UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 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 number 0-27022
OPTICAL CABLE CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1237042
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5290 Concourse Drive
Roanoke, Virginia 24019
(Address of principal executive offices, including zip code)
(540) 265-0690
(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.
(1) Yes X No _______ (2) Yes X No ______
----- -----
As of June 13, 2001, 56,358,129 shares of the registrant's Common Stock, no
par value, were outstanding. Of these outstanding shares, 54,000,000 shares were
held by Robert Kopstein, Chairman of the Board, President and Chief Executive
Officer of the registrant.
OPTICAL CABLE CORPORATION
Form 10-Q Index
Six Months Ended April 30, 2001
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - April 30, 2001 and October 31,
2000.................................................................... 2
Condensed Statements of Operations - Three Months and Six
Months Ended April 30, 2001 and 2000.................................... 3
Condensed Statement of Changes in Stockholders' Equity -
Six Months Ended April 30, 2001......................................... 4
Condensed Statements of Cash Flows - Six Months Ended
April 30, 2001 and 2000................................................. 5
Condensed Notes to Condensed Financial Statements........................ 6-11
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition...................................... 12-19
Item 3. Quantitative and Qualitative Disclosures About Market Risk............... 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................ 21
Item 4. Submission of Matters to a Vote of Security Holders...................... 22
Item 6. Exhibits and Reports on Form 8-K......................................... 23
SIGNATURES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
OPTICAL CABLE CORPORATION
Condensed Balance Sheets
April 30, October 31,
Assets 2001 2000
----------------- -----------------
(unaudited)
Current assets:
Cash and cash equivalents $ 1,328,860 $ 1,458,896
Trading securities 5,030,350 17,982,830
Trade accounts receivable, net of allowance for doubtful accounts
of $213,150 at April 30, 2001 and $1,909,069 at October 31, 2000 15,927,918 11,357,522
Income taxes refundable -- 1,162,118
Other receivables 384,001 362,000
Due from employees 1,915 2,890
Inventories 8,817,544 7,572,153
Prepaid expenses 134,577 112,794
Deferred income taxes 260,790 959,665
----------------- -----------------
Total current assets 31,885,955 40,970,868
Other assets, net 316,022 261,937
Property and equipment, net 12,094,942 11,455,372
----------------- -----------------
Total assets $ 44,296,919 $ 52,688,177
================= =================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 3,289,668 $ 2,479,116
Accrued compensation and payroll taxes 746,367 847,572
Income taxes payable 444,071 --
Payable to investment broker 1,108,299 5,658,574
----------------- -----------------
Total current liabilities 5,588,405 8,985,262
Deferred income taxes 194,771 195,085
----------------- -----------------
Total liabilities 5,783,176 9,180,347
----------------- -----------------
Stockholders' equity:
Preferred stock, no par value, authorized 1,000,000 shares; none
issued and outstanding -- --
Common stock, no par value, authorized 100,000,000 shares;
issued and outstanding 56,356,879 shares at April 30, 2001
and 56,391,993 shares at October 31, 2000 3,889,364 5,179,295
Paid-in capital 1,782,669 1,714,284
Retained earnings 32,841,710 36,614,251
----------------- -----------------
Total stockholders' equity 38,513,743 43,507,830
Commitments and contingencies
----------------- -----------------
Total liabilities and stockholders' equity $ 44,296,919 $ 52,688,177
================= =================
See accompanying condensed notes to condensed financial statements.
2
OPTICAL CABLE CORPORATION
Condensed Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
April 30, April 30,
----------------------------------- -----------------------------------
2001 2000 2001 2000
--------------- ---------------- --------------- ----------------
Net sales $ 17,376,605 $ 13,028,310 $ 34,372,805 $ 24,374,545
Cost of goods sold 9,548,132 7,119,218 18,666,063 13,260,338
--------------- ---------------- --------------- ----------------
Gross profit 7,828,473 5,909,092 15,706,742 11,114,207
Selling, general and administrative expenses 3,746,306 3,132,224 7,674,120 5,731,487
--------------- ---------------- --------------- ----------------
Income from operations 4,082,167 2,776,868 8,032,622 5,382,720
--------------- ---------------- --------------- ----------------
Other income (expense):
Gains (losses) on trading securities, net (5,164,075) 1,298,051 (9,155,256) 1,747,732
Interest income 9,066 83,491 24,830 163,881
Interest expense (98,213) -- (248,083) --
Other, net 16,792 4,607 15,296 7,081
--------------- ---------------- --------------- ----------------
Other income (expense), net (5,236,430) 1,386,149 (9,363,213) 1,918,694
--------------- ---------------- --------------- ----------------
Income (loss) before income
tax expense (1,154,263) 4,163,017 (1,330,591) 7,301,414
Income tax expense 2,503,665 1,465,575 2,441,950 2,570,852
--------------- ---------------- --------------- ----------------
Net income (loss) $ (3,657,928) $ 2,697,442 $ (3,772,541) $ 4,730,562
=============== ================ =============== ================
Net income (loss) per share:
Basic and diluted net income (loss) per share $ (0.06) $ 0.05 $ (0.07) $ 0.08
=============== ================ =============== ================
See accompanying condensed notes to condensed financial statements.
3
OPTICAL CABLE CORPORATION
Condensed Statement of Changes in Stockholders' Equity
(unaudited)
Six Months Ended April 30, 2001
---------------------------------------------------------------------------------
Common Stock Total
------------------------------- Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
-------------- -------------- --------------- -------------- --------------
Balances at October 31, 2000 56,391,993 $ 5,179,295 $ 1,714,284 $ 36,614,251 $ 43,507,830
Exercise of employee stock
options ($2.09 price per
share) 138,186 288,178 -- -- 288,178
Repurchase of common stock
(at cost) (173,300) (1,578,109) -- -- (1,578,109)
Stock-based compensation -- -- 68,385 -- 68,385
Net loss -- -- -- (3,772,541) (3,772,541)
-------------- -------------- --------------- -------------- --------------
Balances at April 30, 2001 56,356,879 $ 3,889,364 $ 1,782,669 $ 32,841,710 $ 38,513,743
============== ============== =============== ============== ==============
See accompanying condensed notes to condensed financial statements.
