UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission file number 0-27022
OPTICAL CABLE CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1237042
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
5290 CONCOURSE DRIVE
ROANOKE, VIRGINIA 24019
(Address of principal executive offices, including zip code)
(540) 265-0690
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. (1) Yes X No__ (2) Yes X No__
As of September 8, 1998, 38,018,636 shares of the registrant's Common
Stock, no par value, were outstanding. Of these outstanding shares, 36,000,000
shares were held by Robert Kopstein, Chairman of the Board, President and Chief
Executive Officer of the registrant.
OPTICAL CABLE CORPORATION
Form 10-Q Index
Nine Months Ended July 31, 1998
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Balance Sheets - July 31, 1998 and
October 31, 1997........................................2
Condensed Statements of Income - Three Months
and Nine Months Ended July 31, 1998 and 1997............3
Condensed Statement of Changes in Stockholders'
Equity - Nine Months Ended July 31, 1998................4
Condensed Statements of Cash Flows - Nine Months
Ended July 31, 1998 and 1997............................5
Condensed Notes to Condensed Financial Statements.......6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION................9-13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..........................14
SIGNATURES....................................................................15
INDEX TO EXHIBITS.............................................................16
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OPTICAL CABLE CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
JULY 31, OCTOBER 31,
ASSETS 1998 1997
---- ----
Current assets:
Cash and cash equivalents $ 396,092 $ 985,807
Trade accounts receivable, net of allowance for doubtful
accounts of $325,000 at July 31, 1998 and $307,400
at October 31, 1997 10,737,743 9,931,276
Other receivables 156,803 540,102
Due from employees 6,139 3,534
Inventories 12,021,517 12,019,443
Prepaid expenses 153,455 121,046
Deferred income taxes 218,626 81,484
--------------- ---------------
Total current assets 23,690,375 23,682,692
Other assets, net 38,200 50,953
Property and equipment, net 11,252,311 11,480,433
--------------- ---------------
Total assets $ 34,980,886 $ 35,214,078
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 405,000 $ -
Accounts payable and accrued expenses 3,219,070 2,593,256
Accrued compensation and payroll taxes 553,896 612,736
Income taxes payable 334,549 564,999
--------------- ---------------
Total current liabilities 4,512,515 3,770,991
Deferred income taxes 150,071 64,382
--------------- ---------------
Total liabilities 4,662,586 3,835,373
--------------- ---------------
Stockholders' equity:
Preferred stock, no par value, authorized 1,000,000 shares;
none issued and outstanding - -
Common stock; no par value, authorized 100,000,000 shares;
issued and outstanding 38,104,936 shares at July 31,
1998 and 38,675,416 shares at October 31, 1997 12,006,917 18,594,116
Retained earnings 18,311,383 12,784,589
--------------- ---------------
Total stockholders' equity 30,318,300 31,378,705
Commitments and contingencies
--------------- ---------------
Total liabilities and stockholders' equity $ 34,980,886 $ 35,214,078
=============== ===============
See accompanying condensed notes to condensed financial statements.
2
OPTICAL CABLE CORPORATION
CONDENSED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
----------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
Net sales $ 13,727,433 $14,285,834 $ 37,289,648 $ 37,422,716
Cost of goods sold 8,056,752 8,669,025 21,473,444 22,161,654
------------- ----------- ------------- ------------
Gross profit 5,670,681 5,616,809 15,816,204 15,261,062
Selling, general and administrative expenses 2,602,800 2,516,972 7,330,234 6,914,034
------------- ----------- ------------- ------------
Income from operations 3,067,881 3,099,837 8,485,970 8,347,028
Other income (expense):
Interest income 6,185 4,313 46,749 13,382
Interest expense (122) (1,078) (317) (12,176)
Other, net (1,167) (227) (4,311) (5,713)
------------- ----------- ------------- ------------
Other income (expense), net 4,896 3,008 42,121 (4,507)
------------- ----------- ------------- ------------
Income before income tax expense 3,072,777 3,102,845 8,528,091 8,342,521
Income tax expense 1,081,403 1,086,162 3,001,297 2,932,954
------------- ----------- ------------- ------------
Net income $ 1,991,374 $ 2,016,683 $ 5,526,794 $ 5,409,567
============= =========== ============= ============
Earnings per share (note 5):
Earnings per common share $ 0.052 $ 0.052 $ 0.144 $ 0.140
============= =========== ============= ============
Earnings per common share -
assuming dilution $ 0.052 $ 0.052 $ 0.143 $ 0.139
============= =========== ============= ============
See accompanying condensed notes to condensed financial statements.
