1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
Commission File No. 1-12983
GENERAL CABLE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 06-1398235
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4 Tesseneer Drive
Highland Heights, KY 41076
(Address of principal executive offices)
(606) 572-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 29, 1999
----- -------------------------------
Common Stock, $.01 Par Value 34,659,133
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PAGE 1
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GENERAL CABLE CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
PART I - FINANCIAL INFORMATION Page
-----
Item 1. Consolidated Financial Statements
Statements of Income -
For the three and nine months ended September 30, 1999
and 1998 3
Balance Sheets -
September 30, 1999 and December 31, 1998 4
Statements of Cash Flows -
For the nine months ended September 30, 1999 and 1998 5
Statements of Changes in Shareholders' Equity -
For the nine months ended September 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURE 22
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
------- ------- --------- -------
Net sales $ 677.7 $ 304.5 $ 1,379.1 $ 889.8
Cost of sales 554.9 235.2 1,128.8 696.6
--------- --------- ----------- ---------
Gross profit 122.8 69.3 250.3 193.2
Selling, general and administrative expenses 77.4 29.6 158.3 94.2
--------- --------- ----------- ---------
Operating income 45.4 39.7 92.0 99.0
--------- --------- ----------- ---------
Interest income (expense):
Interest expense (17.6) (4.2) (30.8) (12.2)
Interest income 0.8 0.2 1.2 0.7
--------- --------- ----------- ---------
(16.8) (4.0) (29.6) (11.5)
--------- --------- ----------- ---------
Earnings before income taxes 28.6 35.7 62.4 87.5
Income tax provision (10.7) (13.6) (23.4) (33.8)
--------- --------- ----------- ---------
Net income $ 17.9 $ 22.1 $ 39.0 $ 53.7
========= ========= =========== =========
Earnings per common share $ 0.50 $ 0.60 $ 1.07 $ 1.46
========= ========= =========== =========
Weighted average common shares 35.8 36.8 36.4 36.8
========= ========= =========== =========
Earnings per common share-assuming dilution $ 0.50 $ 0.59 $ 1.07 $ 1.43
========= ========= =========== =========
Weighted average common shares-assuming
dilution 35.9 37.5 36.5 37.6
========= ========= =========== =========
See accompanying Notes to Consolidated Financial Statements.
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
ASSETS September 30, December 31,
- ------ 1999 1998
---------- --------
Current Assets:
(unaudited)
Cash $ 88.2 $ 3.4
Receivables, net 585.6 163.4
Inventories 435.6 198.5
Deferred income taxes 14.9 15.3
Prepaid expenses and other 22.9 9.7
---------- --------
Total current assets 1,147.2 390.3
Property, plant and equipment, net 430.8 210.8
Deferred income taxes 48.0 24.2
Prepaid pension cost 31.2 --
Investment in joint ventures 27.6 1.5
Other non-current assets 34.7 24.2
---------- --------
Total assets $ 1,719.5 $ 651.0
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 384.1 $ 99.6
Accrued liabilities 186.9 56.9
Current portion of long-term debt 12.6 --
---------- --------
Total current liabilities 583.6 156.5
Long-term debt 827.2 246.8
Other liabilities 112.7 70.5
---------- --------
Total liabilities 939.9 473.8
---------- --------
Shareholders' Equity:
Common stock, $0.01 par value:
Issued and outstanding shares:
September 30, 1999 - 35,253,628
December 31, 1998 - 36,815,340 0.4 0.4
Additional paid-in capital 90.1 84.8
Retained earnings 136.5 103.2
Accumulated other comprehensive income (loss) 3.1 (5.2)
Treasury stock - 1,768,400 shares in 1999 (25.2) --
Other shareholders' equity (8.9) (6.0)
---------- --------
Total shareholders' equity 196.0 177.2
---------- --------
Total liabilities and shareholders' equity $ 1,719.5 $ 651.0
========== ========
See accompanying Notes to Consolidated Financial Statements.
