Exhibit 13.1
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Overview
The following discussion of Cable Design Technologies Corporation's ("the
Company" or "CDT") consolidated historical results of operations and financial
condition should be read in conjunction with the Consolidated Financial
Statements of the Company and the Notes thereto included elsewhere in this
report.
The fiscal year ended July 31, 1999 ("fiscal 1999") was a transition year for
CDT in which the Company achieved record sales of $684.0 million and record
earnings per diluted share of $1.47, excluding net nonrecurring charges. During
the year the Company focused on integrating its recent acquisitions, initiating
a company wide cost reduction effort, and organizing the considerable capital
expenditures made over the past twenty-four months. Record results in the
Company's fourth fiscal quarter helped to offset the slowness experienced in the
Network Communication segment during the second and third fiscal quarters,
resulting in a 4% increase in earnings per diluted share for fiscal 1999,
excluding net nonrecurring charges.
Acquisition of niche businesses is an important part of CDT's growth strategy
and during fiscal 1999 the Company purchased one foreign and two domestic
businesses. In August 1998, CDT purchased 80% of HEW-Kabel Heinz Eilentropp GmbH
& Co. KG and related entities ("HEW-Kabel/CDT"), a German manufacturer of
specialty electronic cable for extreme and hazardous applications in process
control, robotics, transportation and other industries. The acquisition of HEW-
Kabel/CDT furthers the Company's diversification of specialty interconnectivity
product offerings. In September 1998, the Company purchased the assets of
Network Essentials, Inc., ("Red Hawk/CDT"), based in Milpitas, California. Red
Hawk/CDT is a provider of fiber optic products for voice, video and data
networks. To complement its Admiral/CDT business, in March 1999 the Company
acquired the Tennecast Company ("Tennecast/CDT") of Barberton, Ohio.
Sales for fiscal 1999 increased 5%, including sales attributable to recently
acquired businesses. Excluding these acquisitions, sales decreased 4% due to
lower sales for the Network Communication segment. The small decline in sales
for this segment was split approximately equally between communication cable
products and network products. Although sales of network cable products were
down slightly for the year, an 83% year-over-year increase in sales of the
higher margin advanced network Category 5e and 6 cables partially offset lower
sales of Category 5 network cable and lower pricing for both Category 5 and 5e
cables. The slightly lower sales of communication cable were primarily
attributable to lower selling prices as a result of the decline in the market
price of copper, unfavorable foreign currency translation and lower sales in the
U.S. marketplace.
Excluding net nonrecurring charges in both years, earnings per diluted share for
fiscal 1999 were $1.47 compared to $1.42 per diluted share for the year ended
July 31, 1998 ("fiscal 1998"). Net nonrecurring charges of $4.9 million ($3.3
million net of tax) were recognized in fiscal 1999, including a charge of $6.3
million incurred in connection with the purchase of 1.6 million shares of the
Company's common stock, partially offset by $1.4 million of nonrecurring income
which was primarily due to the sale of assets related to the previously
discontinued DynaTraX(TM) product line.
14
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following table presents, for the periods indicated, summary selected
financial data from the Company's statements of income, and should be read in
conjunction with the following discussion.
for the year ended July 31, 1999 1998 1997
- --------------------------------------------------------------- -------- ---------
(Dollars in thousands)
Sales $683,999 $651,668 $ 516,996
Cost of sales 479,469 457,767 360,365
Gross profit 204,530 193,901 156,631
Selling, general and administrative expenses 113,610 106,491 86,875
Research and development expenses 5,450 7,863 7,154
Income from operations before nonrecurring charges 85,470 79,547 62,602
Nonrecurring charges, net 4,895 6,093 -
Income from operations 80,575 73,454 62,602
Net income excluding nonrecurring charges $ 42,930 $ 44,426 $ 36,035
Net income $ 39,641 $ 40,481 $ 36,035
Year ended July 31, 1999 compared with year ended July 31, 1998
Sales increased $32.3 million, or 5%, to a record $684.0 million for fiscal 1999
compared to $651.7 million for fiscal 1998. The increase in fiscal 1999 includes
$56.8 million of sales attributable to the recently acquired businesses,
primarily HEW-Kabel/CDT.
Sales for the Network Communication segment were $373.0 million for fiscal 1999
compared to $393.3 million for fiscal 1998. Excluding the unfavorable effects of
foreign currency translation and of the change in the price of copper on sales
of communication cable, the decrease in sales for this segment was 2%.
Communication cable selling prices are generally adjusted for changes in the
market price of copper. Reduced demand in the U.S. marketplace for communication
cable and for plenum Category 5 network cable as well as competitive pricing
pressure on Category 5 and 5e network cables were the primary factors
responsible for the lower sales. The product mix improved as the result of an
83% increase in sales of the higher priced Category 5e and 6 cables which
partially offset the reduction in communication cable and Category 5 network
cable sales.
Fiscal 1999 sales for the Specialty Electronic segment increased $52.6 million,
or 20%, to $311.0 million. Sales attributable to the recently acquired
businesses accounted for $53.2 million of the increase in sales for this
segment. The Company believes that the significant decline in the market price
of copper during fiscal 1999 contributed to lower pricing conditions for this
segment, particularly for automation & process control products. The lower
pricing environment contributed to the lack of sales growth for this segment,
excluding acquisitions.
Sales outside of North America increased $49.1 million, or 46%, to $155.3
million in fiscal 1999 compared to $106.2 million in fiscal 1998. Sales
attributable to the recently acquired businesses accounted for $50.7 million of
the increase in international sales. Excluding acquisitions, international sales
were unfavorably affected by the sluggish economy in the United Kingdom and
economic turmoil in Russia and Latin America.
15
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Gross profit increased $10.6 million, or 5%, to $204.5 million in fiscal 1999
compared to $193.9 million for fiscal 1998. Growth in gross profit for the
Specialty Electronic segment, primarily due to the recently acquired businesses,
offset a modest decline in the gross profit for the Network Communication
segment. For the Network Communication segment, the improved network cable
product sales mix resulting from an 83% increase in sales of higher margin
enhanced network cable products and less product outsourcing partially offset
the unfavorable effects of lower sales of Category 5 network cable and
communication cable as well as lower pricing for Category 5 and 5e network cable
products.
The overall gross margin for fiscal 1999 of 29.9% improved slightly compared to
29.8% for fiscal 1998. An improvement in the gross margin for the Network
Communication segment was partially offset by a modest reduction in the gross
margin for the Specialty Electronic segment. Factors contributing to the
improvement in the gross margin for the Network Communication segment were, for
network cable products, better product mix due to 83% higher sales of enhanced
Category 5e and 6 network cable products and lower sales of Category 5 network
cable, less product outsourcing and lower product costs. The lower Specialty
Electronic segment gross margin was primarily due to the inclusion of the
comparatively lower gross margins of the recently acquired businesses and a
lower gross margin on wireless products due to product mix, which were partially
offset by a higher gross margin for automation and process control cables
primarily due to the relief from inventory of lower copper material costs.
Selling, general and administrative expense ("SG&A") increased $7.1 million, or
7%, to $113.6 million for fiscal 1999 compared to $106.5 million for fiscal
1998. Excluding an additional $9.0 million of SG&A attributable to the recently
acquired businesses, SG&A decreased $1.9 million. The lower SG&A was primarily
the result of significantly lower expenses due to the discontinuance of the
DynaTraX(TM) product line and other restructuring activities implemented in July
1998 and the favorable effect of foreign currency translation, which more than
offset increases in certain other SG&A expenses. SG&A as a percentage of sales
was 16.6% for fiscal 1999 compared to 16.3% for fiscal 1998. Research and
development expense decreased $2.4 million to $5.5 million compared to $7.9
million in fiscal 1998, primarily as a result of the discontinuance of the
DynaTraX(TM) product line.
Net nonrecurring charges of $4.9 million ($3.3 million net of tax) were
recognized in fiscal 1999. A charge of $6.3 million was incurred in the second
fiscal quarter in connection with the purchase of 1.6 million shares of the
Company's common stock acquired by key employees through the exercise of
incentive stock options pursuant to a share purchase plan previously adopted by
the Board of Directors (the "Share Purchase Plan"). As a result of the purchase
of such shares, the Company obtained a cash benefit of approximately $12.8
million realized through the reduction of income taxes payable. Also, in fiscal
1999, nonrecurring income of $1.4 million was recognized which was primarily due
to the sale of assets related to the previously discontinued DynaTraX(TM)
product line. Fiscal 1998 nonrecurring charges of $6.1 million ($3.9 million net
of tax) represented a provision for costs associated with the discontinuance of
the DynaTraX(TM) product line and other restructuring activities.
Income from operations, excluding net nonrecurring charges in both years,
increased $5.9 million, or 7%, to $85.5 million in fiscal 1999 compared to $79.5
million for fiscal 1998, and the operating margin was 12.5% for fiscal 1999
compared to 12.2% for fiscal 1998. Including net nonrecurring charges, income
from operations was $80.6 million for fiscal 1999 compared to $73.5 million for
fiscal 1998.
16
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Interest expense for fiscal 1999 increased $4.8 million to $13.3 million
compared to $8.6 million for fiscal 1998. The increase was primarily the result
of the higher average balance of debt outstanding due to the acquisition of HEW-
Kabel/CDT in August 1998 and the purchase of 2.4 million shares of the Company's
common stock during the first six months of fiscal 1999. The effective tax rate
for fiscal 1999 increased to 40.3% compared to 38.5% for fiscal 1998, partially
due to the fact that approximately $0.9 million of the second quarter
nonrecurring charge is non-deductible for income tax purposes. Excluding net
nonrecurring expense in fiscal 1999, the increase in the effective tax rate to
39.6% compared to 38.5% for fiscal 1998 was primarily the result of lower
Canadian tax credits for research and development and a change in the tax rate
mix among domestic and foreign statutory entities primarily due to the inclusion
of the recently acquired German subsidiary, HEW-Kabel/CDT.
Excluding net nonrecurring charges in both years, fiscal 1999 earnings per share
increased 4% to $1.47 per diluted share on net income of $42.9 million, compared
to $1.42 per diluted share for fiscal 1998 on net income of $44.4 million.
Including net nonrecurring charges, earnings per share increased to $1.36 per
diluted share on net income of $39.6 million compared to $1.29 per diluted share
on net income of $40.5 million for fiscal 1998.