3
OPTICAL CABLE CORPORATION
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
NINE MONTHS ENDED JULY 31, 1998
--------------------------------------------------------------------
Common Stock Total
------------------------------- Retained Stockholders'
Shares Amount Earnings Equity
------ ------ -------- ------
Balances at October 31, 1997 38,675,416 $ 18,594,116 $ 12,784,589 $ 31,378,705
Net income - - 5,526,794 5,526,794
Repurchase of common stock (648,330) (6,781,824) - (6,781,824)
Stock options exercised 77,850 194,625 - 194,625
---------- -------------- --------------- --------------
Balances at July 31, 1998 38,104,936 $ 12,006,917 $ 18,311,383 $ 30,318,300
========== ============== =============== ==============
See accompanying condensed notes to condensed financial statements.
4
OPTICAL CABLE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
JULY 31,
-----------------------------
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 5,526,794 $ 5,409,567
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 576,989 532,200
Bad debt expense 45,402 4,868
Deferred income taxes (51,453) (18,512)
(Increase) decrease in:
Trade accounts receivable (851,869) (967,040)
Other receivables 383,299 (61,095)
Due from employees (2,605) (3,200)
Inventories (2,074) (1,869,803)
Prepaid expenses (32,409) (64,693)
Increase (decrease) in:
Accounts payable and accrued expenses 852,204 (806,478)
Accrued compensation and payroll taxes (58,840) (72,261)
Income taxes payable (230,450) 183,720
-------------- ------------
Net cash provided by operating activities 6,154,988 2,267,273
-------------- ------------
Cash flows from investing activities:
Purchase of property and equipment (562,504) (3,427,458)
-------------- ------------
Net cash used in investing activities (562,504) (3,427,458)
-------------- ------------
Cash flows from financing activities:
Net change in notes payable 405,000 (182,000)
Repurchase of common stock (6,781,824) -
Proceeds from exercise of stock options 194,625 -
-------------- ------------
Net cash used in financing activities (6,182,199) (182,000)
-------------- ------------
Net decrease in cash and cash equivalents (589,715) (1,342,185)
Cash and cash equivalents at beginning of period 985,807 1,677,739
-------------- ------------
Cash and cash equivalents at end of period $ 396,092 $ 335,554
============== ============
See accompanying condensed notes to condensed financial statements.
5
OPTICAL CABLE CORPORATION
CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED JULY 31, 1998
(Unaudited)
(1) GENERAL
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial reporting information and the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all material adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the nine months ended July 31, 1998 are
not necessarily indicative of the results that may be expected for the
fiscal year ending October 31, 1998. The unaudited condensed financial
statements and condensed notes are presented as permitted by Form 10-Q
and do not contain certain information included in the Company's annual
financial statements and notes. For further information, refer to the
financial statements and notes thereto included in the Company's annual
report on Form 10-K for the fiscal year ended October 31, 1997.
(2) INVENTORIES
Inventories at July 31, 1998 and October 31, 1997 consist of the
following:
JULY 31, OCTOBER 31,
1998 1997
---- ----
Finished goods $ 4,000,307 $ 4,854,697
Work in process 2,194,230 1,976,970
Raw materials 5,775,498 5,125,044
Production supplies 51,482 62,732
--------------- ----------------
$ 12,021,517 $ 12,019,443
=============== ================
(3) NOTES PAYABLE
On February 25, 1998, the Company and its bank executed a loan
commitment letter, which renewed its $5 million secured revolving line
of credit available for general corporate purposes and its $10 million
secured line of credit to fund potential acquisitions, mergers or joint
ventures. The lines of credit bear interest at 1.50 percent above the
monthly LIBOR rate and are equally
(CONTINUED)
6
OPTICAL CABLE CORPORATION
CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(3) (CONTINUED)
and ratably secured by the Company's accounts receivable, contract
rights, inventory, furniture and fixtures, machinery and equipment and
general intangibles. The lines of credit will expire on February 28,
1999, unless renewed or extended.
