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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, 2001
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 6/8/01
----- ---------------------
Common Stock, $.01 Par Value 43,818,308
CABLE DESIGN TECHNOLOGIES CORPORATION
TABLE OF CONTENTS
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Page
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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, 2001 and 2000.....4
Condensed Consolidated Statements of
Income - Unaudited for the Three Months and Nine Months Ended
April 30, 2001 and 2000............................................5
Condensed Consolidated Balance Sheets
as of April 30, 2001 (Unaudited) and July 31, 2000.................6
Condensed Consolidated Statements of
Cash Flows - Unaudited for the Nine Months
Ended April 30, 2001 and 2000......................................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.................................................15
Item 2 Changes in Securities.............................................15
Item 3 Defaults upon Senior Securities...................................15
Item 4 Submission of Matters to a Vote of Security Holders...............15
Item 5 Other Information.................................................15
Item 6 Exhibits and Reports on Form 8-K..................................15
Signatures ..................................................................16
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, 2001 and 2000, 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 accounting principles generally accepted in the United States.
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, 2001, and the related condensed consolidated statements of income for
the three month and nine month periods ended April 30, 2001 and 2000, and the
condensed consolidated statements of cash flows for the nine month periods ended
April 30, 2001 and 2000. 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 auditing standards generally accepted in the United States, 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 accounting principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Cable Design
Technologies Corporation and Subsidiaries as of July 31, 2000, and, in our
report dated September 15, 2000, 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, 2000, is fairly stated, in
all material respects, in relation to the balance sheet from which it has been
derived.
Pittsburgh, Pennsylvania, /s/Arthur Andersen LLP
May 22, 2001
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,
------------------------------ ------------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
Net sales $181,384 $204,900 $598,755 $570,701
Cost of sales 133,064 145,931 427,309 404,981
------------- ------------- ------------- -------------
Gross profit 48,320 58,969 171,446 165,720
Selling, general and administrative expenses 32,302 31,004 101,206 88,290
Amortization of goodwill 603 613 1,811 1,865
Research and development expenses 1,285 1,169 3,851 3,511
Nonrecurring expense 2,065 --- 2,065 ---
------------- ------------- ------------- -------------
Income from operations 12,065 26,183 62,513 72,054
Interest expense, net 2,233 3,003 7,067 8,973
Other expense (income), net 480 (92) 665 1,279
------------- ------------- ------------- -------------
Income before income taxes 9,352 23,272 54,781 61,802
Income tax provision 4,863 9,255 22,559 24,378
------------- ------------- ------------- -------------
Net income $4,489 $ 14,017 $ 32,222 $ 37,424
============= ============= ============= =============
Basic earnings per common share $0.10 $0.33 $0.74 $0.88
============= ============= ============= =============
Diluted earnings per common share $0.10 $0.32 $0.72 $0.85
============= ============= ============= =============
Weighted average common shares outstanding 43,760,098 42,784,427 43,704,434 42,483,209
============= ============= ============= =============
Weighted average common and common equivalent shares
outstanding 44,742,491 44,363,798 45,005,959 43,779,377
============= ============= ============= =============
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,
2001 2000
--------------- --------------
(unaudited)
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 13,703 $ 16,454
Trade accounts receivable, net of allowance for uncollectible
accounts of $4,653 and $6,180, respectively 117,229 145,717
Inventories 165,951 145,015
Other current assets 21,519 18,974
--------------- --------------
Total current assets 318,402 326,160
Property, plant and equipment, net 218,156 205,880
Goodwill, net 69,301 74,539
Other assets 7,592 8,774
--------------- --------------
Total assets $613,451 $615,353
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable to banks $ 5,893 $ 5,776
Current maturities of long-term debt 136,376 3,692
Other current liabilities 79,165 99,982
--------------- --------------
Total current liabilities 221,434 109,450
Long-term debt, excluding current maturities 7,958 153,336
Other non-current liabilities 36,540 36,023
--------------- --------------
Total liabilities 265,932 298,809
--------------- --------------
Stockholders' equity:
Preferred stock, par value $.01 per share -
authorized 1,000,000 shares, no shares issued --- ---
Common stock, par value $.01 per share -
authorized 100,000,000 shares, 47,562,776
and 47,362,880 shares issued, respectively 476 316
Paid in capital 196,783 192,956