Year ended July 31, 1998 compared with year ended July 31, 1997
Sales increased by $134.7 million, or 26%, to $651.7 million for fiscal 1998
compared to $517.0 million for the fiscal year ended July 31, 1997 ("fiscal
1997"). The increase in fiscal 1998 includes the addition of $87.9 million of
sales attributable to the recently acquired businesses: Barcel/CDT, Orebro/CDT,
and the incremental sales of Dearborn/CDT and Stronglink/CDT for fiscal 1998.
The sales for the Network Communication segment increased $45.8 million, or 13%,
to $393.3 million. Sales of network products increased primarily due to higher
sales of network cable, partially offset by reduced sales of network structured
wiring components. The increase in sales of network cable was due to higher
sales in the North American marketplace which were partially offset by lower
international sales resulting from reduced sales in Western Europe due to a very
competitive environment, particularly in the United Kingdom. The lower sales of
network structured wiring components were primarily a result of lower sales in
Western Europe. A strong U.S. dollar and British pound contributed to the lower
sales in Western Europe. Sales of communication cable increased primarily as a
result of continued demand from telephone companies as they upgrade and expand
their local distribution network infrastructure.
Sales for the Specialty Electronic segment increased $88.9 million, or 52%, to
$258.4 million, including $85.5 million of additional sales attributable to the
recently acquired businesses. Although selling prices are generally not
contractually adjusted for changes in the market price of copper for the
Specialty Electronic segment, the Company believes that the significant decline
in the market price of copper during the year contributed to competitive pricing
conditions during fiscal 1998, particularly for automation & process control
products.
International sales increased $1.5 million, or 1%, to $106.2 million in fiscal
1998 compared to $104.7 million in fiscal 1997. The additional sales
attributable to the recently acquired businesses contributed $8.9 million to the
increase in international sales. Excluding acquisitions, reduced sales in the
United Kingdom and Western Europe, primarily due to competitive market
conditions, were partially offset by increased sales in other geographic areas,
including Latin America, Australia and the Middle East.
17
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Gross profit increased $37.3 million, or 24%, to $193.9 million in fiscal 1998
compared to $156.6 million for fiscal 1997. The gross profit contributed by the
recently acquired businesses accounted for $24.8 million of the increase in
total gross profit. The Network Communication segment accounted for
approximately 36% of the increase in total gross profit. The increase for this
segment was primarily attributable to the higher sales of network cable,
including a shift to the higher priced enhanced network cable products, an
increase in the gross profit for network structured wiring components due to an
improved product mix, and higher sales of communication cable. These increases
were partially offset by the unfavorable impact of the decline in the market
price of copper during the year on communication cable which is estimated to
have reduced the gross profit by approximately $2.5 million. The increase in
gross profit for the Specialty Electronic segment accounted for approximately
64% of the increase in total gross profit, primarily due to the additional gross
profit attributable to the recently acquired businesses.
The overall gross margin for fiscal 1998 was 29.8% compared to 30.3% for fiscal
1997, primarily due to a lower margin for the Specialty Electronic segment. The
lower gross margin for the Specialty Electronic segment was primarily due to the
inclusion of the recently acquired businesses which collectively have a
relatively lower gross margin. Additionally, the gross margin for the Network
Communication segment was negatively impacted as a result of the effect on
communication cable gross margin of the decline in the market price of copper
during the year and the mix effect of higher sales of the relatively lower gross
margin communication cable.
SG&A increased $19.6 million, or 23%, to $106.5 million for fiscal 1998 compared
to $86.9 million for fiscal 1997. The increase in SG&A was primarily the result
of an additional $11.6 million of SG&A attributable to the recently acquired
businesses, as well as increased commission and other direct sales expenses
related to the increase in sales, and increases in other SG&A to support the
growth in sales. As a percentage of sales, SG&A declined to 16.3% for fiscal
1998 from 16.8% for fiscal 1997 primarily as a result of the lower average SG&A
percentage of the recently acquired businesses. Excluding the effect of
acquisitions, SG&A as a percentage of sales for fiscal 1998 was relatively
unchanged from fiscal 1997. Research and development expense increased $0.7
million to $7.9 million compared to $7.2 million in fiscal 1997.
A nonrecurring charge of $6.1 million ($3.9 million net of tax) was recognized
in fiscal 1998 to provide for costs associated with NORDX/CDT's discontinuance
of its DynaTraX(TM) product line and other restructuring activities.
Income from operations increased $16.9 million, or 27%, to $79.5 million in
fiscal 1998, excluding nonrecurring charges, compared to $62.6 million for
fiscal 1997. Including nonrecurring charges, income from operations was $73.5
million for fiscal 1998. The operating margin was 12.2%, excluding nonrecurring
charges, for fiscal 1998 compared to 12.1% for fiscal 1997.
Fiscal 1998 net income, excluding nonrecurring charges, increased $8.4 million
to $44.4 million, or $1.42 per diluted share, compared to fiscal 1997 net income
of $36.0 million, or $1.17 per diluted share. Including nonrecurring charges,
net income for fiscal 1998 increased $4.5 million to $40.5 million, or $1.29 per
diluted share.
Liquidity and Capital Resources
During fiscal 1999, operating working capital increased $4.5 million, excluding
increases resulting from the initial recording of the working capital of
acquired businesses. The change in operating working capital was primarily the
result of a decrease in accounts payable of $9.9 million and an increase in
accounts receivable of $7.6 million, which were partially offset by an increase
in various accrued liabilities of $10.0 million. The change in operating working
capital excludes changes in cash and current maturities of long-term debt.
18
Management's Discussion and Analysis of Financial Condition and Results of
Operations
During fiscal 1999, the Company generated $54.8 million of net cash from
operating activities after providing for the increase in working capital. Net
cash used by investing activities during fiscal 1999 of $74.4 million included
$49.1 million for the acquisition of businesses and $25.3 million for capital
projects. Net cash provided by financing activities during fiscal 1999 of $19.9
million included $51.7 million from debt sources and $13.0 million from the tax
benefit obtained as a result of the repurchase of shares under the Share
Purchase Plan and the exercise of stock options, which were partially offset by
$45.0 million used for the purchase of 2.4 million shares of the Company's
common stock. The net increase in cash for fiscal 1999 was $0.3 million.
During fiscal 1999 and fiscal 1998, the Company expended $25.3 million and $49.2
million, respectively, for capital projects. Expenditures for fiscal 1999
included the purchase of additional equipment to further expand manufacturing
capacity for enhanced bandwidth networking products in North America and Europe
and the expansion of CDT's telecommunication cabling production. The
expenditures for fiscal 1998 included the enlargement of certain facilities,
including the construction of NORDX/CDT's 300,000 square foot manufacturing,
administration and R & D facility, improvements in manufacturing efficiencies
and expansion of the Company's production capacity for new and existing product
lines, including capacity expansion for enhanced network, communication,
aerospace, and high end coaxial cable products.
On August 3, 1998 the Company amended its credit agreement dated April 10, 1997
(the "Credit Agreement") to, among other things, increase the borrowing limit
under its U.S. revolving credit facility, and to include a German loan sub-
facility. The Credit Agreement as amended is comprised of a $121.3 million U.S.
revolving facility, including a $50.0 million Deutschmark sub-facility, and a
CDN $115.0 million Canadian revolving facility. The Credit Agreement includes a
provision whereby the applicable margins over the prime rate or the
London Inter-Bank Offered Rate ("LIBOR") are based on the attainment of certain
performance factors. A fee of .15% to .375% is applied to the unused portion of
each revolver. In addition to the Credit Agreement, the Company maintains a
foreign credit facility in the United Kingdom (the "Foreign Credit Facility")
which provides for up to approximately $12 million of borrowings. Effective
December 14, 1998, the Company entered into a 364-day, unsecured bank revolving
credit agreement (the "Revolving Facility") which provides for maximum
borrowings of $35.0 million. Outstanding borrowings bear floating interest rates
of either LIBOR plus the applicable margin or the base rate, as defined, at the
Company's election. The applicable margin over LIBOR ranges from .525% to 1.05%
and is determined based on the attainment of specified leverage ratios. A
facility fee of between .10% and .20%, based on the attainment of specified
leverage ratios, is payable quarterly on the maximum facility amount. The Credit
Agreement and Revolving Facility contain customary financial and non-financial
covenants, except the Revolving Facility is limited by the terms of the existing
Credit Agreement. On July 31, 1999, the Company had approximately $33.4 million
of availability under the Credit Agreement, $12.0 million of availability under
the Revolving Facility and $2.0 million of availability under the Foreign Credit
Facility. Based on the Company's current expectations for its business,
management believes that its cash flow from operations and the available portion
of its credit facilities will provide it with sufficient liquidity to meet the
current liquidity needs of the Company.
Effects of Inflation
The Company does not believe that inflation had a significant impact on the
Company's results of operations for the periods presented. On an ongoing basis,
the Company attempts to minimize any effects of inflation on its operating
results by controlling costs of operations and, whenever possible, seeking to
ensure that selling prices reflect increases in costs due to inflation.
19
Management's Discussion and Analysis of Financial Condition and Results of
Operations
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 communication cable products, profitability is
generally not significantly affected by volatility of copper prices as changes
in copper prices are generally passed along to customers, however, differences
in the timing of selling price adjustments do occur and may impact near term
results. For other products, although selling prices are generally not
contractually 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.
Interest Rate Sensitivity
The table below provides information about the Company's financial instruments,
primarily debt obligations, that are sensitive to changes in interest rates. The
table presents principal cash flows and related weighted average interest rates
for debt obligations by expected maturity date and the currency in which the
instrument's cash flows are denominated. Weighted average variable interest
rates are based on the rates in effect at the reporting date for the respective
debt obligations. No assumptions have been made for future changes in such
variable rates. The fair value of fixed rate debt obligations as determined
under current market interest rate assumptions does not differ materially from
the carrying value as presented below. The information is provided in U.S.
dollar equivalents, which is the Company's reporting currency.