(4) STOCKHOLDERS' EQUITY
The Company's Board of Directors has authorized the repurchase of up to
$10 million of the Company's common stock in the open market or in
privately negotiated transactions. During the nine months ended July
31, 1998, the Company repurchased 648,330 shares of its common stock
for $6,781,824.
Subsequent to July 31, 1998 and through September 8, 1998, the Company
repurchased 86,300 additional shares of its common stock in connection
with its share repurchase program.
On March 10, 1998, the Company's stockholders approved an amendment to
the Company's articles of incorporation to increase the total number of
authorized shares of common stock of the Company from 50,000,000 to
100,000,000.
(5) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE
(SFAS No. 128). SFAS No. 128 establishes new standards for computing
and presenting earnings per share (EPS) and applies to entities with
publicly held common stock or potential common stock. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic
EPS computation to the numerator and denominator of the diluted EPS
computation.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the entity.
(CONTINUED)
7
OPTICAL CABLE CORPORATION
CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(5) (CONTINUED)
SFAS No. 128 was required to be adopted by the Company at January 31,
1998. SFAS No. 128 also requires restatement of all prior-period EPS
data previously presented. The following is a reconciliation of the
numerators and denominators of the basic and diluted EPS computations
for the periods presented:
Net Income Shares Per Share
THREE MONTHS ENDED JULY 31, 1998 (Numerator) (Denominator) Amount
- -------------------------------- ------------- ------------- ------------
Earnings per common share $ 1,991,374 38,208,593 $ 0.052
=================
Effect of dilutive stock options - 258,690
--------------- ----------
Earnings per common share - assuming dilution $ 1,991,374 38,467,283 $ 0.052
=============== ========== =================
THREE MONTHS ENDED JULY 31, 1997
- --------------------------------
Earnings per common share $ 2,016,683 38,675,416 $ 0.052
=================
Effect of dilutive stock options - 327,234
--------------- ----------
Earnings per common share - assuming dilution $ 2,016,683 39,002,650 $ 0.052
=============== ========== =================
NINE MONTHS ENDED JULY 31, 1998
- --------------------------------
Earnings per common share $ 5,526,794 38,388,822 $ 0.144
=================
Effect of dilutive stock options - 289,737
--------------- ----------
Earnings per common share - assuming dilution $ 5,526,794 38,678,559 $ 0.143
=============== ========== =================
NINE MONTHS ENDED JULY 31, 1997
- --------------------------------
Earnings per common share $ 5,409,567 38,675,416 $ 0.140
=================
Effect of dilutive stock options - 357,792
--------------- ----------
Earnings per common share - assuming dilution $ 5,409,567 39,033,208 $ 0.139
=============== ========== =================
Stock options that could potentially dilute basic EPS in the future
that were not included in the computation of diluted EPS because to do
so would have been antidilutive totaled 229,500 for the three months
and nine months ended July 31, 1998.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1998 AND 1997
Net Sales
Net sales consists of gross sales of products, less discounts, refunds and
returns. Net sales decreased 3.9 percent to $13.7 million in third quarter 1998
from $14.3 million for the same period in 1997. This decrease was primarily
attributable to weather conditions and delays in large projects, as well as a
reallocation of capital spending by the Company's customers away from
communications expenditures towards Year 2000 projects.
Gross Profit Margin
Cost of goods sold consists of the cost of materials, compensation costs and
overhead related to the Company's manufacturing operations. The Company's gross
profit margin (gross profit as a percentage of net sales) increased to 41.3
percent in third quarter 1998 from 39.3 percent in third quarter 1997. This
increase was due to reduced raw fiber prices, the Company's product mix sold and
the ratio of net sales attributable to the Company's distributors during the
period. During third quarter 1998, sales from orders $50,000 or more
approximated 18 percent compared to 21 percent for third quarter 1997. In
addition, during third quarter 1998, net sales to distributors approximated 64
percent versus 51 percent for the same period in 1997. Discounts on large orders
and on sales to distributors are generally greater than for sales to the
Company's other customer base.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of the compensation costs
(including sales commissions) for sales and marketing personnel, travel
expenses, customer support expenses, trade show expenses, advertising, the
compensation cost for administration, finance and general management personnel,
as well as legal and accounting fees. Selling, general and administrative
expenses as a percentage of net sales were 19.0 percent in third quarter 1998
compared to 17.6 percent in third quarter 1997. This higher percentage was
primarily the result of the fact that net sales for third quarter 1998 decreased
3.9 percent compared to third quarter 1997, while selling, general and
administrative expenses increased 3.4 percent.