Common stock issuable, 29,110 and 19,573 shares, respectively 368 367
Retained earnings 215,230 183,166
Treasury stock, at cost, 3,773,578 and 3,867,528 shares, respectively (47,245) (48,415)
Deferred compensation (697) ---
Accumulated other comprehensive deficit (17,396) (11,846)
--------------- --------------
Total stockholders' equity 347,519 316,544
--------------- --------------
Total liabilities and stockholders' equity $613,451 $615,353
=============== ==============
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,
--------------------------------
2001 2000
------------- --------------
Net cash provided by operating activities $32,683 $43,092
Cash flows from investing activities:
Purchases of property, plant and equipment, net (31,403) (13,486)
Acquisition of businesses, including transaction costs, net of cash acquired --- (8,414)
Proceeds on sale of assets 1,073 ---
------------- --------------
Net cash used by investing activities (30,330) (21,900)
Cash flows from financing activities:
Net change in revolving note borrowings (9,173) (18,753)
Funds provided by long-term debt 4,862 1,195
Funds used to reduce long-term debt (3,755) (9,554)
Common stock issued or issuable 1,206 1,081
Net proceeds from exercise of stock options 2,200 6,589
------------- --------------
Net cash used by financing activities (4,660) (19,442)
Effect of exchange rate changes on cash and cash equivalents (444) (584)
------------- --------------
Net (decrease) increase in cash (2,751) 1,166
Cash and cash equivalents, beginning of period 16,454 11,424
------------- --------------
Cash and cash equivalents, end of period $13,703 $12,590
============= ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 7,580 $ 9,370
============= ==============
Income taxes $24,085 $22,108
============= ==============
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, 2000.
2. SIGNIFICANT ACCOUNTING POLICIES
--------------------------------
Amounts billed to customers for shipping and handling costs are included in net
sales in the accompanying statements of income. Shipping and handling costs
incurred by the Company for the delivery of goods to customers are classified as
a component of either cost of sales or selling, general and administrative
expenses ("SG&A"), depending on the specific operating unit. Shipping and
handling costs included in SG&A were $2.5 million and $2.0 million for the three
months ended April 30, 2001 and 2000, respectively, and $7.6 million and $5.8
million for the nine months ended April 30, 2001 and 2000, respectively.
3. INVENTORIES
-----------
Inventories of the Company consist of the following:
April 30, July 31,
2001 2000
-------------- --------------
(In thousands)
Raw materials $ 43,413 $ 40,779
Work-in-process 32,961 35,268
Finished goods 89,577 68,968
-------------- --------------
$165,951 $145,015
============== ==============
8
4. 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:
Three Months Ended Nine Months Ended
April 30, April 30,
------------------------------- -------------------------------
2001 2000 2001 2000
-------------- ------------- -------------- -------------
(Dollars in thousands, except per share data)
Net income $4,489 $14,017 $32,222 $37,424
------------- ------------ ------------- ------------
Basic earnings per common share:
Weighted average common shares outstanding 43,760,098 42,784,427 43,704,434 42,483,209
Basic earnings per common share $0.10 $0.33 $0.74 $0.88
============= ============ ============= ==========
Diluted earnings per common share:
Weighted average common shares outstanding 43,760,098 42,784,427 43,704,434 42,483,209
Shares issuable from assumed exercise of
dilutive stock options and vesting of
restricted stock grants 982,393 1,579,371 1,301,525 1,296,168
------------- ------------ ------------- ------------
Weighted average common and
common equivalent shares outstanding 44,742,491 44,363,798 45,005,959 43,779,377
Diluted earnings per common share $0.10 $0.32 $0.72 $0.85
============= ============ ============= ==========
Options to purchase 672,282 and 278,250 shares of common stock were outstanding
during the three month periods ended April 30, 2001 and 2000, respectively, and
options to purchase 463,250 and 150,000 shares of common stock were outstanding
during the nine month periods ended April 30, 2001 and 2000, respectively, but
were not included in the computation of diluted earnings per common share as the
option's exercise price was greater than the average market price of the common
stock for the respective periods.
5. INDUSTRY SEGMENT INFORMATION
----------------------------
The Company's operations are organized into two business segments: the Network
Communication segment and the Specialty Electronic segment. Network
Communication encompasses connectivity products used within computer networks
and communication infrastructures for the electronic transmission of data,
voice, and multimedia. Products included in this segment are high performance
network cable, fiber optic cable and passive components, including connectors,
wiring racks and panels, and interconnecting hardware for end-to-end network
structured wiring systems, and communication cable products for local loop,
central office, wireless and other applications. The Specialty Electronic
segment encompasses electronic cable products for automation and process control
applications as well as specialized wire and cable products for niche markets,
including commercial aviation and automotive electronics.