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS, AUDITED)
Nine Months Ended
September 30,
-----------------
1999 1998
---- ----
Cash flows of operating activities:
Net income $ 39.0 $ 53.7
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 22.5 13.3
Deferred income taxes 0.6 2.6
Changes in operating assets and liabilities, net of effect of
acquisitions:
Increase in receivables (71.0) (19.4)
Decrease (increase) in inventories 11.7 (15.2)
Decrease (increase) in other assets 0.6 (3.0)
Increase (decrease) in accounts payable,
accrued and other liabilities (8.7) 6.5
-------- -------
Net cash flows of operating activities (5.3) 38.5
-------- -------
Cash flows of investing activities:
Capital expenditures (56.2) (52.0)
Acquisitions, net of cash acquired (378.8) --
Proceeds from the sale of property 0.5 3.5
Other, net 1.6 0.6
-------- -------
Net cash flows of investing activities (432.9) (47.9)
-------- -------
Cash flows of financing activities:
Dividends paid (5.6) (4.2)
Net changes in revolving credit borrowings (212.5) 15.6
Issuance of long-term debt 768.8 --
Acquisition of treasury stock (25.2) --
Repayment of other long-term debt (2.5) (0.6)
-------- -------
Net cash flows of financing activities 523.0 10.8
-------- -------
Increase in cash 84.8 1.4
Cash-beginning of period 3.4 4.2
-------- -------
Cash-end of period $ 88.2 $ 5.6
======== =======
SUPPLEMENTAL INFORMATION
Income taxes paid, net of refunds $ 15.2 $ 22.6
======== =======
Interest paid $ 24.3 $ 9.3
======== =======
NONCASH ACTIVITIES
Issuance of restricted stock, net of forfeitures $ 4.3 $ 1.0
======== =======
See accompanying Notes to Consolidated Financial Statements.
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
Accumulated
Common Stock Additional Other Other
----------------------- Paid-In Retained Comprehensive Treasury Shareholders'
Shares Amount Capital Earnings Income(Loss) Stock Equity Total
----------- ------- ------- -------- ----------- ------ ------- -------
Balance, December 31, 1998 36,815,340 $ 0.4 $ 84.8 $ 103.2 $ (5.2) -- $ (6.0) $ 177.2
Comprehensive income:
Net income 39.0 39.0
Foreign currency
translation adjustment 8.3 8.3
------
Comprehensive income 47.3
Dividends (5.6) (5.6)
Issuance of restricted stock 205,941 4.3 (4.3) --
Amortization of restricted
stock and other 0.9 1.2 2.1
Acquisition of treasury stock (1,768,400) (25.2) (25.2)
Other 747 0.1 (0.1) 0.2 0.2
----------- ------- ------- -------- ------- ------ ------- --------
Balance, September 30, 1999 35,253,628 $ 0.4 $ 90.1 $ 136.5 $ 3.1 $(25.2) $ (8.9) $ 196.0
=========== ======= ======= ======== ======= ====== ======= ========
Balance, December 31, 1997 36,773,139 $ 0.4 $ 83.3 $ 38.2 $ 0.5 $ -- $ -- $ 122.4
Comprehensive income:
Net income 53.7 53.7
--------
Comprehensive income 53.7
Dividends (4.2) (4.2)
Issuance of restricted stock 26,765 1.0 1.0
Other (14,350) (0.2) (0.2)
----------- ------- ------- -------- ------- ------ ------- --------
Balance, September 30, 1998 36,814,254 $ 0.4 $ 84.3 $ 87.5 $ 0.5 $ -- $ -- $ 172.7
=========== ======= ======= ======== ======= ====== ======= ========
See accompanying Notes to Consolidated Financial Statements.
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of General Cable Corporation and its wholly owned subsidiaries. All
transactions and balances among the consolidated companies have been eliminated.
Certain reclassifications have been made to the prior year to conform to the
current year's presentation.
BASIS OF PRESENTATION The accompanying unaudited consolidated financial
statements of General Cable Corporation and Subsidiaries have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Results of operations for the three and nine months ended
September 30, 1999 are not necessarily indicative of results that may be
expected for the full year. These financial statements should be read in
conjunction with the audited financial statements and notes thereto in General
Cable's 1998 Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 23, 1999.
NEW STANDARDS During 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities". General Cable will be required
to adopt SFAS No. 133, as amended, no later than January 1, 2001. Management has
not yet analyzed the impact of SFAS No. 133 on its consolidated financial
statements.
2. ACQUISITIONS
------------
On May 28, 1999, General Cable completed the first phase of the transaction to
acquire BICC plc's worldwide energy cable and cable systems businesses for a
purchase price of $337.9 million in cash, subject to adjustment for changes in
certain balances. Phase one was comprised of all of the North America operations
and all of the operations in Spain, Italy, the United Kingdom, and New Zealand.
The acquisition was financed by a portion of the Company's new $1.05 billion
credit facility which was obtained to fund the acquisition, refinance existing
debt, provide working capital flexibility and allow for additional business
development activities. This acquisition has been accounted for under the
purchase method of accounting.