Income Before Income Tax Expense
Income before income tax expense of $3.1 million for the three months ended July
31, 1998 was comparable to the three months ended July 31, 1997. This was
primarily due to the increased gross profit margin, offset by decreased net
sales and increased selling, general and administrative expenses.
Income Tax Expense
Income tax expense of $1.1 million for the three months ended July 31, 1998 was
comparable to the same period in 1997. The Company's effective tax rate was 35.2
percent during the three months ended July 31, 1998 compared to 35.0 percent for
the same period in 1997.
9
Net Income
Net income for third quarter 1998 of $2.0 million was comparable to the third
quarter 1997.
NINE MONTHS ENDED JULY 31, 1998 AND 1997
Net Sales
Net sales consists of gross sales of products, less discounts, refunds and
returns. Net sales decreased slightly to $37.3 million for the nine months ended
July 31, 1998 from $37.4 million for the same period in 1997. This slight
decrease was attributable to the 3.9 percent decrease in net sales in third
quarter 1998 compared to the same period in 1997 as described above, and the 4.9
percent decrease in net sales in first quarter 1998 attributable to the
completion of shipments for a large international military project in first
quarter 1997 and the delay of large potential orders in first quarter 1998 due
to adverse weather conditions or economic uncertainty, offset by the 9.8 percent
increase in net sales in second quarter 1998 compared to the same period in 1997
attributable to an increase of approximately 22 percent in international sales
over the second quarter of 1997.
Gross Profit Margin
Cost of goods sold consists of the cost of materials, compensation costs and
overhead related to the Company's manufacturing operations. The Company's gross
profit margin (gross profit as a percentage of net sales) increased to 42.4
percent for the nine months ended July 31, 1998 from 40.8 percent for the nine
months ended July 31, 1997. This increase was due to reduced raw fiber prices,
the Company's product mix sold and the ratio of net sales attributable to the
Company's distributors during the period. During the nine months ended July 31,
1998, sales from orders $50,000 or more approximated 18 percent compared to 21
percent for the nine months ended July 31, 1997. In addition, for the nine
months ended July 31, 1998, net sales to distributors approximated 57 percent
which was comparable to the same period in 1997. Discounts on large orders and
on sales to distributors are generally greater than for sales to the Company's
other customer base.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of the compensation costs
(including sales commissions) for sales and marketing personnel, travel
expenses, customer support expenses, trade show expenses, advertising, the
compensation cost for administration, finance and general management personnel,
as well as legal and accounting fees. Selling, general and administrative
expenses as a percentage of net sales were 19.7 percent for the nine months
ended July 31, 1998 compared to 18.5 percent for the nine months ended July 31,
1997. This higher percentage was primarily the result of the fact that net sales
for the nine months ended July 31, 1998 decreased slightly compared to the same
period in 1997, while selling, general and administrative expenses increased 6.0
percent due to increased selling efforts.
Income Before Income Tax Expense
Income before income tax expense increased 2.2 percent to $8.5 million for the
nine months ended July 31, 1998 compared to $8.3 million for the nine months
ended July 31, 1997. This was primarily due to the increased gross profit
margin, offset by increased selling, general and administrative expenses.
10
Income Tax Expense
Income tax expense increased 2.3 percent to $3.0 million for the nine months
ended July 31, 1998 compared to $2.9 million for the same period in 1997 due to
the increase in income before income tax expense. The Company's effective tax
rate was 35.2 percent during both the nine months ended July 31, 1998 and 1997.