4
OPTICAL CABLE CORPORATION
Condensed Statements of Cash Flows
(unaudited)
Six Months Ended
April 30,
-------------------------------------
2001 2000
----------------- -----------------
Cash flows from operating activities:
Net income (loss) $ (3,772,541) $ 4,730,562
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 475,861 377,501
Bad debt expense (recovery) 494,203 (38,926)
Deferred income tax expense 698,561 14,982
Tax benefit of disqualifying disposition of stock options
exercised -- 1,270,325
Stock-based compensation expense 68,385 14,063
Unrealized (gains) losses on trading securities, net (183,191) 1,141,036
(Increase) decrease in:
Trading securities 13,135,671 (13,551,148)
Trade accounts receivable (5,064,599) (203,584)
Income taxes refundable 1,162,118 (558,947)
Other receivables (22,001) (22,545)
Due from employees 975 5,853
Inventories (1,245,391) (81,984)
Prepaid expenses (21,783) (47,425)
Increase (decrease) in:
Accounts payable and accrued expenses 878,292 203,115
Accrued compensation and payroll taxes (101,205) (159,940)
Payable to investment broker (4,550,275) 591,818
Income taxes payable 444,071 (421,803)
----------------- -----------------
Net cash provided by (used in) operating activities 2,397,151 (6,737,047)
----------------- -----------------
Cash flows from investing activities:
Purchase of property and equipment (1,183,171) (757,976)
Cash surrender value of life insurance (54,085) (37,356)
----------------- -----------------
Net cash used in investing activities (1,237,256) (795,332)
----------------- -----------------
Cash flows from financing activities:
Repurchase of common stock (1,578,109) --
Proceeds from exercise of employee stock options 288,178 613,020
Proceeds from notes payable, net -- 494,174
----------------- -----------------
Net cash provided by (used in) financing activities (1,289,931) 1,107,194
----------------- -----------------
Net decrease in cash and cash equivalents (130,036) (6,425,185)
Cash and cash equivalents at beginning of period 1,458,896 6,816,678
----------------- -----------------
Cash and cash equivalents at end of period $ 1,328,860 $ 391,493
================= =================
See accompanying condensed notes to condensed financial statements.
5
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Financial Statements
Six Months Ended April 30, 2001
(unaudited)
(1) General
The accompanying unaudited condensed financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial reporting information and
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required
by accounting principles generally accepted in the United States of America
for complete financial statements. In the opinion of management, all
material adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the six months ended April 30, 2001 are not necessarily indicative of the
results that may be expected for the fiscal year ending October 31, 2001.
The unaudited condensed financial statements and condensed notes are
presented as permitted by Form 10-Q and do not contain certain information
included in the Company's annual financial statements and notes. For
further information, refer to the financial statements and notes thereto
included in the Company's annual report on Form 10-K for the fiscal year
ended October 31, 2000.
Certain reclassifications have been made to the prior year's unaudited
condensed financial statements to place them on a basis comparable with the
current year's unaudited condensed financial statements.
(2) Trading Securities
Trading securities are recorded at fair value, which is based on quoted
market prices. Purchases and sales of trading securities are recognized on
a trade-date basis, the date the order to buy or sell is executed. The
Company's trading securities are bought and held principally for the
purpose of selling them in the near term. Unrealized holding gains and
losses for trading securities are included in the determination of net
income or net loss. The amount of net unrealized holding gain (loss) that
has been included in net income (loss) for the three months ended April 30,
2001 and 2000 was $618,422 and $(1,283,826), respectively. The amount of
net unrealized holding gain (loss) that has been included in net income
(loss) for the six months ended April 30, 2001 and 2000 was $183,191 and
$(1,141,036), respectively. As of April 30, 2001, the Company's trading
securities consist of shares in the Nasdaq 100 Trust, which is designed to
closely track the price and yield performance of the Nasdaq 100 stock
index.
As of April 30, 2001, the Company's trading securities, valued at
$5,030,350, have experienced a 6.3 percent decline in value since the date
of purchase. Subsequent to April 30, 2001 through June 13, 2001, the value
of the Company's trading securities held as of April 30, 2001 decreased by
approximately 3.5 percent, or approximately $174,000. It is possible that
the price of the Company's trading securities could continue to experience
an adverse change in the near term.
At April 30, 2001 and October 31, 2000, the Company had short-term margin
borrowings of $1,108,299 and $5,658,574, respectively, payable to
investment broker related to the trading securities. The margin account
incurs interest at rates ranging from the Call Money rate plus .25 percent
to the Call Money rate plus 2.50 percent, depending on the outstanding
balance of margin borrowings (8.50
(Continued)
6
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Financial Statements
Six Months Ended April 30, 2001
(unaudited)
percent as of April 30, 2001). Obligations of the Company to the investment
broker are collateralized by the trading securities and are subject to
certain margin provisions, which may result in the sale of some or all of
the trading securities to meet margin calls.
(3) Allowance for Doubtful Accounts Receivable
A summary of changes in the allowance for doubtful accounts receivable for
the six months ended April 30, 2001 and 2000 follows:
Six Months Ended
April 30,
--------------------------------------
2001 2000
----------------- -----------------
Balance at beginning of period $ 1,909,069 $ 316,000
Bad debt expense (recovery) 494,203 (38,926)
Losses charged to allowance (2,191,105) (64,358)
Recoveries added to allowance 983 1,284
----------------- -----------------
Balance at end of period $ 213,150 $ 214,000
================= =================
One of the Company's two major distributors filed for liquidation under
bankruptcy laws in January 2001. As of October 31, 2000, we reserved
approximately $1,772,000 for estimated uncollectible accounts receivable
from this distributor. As of January 31, 2001, we wrote off that $1,772,000
reserve, as well as an additional bad debt reserve related to this
distributor of approximately $419,000 incurred during our first quarter of
fiscal year 2001, for a total write-off of approximately $2,191,000 for
estimated uncollectible accounts receivable from this distributor for the
six months ended April 30, 2001. Net sales attributed to this distributor
approximated 1.3% and 15.9% of total net sales for the six months ended
April 30, 2001 and 2000. There were no net sales attributed to this
distributor for the three months ended April 30, 2001.