At the end of the second quarter, General Cable completed the second phase of
the transaction to acquire BICC plc's worldwide energy cable and cable systems
businesses including ownership interests in businesses in Fiji, Portugal,
Zimbabwe, Mozambique, Angola, Indonesia, Malaysia and Singapore for a cash
payment of $26 million, subject to adjustment. On September 2, 1999, General
Cable completed the acquisition of BICC plc's ownership interest in a wire and
cable manufacturing joint venture based in Berlin, Germany with a payment of
$21.9 million.
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The purchase price has been preliminarily allocated based on estimated fair
values of assets acquired and liabilities assumed at the date of acquisition,
subject to final adjustments. The results of the businesses acquired have been
included in the consolidated financial statements since the acquisition date.
The estimated fair values of assets acquired and liabilities assumed were as
follows (in millions):
Cash $ 11.8
Receivables 341.1
Inventories 240.9
Property, plant and equipment 178.4
Prepaid pension cost 31.2
Other assets 49.7
-------
Total 853.1
Accounts payable and accrued liabilities (426.5)
Long-term debt (23.1)
Other liabilities (23.5)
-------
Total net $ 380.0
=======
The allocation of purchase price will be finalized upon completion of certain
valuations and studies related to among other things pension and post-retirement
benefit plans, fixed assets, restructuring reserves related to certain duplicate
facilities and other activities to integrate the acquired operations.
The acquisition combines BICC's European, North American, Middle Eastern,
Asia/Pacific and African operations with General Cable's worldwide operations.
The operations acquired include low-voltage, medium-voltage and high-voltage
power distribution and transmission cable products, and control, signaling,
electronic and data communications products and accessories, serving industrial,
utility, OEM, military/government and electrical and communications distributor
customers worldwide.
The following unaudited pro forma information presents a summary of General
Cable's consolidated statement of income and the acquired businesses of BICC as
if the acquisition had occurred on January 1, 1998 (in millions except per share
data):
Nine Months Ended
September 30,
1999 1998
---- ----
Net sales $2,204.9 $2,190.2
Net income 9.5 53.9
Earnings per share of common stock
Basic $ 0.26 $ 1.46
Diluted 0.26 1.43
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
These unaudited pro forma results have been prepared for informational purposes
only. They do not purport to be indicative of the results of operations that
actually would have resulted had the combination occurred on January 1, 1998, or
of future results of operations of the consolidated entities.
On June 30, 1999, General Cable purchased SpecTran Corporation's joint venture
interest in General Photonics for $2.3 million in cash. General Photonics, a
manufacturer of optical fiber cables, was formed by General Cable Corporation
and SpecTran in 1996.
On September 15, 1999, General Cable announced that it had formed a new joint
venture in Baoying Jiangsu province in Mainland China with the Jiangsu Group Co.
Ltd. General Cable paid $10.0 million in September 1999 and $3.1 million in
October 1999 for approximately two-thirds ownership of the joint venture.
3. INVENTORIES
-----------
Inventories consisted of the following (in millions):
September 30, December 31,
1999 1998
------------- ------------
Raw materials $ 66.8 $ 23.0
Work in process 91.0 25.2
Finished goods 277.8 150.3
-------- -------
Total $ 435.6 $ 198.5
======== =======
General Cable values the copper and aluminum component of its North American
inventories using the last-in/first-out (LIFO) method. At September 30, 1999 and
December 31, 1998, $106.4 million and $75.9 million, respectively, of
inventories were valued using the LIFO method. Approximate replacement cost of
inventories valued using the LIFO method totaled $104.4 million at September 30,
1999 and $55.6 million at December 31, 1998. An actual valuation of inventory
under the LIFO method can be made only at the end of each year based on the
inventory levels and costs at that time. Accordingly, interim LIFO calculations
are necessarily based on management's estimates of expected year-end inventory
levels and costs. Because these are subject to many variables beyond
management's control, interim results are subject to the final year-end LIFO
inventory valuation.
4. LONG-TERM DEBT
--------------
Long-term debt consisted of the following (in millions):
September 30, December 31,
1999 1998
------------- ------------
Term loans $785.5 $ --
Revolving loans 26.5 239.0
Other 27.8 7.8
------ -----
839.8 246.8
Less current maturities 12.6 --
------ -----
$827.2 $246.8
====== ======
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In conjunction with the acquisition of BICC plc's worldwide energy cable and
cable systems businesses, General Cable entered into a new $1.05 billion credit
facility which consists of: 1) term loans in Sterling, Euros and Dollars in an
aggregate amount up to $125.0 million, 2) term loans in Dollars in an aggregate
amount up to $675.0 million and 3) revolving loans and letters of credit in
Dollars and foreign currencies in an aggregate amount up to $250.0 million.