Expected Maturity Date For Periods Ending July 31,
------------------------------------------------------------
Demand There-
Type* notes 2000 2001 2002 2003 2004 after Total
- ---------------------------------------------------------------------------------------------------------------------------------
(U.S. dollar equivalents in millions)
Balance
Average interest rate
Demand notes payable
U. S. dollar VR $ 23.0 $23.0
6.0% 6.0%
British pound VR $ 7.9 $ 7.9
6.0% 6.0%
Swedish krona VR $ 1.6 $ 1.6
4.2% 4.2%
Australian dollar VR $ 0.6 $ 0.6
5.8% 5.8%
Long-term debt
U.S. dollar FR $ 1.3 $ 1.5 $ 0.1 $ 0.1 $ 0.1 $ 1.0 $ 4.1
7.8% 9.7% 9.6% 9.1% 8.5% 8.5% 8.7%
Deutschmark FR $12.5 $ 1.7 $ 1.1 $ 0.7 $ 0.4 $ 1.6 $18.0
5.4% 5.4% 5.4% 5.4% 5.4% 5.4% 5.4%
U.S. dollar VR $66.5 $66.5
5.7% 5.7%
Canadian dollar VR $73.6 $73.6
5.3% 5.3%
Deutschmark VR $23.3 $23.3
3.1% 3.1%
* VR-Variable interest rate; FR-Fixed interest rate
20
Management's Discussion and Analysis of Financial Condition and Results of
Operations
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments and requires recognition in the
balance sheet of all derivative instruments as either assets or liabilities,
measured at fair value. This statement has been amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
effective date of SFAS No. 133". SFAS No. 137 is effective for the Company's
fiscal year ending July 31, 2001. The Company does not believe the effect of
adoption will be material.
Year 2000
Readers are cautioned that forward-looking statements contained in the Year 2000
discussion below should be read in conjunction with the Company's disclosures
under the heading "Forward-Looking Statements".
Each of the Company's operating units has established a Year 2000 project leader
and, in the case of the larger units, a project team. In addition, CDT's
corporate headquarters has established a Year 2000 project team. The function of
each unit's project team is to identify and remediate Year 2000 issues at their
respective facilities. The function of the corporate team is to review and
remediate any corporate-wide Year 2000 issues and monitor the status of the
remediation activities of the operating units.
Each operating unit has assessed their internal information systems ("IT
systems") and non-information systems ("non-IT systems"), such as manufacturing
equipment and control devices. As of October 20, 1999, operating units
representing approximately 99% of the Company's consolidated revenues have
completed the Year 2000 remediation believed necessary with respect to their IT
systems. The remaining operating units are in the process of implementing
compliant hardware and/or software, and all units are expected to complete their
remediation activities by November 30, 1999.
The remediation of such IT systems has included the purchase of new hardware and
software or the modification of existing software. In certain cases, new IT
systems were acquired to improve functionality and provide additional system
capabilities, as well as address Year 2000 issues. The cost to maintain or
modify existing IT systems is expensed as incurred, while the cost of new and
functionally improved IT systems are capitalized and amortized over their
estimated useful lives. As of July 31, 1999, the Company had expended $3.4
million with respect to IT systems, which represented approximately 89% of the
total costs expected to be incurred. Based on management's estimates, it is not
expected that expenditures associated with modifying or replacing existing IT
systems to resolve the Year 2000 issue will have a material adverse effect on
the Company's results of operations, liquidity or capital resources. The Company
does not anticipate any material issues or delays regarding implementation
schedules for IT system remediations.
Each of the operating units has undertaken an assessment of non-IT systems. Such
reviews are substantially completed. While certain items of equipment have been
found to contain potentially non-compliant components, neither the number or
function of such items are material. Such equipment is either being modified or
replaced. The Company does not anticipate material Year 2000 compliance issues
with respect to non-IT systems, and does not expect expenditures to remediate
non-compliant non-IT systems to have a material adverse effect on the Company's
results of operations, liquidity or capital resources.
The Company and its operating units are in the process of assessing third party
Year 2000 compliance. As many of the Company's suppliers and customers are still
engaged in executing their Year 2000 programs, the Company cannot fully evaluate
such compliance. Neither the Company nor its operating units intend to adopt
contingency plans regarding third party Year 2000 compliance issues.
21
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. However, since it is not
possible to anticipate all possible future outcomes, especially in the case of
third parties, there could be "worst-case scenarios" in which one or more
operating units of the Company would be unable to conduct normal operations due
to Year 2000 related matters, such as the inability to take customer orders,
manufacture and ship products, invoice customers or collect payments. In
addition, there is still uncertainty about the broader scope of the Year 2000
issue as it may affect the Company and third parties who are critical to the
Company's operations. For example, lack of readiness by electrical and water
utilities, suppliers, financial institutions, government agencies or other
providers of general infrastructure could, in some geographic areas, pose
significant impediments to one or more of the Company's operating units to carry
on their normal operations in the area or areas so affected. In the event that
the Company or third parties (including those described above) do not properly
complete their Year 2000 remedial actions or unanticipated Year 2000 events
occur there could be a material adverse effect on the Company's business,
results of operations or financial condition.
Introduction of the Euro Currency
The European Economic Monetary Union's ("EEMU") common currency, the Euro, was
implemented effective January 1, 1999, at which time fixed exchange rates were
established between the legacy currencies of the participating countries and the
Euro. During the transition period, which extends through June 30, 2002,
transactions may be conducted in either the Euro or the legacy currencies. The
Company has subsidiaries in the United Kingdom, Sweden, Denmark and Germany
which have customers and suppliers in participating EEMU countries. The
Company's German subsidiary is the only subsidiary domiciled in a participating
country. These subsidiaries currently have the ability to support transactions
in both the Euro and their respective legacy currencies. Conversion to the Euro
as the functional currency for the Company's German subsidiary will be phased in
prior to January 1, 2002, and conversion costs are not expected to be
significant. The EEMU's introduction of the Euro may potentially have economic
and business implications, such as changes in product pricing and currency
exchange risks, for businesses within the EEMU as well as for businesses outside
the EEMU that do business with companies within the EEMU. The nature and extent
of such effects, whether beneficial or adverse, are unknown at this time.
However, the Company does not believe that such effects will have a material
impact on its consolidated results of operations or financial condition,
although there can be no assurance that unanticipated effects will not have an
adverse impact on the Company's future results of operations.
Forward Looking statements - Under the Private Securities
Litigation Act of 1995
Certain of the statements in this annual report are forward-looking statements,
including, without limitation, statements regarding future financial results and
performance, Year 2000 compliance, accretiveness of acquisitions, growth
factors, cost savings and other beliefs, expectations or opinions of the Company
and its management. These statements are subject to various risks and
uncertainties, many of which are outside the control of the Company, including
the level of market demand for the Company's products, competitive pressures,
the ability to achieve reductions in operating costs and to continue to
integrate acquisitions, price fluctuations of raw materials and the potential
unavailability thereof, foreign currency fluctuations, technological
obsolescence, environmental matters and other specific factors discussed in the
Company's Annual Report on Form 10-K for the year ended July 31, 1999 and other
Securities and Exchange Commission filings. The information contained herein
represents management's best judgement as of the date hereof based on
information currently available; however, the Company does not intend to update
this information to reflect developments or information obtained after the date
hereof and disclaims any legal obligation to the contrary.
22
Report of Independent Public Accountants
To the Board of Directors of
Cable Design Technologies Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Cable Design
Technologies Corporation (a Delaware corporation) and Subsidiaries as of July
31, 1999 and 1998, and the related consolidated statements of income,
stockholders' equity and cash flows for the three years in the period ended July
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cable Design Technologies
Corporation and Subsidiaries as of July 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended July 31, 1999, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Pittsburgh, Pennsylvania
September 20, 1999
23
Consolidated Statements of Income
Year ended July 31, 1999 1998 1997
-------------------------------------------------------------------------- --------- ---------
(Dollars in thousands, except per share information)
Sales $ 683,999 $ 651,668 $ 516,996
Cost of sales 479,469 457,767 360,365
--------- --------- ---------
Gross profit 204,530 193,901 156,631
Selling, general and administrative expenses 113,610 106,491 86,875
Research and development expenses 5,450 7,863 7,154
Nonrecurring charges, net 4,895 6,093 -
--------- --------- ---------
Income from operations 80,575 73,454 62,602
Interest expense, net 13,346 8,560 5,338
Minority interest in earnings (losses) of subsidiaries, net 883 25 (35)
Other (income) expense, net (18) (947) (23)
--------- --------- ---------
Income before income taxes 66,364 65,816 57,322
Income tax provision 26,723 25,335 21,287
--------- --------- ---------
Net income $ 39,641 $ 40,481 $ 36,035
========= ========= =========
Basic earnings per common share $ 1.38 $ 1.40 $ 1.31
Diluted earnings per common share $ 1.36 $ 1.29 $ 1.17
The accompanying notes are an integral part of these consolidated
financial statements.