(4) Inventories
Inventories at April 30, 2001 and October 31, 2000, consisted of the
following:
April 30, October 31,
2001 2000
----------------- -----------------
Finished goods $ 1,587,285 $ 808,271
Work in process 4,323,194 3,487,611
Raw materials 2,823,236 3,194,393
Production supplies 83,829 81,878
----------------- -----------------
$ 8,817,544 $ 7,572,153
================= =================
(Continued)
7
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Financial Statements
Six Months Ended April 30, 2001
(unaudited)
(5) Notes Payable
Under a loan agreement with its bank dated March 10, 1999, the Company has
a $5 million secured revolving line of credit and a $10 million secured
revolving line of credit. The Company's intention is that the $5 million
line of credit be available to fund general corporate purposes and that the
$10 million line of credit be available to fund potential acquisitions and
joint ventures. The lines of credit bear interest at 1.50 percent above the
monthly LIBOR rate (5.93 percent as of April 30, 2001) and are equally and
ratably secured by the Company's accounts receivable, contract rights,
inventory, furniture and fixtures, machinery and equipment and general
intangibles. The lines of credit have been extended and will expire on
March 31, 2002, unless they are further renewed or extended. While the
lines of credit do not require a compensating balance that legally
restricts the use of cash amounts, at the bank's request, the Company has
agreed to maintain an unrestricted target cash balance of $125,000.
(6) Stock Option Plan
The Company applies the provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," for employee
stock option grants and SFAS No. 123, "Accounting for Stock-Based
Compensation" and EITF Issue No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services," for nonemployee stock option grants.
Stock option activity during the six months ended April 30, 2001 was as
follows:
Number of Weighted-Average
Shares Exercise Price
----------------- -------------------
Balance at October 31, 2000 428,999 $ 4.53
Granted 500,000 10.69
Exercised (138,186) 2.09
Forfeited (6,500) 10.69
-----------------
Balance at April 30, 2001 784,313 $ 8.84
=================
Included in the 500,000 options granted during the six months ended April
30, 2001 were 100,000 options to nonemployees.
At April 30, 2001, there were 5,215,687 additional shares available for
grant under the Plan.
The options granted during the six months ended April 30, 2001 were granted
with an exercise price equal to the fair market value of the Company's
common stock on the date of grant, and vest 25 percent after two years, 50
percent after three years, 75 percent after four years and 100 percent
after five years.
(Continued)
8
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Financial Statements
Six Months Ended April 30, 2001
(unaudited)
(7) Income Taxes
As of April 30, 2001, the Company has assessed the realizability of its
deferred tax assets relating to the capital loss carryforward and
unrealized net loss generated by the Company's trading securities during
the six months ended April 30, 2001. As a result, the Company has
determined that it is more likely than not that these deferred tax assets
totaling approximately $3,148,000 as of April 30, 2001, will not be
realized. Accordingly, the Company has established a valuation allowance
for deferred tax assets in the amount of approximately $3,148,000 as of
April 30, 2001, which is included in income tax expense for the six months
ended April 30, 2001. In order to fully realize these deferred tax assets,
the Company will need to generate future capital gains of approximately
$8.4 million prior to the expiration of the capital loss carryforward in
2006.
(8) Net Income (Loss) Per Share
Basic net income (loss) per share excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted net income
(loss) per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock
that then shared in the net income (loss) of the Company. The following is
a reconciliation of the numerators and denominators of the net income
(loss) per common share computations for the periods presented:
Net Loss Shares Per Share
Three Months Ended April 30, 2001 (Numerator) (Denominator) Amount
--------------------------------- --------------- ---------------- ----------------
Basic net loss per share $ (3,657,928) 56,277,995 $ (0.06)
================
Effect of dilutive stock options -- 203,222
--------------- ----------------
Diluted net loss per share $ (3,657,928) 56,481,217 $ (0.06)
=============== ================ ================
Net Income Shares Per Share
Three Months Ended April 30, 2000 (Numerator) (Denominator) Amount
--------------------------------- --------------- ---------------- ----------------
Basic net income per share $ 2,697,442 56,311,927 $ 0.05
================
Effect of dilutive stock options -- 451,727
--------------- ----------------
Diluted net income per share $ 2,697,442 56,763,654 $ 0.05
=============== ================ ================
Net Loss Shares Per Share
Six Months Ended April 30, 2001 (Numerator) (Denominator) Amount
--------------------------------- --------------- ---------------- ----------------
Basic net loss per share $ (3,772,541) 56,317,635 $ (0.07)
================
Effect of dilutive stock options -- 332,458
--------------- ----------------
Diluted net loss per share $ (3,772,541) 56,650,093 $ (0.07)
=============== ================ ================
(Continued)
9
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Financial Statements
Six Months Ended April 30, 2001
(unaudited)
Net Income Shares Per Share
Six Months Ended April 30, 2000 (Numerator) (Denominator) Amount
------------------------------- --------------- ---------------- ----------------
Basic net income per share $ 4,730,562 56,244,123 $ 0.08
================
Effect of dilutive stock options -- 457,041
--------------- ----------------
Diluted net income per share $ 4,730,562 56,701,164 $ 0.08
=============== ================ ================
Subsequent to April 30, 2001 and through June 13, 2001, stock options
totaling 1,250 shares of common stock were exercised.
(9) Stockholders' Equity
The Company's Board of Directors has authorized the repurchase of up to $20
million of the Company's common stock in the open market or in privately
negotiated transactions. Through April 30, 2001, the Company has
repurchased 2,303,743 shares of its common stock for $16,441,784 in such
transactions since the inception of the Company's share repurchase program
in October 1997. For the period from November 1, 2000 through April 30,
2001, the Company has purchased 173,300 shares of its common stock for
$1,578,109 in such transactions.
On August 31, 2000, the Company's Board of Directors approved a 3-for-2
stock split effected in the form of a stock dividend of one share paid on
September 28, 2000, upon each two shares held by stockholders of record at
the close of business on September 8, 2000. The Company's stock began
trading ex-dividend on September 29, 2000. All references to share and per
share data, except for references to authorized shares, contained elsewhere
in this quarterly report have been retroactively adjusted to reflect the
impact of the approved stock dividend.