Loans under the new facility bear interest, at the Company's option, at (i) a
spread over LIBOR or (ii) a spread over the Alternate Base Rate, which is
defined as the higher of (a) the agent's Prime Rate, (b) the secondary market
rate for certificates of deposit (adjusted for reserve requirements) plus 1% or
(c) the Federal Funds Effective Rate plus 1/2 of 1%.
A commitment fee accrues on the unused portion of the new facility. The
commitment fee ranges between 35 and 50 basis points per annum and the spread
over LIBOR on all loans under the facility ranges between 175 and 325 basis
points per annum. Both the commitment fee and the spread over LIBOR are subject
to periodic adjustment depending upon the Company's Leverage Ratio. The new
facility restricts certain corporate acts and contains required minimum
financial ratios and other covenants.
The Company entered into certain interest rate derivative contracts for hedging
of the new facility floating interest rate risk during the third quarter
covering $375.0 million of the Company's debt. The net effect of the hedging
program was to provide a collar within which the Company's interest rates on a
portion of the new facility could move and which was at no cost to the Company.
The Company entered into these agreements with members of the lending group and
all counterparty members are significant international financial institutions.
Repayments under the term loans begin in September 2000 with the final maturity
varying between March 2005 and March 2007.
5. OTHER SHAREHOLDERS' EQUITY
--------------------------
Other shareholders' equity consisted of the following (in millions):
September 30, December 31,
1999 1998
------- ------
Loans to shareholders $ (5.8) $ (6.0)
Unvested restricted stock, net of amortization (3.1) --
------ ------
$ (8.9) $ (6.0)
====== ======
In the first nine months of 1999, General Cable awarded 204,769 shares of
restricted stock, net of forfeitures. Restrictions on the majority of the shares
issued in 1999 will expire ratably over two years.
6. EARNINGS PER COMMON SHARE
A reconciliation of the numerator and denominator of earnings per common share
to earnings per common share assuming dilution is as follows (in millions):
Three Months Ended September 30,
--------------------------------------------------------------------------------
1999 1998
------------------------------------- -------------------------------------
Per Share Per Share
Income(1) Shares(2) Amount Income(1) Shares(2) Amount
--------- --------- ------ --------- --------- ------
Earnings per common share $ 17.9 35.8 $0.50 $ 22.1 36.8 $0.60
===== =====
Dilutive effect of stock options -- 0.1 -- 0.7
------ ------ ------ ------
Earnings per common share-
Assuming dilution $ 17.9 35.9 $0.50 $ 22.1 37.5 $0.59
====== ====== ===== ====== ======= =====
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30,
---------------------------------------------------------------------------------
1999 1998
----------------------------------- --------------------------------------
Per Share Per Share
Income(1) Shares(2) Amount Income(1) Shares(2) Amount
--------- --------- ------ --------- --------- ------
Earnings per common share $39.0 36.4 $1.07 $53.7 36.8 $1.46
===== =====
Dilutive effect of stock options -- 0.1 -- 0.8
----- ---- ----- -----
Earnings per common share-
Assuming dilution $39.0 36.5 $1.07 $53.7 37.6 $1.43
===== ==== ===== ===== ===== =====
<FN>
(1) Numerator
(2) Denominator
7. SEGMENT INFORMATION
-------------------
The Electrical Group manufactures and sells wire and cable products which
conduct electrical current for industrial, commercial and residential power and
control applications. The Communications Group manufacturers and sells wire and
cable products which transmit low voltage signals for voice, data, video and
control applications. The Energy Group manufactures and sells wire and cable
products which include low-medium-and high-voltage power distribution and power
transmission products for terrestrial and subsea applications.
Summarized financial information for the Company's operating segments for the
three months and nine months ended September 30, is as follows (in millions):
Three Months Ended September 30
-------------------------------
Electrical Communications Energy
Group Group Group Corporate Total
----- ----- ----- --------- -----
Net Sales:
1999 $ 285.2 $ 137.7 $ 254.8 -- $ 677.7
1998 178.3 126.2 -- -- 304.5
Operating Profit:
1999 3.2 16.5 25.7 -- 45.4
1998 17.7 22.0 -- -- 39.7
Identifiable Assets:
September 30, 1999 545.5 263.8 722.0 $ 188.2 1,719.5
December 31, 1998 318.1 235.9 -- 97.0 651.0
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30
------------------------------
Electrical Communications Energy
Group Group Group Corporate Total
----- ----- ----- --------- -----
Net Sales:
1999 $652.4 $381.6 $345.1 -- $1,379.1
1998 523.9 365.9 -- -- 889.8
Operating Profit:
1999 10.3 46.5 35.2 -- 92.0
1998 41.2 57.8 -- -- 99.0
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
General Cable, which does business as BICCGeneral ("the Company"), is a leader
in the development, design, manufacture, marketing and distribution of copper,
aluminum and fiber optic wire and cable products for the communications, energy
and electrical markets. Communications wire and cable products transmit low
voltage signals for voice, data, video and control applications. Energy cables
include low-, medium- and high-voltage power distribution and power transmission
products for aerial, terrestrial and subsea applications. Electrical wire and
cable products conduct electrical current for industrial, commercial and
residential power and control applications.