24
Consolidated Balance Sheets
July 31, 1999 1998
------------------------------------------------------------------------------------------- -----------
(Dollars in thousands, except per share information)
Assets
Current assets:
Cash and cash equivalents $ 11,424 $ 11,143
Trade accounts receivable, net of allowance for uncollectible accounts of
$4,926 and $3,995, respectively 130,936 117,265
Inventories 141,762 130,307
Prepaid expenses and other 10,937 11,983
Deferred income taxes 10,926 7,714
----------- -----------
Total current assets 305,985 278,412
Property, plant and equipment, net 201,586 160,891
Intangible assets, net 8,409 6,735
Goodwill, net 76,584 57,656
Other assets 2,536 1,733
----------- -----------
Total assets $ 595,100 $ 505,427
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 33,109 $ 10,150
Current maturities of long-term debt 13,831 9,593
Accounts payable 38,452 45,737
Accrued payroll and related benefits 21,127 15,596
Accrued taxes 10,474 2,953
Other accrued liabilities 25,228 19,707
----------- -----------
Total current liabilities 142,221 103,736
Long-term debt 171,727 136,052
Minority interest in subsidiaries 2,451 120
Other non-current liabilities 7,990 6,239
Deferred income taxes 18,609 14,382
----------- -----------
Total liabilities 342,998 260,529
----------- -----------
Contingencies (Note 16)
Stockholders' equity:
Preferred stock, par value $.01 per share - 1,000,000 shares authorized,
no shares issued - -
Common stock, par value $.01 per share - 100,000,000 shares authorized,
30,778,928 and 30,660,472 shares issued, respectively 308 307
Paid-in capital 178,979 165,681
Common stock issuable, 22,679 shares at July 31, 1999 253 -
Retained earnings 128,246 88,605
Treasury stock, at cost, 2,623,452 and 200,000 shares, respectively (49,262) (4,291)
Accumulated other comprehensive income (deficit) (6,422) (5,404)
----------- -----------
Total stockholders' equity 252,102 244,898
----------- -----------
Total liabilities and stockholders' equity $ 595,100 $ 505,427
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
25
Consolidated Statements of Cash Flows
Year ended July 31, 1999 1998 1997
--------------------------------------------------------------------- -------- -------- --------
(Dollars in thousands)
Cash Flow from Operating Activities:
Net income $ 39,641 $ 40,481 $ 36,035
Adjustments for Non-Cash Items to Reconcile Net Income
to Cash Provided by Operating Activities:
Depreciation 14,823 11,079 8,034
Amortization 4,007 2,966 2,041
Costs to discontinue DynaTraX(TM) and other restructuring - 6,093 -
Deferred income taxes 827 1,830 3,107
Changes in Assets and Liabilities Net of Effects of Businesses Acquired:
Accounts receivable (7,644) (12,627) (3,972)
Inventories (1,511) (12,262) (12,679)
Prepaid expenses and other 2,131 (2,141) (996)
Accounts payable (9,914) 5,181 316
Accrued payroll and related benefits 1,547 (486) (674)
Accrued taxes 6,148 983 (1,918)
Other accrued liabilities 2,277 1,406 1,348
Other non-current assets and liabilities 2,452 1,117 263
-------- -------- --------
Net cash provided by operating activities 54,784 43,620 30,905
-------- -------- --------
Cash Flow from Investing Activities:
Purchases of property, plant and equipment (25,262) (49,248) (26,704)
Acquisition of businesses, including transaction costs,
net of cash acquired (49,091) (19,092) (72,445)
-------- -------- --------
Net cash used in investing activities (74,353) (68,340) (99,149)
-------- -------- --------
Cash Flow from Financing Activities:
Net change in demand and revolving note borrowings 54,323 27,314 87,490
Funds provided by term debt 12,506 1,316 7,242
Funds used to reduce term debt (15,152) (4,519) (39,166)
Common shares issued or issuable 283 24 1,006
Net proceeds from exercise of stock options and related tax benefits 12,954 6,966 4,762
Repurchase of common stock (44,971) (4,291) -
-------- -------- --------
Net cash provided by financing activities 19,943 26,810 61,334
-------- -------- --------
Effect of currency translation on cash (93) 36 (170)
-------- -------- --------
Net increase (decrease) in cash 281 2,126 (7,080)
Cash, beginning of year 11,143 9,017 16,097
-------- -------- --------
Cash, end of year $ 11,424 $ 11,143 $ 9,017
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
26
Consolidated Statements of Stockholders' Equity
For the Years ended July 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Common Stock
------------------------ Common
Par Paid-in Stock Retained Treasury
Shares Value Capital Issuable Earnings Stock
-------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1996 18,054,498 $ 181 $152,864 $ - $ 12,184 $ -
Net income - - - - 36,035 -
Currency translation
adjustments - - - - - -
Comprehensive income
Exercise of options
and related tax benefits 649,637 6 4,762 - - -
Stock grants 1,512 - 45 - - -
Deferred compensation - - - - - -
Stock issuance 50,218 1 999 - - -
-------------------------------------------------------------------------------------
Balance, July 31, 1997 18,755,865 188 158,670 - 48,219 -
Net income - - - - 40,481 -
Currency translation
adjustments - - - - - -
Minimum pension liability - - - - - -
Comprehensive income
Exercise of options
and related tax benefits 2,525,296 24 6,966 - - -
Stock grants 1,980 - 45 - - -
Deferred compensation - - - - - -
Stock split 9,377,331 95 - - (95) -
Purchase of 200,000
shares treasury stock - - - - - (4,291)
-------------------------------------------------------------------------------------
Balance, July 31, 1998 30,660,472 307 165,681 - 88,605 (4,291)
Net income - - - - 39,641 -
Currency translation
adjustments - - - - - -
Minimum pension liability - - - - - -
Comprehensive income
Exercise of options
and related tax benefits 91,550 1 12,953 - - -
Stock grants 1,428 - 30 - - -
Stock issuance 25,478 - 315 - - -
Purchase of 2,423,452
shares treasury stock - - - - - (44,971)
Employee stock purchase
plan, 22,679 shares
issuable - - - 253 - -
-------------------------------------------------------------------------------------
Balance, July 31, 1999 30,778,928 $ 308 $178,979 $ 253 $ 128,246 $(49,262)
=====================================================================================
For the Years ended July 31, 1999, 1998 and 1997
----------------------------------------------------------------------------------------
(Dollars in thousands)
Accumulated
Other Total
Deferred Comprehensive Stockholders'
Compensation Income/(Deficit) Equity
----------------------------------------------------------------------------------------
Balance, July 31, 1996 $ (208) $ 436 $ 165,457
Net income - - 36,035
Currency translation
adjustments - (2,301) (2,301)
------------
Comprehensive income 33,734
Exercise of options
and related tax benefits - - 4,768
Stock grants - - 45
Deferred compensation 121 - 121
Stock issuance - - 1,000
----------------------------------------------------
Balance, July 31, 1997 (87) (1,865) 205,125
Net income - - 40,481
Currency translation
adjustments - (3,529) (3,529)
Minimum pension liability - (10) (10)
------------
Comprehensive income 36,942
Exercise of options
and related tax benefits - - 6,990
Stock grants - - 45
Deferred compensation 87 - 87
Stock split - - -
Purchase of 200,000
shares treasury stock - - (4,291)
----------------------------------------------------
Balance, July 31, 1998 - (5,404) 244,898
Net income - - 39,641
Currency translation
adjustments - (1,028) (1,028)
Minimum pension liability - 10 10
------------
Comprehensive income 38,623
Exercise of options
and related tax benefits - - 12,954
Stock grants - - 30
Stock issuance - - 315
Purchase of 2,423,452
shares treasury stock - - (44,971)
Employee stock purchase
plan, 22,679 shares
issuable - - 253
----------------------------------------------------
Balance, July 31, 1999 $ - $ (6,422) $ 252,102
====================================================
The accompanying notes are an integral part of these consolidated
financial statements.
27
Notes to Consolidated Financial Statements
Note 1. Operations
Cable Design Technologies Corporation is a leading designer and
manufacturer of technologically advanced electronic data transmission
cable for network, communication, specialty electronic, and automation
and process control applications, including gigabit end-to-end network
structured wiring solutions, fiber optic connective solutions and
other components required to build high performance data and
telecommunication infrastructures.
Note 2. Significant Accounting Policies
The consolidated financial statements reflect the application of the
following significant accounting policies:
Principles of Consolidation
The consolidated financial statements include the accounts of Cable
Design Technologies Corporation and its majority owned subsidiaries
("the Company"). All material intercompany transactions and balances
have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Inventories
Inventories are stated at the lower of first-in, first-out (FIFO) cost
or market. Inventory costs include material, labor and manufacturing
overhead. The Company's products contain significant amounts of
certain raw materials, such as copper and Teflon(R). The Company
believes that adequate sources are available for these commodities;
however, any disruption of the supplies or significant deviations in
market prices could impact the Company's operations.
Property, Plant and Equipment
Property, plant and equipment are carried on the cost basis.
Provisions for depreciation and amortization are computed using the
straight-line method based upon the estimated useful lives of the
assets. Maintenance and repair costs are charged to operations as
incurred. Major replacements or betterments are capitalized. Cost and
accumulated depreciation of property sold or retired are removed from
the accounts and any resulting gain or loss is recognized in the
current period statement of income.
Goodwill
Goodwill represents the excess of the purchase price over the fair
market value of identifiable net assets acquired in connection with
various business acquisitions and combinations. Goodwill is being
amortized using the straight-line method over periods of between 20 to
40 years. Accumulated amortization of goodwill was $8.2 million and
$5.9 million at July 31, 1999 and 1998, respectively.
The Company continually evaluates the carrying value of goodwill on
the basis of whether goodwill is fully recoverable from estimated
undiscounted net income, before the effects of goodwill amortization,
over the remaining amortization period.
Loan Origination Fees
In connection with the issuance of the Company's debt instruments, the
Company defers related credit acquisition costs. These costs are
amortized using the straight-line method over the life of the debt
instruments.
28
Notes to Consolidated Financial Statements
Translation of Foreign Currency Financial Statements/Comprehensive
Income
The financial statements of foreign subsidiaries are translated using
the exchange rate in effect at year end for balance sheet accounts and
the average exchange rate in effect during the year for income and
expense accounts. Unrealized gains or losses arising from the
translation are charged or credited directly to accumulated other
comprehensive income/(deficit), a component of stockholders' equity.
Gains and losses on foreign currency transactions are included in
income as they occur.
Income Taxes
Income taxes are accounted for in accordance with the liability
method, under which deferred tax assets or liabilities are computed
based on the temporary differences between the financial statement and
income tax bases of assets and liabilities using the enacted marginal
tax rate. These differences are classified as current or non-current
based upon the classification of the related asset or liability. For
temporary differences that are not related to an asset or liability,
classification is based upon the expected reversal date of the
temporary difference.
Reclassifications
Certain reclassifications have been made to the prior year statements
to conform with the current year presentation.
Statements of Cash Flows
Supplemental disclosure of cash flow information:
Year ended July 31, 1999 1998 1997
------------------------------------------- ------- -------- --------
(Dollars in thousands)
Cash paid during the year for:
Interest, net $12,014 $ 8,165 $ 5,308
Income taxes $10,055 $19,707 $16,649
Impact of Newly Issued Accounting Standards
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information".
SFAS No. 130 established standards for reporting and displaying
comprehensive income and its components in financial statements.
Comprehensive income is defined as all changes in stockholders' equity
except those resulting from investments by or distributions to
stockholders. Comprehensive income is displayed in the accompanying
consolidated statements of stockholders' equity. SFAS No. 131
established standards for reporting information about operating
segments. This standard expanded and modified disclosure requirements
and had no impact on the reported results of operations or financial
position of the Company (see Note 14).
The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", in
June 1998. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments and requires recognition of all derivatives
as either assets or liabilities, measured at fair value, in the
balance sheet. This statement has been amended by SFAS No. 137
"Accounting for Derivative Instruments and Hedging Activities -
Deferral of the effective date of SFAS No. 133". SFAS No. 137 is
effective for the Company's fiscal year beginning August 1, 2000, and
the Company does not believe that adoption will have a material effect
on its financial position or results of operations.
29
Notes to Consolidated Financial Statements
Note 3. Stockholders' Equity
The Company effected a 3-for-2 stock split in the form of a common
stock dividend on January 8, 1998. Prior period common share
information other than amounts displayed on the consolidated
statements of stockholders' equity have been adjusted to reflect the
effect of the split.
On May 7, 1997, the Board of Directors approved a program under which
up to $30 million of the Company's common stock may be repurchased on
the open market or in privately negotiated transactions. The Company
repurchased 827,400 and 200,000 common shares during fiscal 1999 and
1998, respectively, under this program. Additionally, on December 1,
1998, the Board of Directors approved the purchase of up to 1.9
million shares of the Company's common stock held by certain key
employees. The stock was acquired by the employees more than six
months previously upon the exercise of certain incentive stock options
granted primarily in 1988 and 1989 and expiring in 1998 and 1999.