(10) Employee Benefits
Through December 31, 2000, the Company maintained an independently
administered self-insurance program that provided health insurance coverage
for employees and their dependents on a cost-reimbursement basis. Under the
program, the Company was obligated for claims payments. Effective January
1, 2001, the Company no longer independently administers the health
insurance coverage, but has contracted for insurance coverage with a third-
party administrator.
(11) Segment Information
The Company has a single reportable segment for purposes of segment
reporting pursuant to Statement of Financial Accounting Standards (SFAS)
No. 131. In addition, the Company's fiber optic cable products are similar
in nature.
(Continued)
10
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Financial Statements
Six Months Ended April 30, 2001
(unaudited)
(12) Contingencies
On September 27, 2000, the Equal Employment Opportunity Commission (EEOC)
filed a lawsuit under Title VII of the Civil Rights Act against the Company
in the United States District Court for the Western District of Virginia.
The lawsuit alleged a pattern or practice of discrimination on the bases of
gender and race. The lawsuit seeks injunctive and other relief and damages
in an unspecified amount.
At this early stage in the lawsuit, we cannot make a reasonable estimate of
the monetary amount of its resolution or estimate a range of reasonably
possible loss. If we are unsuccessful, we could be subject to damages that
may be substantial and could have a material adverse effect on our results
of operations or liquidity.
From time to time, the Company is involved in various other claims and
legal actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
(13) New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133." SFAS No. 137 defers the effective date of
SFAS No. 133 to apply to all fiscal quarters of all fiscal years beginning
after June 15, 2000. In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of FASB Statement No. 133." SFAS No. 138 amends
SFAS No. 133 for a limited number of issues that have caused application
difficulties. The adoption of SFAS No. 133, as amended, as of November 1,
2000, did not have any effect on the financial position, results of
operations or liquidity of the Company.
The Company has also adopted Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements," issued by the SEC staff.
Given the nature of the Company's business, the adoption of SAB 101 did not
have any effect on the financial position, results of operations or
liquidity of the Company.
11
Item 2. Management's Discussion and Analysis Results of Operations and
Financial Condition
Forward Looking Information
This Form 10-Q may contain certain forward-looking information within the
meaning of the federal securities laws. The forward-looking information may
include, among other information, statements concerning our outlook for the
future; statements of belief; future plans, strategies or anticipated events;
and similar information and statements concerning matters that are not
historical facts. The forward-looking information is subject to risks and
uncertainties that may cause actual events to differ materially from our
expectations. Factors that could cause or contribute to these differences
include, but are not limited to, the level of sales to key customers; the
economic conditions affecting network service providers; the slowdown in
corporate spending on information technology; actions by competitors;
fluctuations in the price of raw materials, including optical fiber; our
dependence on a single manufacturing facility; our ability to protect our
proprietary manufacturing technology; our dependence on a limited number of
suppliers; an adverse price change in trading securities we hold; an adverse
outcome in litigation, claims and other actions against us; technological
changes and introductions of new competing products; and changes in market
demand, exchange rates, productivity, weather and market and economic conditions
in the areas of the world in which we operate and market our products.
Amounts presented in the following discussion have been rounded to the nearest
hundred thousand, unless the amounts are less than one million, in which case
the amounts have been rounded to the nearest thousand.
Overview
We are a leading manufacturer of a broad range of fiber optic cables for use
both indoors and outdoors. Our tight-buffered fiber optic cables are well-
suited for use in moderate distance applications to connect metropolitan, access
and enterprise networks. Our tight-buffered fiber optic cables are derived from
technology originally developed for military applications requiring rugged,
flexible and compact fiber optic cables. Our tight-buffered fiber optic cables
can be used both indoors and outdoors, are easy and economical to install,
provide a high degree of reliability and offer industry leading performance
characteristics. We have designed and implemented an efficient and highly
automated manufacturing process based on proprietary technologies. This enables
us to produce high quality indoor/outdoor tight-buffered fiber optic cable
rapidly and cost efficiently.
We sell our products through our sales force to original equipment
manufacturers, and to major distributors, regional distributors and various
smaller distributors. For the three months ended April 30, 2001 and 2000,
approximately 41.5 percent and 58.5 percent of our net sales were from sales to
our distributors. For the six months ended April 30, 2001 and 2000,
approximately 43.3 percent and 59.5 percent of our net sales were from sales to
our distributors. International net sales were 24.2 percent and 21.0 percent of
total net sales for the three months ended April 30, 2001 and 2000.
International net sales were 23.5 percent and 22.0 percent of total net sales
for the six months ended April 30, 2001 and 2000. Substantially all of our
international sales are denominated in U.S. dollars.
Net sales consist of gross sales of products, less discounts, refunds and
returns. Revenue is recognized at the time of product shipment or delivery to
the customer, based on shipping terms. We typically give greater discounts on
large orders and on sales to distributors than on sales to the rest of our
customer base, including original equipment manufacturers. For the three months
ended April 30, 2001 and 2000, 10.5 percent and 26.2 percent of our net sales
were attributable to two domestic distributors. For the six months ended April
30, 2001 and 2000, 10.1 percent and 27.8 percent of our net sales were
attributable to two domestic distributors. For the three months ended April 30,
2001 and 2000, 10.5 percent and 10.6 percent of our net sales were attributable
to one of these distributors. For the six months ended April 30, 2001 and 2000,
9.7
12 (Continued)
percent and 11.9 percent of our net sales were attributable to the same
distributor. Another distributor accounted for 0.01 percent and 15.6 percent of
net sales for the three months ended April 30, 2001 and 2000 and 0.4 percent and
15.9 percent of net sales for the six months ended April 30, 2001 and 2000. This
distributor filed for liquidation under bankruptcy laws in January 2001. As of
October 31, 2000, we reserved approximately $1.8 million for estimated
uncollectible accounts receivable from this distributor. As of January 31, 2001,
we wrote off that $1.8 million reserve as well as an additional $419,000, for a
total write off of $2.2 million for estimated uncollectible accounts receivable
from this distributor. Other than these two distributors, no single customer
accounted for more than 5.0 percent of our net sales for the six months ended
April 30, 2001 or 2000.