Net Income
Net income for the nine months ended July 31, 1998 was $5.5 million compared to
$5.4 million for the nine months ended July 31, 1997. Despite an increase in
income tax expense of $68,000, net income increased $117,000 due to the $185,000
increase in income before income tax expense.
FINANCIAL CONDITION
Total assets at July 31, 1998 were $35.0 million, a decrease of $233,000, or 0.7
percent from October 31, 1997. This decrease was primarily due to an increase of
$806,000 in trade accounts receivable, offset by decreases in cash and cash
equivalents of $590,000 and other receivables of $383,000.
Total stockholders' equity at July 31, 1998 decreased $1.1 million, or 3.4
percent from October 31, 1997 with net income retained, offset by the repurchase
of common stock in the amount of $6.8 million accounting for the decrease.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of fiscal years 1998 and 1997, the Company's
primary capital needs have been to fund working capital requirements and capital
expenditures as needed. The Company's primary source of financing has been cash
provided from operations. The Company maintains bank lines of credit and had
$405,000 outstanding under one of the lines as of the end of the third quarter
of fiscal year 1998. There were no balances outstanding under the lines as of
the end of fiscal year 1997.
On February 25, 1998, the Company and its bank executed a loan commitment
letter, which renewed its $5 million secured revolving line of credit available
for general corporate purposes and its $10 million secured line of credit to
fund potential acquisitions, mergers or joint ventures. The lines of credit are
equally and ratably secured by the Company's accounts receivable, contract
rights, inventory, furniture and fixtures, machinery and equipment and general
intangibles. The lines of credit will expire on February 28, 1999, unless
renewed or extended. As of the date hereof, the Company has no additional
material sources of financing. The Company believes that its cash flow from
operations and available lines of credit will be adequate to fund its operations
for at least the next twelve months.
On October 29, 1997, the Company's Board of Directors authorized the repurchase
of up to $5 million of the Company's common stock in the open market or in
privately negotiated transactions. On April 7, 1998, the Company's Board of
Directors expanded the Company's share repurchase program by authorizing the
repurchase of an aggregate of up to $10 million of the Company's common stock.
Through July 31, 1998, the Company has repurchased approximately $6.8 million of
the Company's common stock. The repurchases were funded primarily through cash
flows from operating activities. The Company intends to use excess working
capital and other sources as appropriate to finance the remaining share
repurchase program.
11
Cash flows from operations were approximately $6.2 million and $2.3 million for
the nine months ended July 31, 1998 and 1997, respectively. Cash flows from
operations for the nine months ended July 31, 1998 were primarily provided by
operating income and an increase in accounts payable and accrued expenses of
$852,000, offset by an increase in trade accounts receivable of $852,000 and
income taxes paid of $3.3 million. For the nine months ended July 31, 1997, cash
flows from operations were primarily provided by operating income, offset by an
increase in trade accounts receivable of $967,000, an increase in inventory of
$1.9 million, a decrease in accounts payable and accrued expenses of $806,000
and income taxes paid of $2.8 million.
Net cash used in investing activities was for expenditures related to facilities
and equipment and was $563,000 and $3.4 million for the nine months ended July
31, 1998 and 1997, respectively. The Company's expansion of its headquarters
facilities was substantially completed as of January 31, 1997. As of July 31,
1998, there were no material commitments for additional capital expenditures.
Net cash used in financing activities was $6.2 million and $182,000 for the nine
months ended July 31, 1998 and 1997, respectively. The net cash used in
financing activities for the nine months ended July 31, 1998 included
approximately $6.8 million related to the Company's common stock repurchase
program, offset by proceeds from exercise of stock options of $195,000 and
borrowings under the Company's line of credit of $405,000. The net cash used in
financing activities for the nine months ended July 31, 1997 consisted of
repayment of debt outstanding under the Company's line of credit of $182,000.
DERIVATIVES
The Company does not use derivatives or off-balance sheet instruments such as
future contracts, forward obligations, interest rate swaps, or option contracts.
YEAR 2000
The "Year 2000" problem will affect many computers and other electronic devices
that are not programmed to properly recognize a year that begins with "20"
instead of "19." Some devices may recognize dates on or after January 1, 2000 as
a date during the 1900s, or may not recognize the date at all. If not corrected,
many devices could fail or create erroneous results.