All statements, other than statements of historical fact, included in this
report, including the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations", are, or may be considered,
forward-looking statements under Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Important factors that could
cause results to differ materially from those discussed in the forward-looking
statements (Forward Statements) include: domestic and local country price
competition, particularly in certain segments of the energy products, building
wire and cordset markets, and other competitive pressures; general economic
conditions, particularly those affecting the construction industry; the
Company's ability to retain key customers and distributors; the Company's
ability to increase manufacturing capacity; the cost of raw materials, including
copper; the level of growth in demand for products serving various segments of
the communications markets; the Company's ability to introduce successfully new
or enhanced products; the impact of qualified technological changes; the
Company's ability to achieve productivity improvements; the Company's ability to
successfully integrate acquisitions; and the impact of changes in industry
standards and the regulatory environment. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting for the
Company are qualified in their entirety by the Forward Statements.
On April 6, 1999, the Company entered into an agreement to acquire BICC plc's
worldwide energy cable and cable systems businesses ("the Acquisition"). On May
28, 1999, the Company completed the first phase of the transaction with the
payment to BICC plc of $337.9 million. Phase one was comprised of all of the
United States and Canada operations, and all of the operations in Spain (and its
subsidiaries), Italy, the United Kingdom, and New Zealand. At the end of the
second quarter, the Company completed the second phase of its acquisition
including ownership interests in businesses in Fiji, Portugal, Zimbabwe,
Mozambique, Angola, Indonesia, Malaysia and Singapore with a payment of $26
million. On September 2, 1999, the Company completed the acquisition of BICC
plc's ownership interest in a wire and cable manufacturing joint venture based
in Berlin, Germany with a payment of $21.9 million. The Acquisition was
accounted for as a purchase, and accordingly, the results of operations of the
acquired businesses are included in the consolidated financial statements for
periods after the closing date.
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
On September 15, 1999, the Company announced that it had formed a new joint
venture in Baoying Jiangsu province in Mainland China with the Jiangsu Boasheng
Group Co. Ltd. The Company paid $10.0 million in September 1999 and $3.1 million
will be paid during the fourth quarter of 1999 for approximately two-thirds
ownership of the joint venture.
On June 30, 1999, the Company purchased SpecTran Corporation's joint venture
interest in General Photonics for $2.3 million in cash. General Photonics, a
manufacturer of optical fiber cables, was formed by General Cable Corporation
and SpecTran in 1996.
The Company's reported net sales are directly influenced by the price of copper.
Copper prices have been volatile, with the copper cathode daily selling price on
the COMEX averaging $0.78 per pound during the third quarter of 1999 and $0.70
during the first nine months of 1999, $0.75 per pound for the third quarter of
1998 and $0.77 during the first nine months of 1998. However, as a result of a
number of practices intended to match copper purchases with sales, the Company's
overall profitability has not been significantly affected by changing copper
prices. The Company generally passes changes in copper prices along to its
customers, although there are timing delays of varying lengths depending upon
the type of product, competitive conditions and particular customer
arrangements. The Company does not engage in speculative metals trading or other
speculative activities.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1998
Net income was $17.9 million for the third quarter of 1999 compared to $22.1
million in the third quarter of 1998. Fully diluted earnings per share were
$0.50 per share in the third quarter of 1999 compared to $0.59 per share in the
third quarter of 1998.
Net earnings of $17.9 million for the third quarter of 1999 reflects unit volume
organic growth (up over 11% from the prior year), the accretive impact of the
acquisition of BICC Energy Cables, strong sales and operating performances by
General Cable's specialty retail business unit, and manufacturing productivity.
Compared to the third quarter of 1998, earnings per share declined 9 cents or
15%, principally reflecting the negative impact of lower prices for building
wire products and some communications cables partially offset by the acquisition
and volume-related earnings growth and manufacturing productivity improvement.