During fiscal 1999 the Company repurchased 1,596,052 common shares
from such employees (see Note 19).
On December 10, 1996, the Board of Directors adopted a Rights
Agreement ("Rights Agreement"). Under the Rights Agreement, one
Preferred Share Purchase Right ("Right") for each outstanding share of
the Company's common stock was distributed to stockholders of record
on December 26, 1996. Each Right entitles the holder to buy one-
fifteen hundredth of a share of a new series of junior participating
preferred stock for an exercise price of $100.00. The Company has
designated 100,000 shares of the previously authorized $0.01 par value
preferred stock as junior participating preferred stock in connection
with the Rights Agreement. The Rights are exercisable only if a person
or group (with certain exceptions) acquires, or announces a tender
offer to acquire, 20% or more of the Company's common stock (the
"Acquirer"). If the Acquirer purchases 20% or more of the total
outstanding shares of the Company's common stock, or if the Acquirer
acquires the Company in a reverse merger, each Right (except those
held by the Acquirer) becomes a right to buy shares of the Company's
common stock having a market value equal to two times the exercise
price of the Right. If the Company is acquired in a merger or other
business combination, or 50% or more of the Company's assets or
earning power is sold or transferred, each Right (except those held by
the Acquirer) becomes a right to buy shares of the common stock of the
Acquirer having a market value of two times the exercise price. The
Company may exchange the Rights for shares of the Company's common
stock on a one-to-one basis at any time after a person or group has
acquired 20% or more of the outstanding stock. The Company is entitled
to redeem the Rights at $0.01 per Right (payable in cash or common
stock of the Company, at the Company's option) at any time before
public disclosure that a 20% position has been acquired. The Rights
expire on December 11, 2006, unless previously redeemed or exercised.
Note 4. Inventories
Inventories of the Company consist of the following:
July 31, 1999 1998
------------------------------------------ --------- -------
(Dollars in thousands)
Raw materials $ 36,851 $ 40,089
Work-in-process 32,297 27,485
Finished goods 72,614 62,733
--------- ---------
$ 141,762 $ 130,307
========= =========
30
Notes to Consolidated Financial Statements
Note 5. Property, Plant and Equipment
Property, plant and equipment of the Company consist of the following:
July 31, 1999 1998
----------------------------------------- --------- ---------
(Dollars in thousands)
Asset (asset lives):
Land $ 10,812 $ 8,945
Buildings and improvements (10 - 40 years) 64,412 49,567
Machinery and equipment (3 - 15 years) 168,563 134,404
Furniture and fixtures (5 - 10 years) 11,866 8,481
--------- ---------
Total 255,653 201,397
Less: accumulated depreciation (54,067) (40,506)
--------- ---------
$201,586 $160,891
========= =========
Note 6. Intangible Assets
Intangible assets consist of patents, trademarks, loan origination
fees and non-compete agreements. Patents, trademarks and non-compete
agreements are being amortized over periods ranging from five to ten
years. Loan origination fees are amortized over the term of the
related loan. Accumulated amortization for intangible assets was $4.2
million and $2.6 million at July 31, 1999 and 1998, respectively.
Note 7. Financing Arrangements
Notes payable to banks consist of an unsecured, 364 day revolving
credit agreement (the "Revolving Facility"), and borrowings by certain
of the Company's foreign subsidiaries under credit agreements entered
into on September 18, 1995 (the "European Credit Agreement") and on
March 14, 1997 (the "Australian Facility") (collectively, "the Foreign
Facilities") to support the financing needs of its subsidiaries
located in the United Kingdom, Sweden and Australia.
The Revolving Facility provides for maximum borrowings of $35 million.
Outstanding borrowings bear floating interest rates of either the
London Inter-Bank Offered Rate ("LIBOR") plus the applicable margin or
the base rate, as defined, at the Company's election. The applicable
margin over LIBOR ranges from .525% to 1.05% and is determined based
on the attainment of specified leverage ratios. A facility fee of
between .10% and .20%, based on the attainment of specified leverage
ratios, is payable quarterly on the maximum facility amount. The
Revolving Facility contains customary financial and non-financial
covenants, except as limited by the terms of the Company's primary
credit agreement. Outstanding and maximum borrowings under the
Revolving Facility were $23.0 million and $28.5 million as of and for
the year ended July 31, 1999, respectively. Weighted average
outstanding borrowings were $24.6 million and the effective interest
rate was 5.9% for the year ended July 31, 1999.
The European Credit Agreement is comprised of a sterling overdraft and
multi-currency demand facility in an aggregate amount of approximately
$12.2 million. Terms of the facility permit borrowings based on a
percentage of certain accounts receivable and inventory at applicable
margins over LIBOR. The Australian Facility is a revolving demand
facility with maximum availability of approximately $0.7 million. The
Foreign Facilities are guaranteed by the Company. The Company had
outstanding borrowings of $10.1 million and $10.2 million and maximum
borrowings of $11.3 and $10.2 million under the Foreign Facilities as
of and for the years ended July 31, 1999 and 1998, respectively.
Weighted average outstanding borrowings were $10.5 million and $9.2
million and the effective interest rates were 7.07% and 7.70% for the
years ended July 31, 1999 and 1998, respectively.
31
Notes to Consolidated Financial Statements
Long-term debt consists of the following:
July 31, 1999 1998
------------------------------------------------------------------------------------------ -----------
(Dollars in thousands)
U.S. revolver, due April 10, 2002, bears interest at LIBOR plus 0.625%,
or approximately 5.8% at July 31, 1999 $ 66,500 $ 66,000
Deutschmark sub-facility, due April 10, 2002, bears interest at LIBOR
plus 0.625%, or approximately 3.2% at July 31, 1999 23,306 -
Canadian revolver, due April 10, 2002, bears interest at LIBOR
plus 0.625%, or approximately 5.3% at July 31, 1999 73,628 66,330
Other indebtedness
22,124 13,315
---------- ---------
Total 185,558 145,645
Less: current portion 13,831 9,593
---------- ---------
$ 171,727 $ 136,052
========== =========
The Company's primary credit agreement (the "Credit Agreement")
was amended on August 3, 1998. The Credit Agreement, as amended,
is comprised of a $121.3 million U.S. revolving facility,
including a $50.0 million Deutschmark sub-facility (the "U.S.
Revolver"), and a CDN $115.0 million revolver (the "Canadian
Revolver"). The Credit Agreement includes a provision whereby the
applicable margins over the prime rate or LIBOR are based on the
attainment of certain performance factors. A commitment fee of
0.15% to 0.375% is applied to the unused portion of each revolver.
The terms of the Credit Agreement contain various customary
financial and non-financial covenants including the maintenance of
minimum consolidated net worth and restrictions on payment of
dividends. The Company is in compliance with all applicable
covenants.
On July 31, 1999 the Company had approximately $33.4 million of
availability under the Credit Agreement, $12.0 million of
availability under the Revolving Facility, and $2.1 million of
availability under its Foreign Facilities.
The scheduled aggregate annual principal payments of long-term
debt as of July 31, 1999, are as follows:
Year ended: Long-term Debt
-------------------------------------------------------------
(Dollars in thousands)
2000 $ 13,831
2001 3,180
2002 164,656
2003 729
2004 510
Thereafter 2,652
----------
$ 185,558
==========
32
Notes to Consolidated Financial Statements
Note 8. Retirement and Other Employee Benefits
The Company and its subsidiaries have various defined contribution
and defined benefit plans covering substantially all of its
employees. Benefits provided under the Company's defined benefit
pension plans are primarily based on years of service and the
employee's compensation. The defined contribution plans provide
benefits primarily based on compensation levels.
Defined Benefit Plans
The Company maintains defined benefit plans for one of its U.S.
locations (the "U.S. Plan") and for certain employees in Canada
(the "Canadian Plans").
The following sets forth the changes in benefit obligations and
plan assets, and reconciles amounts recognized in the Company's
consolidated balance sheets:
U.S. Plan Canadian Plans
---------------------------------------------------------------------------- ----------------------
Year ended July 31, 1999 1998 1999 1998
-------------------------------------------------------------- --------- --------- ---------
(Dollars in thousands)
Benefit obligation at beginning of year $ 1,984 $ 1,913 $ 5,954 $ 3,647
Service cost 47 28 2,131 1,817
Interest cost 130 133 507 421
Loss (gain) - - - (182)
Change in actuarial assumptions (60) 29 (845) 882
Benefits paid (122) (119) (94) (150)
Effect of currency translation - - 26 (481)
--------- --------- --------- ---------
Benefit obligation at end of year $ 1,979 $ 1,984 $ 7,679 $ 5,954
========= ========= ========= =========
Fair value of plan assets at beginning of year $ 2,496 $ 2,395 $ 3,186 $ 1,944
Company contributions - - 1,342 1,335
Actual return on plan assets 215 220 196 314
Benefits paid (122) (119) (61) (150)
Effect of currency translation - - 15 (257)
--------- --------- --------- ---------
Fair value of plan assets at end of year $ 2,589 $ 2,496 $ 4,678 $ 3,186
========= ========= ========= =========
Funded status $ 610 $ 512 $ (3,001) $ (2,768)
Unrecognized net actuarial gain (loss) (56) (31) (37) 792
Unrecognized prior service cost 50 60 - -
--------- --------- --------- ---------
Net prepaid benefit (accrued liability) $ 604 $ 541 $ (3,038) $ (1,976)
========= ========= ========= =========
Amounts recognized in the consolidated balance sheets consist of:
Prepaid benefit cost $ 604 $ 541 $ - $ -
Accrued benefit liability - - (3,038) (1,976)
Additional minimum liability - - - (10)
Adjustment to retained earnings - - - 10
--------- --------- --------- ---------
Net prepaid benefit (accrued liability) $ 604 $ 541 $ (3,038) $ (1,976)
========= ========= ========= =========
33
Notes to Consolidated Financial Statements
Assets of the U.S. and Canadian plans are invested primarily in equity
and fixed income securities.