Since 1997, the Company has been actively assessing, planning and responding to
the risks to the Company created by the Year 2000 problem. In assessing the
risks, the Company has focused on both (i) its internal information technology
("IT") and non-IT systems, including, but not limited to, computer hardware and
software, manufacturing equipment, printers, facsimile machines, and other
control and accounting devices, and (ii) its interfaces with third parties with
which the Company has material relationships, such as suppliers, customers and
financial institutions.
The Company has completed its assessment and response planning with respect to
its internal IT and non-IT systems. Additionally, the Company has substantially
completed necessary remediation measures with respect to those internal systems.
The Company's remediation has included updating various computer hardware and
software and printers to be Year 2000 compliant. The Company has also determined
that the Year 2000 problem will not have a material adverse affect on its
manufacturing machinery. To date, the Company has expended less than $100,000 on
its remediation measures and believes future remediation expenditures with
respect to its internal systems to be less than $50,000. With respect to the
Company's internal systems, the Company believes it will complete its planned
remediation and any testing in time to ensure the Year 2000 problem will not
have a material adverse affect on the Company or its business. The Company does
not believe contingency plans are necessary for its internal systems at this
time.
12
The Company is still in the process of assessing, planning and responding to
potential Year 2000 problems which may arise from failures of third parties to
be Year 2000 compliant. To date, the Company has sent questionnaires and
reviewed responses from some of its major suppliers. At present, the Company has
not been made aware of any Year 2000 issues of third parties that are expected
to have a material adverse effect on the Company. The process of evaluating the
Company's third party risk is expected to be ongoing and at this point the
Company cannot determine the level of Year 2000 risk associated with third
parties.
The Company is still in the process of evaluating the potential effects of a
worst-case scenario. While the Company believes that it is taking the necessary
steps to resolve its Year 2000 issues in a timely manner, there can be no
assurance that the Company will not have any Year 2000 problems. If any such
problems occur, the Company will work to solve them as quickly as possible. At
present, the Company does not expect that such problems related to the Company's
internal IT and non-IT systems will have a material adverse affect on its
business. The failure, however, of one or more of the Company's major suppliers,
customers or financial institutions to be Year 2000 compliant could have a
material adverse effect on the Company.
NEW ACCOUNTING STANDARDS
There have been no accounting pronouncements issued during the period that would
have a material effect on the financial position, results of operations or
liquidity of the Company.
FORWARD-LOOKING INFORMATION
This Form 10-Q may contain certain "forward-looking" information within the
meaning of the federal securities laws. The forward-looking information may
include, among other information, (i) statements concerning the Company's
outlook for the future, (ii) statements of belief, (iii) future plans,
strategies or anticipated events, and (iv) similar information and statements
concerning matters that are not historical facts. Such forward-looking
information is subject to risks and uncertainties that may cause actual events
to differ materially from the expectations of the Company. Factors that could
cause or contribute to such differences include, but are not limited to, the
level of sales to key customers, actions by competitors, fluctuations in the
price of raw materials (including optical fiber), the Company's dependence on a
single manufacturing facility, the ability of the Company to protect its
proprietary manufacturing technology, the Company's dependence on a limited
number of suppliers, technological changes and introductions of new competing
products, and market and economic conditions in the areas of the world in which
the Company operates or markets its products.
13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K for the nine
months ended July 31, 1998.
Exhibit No. Description
----------- -----------
10.9 Optical Cable Corporation
Employee Stock Purchase Plan
27 Financial Data Schedule
(b) Reports on Form 8-K filed during the three months ended July 31,
1998.
None.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OPTICAL CABLE CORPORATION
(Registrant)
Date: September 10, 1998 /s/Robert Kopstein
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Robert Kopstein
Chairman of the Board, President and
Chief Executive Officer
Date: September 10, 1998 /s/Kenneth W. Harber
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Kenneth W. Harber
Vice President of Finance, Treasurer
and Secretary
(principal financial and accounting officer)
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INDEX TO EXHIBITS
Exhibit No. Description
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10.9 Optical Cable Corporation
Employee Stock Purchase Plan
27 Financial Data Schedule
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