operating units are in the process of assessing third party Year 2000 compliance. As many of the Company's suppliers and customers are still engaged in executing their Year 2000 programs, the Company cannot fully evaluate such compliance. Neither the Company nor its operating units have adopted formal contingency plans regarding Year 2000 compliance issues, but are in the process of identifying areas where contingency plans may be appropriate as well as the potential cost and feasibility of implementing such plans. Management of the Company believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. However, since it is not possible to anticipate all possible future outcomes, especially in the case of third parties, there could be "worst-case scenarios" in which one or more operating units of the Company would be unable to conduct normal operations due to Year 2000 related matters, such as the inability to take customer orders, manufacture and ship products, invoice customers or collect payments. In addition, there is still uncertainty about the broader scope of the Year 2000 issue as it may affect the Company and third parties who are critical to the Company's operations. For example, lack of readiness by electrical and water utilities, financial institutions, government agencies or other providers of general infrastructure could, in some geographic areas, pose significant impediments to one or more of the Company's operating units to carry on their normal operations in the area or areas so affected. In the event that the Company or third parties (including those described above) do not properly complete their Year 2000 remedial actions or unanticipated Year 2000 events occur there could be a material adverse effect on the Company's business, results of operations or financial condition. 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 and Germany which have customers and suppliers in participating EEMU countries. The Company's German subsidiary is the only subsidiary domiciled in a participating country. These subsidiaries currently have the ability to support transactions in both the Euro and their respective legacy currencies. -16- Conversion to the Euro as the functional currency for the Company's German subsidiary will be phased in prior to January 1, 2002, and conversion costs are not expected to be significant. 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 nature and extent of such effects, whether beneficial or adverse, are unknown at this time. However, 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 statements in this quarterly report are forward-looking statements, including, without limitation, statements regarding future financial results and performance, Year 2000 compliance, introduction of the Euro, and long-term growth prospects, and the Company's or management's beliefs, expectations or opinions. These statements are subject to various risks and uncertainties, many of which are outside the control of the Company, including the level of market demand for the Company's products, competitive pressures, the ability to achieve reductions in operating costs and to continue to integrate acquisitions, price fluctuations of raw materials and the potential unavailability thereof, foreign currency fluctuations, technological obsolescence, environmental matters and other specific factors discussed in this report, the Company's Annual Report on Form 10-K for the year ended July 31, 1998, and other Securities and Exchange Commission filings. The information contained herein represents management's best judgement 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. -17- PART II. OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits -------- 15.1 Letter of Arthur Andersen LLP regarding unaudited interim financial statement information. 27.1 Financial data schedule. 99.1 Cable Design Technologies Corporation 1999 Long-Term Performance Incentive Plan, incorporated by reference to Exhibit 4.3 to the Form S-8 as filed June 8, 1999. (b) Form 8-Ks --------- None -18- SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CABLE DESIGN TECHNOLOGIES CORPORATION June 11, 1999 /s/ Paul M. Olson ------------------------------------- Paul M. Olson President and Chief Executive Officer June 11, 1999 /s/ Kenneth O. Hale ------------------------------------- Kenneth O. Hale Vice President and Chief Financial Officer -19- EX-15.1 2 LETTER FROM ARTHUR ANDERSEN LLP EXHIBIT 15.1 May 24, 1999 To the Stockholders and Board of Directors of Cable Design Technologies Corporation: We are aware that Cable Design Technologies Corporation has incorporated by reference in its Registration Statements on Form S-3 (Registration No. 333- 00554); Form S-8 (Registration No. 33-73272); Form S-8 (Registration No. 33- 78418); Form S-8 (Registration No. 333-2450); Form S-8 (Registration No. 333- 6743); and Form S-8 (Registration No. 333-17443) its Form 10-Q for the quarter ended April 30, 1999, which includes our report dated May 24, 1999, covering the unaudited interim financial statement information contained therein. Pursuant to Regulation C of the Securities Act of 1933 (the Act), that report is not considered a part of the registration statements prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME AS OF APRIL 30, 1999 AND THE NINE MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JUL-31-1999 AUG-01-1998 APR-30-1999 10,249 0 121,897 4,426 144,983 295,377 251,636 50,827 581,084 134,819 0 0 0 308 238,692 581,084 500,131 500,131 353,003 445,266 1,335 0 9,842 43,668 17,635 26,053 0 0 0 26,053 0.90 0.89
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