The weighted-average assumptions as of the end of the periods were as
follows:
U.S. plan Canadian Plans
-----------------------------------------------------------------------------------------------
Year ended July 31, 1999 1998 1997 1999 1998 1997
--------------------------------------------- ----- ----- ----- ----- -----
Weighted average discount rate 7.00% 7.00% 7.50% 6.75% 6.30% 8.00%
Weighted average expected
long term rate of return 8.50% 9.50% 9.50% 8.00% 8.00% 8.00%
The components of pension expense for fiscal 1999, 1998 and 1997 were
as follows:
U.S. plan Canadian Plans
-----------------------------------------------------------------------------------------------
Year ended July 31, 1999 1998 1997 1999 1998 1997
--------------------------------------------- ------- ------- ------- ------- -------
(Dollars in thousands)
Service cost $ 47 $ 28 $ 26 $ 2,131 $ 1,817 $ 1,690
Interest cost 130 133 135 507 421 265
Expected return on plan assets (231) (220) (460) (307) (198) (97)
One time adjustment - - - - (174) -
Net amortization (9) (12) 268 97 9 -
------- ------- ------- ------- ------- -------
Net periodic benefit expense (credit) $ (63) $ (71) $ (31) $ 2,428 $ 1,875 $ 1,858
======= ======= ======= ======= ======= =======
The Company also maintains defined contribution profit-sharing plans
for eligible employees. Certain contributions are made under the
matching provision of 401(k) plans, while the remainder are made at
the discretion of the Company's Board of Directors. Expenses incurred
by the Company in connection with these profit-sharing plans were $3.8
million, $4.3 million and $3.2 million for the years ended July 31,
1999, 1998, and 1997 respectively.
Note 9. Postretirement Benefits Other than Pensions
Certain of the Company's operations are covered by postretirement
health and life insurance benefits under unfunded plans.
The components that comprise the changes in the benefit obligation
were as follows:
Year ended July 31, 1999 1998
------------------------------------------------------------------------------------- -------
(Dollars in thousands)
Benefit obligation at beginning of year $ 4,291 $ 4,110
Service cost 270 218
Interest cost 362 335
Actuarial loss 1,125 23
Benefits paid (16) -
Effect of currency translation 21 (395)
------- -------
Benefit obligation at end of year $ 6,053 $ 4,291
======= =======
Amounts recognized in the consolidated balance sheets consist of:
July 31, 1999 1998
------------------------------------------------------------------------------------- -------
(Dollars in thousands)
Funded status $(6,053) $(4,291)
Unrecognized net loss 1,320 234
------- -------
Accrued postretirement benefit liability $(4,733) $(4,057)
======= =======
34
Notes to Consolidated Financial Statements
The components of postretirement expense for fiscal 1999, 1998 and
1997 were as follows:
July 31, 1999 1998 1997
-------------------------------------------------------------------------- -------- -------
(Dollars in thousands)
Service cost $ 270 $ 218 $ 202
Interest cost 362 335 293
Net amortization 43 22 -
-------- -------- -------
Net postretirement benefit expense $ 675 $ 575 $ 495
======== ======== =======
Future benefits were estimated assuming medical costs would increase
at approximately a 6.50% annual rate for 1998 and 10.00% for 1999,
decreasing gradually to 4.00% in year 2005 and thereafter, and dental
costs would increase at approximately a 4.25% annual rate for 1998 and
4.00% for 1999 and thereafter.
Assuming a 1% increase in this annual trend, the accumulated
postretirement benefit obligation would have increased by $732,000 and
$369,000 at July 31, 1999 and 1998, respectively and the
postretirement benefit expense would have increased by approximately
$96,000, $51,000 and $58,000 for fiscal 1999, 1998, and 1997
respectively. The weighted average discount rate used to estimate the
accumulated postretirement benefit obligation was 6.75% and 6.30% for
the years ended July 31, 1999 and 1998, respectively.
Note 10. Stock Benefit Plans
During fiscal 1999 the Company established the CDT Employee Stock
Purchase Plan (the "ESPP") which provides eligible employees the right
to purchase common stock of the Company on a quarterly basis at the
lower of 85% of the common stock's fair market value on the first
business day of a fiscal quarter or on the last business day of a
fiscal quarter. There are 500,000 shares of common stock reserved for
issuance under the ESPP, and 22,679 shares of common stock were
issuable to employees under the ESPP at July 31, 1999.
In December 1995, the Company adopted the Non-Employee Director Stock
Plan (the "Non-Employee Plan"). The Non-Employee Plan provides that
shares of common stock having a fair market value of $15,000 be
granted annually to each non-employee director each August 1. Shares
granted under the Non-Employee Plan were 1,428 in fiscal 1999, 1,980
in fiscal 1998 and 2,268 in fiscal 1997.
The Company maintains a Stock Purchase and Option Plan (the "Former
Plan") which was terminated as to future grants effective upon
completion of the Company's initial public offering on November 24,
1993 (the "Initial Public Offering"). As of the grant termination
date, 4,166,544 options had been granted under the Former Plan to
directors, executives and other key employees of the Company. Options
issued under the Former Plan expire on the earlier of ten years after
the date of grant (July 1988 through September 1992) or ten days after
termination of employment. Substantially all of the outstanding
options became fully vested as of the date of the Initial Public
Offering. Substantially all of the options granted under the Former
Plan were exercised prior to July 31, 1998.
A Long Term Performance Incentive Plan (the "Stock Option Plan") was
adopted in September 1993 and provides for the granting to employees
and other key individuals stock options, stock appreciation rights,
restricted stock, performance units and other types of incentive
awards. The Stock Option Plan is scheduled to terminate in ten years
from the date of adoption but may be extended another five years by
the Company's Board of Directors for the grant of awards other than
incentive stock options. Employee rights to grants pursuant to the
Stock Option Plan are forfeited if a recipient's employment terminates
within a specified period following the grant. An aggregate of 655,083
shares of common stock were reserved for issuance pursuant to the
Stock Option Plan, and 36,958 remained available for issuance as of
July 31, 1999.
35
Notes to Consolidated Financial Statements
A Supplemental Long Term Performance Incentive Plan (the "Supplemental
Plan") was adopted in December 1995 and authorizes the grant of awards
with respect to 1,800,000 shares of common stock, of which 1,125,000
shares are to be reserved for grants only to new members of the
Company's management who are employed in connection with acquisitions
by the Company. As of July 31, 1999, 283,375 shares of common stock
remain available for grant under the Supplemental Plan, including
75,875 available for issuance to employees of acquired companies.
A Long Term Performance Incentive Plan (the "1999 Plan") was adopted
in April 1999 and amended on June 11, 1999. The 1999 Plan authorizes
the grant of various types of incentive awards with respect to
1,507,000 shares of the Company's common stock. As of July 31, 1999,
101,900 shares remain available for issuance under the 1999 Plan.
The terms of stock options issued under the Former Plan, Stock Option
Plan, Supplemental Plan and 1999 Plan (collectively "the Option
Plans") include vesting over periods ranging from three to five years
and an exercise price no less than the fair market value of the stock
at the date of grant.
During fiscal 1997, 188,400 and 599,100 of the options previously
issued under the Stock Option Plan and Supplemental Plan,
respectively, were amended. The terms of the amended stock options
include vesting over five years and an exercise price equal to the
fair market value of the stock at the date of the amendment. The
amended options are reflected in the accompanying disclosures as a
cancellation and reissuance.
Certain information regarding stock option transactions is summarized
below:
Year ended July 31, 1999 1998 1997
--------------------------------------------------------- --------------------------- -------------------------
Wtd. Wtd. Wtd.
Shares Avg. Ex. Shares Avg. Ex. Shares Avg. Ex.
Price Price Price
--------------------------------------------------------- --------------------------- ------------------------
Outstanding, beginning of year 1,963,064 $ 13.74 4,393,035 $ 6.03 4,917,491 $ 5.67
Granted/reissued 1,845,600 17.74 99,000 26.17 1,237,500 16.27
Exercised (91,550) 2.31 (2,525,296) 0.81 (974,456) 0.93
Forfeited/canceled (81,069) 12.08 (3,675) 18.42 (787,500) 26.17
-------------------- -------------------- --------------------
Outstanding, end of year 3,636,045 $ 16.09 1,963,064 $ 13.74 4,393,035 $ 6.03
Exercisable at end of year 788,100 $ 11.89 514,002 $ 6.84 2,831,859 $ 0.96
-------------------- -------------------- --------------------
Weighted average fair value of
options granted $ 5.55 $ 13.50 $ 9.27
Information regarding stock options outstanding as of July 31, 1999 is
summarized below:
Options Outstanding Options Exercisable
--------------------------------------------------------------------------------- ---------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Remaining Exercise Exercise
Range of Exercise Prices Options Contractual Life Price Options Price
--------------------------------------------------------------------------------- ---------------------------------
$ 0.89 - $6.22 319,095 3.2 years $ 3.48 280,846 $ 3.10
$ 12.50 - $26.17 3,316,950 8.8 years $ 17.31 507,254 $ 16.75
36
Notes to Consolidated Financial Statements
The Company accounts for the Option Plans and the ESPP in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to Employees"
under which no compensation cost has been recognized. The supplemental
information presented below discloses pro forma net income and net
income per common share as if the Company had determined the cost of
its stock benefit plans in accordance with the fair value method under
SFAS No. 123, "Accounting for Stock-Based Compensation".
Year ended July 31, 1999 1998 1997
------------------------------------------------------------- ------------ ------------
(Dollars in thousands, except per share data)
Net income: As reported $39,641 $40,481 $36,035
Pro forma $37,649 $38,550 $34,557
Basic earnings per share: As reported $ 1.38 $ 1.40 $ 1.31
Pro forma $ 1.31 $ 1.33 $ 1.25
Diluted earnings per share: As reported $ 1.36 $ 1.29 $ 1.17
Pro forma $ 1.30 $ 1.23 $ 1.12
The fair value of each option grant is estimated as of the date of
grant using the Black-Scholes option pricing model with the following
weighted average assumptions for grants issued in 1999, 1998, and
1997, respectively: risk-free interest rates of 5.87%, 5.93% and
6.53%; expected volatility of 58.5%, 53.0% and 58.5%; expected life of
5 years for all options; and an expected dividend yield of zero for
all options. The Black-Scholes option valuation model requires the use
of highly subjective assumptions, and was developed for use in valuing
stock options with significantly different characteristics from those
issued under the Option Plans. Therefore, management does not believe
that the model necessarily provides a reliable estimate of the fair
value of its employee stock options. Additionally, the SFAS No. 123
method of accounting is effective for options granted after August 1,
1995, and the above pro forma net income does not reflect any
compensation cost that may have resulted if SFAS No. 123 had been
applied to options granted prior to August 1, 1995. Incentive stock
awards are granted at the discretion of the Company's Board of
Directors, therefore, the type and number of awards previously issued
may not be indicative of those to be granted in future periods.