The Company evaluates segment performance based on operating profit excluding
net nonrecurring items, after allocation of Corporate expenses.
9
The Company has no inter-segment revenues. Summarized financial information for
the Company's business segments is as follows:
Network Specialty
Communication Electronic
Segment Segment Total
------------------ ------------------- -------------------
Three Months Ended April 30, (In thousands)
Sales:
2001 $120,045 $61,339 $181,384
2000 $138,724 $66,176 $204,900
Segment Operating Profit:
2001 $6,834 $7,296 $14,130
2000 $15,226 $10,957 $26,183
Network Specialty
Communication Electronic
Segment Segment Total
------------------ ------------------- -------------------
Nine Months Ended April 30, (In thousands)
Sales:
2001 $405,174 $193,581 $598,755
2000 $385,026 $185,675 $570,701
Segment Operating Profit:
2001 $37,565 $27,013 $64,578
2000 $42,627 $29,427 $72,054
6. SALE OF ASSETS
--------------
On April 30, 2001, the Company sold substantially all the assets of it's network
distribution business located in the United Kingdom. In connection with the
sale, the Company incurred a $2.1 million non-cash charge, which is presented as
a nonrecurring charge in the accompanying statements of income.
7. OTHER COMPREHENSIVE INCOME
--------------------------
Comprehensive income is defined as all changes in stockholders' equity during a
period except those resulting from investment by or distribution to
stockholders. The Company's comprehensive income differs from net income due to
foreign currency translation adjustments. Comprehensive income was $0.2 million
and $10.7 million for the three months and $26.7 million and $33.3 million for
the nine months ended April 30, 2001 and 2000, respectively. Comprehensive
income for the three and nine months ended April 30, 2001 includes a credit of
$0.2 million related to the cumulative translation adjustment recorded in net
income as part of the loss on the sale of assets of a foreign subsidiary.
8. 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
connectivity products for the Network Communication and Specialty Electronic
marketplaces. Network Communication encompasses connectivity products used
within computer networks and communication infrastructures for the electronic
transmission of data, voice and multimedia. Products included in this segment
are high bandwidth network and interconnect cables, fiber optic cable and
passive components, including connectors, wiring racks and panels, and
interconnecting hardware for end-to-end network structured wiring systems, and
communication cable products for local loop, central office, wireless and other
applications. The Specialty Electronic segment encompasses electronic cable
products for automation and process control applications as well as specialized
wire and cable products for niche markets, including commercial aviation and
automotive electronics.
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 nine months ended April 30, 2001 ("first nine months 2001")
increased $28.1 million, or 5%, to $598.8 million compared to $570.7 million for
the nine months ended April 30, 2000 ("first nine months 2000"). Sales for the
Network Communication segment increased $20.2 million, or 5%, to $405.2 million
for the first nine months 2001, primarily as the result of growth in sales of
gigabit network cables, fiber optic connectivity and central office
telecommunication products, which grew 50%, 64% and 38%, respectively. Specialty
Electronic segment sales increased 4%, to $193.6 million for the first nine
months 2001, primarily due to a 7% increase in sales of automation and process
control cables. During the third quarter 2001, the Company completed a sale of
certain assets of a network distribution business located in the United Kingdom.
In connection with the sale, the Company incurred a $2.1 million non-cash
charge. The operating margin, excluding a $3.1 million bad debt charge for
Anicom, a distributor that filed for bankruptcy, and the $2.1 million non-cash
loss on the sale of certain assets, herein after referred to collectively as the
"one-time charges", was 11.3% for the first nine months 2001 versus 12.6% for
the same period last year. The operating margin as reported for the first nine
months 2001 was 10.4%. Excluding the one-time charges, net income decreased $1.1
million, or 3%, to $36.3 million ($0.81 per diluted share) for the first nine
months 2001 compared to $37.4 million ($0.85 per diluted share) for the first
nine months 2000. Reported net income for the first nine months 2001 was $32.2
million ($0.72 per diluted share).