A significant percentage of the selling price of our fiber optic cable is based
on the cost of raw materials used. Because single-mode fiber is less expensive
than multimode fiber, single-mode fiber optic cables have a lower per unit
selling price than comparable multimode fiber optic cables. We believe that the
metropolitan and access markets are predominantly users of single-mode fiber
optic cable. To the extent that our sales mix shifts toward the metropolitan
and access markets and our product mix shifts toward single-mode cables, we will
have to increase the volume of our sales to maintain our current level of net
sales. Increased volume may require us to expand our manufacturing capacity
more rapidly.
Cost of goods sold consists of the cost of materials, compensation costs and
overhead related to our manufacturing operations. The largest percentage of
costs included in cost of goods sold is attributable to costs of materials which
are variable as opposed to fixed costs. As a result, cost of goods sold
typically changes in proportion to increases and decreases in net sales.
Selling, general and administrative expenses consist of the compensation costs,
including sales commissions for sales and marketing personnel, shipping costs,
travel expenses, customer support expenses, trade show expenses, advertising,
bad debt expense, the compensation cost for administration, finance and general
management personnel, as well as legal and accounting fees.
Other income (expense), net consists primarily of realized and unrealized net
gains (losses) on trading securities, interest income and interest expense. In
January 2000, with a view to obtaining a better investment return on our excess
cash, we began actively buying and selling shares in the Nasdaq 100 Trust, which
is designed to closely track the price and yield performance of the Nasdaq 100
stock index. These trading securities are recorded at fair value, which is based
on quoted market prices. Purchases and sales of trading securities are
recognized on a trade-date basis, the date the order to buy or sell is executed.
Net realized gains or losses are determined on the first-in, first-out cost
method. We mark our investment to market on each balance sheet date. Any decline
in fair value is recorded as an unrealized loss, while any increase in fair
value is recorded as an unrealized gain. Unrealized holding gains and losses for
trading securities are included in other income (expense), net.
In fiscal year 2000, we recognized realized and unrealized net gains of $289,000
in other income, net and continued to hold approximately $18.0 million of these
trading securities as of October 31, 2000. The amount of net unrealized
holding loss included in other income, net in fiscal year 2000 was $500,000. We
utilized short-term margin borrowings payable to an investment broker to finance
our position. As of October 31, 2000, the outstanding margin borrowings totaled
$5.7 million. We incurred interest expense of $57,000 on the margin borrowings
in fiscal year 2000. Our margin borrowings are collateralized by the trading
securities and are subject to margin provisions, which may result in the sale of
some or all of the trading securities to meet margin calls.
Subsequent to October 31, 2000 we continued to purchase and sell shares in the
Nasdaq 100 Trust and during this period the fair value of those shares continued
to decline substantially. During the three months ended January 31, 2001, we
recognized realized and unrealized net losses of $4.0 million, and during the
three months ended April 30, 2001, we recognized an additional realized and
unrealized net loss of $5.2 million, for a total realized and unrealized net
loss of $9.2 million included in other expense, net for the six months
13 (Continued)
ended April 30, 2001. As of April 30, 2001, our trading securities totaled $5.0
million and the outstanding margin borrowings totaled $1.1 million. For the six
months ended April 30, 2001, we incurred interest expense of $248,000 on the
margin borrowings. The amount of net unrealized holding gain included in other
expense, net for the six months ended April 30, 2001 was $183,000.
Subsequent to April 30, 2001, we purchased additional shares in the Nasdaq 100
Trust totaling $1.4 million. These purchases were financed by additional margin
borrowings. Our last purchase of shares in the Nasdaq 100 Trust was on May 14,
2001. As of May 31, 2001, our trading securities totaled $6.2 million and the
outstanding margin borrowings totaled $2.5 million. For the month of May 2001,
we recognized unrealized losses on trading securities of $183,000 and incurred
interest expense of $10,000 on the margin borrowings. Subsequent to May 31, 2001
through June 13, 2001, the value of our trading securities held as of May 31,
2001 decreased by $25,000. It is possible that the price of our trading
securities could continue to experience an adverse change in the near term.
Our active trading in the Nasdaq 100 Trust continued through May 14, 2001. Our
Board of Directors has adopted an Investment Objectives and Guidelines, in which
we state that we will make no additional cash investments in the above-mentioned
Nasdaq 100 Trust or in stocks of other companies, and that any margin calls
relating to the above-mentioned margin borrowings will be met solely through the
sale of securities purchased on margin and not by further cash contributions. In
addition, our Investment Objectives and Guidelines state that any future
investments will be in U.S. dollar denominated short-term, interest-bearing,
investment-grade securities.
Results of Operations
The following table sets forth selected line items from our condensed statements
of operations as a percentage of net sales for the periods indicated:
Three Months Ended Six Months Ended
April 30, April 30,
-------------------------------- --------------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 54.9 54.7 54.3 54.4
------------- ------------- ------------- -------------
Gross margin 45.1 45.3 45.7 45.6
Selling, general and administrative expenses 21.6 24.0 22.3 23.5
------------- ------------- ------------- -------------
Income from operations 23.5 21.3 23.4 22.1
Other income (expense), net (30.1) 10.6 (27.2) 7.8
------------- ------------- ------------- -------------
Income (loss) before income tax expense (6.6) 31.9 (3.8) 29.9
Income tax expense 14.4 11.2 7.1 10.5
------------- ------------- ------------- -------------
Net income (loss) (21.0)% 20.7% (10.9)% 19.4%
============= ============= ============= =============
Three Months Ended April 30, 2001 and 2000
Net Sales
Net sales increased 33.4% from $13.0 million for the three months ended April
30, 2000 to $17.4 million for the three months ended April 30, 2001. This
increase was attributable to increased sales volume. Total fiber meters shipped
increased 38.5% from 43.7 million fiber meters shipped in the three months ended
April 30, 2000, to 60.5 fiber meters shipped in the three months ended April 30,
2001. This increase in fiber meters shipped was a result of a 3.4 million
increase in multimode fiber meters shipped and a 13.4 million increase in
single-mode fiber meters shipped.