Note 11. Income Taxes
Except for the effects of the reversal of net deductible temporary
differences, the Company is not aware of any factors which would cause
any significant differences between book and taxable income in future
years. Although there can be no assurances that the Company will
generate any earnings or specific level of continuing earnings in
future periods, management believes that it is more likely than not
that the net deductible differences will reverse during periods when
the Company generates sufficient net taxable income.
Income before income taxes, as shown in the accompanying consolidated
statements of income, includes the following components:
Year ended July 31, 1999 1998 1997
-------------------------------------------------------------- ------------- -------------
(Dollars in thousands)
Domestic $35,133 $ 49,084 $ 35,031
Foreign 31,231 16,732 22,291
--------- ------------- -------------
Income before income taxes $66,364 $ 65,816 $ 57,322
========= ============= =============
37
Notes to Consolidated Financial Statements
Taxes on income, as shown in the accompanying consolidated statements
of income, include the following components:
Year ended July 31, 1999 1998 1997
-------------------------------------------------------------------------- --------- ---------
(Dollars in thousands)
Current provision:
Federal $ 13,893 $ 16,080 $ 11,980
State 2,381 3,533 2,652
Foreign 9,622 3,892 3,548
--------- --------- ---------
Total current provision 25,896 23,505 18,180
Deferred provision (benefit):
Domestic (1,353) 153 (284)
Foreign 2,180 1,677 3,391
--------- --------- ---------
Total deferred provision 827 1,830 3,107
--------- --------- ---------
Income tax provision $ 26,723 $ 25,335 $ 21,287
========= ========= =========
The effective rate differs from the statutory rate for the following
reasons:
Year ended July 31, 1999 1998 1997
-------------------------------------------------------------------------- --------- ---------
(Dollars in thousands)
Tax provision based on the U.S. federal statutory tax rate $ 23,227 $ 23,035 $ 20,063
State income taxes, net of federal income tax benefit 1,548 2,296 1,724
Research and development tax credit (Canada) (302) (877) (870)
Foreign tax rates different from U.S. federal statutory rate 1,127 586 (67)
Permanent items 985 274 405
All other, net 138 21 32
--------- --------- ---------
Income tax provision $ 26,723 $ 25,335 $ 21,287
========= ========= =========
The components of the deferred tax assets and liabilities recorded in
the accompanying consolidated balance sheets at July 31, 1999 and
1998, which include net deferred tax liabilities recorded in
connection with acquisitions and reflect reclassifications as a result
of finalization of purchase accounting under APB 16, were as follows:
July 31, 1999 1998
----------------------------------------------------------------------------------------- ---------
(Dollars in thousands)
Deferred Tax Assets:
Accruals $ 4,193 $ 1,944
Postretirement and pension accruals 2,246 1,751
Asset valuations 4,979 5,204
Uniform cost capitalization 1,167 1,117
Other 2,351 902
--------- ---------
Total deferred tax assets 14,936 10,918
--------- ---------
Deferred Tax Liabilities:
Excess of book basis over tax basis of fixed assets (22,042) (16,648)
Other (360) (775)
--------- ---------
Total deferred tax liabilities (22,402) (17,423)
--------- ---------
Net deferred taxes before valuation allowance (7,466) (6,505)
Valuation allowance (foreign NOL) (217) (163)
--------- ---------
Net deferred tax liability $ (7,683) $ (6,668)
========= =========
Reconciliation to the consolidated balance sheets -
Current deferred tax asset, net $ 10,926 $ 7,714
Non-current deferred tax liability, net (18,609) (14,382)
--------- ---------
Net deferred tax liability $ (7,683) $ (6,668)
========= =========
38
Notes to Consolidated Financial Statements
Note 12. Net Income Per Share of Common Stock
Basic net income per share of common stock is computed by dividing net
income by the weighted average number of shares of common stock
outstanding. Diluted net income per share of common stock is computed
based on the weighted average common shares outstanding plus
incremental common stock equivalent shares (shares issuable upon
exercise of options). Incremental common stock equivalent shares are
calculated for each measurement period based on the treasury stock
method. The repurchases are assumed to be made at the average fair
market value price per share of the Company's common stock during the
measurement period.
The following table sets forth the computation of basic and diluted
earnings per share:
July 31, 1999 1998 1997
-------------------------------------------------------------------------- ----------- -----------
(Dollars in thousands, except per share data)
Numerator:
Net income $ 39,641 $ 40,481 $ 36,035
Denominator:
Denominator for basic earnings per share 28,783,869 29,000,494 27,597,653
Shares issuable from assumed conversion
of dilutive stock options 344,675 2,320,982 3,290,130
----------- ----------- -----------
Denominator for diluted earnings per share 29,128,544 31,321,476 30,887,783
Basic earnings per common share $ 1.38 $ 1.40 $ 1.31
Diluted earnings per common share $ 1.36 $ 1.29 $ 1.17
Options to purchase 1,895,975 and 99,000 shares of common stock were
outstanding during fiscal 1999 and 1998, 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.
Note 13. Acquisitions
On August 3, 1998, the Company acquired an 80% interest in HEW-Kabel
Heinz Eilentropp GmbH & Co. KG, and related entities, ("HEW-
Kabel/CDT") located in Wipperfurth, Germany. On April 7, 1997, the
Company purchased the operating assets of Dearborn Wire and Cable L.P.
and Subsidiaries ("Dearborn/CDT"). The acquisitions were accounted for
using the purchase method under APB Opinion No. 16 and the assets and
liabilities assumed were as follows:
HEW-Kabel/CDT Dearborn/CDT
----------------------------------------------------------------------------------------- ------------
(Dollars in thousands)
Assets acquired, net of cash $ 68,305 $ 87,932
Liabilities assumed (23,986) (13,837)
Notes issued (10,148) (6,595)
------------- ------------
Net cash paid $ 34,171 $ 67,500
============= ============
On March 12, 1999, the Company acquired the outstanding stock of The
Tennecast Company ("Tennecast/CDT") of Barberton, Ohio, a manufacturer
of precision aluminum tire castings and computer designed and machined
mold models utilized for tire castings.
On September 25, 1998, the Company acquired the assets of Network
Essentials, Inc., ("Red Hawk/CDT") based in Milpitas, California, a
provider of fiber optic products for voice, video and data networks.
On March 17, 1998, the Company acquired the outstanding stock of
Orebro Kabel AB ("Orebro/CDT") of Orebro, Sweden. Orebro/CDT is a
manufacturer of custom designed wire and cable for wireless
communication, robotics and other industries.
On September 10, 1997, the Company acquired the outstanding stock of
Barcel Acquisition Corporation, and its subsidiaries, ("Barcel/CDT")
based in Irvine, California. Barcel/CDT is a manufacturer of high
performance specialty wire and cable for the commercial aerospace,
military and satellite industries.
39
Notes to Consolidated Financial Statements
The acquisitions of HEW-Kabel/CDT, Tennecast/CDT, Red Hawk/CDT,
Barcel/CDT, and Orebro/CDT were accounted for under the purchase
method of accounting. Under the purchase method, the Company allocates
the purchase price based on the estimated fair market value of the
assets and liabilities acquired.
The pro forma results of operations presented below assumes the
acquisition of Dearborn/CDT had occurred as of the beginning of fiscal
1997. The pro forma results of operations does not give effect to the
acquisitions of HEW-Kabel/CDT, Tennecast/CDT, Red Hawk/CDT,
Barcel/CDT, and Orebro/CDT as their results of operations are not
material to the Company's consolidated results of operations.
(Pro Forma, Unaudited)
Year ended July 31, 1997
----------------------------------------------------------------------
(Dollars in thousands, except per share data)
Net sales $ 577,531
Income before extraordinary items 38,336
Net income 38,336
Net income per common share (diluted) $ 1.24
The pro forma financial information presented above does not purport
to present what the Company's results of operations would actually
have been if the acquisition of Dearborn/CDT had occurred as of the
beginning of fiscal 1997 or to project the Company's results of
operations for any future period.
Note 14. Industry and Geographic Segment Information
The Company's operations are organized into two business segments: the
Network Communication segment and the Specialty Electronic segment.
The Network Communication segment encompasses connectivity products
for the electronic transmission of data, voice, and multimedia over
local and wide area networks and local loop communication
infrastructures. Products included in this segment are high
performance cable and passive components, including connectors, wiring
racks and panels, outlets and interconnecting hardware, for end-to-end
network structured wiring systems, and communication cable products
for outside communication and central office switchboard and equipment
applications. The Specialty Electronic segment encompasses electronic
data and signal transmission cables for automation and process control
applications as well as specialized wire and cable products for niche
markets, including computer interconnect, commercial aviation,
automotive electronics, broadcast and wireless communication.
The accounting policies of the reportable segments are the same as
those described in "Significant Accounting Policies" (Note 2). The
Company evaluates segment performance based on operating profit
excluding nonrecurring charges, after allocation of Corporate
expenses. Corporate assets, which primarily consist of cash, deferred
income taxes and other deferred costs, are immaterial and are
allocated to the operating segments.
40
Notes to Consolidated Financial Statements
The Company has no inter-segment revenues. Summarized financial
information for the Company's operating segments for the years ended
July 31, is as follows:
Network Specialty
Communication Electronic
Segment Segment Total
--------------------------------------------------------------- ------------ ------------
(Dollars in thousands)
Sales:
1999 $ 373,013 $ 310,986 $ 683,999
1998 393,325 258,343 651,668
1997 347,498 169,498 516,996
Depreciation and Amortization Expense:
1999 10,316 8,514 18,830
1998 8,735 5,310 14,045
1997 6,825 3,250 10,075
Segment Operating Profit:
1999 42,084 43,386 85,470
1998 46,401 33,146 79,547
1997 36,778 25,824 62,602
Total Assets:
1999 310,058 285,042 595,100
1998 290,173 215,254 505,427
1997 251,773 177,726 429,499
Capital Expenditures:
1999 17,988 7,274 25,262
1998 37,766 11,482 49,248
1997 21,603 5,101 26,704
The following summarizes external sales to customers and long-lived
assets located in the Company's country of domicile and certain
foreign countries:
July 31, 1999 1998 1997
--------------------------------------------------------------- ------------ ------------
(Dollars in thousands)
Sales:
United States $ 410,744 $ 426,337 $ 295,499
Canada 117,994 119,087 116,700
Other 155,261 106,244 104,797
------------ ------------ ------------
Total $ 683,999 $ 651,668 $ 516,996
Long-lived Assets:
United States $ 75,304 $ 71,519 $ 61,301
Canada 71,815 64,927 49,532
Germany 30,677 - -
Other 26,326 26,178 18,054
------------ ------------ ------------
Total $ 204,122 $ 162,624 $ 128,887
41
Notes to Consolidated Financial Statements
Note 15. Lease Commitments
Rental expense under noncancelable leases was approximately $5.0
million, $5.4 million and $6.3 million for the years ended July 31,
1999, 1998 and 1997, respectively. Operating leases relate principally
to manufacturing, warehouse and office space. Minimum annual rents
payable under noncancelable leases in each of the next five years and
thereafter are as follows:
Year ended July 31, total
----------------------------------------------------------------------
(Dollars in thousands)
2000 $ 4,609
2001 3,248
2002 1,973
2003 1,642
2004 966
Thereafter 1,124
--------
$ 13,562
========
Note 16. Commitments and Contingencies
Certain claims have been asserted against the Company in connection
with patent and trademark matters. In management's opinion, any
liability that might be incurred in connection with these claims would
not have a material effect upon the Company's financial position, or
results of operations or cash flows.