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
Net sales on an as reported basis increased 123% from $304.5 million in the
third quarter of 1998 to $677.7 million in the third quarter of 1999. After
adjusting 1998 net sales to reflect the $0.03 increase in the average monthly
Comex price per pound of copper in the third quarter of 1999, net sales
increased 120% to $677.7 million, up from $308.0 million for the same period in
1998. The increase in copper-adjusted net sales includes $363.2 million of net
sales related to the Acquisition and an increase of $6.5 million from the
Company's historical operations. The increase in copper-adjusted net sales
reflects a 58% increase in Electrical products, an 8% increase in Communication
products and $254.8 million of Energy products sales from the Acquisition.
The increase in Communication products copper-adjusted net sales included higher
sales volume of data cables with sales growth of 44% in Category 5 and enhanced
high-speed data networking cables. Communication product sales also reflected a
15% increase in volume of PIC telephone cables in the quarter. The increase in
Electrical products reflects the Acquisition and 10% volume growth in the
pre-acquisition business, partially offset by lower selling prices for building
wire products. Consumer cordset net sales were up 32% in the third quarter with
significant increases in sales to the leading home center chain and a major
hardware store retailer.
Selling, general and administrative expenses increased to $77.4 million in the
third quarter of 1999 from $29.6 million in the third quarter of 1998 primarily
reflecting the Acquisition. Selling, general and administrative expenses as a
percentage of copper-adjusted net sales was 11.4% in the third quarter of 1999,
compared to 9.6% in the third quarter of 1998. Selling, general and
administrative expenses for the acquired businesses were approximately 13% of
net sales in the third quarter of 1999. The Company's pre-acquisition business
reported a 3% reduction in selling, general and administrative cost as a
percentage of sales on a comparable sales basis.
Operating income increased to $45.4 million in the third quarter of 1999
compared to $39.7 million in the third quarter of 1998. The increased operating
income reflects operating income related to the acquired business, manufacturing
costs reductions and operating income related to sales volume growth. These were
partially offset by significantly lower building wire pricing and to a lesser
extent lower pricing for communication cables. The results of the acquired
business include $4.7 million of operating income received from BICC plc
primarily related to management and other services provided by the Company prior
to closings. In the third quarter of 1999, lower building wire pricing was
responsible for a $17 million reduction in operating income. The average
building wire price premium over the cost of copper was down 24% in the third
quarter of 1999 compared to the same period in 1998.
Selling prices for Communication products were lower for both PIC products and
certain data communication cables. Average selling prices for PIC products were
6% lower in the third quarter of 1999 compared to the same period in 1998
reflecting contractual price reductions resulting from lower raw material price
indices and lower pricing conditions in the commercial marketplace. Selling
prices for certain data communication cables were approximately 10% lower in the
third quarter of 1999 compared to the same period in 1998.
Manufacturing productivity included savings related to materials, cycle-time
reductions and process improvements. Material productivity resulted from
agreements with suppliers to reduce the total delivered costs of raw materials,
sourcing in-house certain compounds previously purchased outside the Company and
enhanced process controls that reduced material usage.
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
Net interest expense was $16.8 million in the third quarter of 1999 compared to
$4.0 million in the third quarter of 1998. The increase reflects increased
borrowings related to the Acquisition and higher interest rates under the new
credit facility.
The effective income tax rate for the third quarter of 1999 was 37.5% compared
to 38.1% for the third quarter of 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1998
Net income was $39.0 million in the first nine months of 1999 compared to $53.7
million in the first nine months of 1998. Fully diluted earnings per share were
$1.07 per share for the first nine months of 1999 compared to $1.43 per share
for the same period in 1998.
Net sales on an as reported basis increased 55% to $1,379.1 million in the first
nine months of 1999 from $889.8 million for the same period in 1998. After
adjusting 1998 net sales to reflect the $0.07 decrease in the average monthly
Comex price per pound of copper in the first nine months of 1999, net sales
increased $510.0 million or 59%, up from $869.1 million for the first nine
months of 1998. The increase in copper-adjusted net sales reflects a 28%
increase in Electrical products and a 6% increase in Communication products and
$345.1 million of Energy products sales from the Acquisition.
The increase in Electrical products net sales includes net sales related to the
Acquisition and increased sales volume of consumer cordset and automotive
aftermarket products, partially offset by lower selling prices for building wire
products. Net sales of consumer cordset products were up 39% in the first nine
months of 1999 with significant increases in net sales to the leading home
center chain and a major hardware store retailer. Automotive aftermarket product
net sales increased 20% during the first nine months of 1999 reflecting sales
growth with a leading automotive aftermarket retailer.