Gross Margin
Our gross margin, or gross profit as a percentage of net sales, decreased from
45.3% for the three months ended April 30, 2000 to 45.1% for the three months
ended April 30, 2001. This slight decrease in gross margin was attributable to
a decrease in the proportion of sales to original equipment manufacturers
compared to distributors. During the three months ended April 30, 2000, net
sales to distributors approximated 58.5% of net sales compared to 41.5% for the
three months ended April 30, 2001.
14 (Continued)
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of net sales were
24.0% for the three months ended April 30, 2000, compared to 21.6% for the three
months ended April 30, 2001. This lower percentage in 2001 reflects the fact
that selling, general and administrative expenses of $3.7 million for the three
months ended April 30, 2001, increased 19.6% from $3.1 million for the three
months ended April 30, 2000, while net sales increased 33.4% from the three
months ended April 30, 2000.
Income from Operations
Income from operations increased 47.0%, or $1.3 million, from $2.8 million for
the three months ended April 30, 2000, to $4.1 million for the three months
ended April 30, 2001. This increase was due to the $1.9 million increase in
gross profit, partially offset by the $614,000 increase in selling, general and
administrative expenses.
Other Income (Expense), Net
Other income, net, was $1.4 million for the three months ended April 30, 2000,
compared to other expense, net, of $5.2 million for the three months ended April
30, 2001. This decrease was due to losses on our trading securities. We recorded
gains on trading securities, net, of $1.3 million for the three months ended
April 30, 2000, compared to losses on trading securities, net, of $5.2 million
for the three months ended April 30, 2001. In addition, for the three months
ended April 30, 2001, we incurred interest expense of $98,000 on short-term
margin borrowings related to our trading securities. Please see our discussion
of these trading securities in "Overview" above.
Income (Loss) Before Income Tax Expense
Income before income tax expense was $4.2 million for the three months ended
April 30, 2000, compared to loss before income tax expense of $1.2 million for
the three months ended April 30, 2001. This $5.3 million decrease was primarily
due to the $5.2 million losses on trading securities, net, and the $614,000
increase in selling, general and administrative expenses, partially offset by
increases in sales volume and gross profit.
Income Tax Expense
Although we incurred a pretax loss for the three months ended April 30, 2001,
compared to pretax income for the three months ended April 30, 2000, income tax
expense increased by $1.0 million from $1.5 million for the three months ended
April 30, 2000, to $2.5 million for the three months ended April 30, 2001. Our
reported income tax expense for the three months ended April 30, 2001, differed
from the expected income tax benefit, computed based on an expected effective
tax rate of 35.0 percent, due primarily to the establishment of a valuation
allowance for deferred tax assets in the amount of $3.1 million. As of April
30, 2001, we have assessed the realizability of our deferred tax assets relating
to the capital loss carryforward and unrealized net loss from our trading
securities and have determined that it is more likely than not that these
deferred tax assets will not be realized. In order to fully realize these
deferred tax assets, we will need to generate future capital gains of
approximately $8.4 million prior to the expiration of the capital loss
carryforward in 2006. For the three months ended April 30, 2000, our effective
tax rate was 35.2 percent.
Net Income (Loss)
Net income was $2.7 million for the three months ended April 30, 2000, compared
to a net loss of $3.7 million for the three months ended April 30, 2001. This
decrease was due to the $5.3 million decrease in income (loss) before income tax
expense, and the $1.0 million increase in income tax expense.
15 (Continued)
Six Months Ended April 30, 2001 and 2000
Net Sales
Net sales increased 41.0% from $24.4 million for the six months ended April 30,
2000 to $34.4 million for the six months ended April 30, 2001. This increase
was attributable to increased sales volume. Total fiber meters shipped
increased 43.8% from 82.9 million fiber meters shipped in the six months ended
April 30, 2000, to 119.1 fiber meters shipped in the six months ended April 30,
2001. This increase in fiber meters shipped was a result of a 12.4 million
increase in multimode fiber meters shipped and a 23.8 million increase in
single-mode fiber meters shipped.
Gross Margin
Our gross margin increased from 45.6% for the six months ended April 30, 2000 to
45.7% for the six months ended April 30, 2001. This slight increase in gross
margin was attributable to an increase in the proportion of sales to original
equipment manufacturers compared to distributors and was partially offset by an
increase in the ratio of sales from large orders which are typically at lower
gross margins. During the six months ended April 30, 2000, net sales to
distributors approximated 59.5% of net sales compared to 43.3% for the six
months ended April 30, 2001.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of net sales were
23.5% for the six months ended April 30, 2000, compared to 22.3% for the six
months ended April 30, 2001. This slightly lower percentage in 2001 reflects
the fact that selling, general and administrative expenses of $7.7 million for
the six months ended April 30, 2001, increased 33.9% from $5.7 million for the
six months ended April 30, 2000, while net sales increased 41.0% from the six
months ended April 30, 2000. Selling, general and administrative expenses as a
percentage of net sales would have been lower had we not incurred bad debt
expense in the amount of $419,000 related to one of our distributors that filed
for liquidation under the bankruptcy laws in January 2001.
Income from Operations
Income from operations increased 49.2%, or $2.6 million, from $5.4 million for
the six months ended April 30, 2000, to $8.0 million for the six months ended
April 30, 2001. This increase was due to the $4.6 million increase in gross
profit, partially offset by the $1.9 million increase in selling, general and
administrative expenses.
Other Income (Expense), Net
Other income, net, was $1.9 million for the six months ended April 30, 2000,
compared to other expense, net, of $9.4 million for the six months ended April
30, 2001. This decrease was due to losses on our trading securities. We recorded
gains on trading securities, net, of $1.7 million for the six months ended April
30, 2000, compared to losses on trading securities, net, of $9.2 million for the
six months ended April 30, 2001. In addition, for the six months ended April 30,
2001, we incurred interest expense of $248,000 on short-term margin borrowings
related to our trading securities. Please see our discussion of trading
securities in "Overview" above.
Income (Loss) Before Income Tax Expense
Income before income tax expense was $7.3 million for the six months ended April
30, 2000, compared to loss before income tax expense of $1.3 million for the six
months ended April 30, 2001. This $8.6 million
16 (Continued)
decrease was primarily due to the $9.2 million losses on trading securities,
net, and the $1.9 million increase in selling, general and administrative
expenses, partially offset by increases in sales volume and gross profit.