As of July 31, 1999, the Company had outstanding letters of credit of
$0.8 million under its workers' compensation policy. The Company also
maintains a $1.2 million bond in connection with workers' compensation
self-insurance in the state of Massachusetts.
Note 17. Related Party Transactions
The Company has an agreement to pay management fees of $12,500 per
quarter to each of Golder Thoma Cressey Rauner, Inc. ("GTCR") and The
Northern Group, Inc. ("Northern"). Principals of each of GTCR and
Northern are directors of the Company. Selling, general and
administrative expenses include $100,000 in 1999, 1998, and 1997 for
fees paid under this agreement.
In the normal course of business the Company enters into transactions
for the purchase of materials, equipment and services with entities
that are affiliated with or owned by an officer/stockholder. Such
transactions totaled $1.2 million, $1.1 million and $1.6 million for
the years ended July 31, 1999, 1998 and 1997, respectively.
Note 18. Nature of Business and Disclosures about Fair Value of
Financial Instruments
Concentrations of credit risk with respect to trade receivables are
limited due to the Company's wide variety of customers and the many
markets into which the Company's products are sold, as well as the
many different geographic areas in which such customers and markets
are located. As a result, at July 31, 1999, the Company does not
believe it has any significant concentrations of credit risk. A group
of customers under common control accounted for 11% of sales for
fiscal 1997.
The fair values and carrying amounts of the Company's financial
instruments, primarily accounts receivable and debt, are approximately
equivalent. The debt instruments bear interest at floating rates which
are based upon market rates or fixed rates which approximate market
rates. All other financial instruments are classified as current and
will be utilized within the next operating cycle.
42
Notes to Consolidated Financial Statements
Note 19. Nonrecurring Income and Expense
During fiscal 1999, the Company purchased 1,596,052 shares of common
stock held by certain key employees. The stock was acquired by the
employees more than six months previously upon the exercise of
incentive stock options granted primarily in 1988 and 1989 and
expiring in 1998 and 1999. In connection with the purchase of this
stock, the Company incurred a $6.3 million nonrecurring charge in the
second quarter of fiscal 1999 representing incentive payments which
were made to partially compensate the employees for the difference
between the income tax rates for ordinary income and for long term
capital gains. As a result of this transaction, the Company received a
cash benefit of approximately $12.8 million realized through the
reduction of income taxes payable.
In the fourth quarter of fiscal 1998, a nonrecurring charge of $6.1
million was incurred to provide for costs related to the
discontinuance of the DynaTraX(TM) product line and other
restructuring activities at NORDX/CDT. These costs primarily
represented asset valuation provisions and employee separation costs.
As of July 31, 1999, activities related to the discontinuance were
substantially completed and management estimates of the remaining
costs to be incurred were revised resulting in the recognition of $0.3
million of nonrecurring income during the fourth quarter of fiscal
1999. Additionally, during the third quarter of fiscal 1999, the
Company realized a nonrecurring gain of $1.1 million on the sale of
certain assets related to the DynaTraX(TM) product line.
Note 20. Quarterly Financial Information (Unaudited)
Quarterly financial data are summarized as follows:
Fiscal Year 1999 First Second Third Fourth
-------------------------------------------------------------- --------------- ------------- ---------------
(Dollars in thousands, except per share data)
Sales $ 173,624 $ 160,896 $ 165,611 $ 183,868
Gross profit 53,741 46,866 46,521 57,402
Income from operations 24,070 12,118/1/ 18,677/1/ 25,710/1/
Net income 12,364 4,806/2/ 8,883/2/ 13,588/2/
Per share information:
Basic earnings per common share $ 0.41 $ 0.17 $ 0.32 $ 0.48
Diluted earnings per common share $ 0.41 $ 0.16/2/ $ 0.31/2/ $ 0.48/2/
1 Includes $6.3 million of nonrecurring expense, $1.1 million of
nonrecurring income, and $0.3 million of nonrecurring income in the
second, third and fourth quarters, respectively (see Note 19).
2 Excluding nonrecurring items (see Note 19), net income was $9.0
million, or $0.31 per diluted share, $8.1 million, or $0.29 per
diluted share and $13.4 million, or $0.47 per diluted share for the
second, third and fourth quarters, respectively.
Fiscal Year 1998 First Second Third Fourth
------------------------------------------------------------- --------------- ------------- ---------------
Sales $ 162,144 $ 155,638 $ 167,647 $ 166,239
Gross profit 47,598 45,714 48,515 52,074
Income from operations 19,771 17,411 19,911 16,361/1/
Net income 11,450 9,926 10,658 8,447/2/
Per share information:
Basic earnings per common share $ 0.41 $ 0.35 $ 0.37 $ 0.28
Diluted earnings per common share $ 0.37 $ 0.32 $ 0.34 $ 0.27/2/
1 Includes $6.1 million of nonrecurring charges (see Note 19).
2 Excluding nonrecurring charges (see Note 19), net income was $12.4
million, or $0.40 per diluted share.
43
Selected Historical Consolidated Financial Data
For the year ended July 31, 1999 1998 1997 1996 1995
-------------------------------------------------- -------- -------- -------- --------
(In thousands, except per share data)
Income Statement Data:
Sales $683,999 $651,668 $516,996 $357,352 $188,941
Income from operations 80,575/1/ 73,454/1/ 62,602 31,527/1/ 29,613
Income before extraordinary items 80,575 40,481 36,035 15,881 14,713
Extraordinary loss on early
extinguishment of debt - - - (596) -
Net income 39,641/2/ 40,481/2/ 36,035 15,285/2/ 14,713
Net Income Per Share of Common Stock:
Basic 1.38 1.40 1.31 0.64 0.67
Diluted 1.36/2/ 1.29/2/ 1.17 0.55/2/ 0.57
Weighted Average Shares Outstanding:
Basic 28,784 29,000 27,598 23,966 21,874
Diluted 29,129 31,321 30,888 27,940 25,623
As of July 31, 1999 1998 1997 1996 1995
-------------------------------------------------- -------- -------- -------- --------
Balance Sheet Data:
Total assets $595,100 $505,427 $429,499 $320,105 $118,976
Long-term debt 171,727 136,052 126,661 71,384 52,696
1 Includes $4.9 million, $6.1 million and $16.7 million of
nonrecurring charges in fiscal 1999, 1998 and 1996,
respectively.
2 Excluding nonrecurring and extraordinary charges, net
income was $42.9 million, $44.4 million and $26.4 million
in fiscal 1999, 1998 and 1996, respectively, and net
income per diluted share was $1.47, $1.42 and $0.95 in
fiscal 1999, 1998 and 1996, respectively.
44
Directors, Officers and Corporate Information
Directors David R. Harden
Senior Vice President
Bryan C. Cressey* President, West Penn/CDT
Partner, Thoma Cressey
Equity Partners Kenneth O. Hale
Vice President and
Myron S. Gelbach Jr. Chief Financial Officer
Independent Financial
Consultant Charles B. Fromm
Vice President,
George C. Graeber General Counsel
Chief Operating Officer, and Secretary
Cable Design Technologies Corporation
Annual Meeting
Michael F. O. Harris
Managing Director, Tuesday, December 7, 1999
The Northern Group 10:00 A.M. (Eastern Time)
The Double Tree Hotel
Glenn Kalnasy 1000 Penn Avenue
Managing Director, Pittsburgh, Pennsylvania 15222
The Northern Group
A copy of the Company's annual report to
Paul M. Olson the Securities and Exchange Commission on
President and Form 10-K for fiscal 1999 is available without
Chief Executive Officer, charge to stockholders upon written request
Cable Design Technologies Corporation to Investor Relations at the Company's headquarters.
Richard C. Tuttle
Principal, Prospect Partners Stock Transfer Agent & Registrar
* Chairman of the Board of Directors, Questions regarding
Cable Design Technologies Corporation stock certificates, replacement of lost certificates,
address changes, account consolidation and transfer
procedures should be addressed to:
Executive Officers
Paul M. Olson BankBoston, N.A.
President and Chief c/o Boston EquiServe Limited Partnership
Executive Officer P.O. Box 8040
Boston, Massachusetts 02266
George C. Graeber (781) 575-3120
Chief Operating Officer
Allow three weeks for a reply.
Michael A. Dudley
Executive Vice President
President, CDT International
Normand R. Bourque
Executive Vice President
President, NORDX/CDT
Peter Sheehan
Executive Vice President
Inquiries
Cable Design Technologies Corporation welcomes questions and comments from its
stockholders, potential investors, financial professionals, institutional
investors and security analysts. Interested parties should contact Investor
Relations at the Company's headquarters by telephone at (412) 937-2300. CDT
maintains a Web site on the Internet at http://www.cdtc.com
Common Stock
The Company's common stock is listed on the New York Stock Exchange under the
ticker symbol "CDT."
The following table sets forth the high and low sales price per share of the
common stock during the fiscal periods indicated. The Company did not pay cash
dividends on the common stock during the periods set forth.
Fiscal 1999
High Low
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First 21 1/8 9 5/8
Second 24 7/8 16 1/2
Third 19 10 15/16
Fourth 19 3/8 12 9/16
Fiscal 1998
High Low
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First 28 1/2 21 5/16
Second 30 15/16 23 11/16
Third 32 1/4 25 1/4
Fourth 26 5/8 19 13/16
[LOGO OF CABLE DESIGN TECHNOLOGIES CORPORATION APPEARS HERE]
Cable Design Technologies Corporation And Subsidiaries 45