Selling, general and administrative expenses increased to $158.3 million in the
first six months of 1999 from $94.2 million in the first nine months of 1998.
The increase reflects selling, general and administrative expenses related to
the acquired businesses, partially offset by a reduction in controllable
spending in response to market conditions. Selling, general and administrative
expenses as a percentage of copper-adjusted net sales were 11.5% for the first
nine months of 1999 and 10.8 % for the first nine months of 1998. The 11.5% for
the first nine months of 1999 include selling, general and administrative
expenses for the acquired businesses (since acquisition date) at a rate of
approximately 13% of net sales.
Operating income was $92.0 million for the first nine months of 1999 compared to
$99.0 million for the same period in 1998. The decrease in operating income
reflects lower building wire pricing and to a lesser extent lower pricing for
PIC products and certain data communications cables. The average building wire
price premium over the cost of copper was down 21% in the first nine months of
1999, which amounted to an operating profit reduction of approximately $42
million. These reductions in operating profit were partially offset by
manufacturing cost reductions and operating income related to the acquired
businesses for June through September 1999. Manufacturing cost reductions
included savings related to materials, cycle-time reductions and process
improvements.
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
Net interest expense was $29.6 million for the first nine months of 1999
compared to $11.5 million in the same period of 1998. The increase reflects
increased borrowings related to the Acquisition and higher interest rates under
the new credit facility effective June 1, 1999.
The effective income tax rate for the first nine months of 1999 was 37.5%
compared to 38.6% for the first nine months of 1998.
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
In general, the Company requires cash for working capital, capital expenditures,
debt repayment, interest and taxes. The Company's working capital requirements
increase when it experiences strong incremental demand for products and/or
significant copper price increases.
Cash used by operating activities in the first nine months of 1999 was $5.3
million. Net income before depreciation and deferred taxes of $62.1 million and
a $11.7 million decrease in inventories was more than offset by a $71.0 million
increase in receivables and a $8.7 million decrease in accounts payable, accrued
liabilities and other liabilities, all excluding the impact of the net assets
acquired in the Acquisition. The increase in accounts receivable reflects the
normal increase in sales activity during the third quarter versus the period
prior to the year-end.
Cash flow used in investing activities was $432.9 million in the first nine
months of 1999, principally consisting of the Acquisition (net of cash). Capital
expenditures during the period were $56.2 million.
Cash flow provided by financing activities in the first nine months of 1999 was
$523.0 million, primarily reflecting net proceeds of borrowings of $795.3
million under the Company's new $1.05 billion credit facility ("the new
facility"). The borrowings were used primarily to fund the Acquisition and to
pay down the existing revolving credit facility of $335.7 million as of May 28,
1999. In the period $25.2 million was spent on purchasing 1.8 million General
Cable common shares pursuant to a Board of Directors approved plan to repurchase
up to $50 million of General Cable stock. The final amount of stock repurchased
will be determined by overall financial and market conditions. Also in the
period, $5.6 million of dividends were paid to shareholders of common stock.
The new facility replaced the $350.0 million credit facility originally
established as part of the initial public offering of General Cable common stock
in May 1997. Both facilities were entered into with The Chase Manhattan Bank as
administrative agent, and a syndicate of banks. The new facility consists of: 1)
term loans in Sterling, Euros and Dollars in an aggregate amount up to $125.0
million, 2) term loans in Dollars in an aggregate amount up to $675.0 million
and 3) revolving loans and letters of credit in Dollars and foreign currencies
in an aggregate amount up to $250.0 million. Borrowings are secured by assets of
the Company's North American operations and a portion of the stock of its
non-North American subsidiaries and are also guaranteed by the Company's
principal operating subsidiaries.
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
Borrowings under the new facility were $812.0 million at September 30, 1999.
Loans under the new facility bear interest, at the Company's option, at (i) a
spread over LIBOR or (ii) a spread over the Alternate Base Rate, which is
defined as the higher of (a) the agent's Prime Rate, (b) the secondary market
rate for certificates of deposit (adjusted for reserve requirements) plus 1% or
(c) the Federal Funds Effective Rate plus 1/2 of 1%.
Repayments under the term loans begin in September 2000 with the final maturity
varying between March 2005 and March 2007. The Company anticipates being able to
meet its obligations as they come due.
A commitment fee accrues on the unused portion of the new facility. The
commitment fee ranges between 35 and 50 basis points per annum and the spread
over LIBOR on all loans under the facility ranges between 175 and 325 basis
points per annum. Both the commitment fee and the spread over LIBOR are subject
to periodic adjustment depending upon the Company's Leverage Ratio. The new
facility restricts certain corporate acts and contains required minimum
financial ratios and other covenants.