Income Tax Expense
Although we incurred a pretax loss for the six months ended April 30, 2001,
compared to pretax income for the six months ended April 30, 2000, income tax
expense decreased by only $129,000 from $2.6 million for the six months ended
April 30, 2000, to $2.4 million for the six months ended April 30, 2001. Our
reported income tax expense for the six months ended April 30, 2001, differed
from the expected income tax benefit, computed based on an expected effective
tax rate of 35.0 percent, due primarily to the establishment of a valuation
allowance for deferred tax assets in the amount of $3.1 million. As of April
30, 2001, we have assessed the realizability of our deferred tax assets relating
to the capital loss carryforward and unrealized net loss from our trading
securities and have determined that it is more likely than not that these
deferred tax assets will not be realized. In order to fully realize these
deferred tax assets, we will need to generate future capital gains of
approximately $8.4 million prior to the expiration of the capital loss
carryforward in 2006. For the six months ended April 30, 2000, our effective
tax rate was 35.2 percent.
Net Income (Loss)
Net income was $4.7 million for the six months ended April 30, 2000, compared to
a net loss of $3.8 million for the six months ended April 30, 2001. This
decrease was due to the $8.6 million decrease in income (loss) before income tax
expense, partially offset by the $129,000 decrease in income tax expense.
Liquidity and Capital Resources
Our primary capital needs have been to fund working capital requirements and
capital expenditures. Our primary source of capital has been cash provided from
operations. Our bank lines of credit described below provide us with an
additional source of liquidity. There was no balance outstanding under the lines
of credit as of the end of fiscal year 2000 or as of April 30, 2001.
Our cash and cash equivalents totaled $1.3 million as of April 30, 2001, a
decrease of $130,000, compared to $1.5 million as of October 31, 2000. The cash
and cash equivalents decrease for the six months ended April 30, 2001, was
primarily due to the purchase of property and equipment totaling $1.2 million
and the repurchase of common stock totaling $1.6 million related to our common
stock repurchase program, partially offset by net cash provided by operating
activities of $2.4 million.
On April 30, 2001, we had working capital of $26.3 million, compared to $32.0
million as of October 31, 2000, a decrease of $5.7 million. The ratio of
current assets to current liabilities as of April 30, 2001, was 5.7 to 1,
compared to 4.6 to 1 as of October 31, 2000. The change in working capital was
primarily caused by a decrease in trading securities of $13.0 million, partially
offset by an increase in trade accounts receivable, net of $4.6 million, an
increase in inventories of $1.2 million and a decrease in payable to investment
broker of $4.6 million.
Net cash provided by operating activities was approximately $2.4 million for the
six months ended April 30, 2001, compared to net cash used in operating
activities of approximately $6.7 million for the six months ended April 30,
2000. Net cash provided by operating activities for the six months ended April
30, 2001 was primarily provided by a decrease in trading securities of $13.1
million, a decrease in income taxes refundable of $1.2 million and an increase
in accounts payable and accrued expenses of $878,000, partially offset by an
increase in trade accounts receivable of $5.1 million, an increase in
inventories of $1.2 million and a decrease in payable to investment broker of
$4.6 million. For the six months ended April 30, 2000, net cash used in
operating activities was due to the purchase of approximately $13.6 million in
trading securities, partially
17 (Continued)
offset by cash provided by operating income, realized net gains on trading
securities of $2.9 million and an increase in payable to investment broker of
$592,000.
Net cash used in investing activities totaled $1.2 million and $795,000 for the
six months ended April 30, 2001 and 2000. Net cash used in investing activities
was mainly for expenditures related to facilities and equipment for the six
months ended April 30, 2001 and 2000. In October 2000, we entered into
agreements to purchase certain machinery and equipment totaling approximately
$872,000. The machinery and equipment is expected to be delivered and installed
by the end of July 2001. Total remaining commitments under the machinery and
equipment purchase agreements as of April 30, 2001 approximated $520,000. There
are no other material commitments for capital expenditures as of April 30, 2001.
Net cash used in financing activities was $1.3 million for the six months ended
April 30, 2001, compared to net cash provided by financing activities of $1.1
million for the six months ended April 30, 2000. Net cash used in financing
activities for the six months ended April 30, 2001 was primarily related to the
repurchase of shares of our common stock. Net cash provided by financing
activities for the six months ended April 30, 2000 was primarily related to
proceeds from the exercise of employee stock options.
On September 27, 2000, the EEOC filed a lawsuit under Title VII of the Civil
Rights Act against us in the United States District Court for the Western
District of Virginia. The lawsuit alleges a pattern or practice of
discrimination on the bases of gender and race. The lawsuit seeks injunctive
and other relief and damages in an unspecified amount. We intend to vigorously
defend the EEOC's lawsuit on its merits. We may incur substantial costs in
defending ourselves against this claim, regardless of its merit or outcome. At
this early stage in the lawsuit, we cannot make a reasonable estimate of the
monetary amount of its resolution or estimate a range of reasonably possible
loss. If we are unsuccessful, we could be subject to damages that may be
substantial and could have a material adverse affect on our results of
operations or liquidity.
Commencing in October 1997, our Board of Directors authorized the repurchase of
our common stock in the open market or in privately negotiated transactions.
Through April 30, 2001, we had repurchased 2.3 million shares of our common
stock for approximately $16.4 million. The repurchases have been funded through
cash flows from operations. We have no current intention to make any further
repurchases of our shares.
Under a loan agreement with our bank dated March 10, 1999, we have a $5.0
million secured revolving line of credit available for general corporate
purposes and a $10.0 million secured revolving line of credit available to fund
potential acquisitions, mergers and joint ventures. The lines of credit bear
interest at 1.5 percent above the monthly LIBOR rate and are equally and ratably
secured by our accounts receivable, contract rights, inventory, furniture and
fixtures, machinery and equipment and general intangibles. The lines of credit
will expire on March 31, 2002, unless they are further renewed or extended. As
of April 30, 2001, we also had margin borrowings outstanding of $1.1 million
related to our trading securities in the Nasdaq 100 Trust. If there are further
declines in the fair value of the Nasdaq 100 Trust, we may be required to
liquidate our position in the Nasdaq 100 Trust to meet margin calls. We believe
that our cash flow from operations, liquidation of trading securities and
available lines of credit will be adequate to fund our operations for at least
the next twelve months.