Sales for the three months ended April 30, 2001 ("third quarter 2001") were
$181.4 million, a decrease of 11% compared to the three months ended April 30,
2000 ("third quarter 2000"). Excluding the impact of unfavorable foreign
currency translation on sales, the decrease was 9% over the same period last
year. Sales for the Network Communication segment were $120.0 million, and
represented 66% of total revenue, and sales for the Specialty Electronic segment
were $61.3 million. The Company's sales and operating results for the third
quarter 2001 were negatively impacted by the slowdown in the network and
telecommunication marketplaces, particularly in the United States. Additionally,
the previously reported loss of the principal customer for wireless assembly
services reduced sales in the wireless marketplace. The operating margin,
excluding the third quarter 2001 loss on the sale of assets, was 7.8% for the
third quarter 2001 compared to 12.8% for the third quarter 2000. Excluding the
loss on the sale of assets, net income for the third quarter 2001 was $6.6
million ($0.15 per diluted share) compared to net income of $14.0 million ($0.32
per diluted share) for the third quarter 2000. Net income after the loss on the
sale of assets for the third quarter 2001 was $4.5 million ($0.10 per diluted
share).
Three Months Ended April 30, 2001 Compared to
Three Months Ended April 30, 2000
Sales for the third quarter 2001 decreased $23.5 million, or 11%, to $181.4
million compared to $204.9 million for the third quarter 2000. Sales for the
Network Communication segment were $120.0 million for the third quarter 2001, a
decrease of 13% compared to sales of $138.7 million for the third quarter 2000.
The decrease in sales for the Network Communication segment was primarily due to
a 59% decline in sales of wireless products attributable to the previously
reported loss of the principal customer for wireless assembly services, and a
42% reduction in sales of computer interconnect products. Sales of the lower
performance rated Category 5 network cable declined 46%, which was partially
offset by the continued shift in demand to the higher performance gigabit
network cables. To a lesser extent, sales of central office telecommunication
products also decreased
11
year over year, due to the slowdown in the U.S. telecommunication market. These
decreases were partially offset by growth in sales of fiber optic connectivity
products, particularly single-mode fiber optic cable, due to demand from
communication services companies for the build-out of the broadband
telecommunication infrastructure and for use in high speed premise communication
network systems. Third quarter 2001 sales for the Specialty Electronic segment
decreased 7% to $61.3 million compared to $66.2 million for the third quarter
2000. The decrease in sales for this segment was primarily due to lower sales of
industrial cables, which the Company believes reflects adjusted inventory levels
at electronic equipment distributors in response to the economic slowdown. Sales
outside of North America were $47.1 million for the third quarter 2001, an
increase of 3% compared to sales of $45.8 million for the third quarter 2000.
The increase in international sales was primarily due to higher sales of network
products in the Pacific Rim, as well as sales of Specialty Electronic cable
products attributable to the ITC/CDT acquisition in the third quarter 2000.
Gross profit for the third quarter 2001 decreased $10.7 million, or 18%, to
$48.3 million compared to $59.0 million for the third quarter 2000, primarily
due to the lower sales volume for both the Network Communication and Specialty
Electronic segments. The gross margin for the third quarter 2001 was 26.6%
compared to 28.8% for the third quarter 2000. The lower gross margin was due to
a decline in the gross margin for both the Network Communication and Specialty
Electronic segments. The lower gross margin for both segments was primarily due
to competitive pricing and volume inefficiencies.
Selling, general and administrative expenses ("SG&A") for the third quarter 2001
were $32.3 million compared to $31.0 million for the same period last year. The
increase in SG&A was primarily due to additional SG&A of businesses acquired and
costs associated with the recently established European and Fiber Optic
management groups. SG&A as a percentage of sales was 17.8% compared to 15.1% for
the third quarter 2000. The increase in SG&A as a percentage of sales was
primarily due to the lower sales volume. Nonrecurring expense of $2.1 million
for the third quarter 2001 represents a loss on the sale of certain assets of a
network distribution business located in the United Kingdom.
Excluding nonrecurring expense, income from operations for the third quarter
2001 decreased $12.1 million, or 46%, to $14.1 million compared to $26.2 million
for the third quarter 2000, and the operating margin was 7.8% compared to 12.8%
for the third quarter 2000. The operating margin as reported was 6.7% for the
third quarter 2001.
The Company is addressing the current challenging economic conditions in certain
of it's marketplaces by implementing various cost-reduction initiatives.
Initiatives which have been implemented include elimination of overtime,
reduction of workweeks at impacted facilities, and reduction of manufacturing
headcount. Additionally, as part of the Company's strategic adaptation to
marketplace trends, the Company is currently reviewing additional restructuring
plan options, which may include consolidation and relocation of operations. Some
of these options could result in a charge to earnings being incurred for
expenditures required as part of such plan.