In November 1997, General Cable entered into interest rate swap agreements with
three banks which effectively fix interest rates for specific amounts borrowed
as follows (dollars in millions):
Fixed
Notional Interest
Period Amounts Rate
------ ------- ----
November 1997 to November 1998 $180.0 5.9%
November 1998 to November 1999 125.0 6.2%
November 1999 to November 2000 75.0 6.2%
November 2000 to November 2001 25.0 6.2%
In September 1999, one-half of the above remaining swaps were terminated at zero
cost to the Company.
The Company entered into certain interest rate derivative contracts for hedging
of the new facility floating interest rate risk during the third quarter
covering $375.0 million of the Company's debt. The net effect of the hedging
program was to provide a collar within which the Company's interest rates on a
portion of the new facility could move and which was at no cost to the Company.
The Company entered into these agreements with members of the lending group and
all counterparty members are significant international financial institutions.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Absent corrective
actions, a computer program that has date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
system failures or miscalculations causing disruptions to various activities and
operations.
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
Both General Cable and the acquired BICC businesses began a Year 2000 readiness
program in 1997. Key financial and operational systems including equipment with
embedded systems have been inventoried and assessed for Year 2000 compliance.
These key systems have been remediated, where necessary, and are believed to be
Year 2000 compliant.
The Company has contacted the majority of its key customers and suppliers
regarding their plans for Year 2000 readiness. The key customers indicate they
are ready for the Year 2000, while the key suppliers anticipate readiness in the
fourth quarter of 1999. The effect, if any, on the Company's results of
operation from failure of third parties to be Year 2000 ready is not reasonably
estimable.
The Company currently believes that the most likely worst case scenario with
respect to the Year 2000 issue is the failure of one or more suppliers,
including utility suppliers, to become Year 2000 compliant, which could result
in the temporary interruption of the supply of necessary products or services to
a manufacturing facility. This could disrupt production for a period of time,
which in turn could result in potential lost sales and profits. Additionally,
marketing and administrative expense could increase if automated functions would
have to be performed manually.
Contingency plans to protect the business from Year 2000-related interruptions
have been and are continuing to be developed and address the recovery procedures
in the event of a failure of critical business systems, including supplier and
customer procurement and delivery systems. These plans encompass, but are not
limited to, alternate sourcing, work process alternatives and the availability
of information technology resources to remediate any systems failures. The
contingency plans will be in place by the end of the fourth quarter.
The Company's total cost of the Year 2000 project, which includes the acquired
BICC businesses after May 28, 1999, is estimated to be $4.0 million including
$2.6 million of estimated expense and $1.4 million of capital expenditures.
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.19 - Credit Agreement between the Company,
Chase Manhattan Bank, as Administrative
Agent, and the lenders signatory thereto
dated May 28, 1999.
10.20 - Amendment dated October 8, 1999 to the
Credit Agreement between the Company,
Chase Manhattan Bank, as Administrative
Agent, and the lenders signatory thereto
dated May 28, 1999.
10.21 - Employment Agreement dated October 18,
1999, between Stephen Rabinowitz and the
Company.
10.22 - Employment Agreement dated October 18,
1999, between Gregory B. Kenny and the
Company.
10.23 - Employment Agreement dated October 18,
1999, between Christopher F. Virgulak and
the Company.
10.24 - Employment Agreement dated October 18,
1999, between Robert Siverd and the
Company.
10.25 - Change-in-Control Agreement dated
October 18, 1999, between Stephen
Rabinowitz and the Company.
10.26 - Change-in-Control Agreement dated
October 18, 1999, between Gregory B. Kenny
and the Company.
10.27 - Change-in-Control Agreement dated
October 18, 1999, between Christopher F.
Virgulak and the Company.
10.28 - Change-in-Control Agreement dated
October 18, 1999, between Robert Siverd and
the Company.
27.1 - Financial Data Schedule
(b) Reports on Form 8-K
(i) Form 8-K/A including the financial statements and
pro forma financial information required to be
filed with respect to the acquisition of the
worldwide energy cable and cable systems
businesses of BICC plc and its subsidiaries filed
on August 13, 1999.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, General
Cable Corporation has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GENERAL CABLE CORPORATION
Signed: November 12, 1999
By: /s/ Christopher F. Virgulak
------------------------------------
Christopher F. Virgulak
Executive Vice President, Chief
Financial Officer and Treasurer
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