18 (Continued)
New Accounting Standards
In June 1998, the Financial Accounting Standards Board, also known as the FASB,
issued Statement of Financial Accounting Standards, referred to as SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts, and for hedging
activities. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133." SFAS No. 137 defers the effective date of SFAS No.
133 to apply to all fiscal quarters of all fiscal years beginning after June 15,
2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an amendment of FASB
Statement No. 133." SFAS No. 138 amends SFAS No. 133 for a limited number of
issues that have caused application difficulties. The adoption of SFAS No. 133,
as amended, as of November 1, 2000, did not have any effect on our financial
position, results of operations or liquidity.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, a replacement of FASB Statement No. 125,"
supercedes and replaces the guidance in SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities". SFAS No.
140 revises the standards for accounting for securitizations and other transfers
of financial assets and collateral and requires certain disclosures, but it
carries over most of the provisions of SFAS No. 125 without reconsideration.
SFAS No. 140 is effective for transfers and servicing of financial assets and
extinguishments of liabilities that occur after March 31, 2001, and for
recognition and reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000. Disclosures about securitization and collateral accepted
need not be reported for periods ending on or before December 15, 2000, for
which financial statements are presented for comparative purposes. The adoption
of SFAS No. 140 did not have any effect on our financial statements.
We also adopted Staff Accounting Bulletin, or SAB, No. 101, "Revenue Recognition
In Financial Statements," issued by the SEC staff. Given the nature of our
business, the adoption of SAB 101 did not have any effect on our financial
position, results of operations or liquidity.
As of April 30, 2001, there are no new accounting standards issued, but not yet
adopted by the Company, which are expected to be applicable to the Company's
financial position, operating results or financial statement disclosures.
19
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We do not engage in transactions in derivative financial instruments or
derivative commodity instruments. As of April 30, 2001 and October 31, 2000, our
financial instruments are not exposed to significant market risk due to interest
rate risk, foreign currency exchange risk or commodity price risk. However, as
of April 30, 2001 and October 31, 2000, our trading securities, which consist of
shares in the Nasdaq 100 Trust, are exposed to equity price risk. The Nasdaq
100 Trust is designed to track closely the price and yield performance of the
Nasdaq 100 stock index. As of April 30, 2001 and October 31, 2000, our trading
securities, valued at approximately $5.0 million and $18.0 million, have
experienced a 6.3 percent and 2.7 percent decline in value since the date of
purchase. Subsequent to April 30, 2001 through June 13, 2001, the value of the
Company's trading securities held as of April 30, 2001 decreased by
approximately 3.5 percent, or approximately $174,000.
The price of these trading securities could continue to experience a further
adverse change in the near term. For illustration purposes, assuming a 30.0
percent further adverse change in the market price of the Nasdaq 100 Trust
subsequent to April 30, 2001, our trading securities would decrease in value by
an additional $1.5 million, based on the value of our portfolio of approximately
$5.0 million as of April 30, 2001. This assumption is not necessarily indicative
of future performance and actual results may differ materially.
20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On September 27, 2000, the Equal Employment Opportunity Commission filed a
lawsuit under Title VII of the Civil Rights Act against us in the United States
District Court for the Western District of Virginia. The lawsuit alleged a
pattern or practice of discrimination on the bases of gender and race. The
lawsuit seeks injunctive and other relief and damages in an unspecified amount.
At this early stage in the lawsuit, we cannot make a reasonable estimate of the
monetary amount of its resolution or estimate a range of reasonably possible
loss. If we are unsuccessful, we could be subject to damages that may be
substantial and that could have a material adverse effect on our results of
operations or liquidity.
In addition, four charges of discrimination were filed with the EEOC in May and
November of 2000, by three of our former employees and an applicant for
employment, alleging age and race related claims under the Age Discrimination in
Employment Act and Title VII of the Civil Rights Act of 1964. On each of these
matters, we filed with the EEOC a statement of our position denying the
allegations. The EEOC has yet to issue a determination on any of these charges.
No litigation has been filed against us in connection with any of these charges.
21
Item 4. Submission of Matters to a Vote of Security Holders
The following information is furnished for matters submitted to a vote of
security holders during the three months ended April 30, 2001:
(a) The Annual Meeting of Shareholders of Optical Cable Corporation was held on
March 13, 2001.
(b) The name of each director elected at the meeting follows:
Robert Kopstein
Luke J. Huybrechts
Kenneth W. Harber
Randall H. Frazier
John M. Holland
(c) A brief description of each matter voted upon at the meeting and the number
of votes cast for, against or withheld, as well as the number of
abstentions and broker non-votes, as to each such matter, including a
separate tabulation with respect to each nominee for office follows:
1. To elect the following five directors to serve for the terms of office
specified in the proxy statement and until their successors are duly
elected and qualified.
Votes Votes Broker
Director Votes for against abstaining non-votes
-------- ----------- --------- ---------- ----------
Robert Kopstein 49,401,121 - 59,310 -
Luke J. Huybrechts 49,452,969 - 7,462 -
Kenneth W. Harber 49,452,969 - 7,462 -
Randall H. Frazier 49,412,256 - 48,175 -
John M. Holland 49,413,160 - 47,271 -
2. To ratify the selection of KPMG LLP as independent accountants for the
Company for fiscal year 2001.
Votes Votes Broker
Votes for against abstaining non-votes
-------------- ------------- ------------- -------------
49,452,204 3,512 4,715 --
22
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K for the six months
ended April 30, 2001.
None.
(b) Reports on Form 8-K filed during the three months ended April 30,
2001.
None
23
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.
OPTICAL CABLE CORPORATION
(Registrant)
Date: June 14, 2001 /s/ Robert Kopstein
--------------------------------------------
Robert Kopstein
Chairman of the Board, President and
Chief Executive Officer
Date: June 14, 2001 /s/ Kenneth W. Harber
--------------------------------------------
Kenneth W. Harber
Vice President of Finance, Treasurer
and Secretary
(principal financial and accounting officer)
24