Interest expense decreased $0.8 million to $2.2 million for the third quarter
2001 compared to $3.0 million for the third quarter 2000, primarily due to the
lower average balance of debt outstanding. The higher than normal effective tax
rate of 52.0% for the third quarter 2001 was primarily due to the
non-deductibility of the $2.1 million nonrecurring expense. Excluding this loss,
the effective tax rate was 42.0% compared to 39.8% for the third quarter 2000.
Excluding the nonrecurring expense, net income for the third quarter 2001
decreased $7.4 million, or 53%, to $6.6 million ($0.15 per diluted share)
compared to net income of $14.0 million ($0.32 per diluted share) for the third
quarter 2000. Net income as reported for the third quarter 2001 was $4.5 million
($0.10 per diluted share).
Nine Months Ended April 30, 2001 Compared to
Nine Months Ended April 30, 2000
Sales for the first nine months 2001 increased $28.1 million, or 5%, to $598.8
million compared to $570.7 million for the first nine months 2000. Network
Communication segment sales increased $20.2 million, or 5%, to $405.2 million
for the first nine months 2001 compared to $385.0 million for the first nine
months 2000. The growth in sales for the Network Communication segment was
primarily due to increased sales of gigabit network cables, fiber optic
connectivity and central office telecommunication products, which grew 50%, 64%,
and 38%, respectively, over the first nine months 2000. The increase in sales of
gigabit network cables was driven by demand for higher bandwidth within premise
network systems. The increase in sales of central office products was driven by
the growth of competitive local exchange carriers, Internet service providers
and application service providers within the telecommunication industry. Factors
contributing to the increase in sales of fiber optic connectivity products
include demand from companies for single-mode fiber for use in their premise
communication network systems as well as demand from communication services
companies for the build-out of the broadband telecommunication
12
infrastructure. The increase in sales from these product lines was partially
offset by a 40% decline in sales of the lower performance rated Category 5
network cable due to a shift in demand to the higher performance gigabit network
cables, and a 51% reduction in sales of wireless products attributable to the
previously reported loss of the principal customer for wireless assembly
services. Specialty Electronic segment sales for the first nine months 2001
increased 4% to $193.6 million compared to $185.7 million for the first nine
months 2000. The increase in sales for this segment was primarily due to an
increase in sales of automation and process control cables, including sales
attributable to the recently acquired ITC/CDT. Sales outside of North America
were $141.2 million for the first nine months 2001, an increase of 10% compared
to sales of $128.5 million for the first nine months 2000. The increase in
international sales was primarily due to higher sales of central office cable
and wireless products in Western Europe, network products in the Pacific Rim, as
well as higher sales of Specialty Electronic cable products attributable to the
ITC/CDT acquisition.
Gross profit for the first nine months 2001 increased $5.7 million, or 3%, to
$171.4 million compared to $165.7 million for the first nine months 2000,
primarily due to an increase in gross profit for the Network Communication
segment as a result of the increase in sales for this segment. The gross margin
for the first nine months 2001 was 28.6% compared to 29.0% for the first nine
months 2000. The decrease in the gross margin was the result of a decline in the
gross margin for the Specialty Electronic segment, offset partially by a
slightly higher gross margin for the Network Communication segment. The lower
Specialty Electronic segment gross margin was primarily due to a lower gross
margin for automation and process control products due to a higher average cost
of copper and competitive market conditions. The higher Network Communication
gross margin was primarily due to an increase in the gross margin for
communication products resulting from an improved product mix due to higher
sales of central office products.
SG&A for the first nine months 2001 increased $12.9 million to $101.2 million
compared to $88.3 million for the first nine months 2000. The increase in SG&A
was primarily due to the $3.1 million Anicom bad debt charge incurred in the
second quarter 2001, additional SG&A of businesses acquired, costs associated
with the European and Fiber Optic management groups established in early fiscal
2001, and higher sales volume. Excluding the Anicom bad debt charge, SG&A as a
percentage of sales for the first nine months 2001 was 16.4% compared to 15.5%
for the first nine months 2000.
Excluding one-time charges, income from operations for the first nine months
2001 decreased $4.4 million, or 6%, to $67.7 million, compared to $72.1 million
for the first nine months 2000, and the operating margin was 11.3% compared to
12.6%, respectively. Income from operations as reported was $62.5 million and
the operating margin was 10.4% for the first nine months 2001.
Interest expense decreased $1.9 million to $7.1 million for the first nine
months 2001 compared to $9.0 million for the first nine months 2000, due to the
lower average balance of debt outstanding. The effective tax rate was 41.2% for
the first nine months 2001 compared to 39.4% for the first nine months 2000. The
increase in the effective tax rate was primarily due to the non-deductible
nonrecurring expense of $2.1 million related to the sale of assets. Excluding
this loss, the effective tax rate was 39.8% for the first nine months 2001.
Excluding the one-time charges, net income decreased $1.1 million, or 3%, to
$36.3 million ($0.81 per diluted share) for the first nine months 2001 compared
to $37.4 million ($0.85 per diluted share) for the first nine months 2000.
Reported net income for the first nine months 2001 was $32.2 million ($0.72 per
diluted share).
Financial Condition
Liquidity and Capital Resources
The Company generated $32.7 million of net cash from operating activities during
the first nine months 2001, after providing for a $20.5 million increase in
operating working capital. The increase in operating working capital was
primarily the result of an increase in inventories of $25.1 million, a decrease
in accrued employee benefits, income taxes and other accrued liabilities of
$10.6 million, and a decrease in accounts payable of $8.0 million, which were
partially offset by a decrease in accounts receivable of $26.0 million. The
change in operating working capital excludes changes in cash and cash
equivalents and current maturities of long-term debt.
The Company invested $31.4 million during the first nine months 2001 in
facilities and machinery and equipment, including the purchase of a building
which was previously leased. Net cash used by financing activities of $4.1
million included $8.1 million used to reduce outstanding debt and $3.4 million
received from the exercise of stock options and issuance of common stock
pursuant to the Company's employee stock purchase plan.
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The Company's primary credit agreement (the "Credit Agreement") consists of a
$121.3 million U.S. revolving facility and a CDN $115.0 million Canadian
revolving facility equivalent to approximately $74.8 million. The U.S. revolving
facility includes a $50.0 million Deutschmark sub-facility. The Credit Agreement
expires April 10, 2002, and the Company intends to refinance the amounts under
the Credit Agreement on a long-term basis prior to the maturity date. The
Company also maintains a bank credit facility in the United Kingdom equivalent
to approximately $10.7 million (the "Foreign Facility"). As of April 30, 2001,
the Company had availability of $57.8 million and $4.5 million under the Credit
Agreement and Foreign Facility, respectively. On March 9, 2001, the Company
entered into a new 364-day unsecured bank revolving credit facility with a
maximum principal amount of $15.0 million. There were no amounts outstanding
under this facility as of April 30, 2001.
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, as well as the Company's ability to refinance these credit
facilities, will provide it with sufficient liquidity to meet its current
liquidity needs.
Fluctuation in Copper Price
The cost of copper in inventories, including finished goods, reflects purchases
over various periods of time ranging from one to several months for each of the
Company's operations. For certain communication cable products, profitability is
generally not significantly affected by volatility of copper prices as selling
prices are generally adjusted for changes in the market price of copper,
however, differences in the timing of selling price adjustments do occur and may
impact near term results. For other products, although selling prices are not
generally adjusted to directly reflect changes in copper prices, the relief of
copper costs from inventory for those operations having longer inventory cycles
may affect profitability from one period to the next following periods of
significant movement in the cost of copper. The Company does not engage in
activities to hedge the underlying value of its copper inventory.
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, cost-reduction initiatives, implementation of restructuring plans
or of loan refinancing, 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, general
economic conditions, 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 the
Company's Annual Report on Form 10-K for the year ended July 31, 2000, and other
Securities and Exchange Commission filings. The information contained herein
represents management's best judgment as of the date hereof based on information
currently available; however, the Company does not intend to update this
information to reflect developments or information obtained after the date
hereof and disclaims any legal obligation to the contrary.
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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.
99.1 Revolving Line of Credit Letter Agreement dated March 9,
2001, between Cable Design Technologies Inc. and Fifth Third
Bank.
99.2 Master Revolving Line of Credit Promissory Note issued by
Cable Design Technologies Inc. in favor of Fifth Third Bank.
99.3 Bonus Plan with Normand Bourque
(b) Reports on Form 8-K:
None.
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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
/s/ Paul M. Olson
--------------------------------------------------
June 13, 2001 Paul M. Olson
President and Chief Executive Officer
/s/ Kenneth O. Hale
--------------------------------------------------
June 13, 2001 Kenneth O. Hale
Vice President and Chief Financial Officer
16