- -------------------------------------------------------------------------------- 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 January 31, 2001 Commission File No. 0-22724 CABLE DESIGN TECHNOLOGIES CORPORATION (Exact name of registrant as specified in its charter) Delaware 36-3601505 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Foster Plaza 7 661 Andersen Drive Pittsburgh, PA 15220 (Address of principal executive offices) (412) 937-2300 Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------- ----------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at 3/5/01 ----- --------------------- Common Stock, $.01 Par Value 43,788,699
CABLE DESIGN TECHNOLOGIES CORPORATION ------------------------------------- TABLE OF CONTENTS ----------------- <TABLE> Page ---- PART I FINANCIAL INFORMATION <S> <C> <C> Item 1 Financial Statements.................................................................... 3 Review Report of Independent Public Accountants for the Three Months and Six Months Ended January 31, 2001 and 2000......................... 4 Condensed Consolidated Statements of Income - Unaudited for the Three Months and Six Months Ended January 31, 2001 and 2000............................................................... 5 Condensed Consolidated Balance Sheets as of January 31, 2001 (Unaudited) and July 31, 2000.................................... 6 Condensed Consolidated Statements of Cash Flows - Unaudited for the Six Months Ended January 31, 2001 and 2000......................................................... 7 Notes to Condensed Consolidated Financial Statements -Unaudited......................................................... 8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................... 11 PART II OTHE INFORMATION Item 1 Legal Proceedings....................................................................... 15 Item 2 Changes in Securities................................................................... 15 Item 3 Defaults upon Senior Securities......................................................... 15 Item 4 Submission of Matters to a Vote of Security Holders..................................... 15 Item 5 Other Information....................................................................... 16 Item 6 Exhibits and Reports on Form 8-K........................................................ 16 Signatures ........................................................................................ 17 </TABLE>
PART I. FINANCIAL INFORMATION Item 1. Financial Statements In the opinion of Cable Design Technologies Corporation's (the "Company") management, the unaudited condensed consolidated financial statements included in this filing on Form 10-Q reflect all adjustments which are considered necessary for a fair presentation of financial information for the periods presented. REVIEW BY INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen LLP has made a review, based upon procedures adopted by the American Institute of Certified Public Accountants, of the unaudited condensed consolidated financial statements as of and for the three month and six month periods ended January 31, 2001 and 2000, contained in this report. As stated on page 4, Arthur Andersen LLP did not audit and accordingly does not express an opinion on the unaudited consolidated financial statements; however as a result of such review, they are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. 3
Report of Independent Public Accountants To the Board of Directors and Stockholders of Cable Design Technologies Corporation: We have reviewed the accompanying condensed consolidated balance sheet of Cable Design Technologies Corporation (a Delaware corporation) and Subsidiaries as of January 31, 2001, and the related condensed consolidated statements of income for the three month and six month periods ended January 31, 2001 and 2000, and the condensed consolidated statements of cash flows for the six month periods ended January 31, 2001 and 2000. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States. We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of Cable Design Technologies Corporation and Subsidiaries as of July 31, 2000, and, in our report dated September 15, 2000, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of July 31, 2000, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. Pittsburgh, Pennsylvania, /s/ Arthur Andersen LLP February 16, 2001 4
CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES ------------------------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED ------------------------------------------------------- (In thousands, except share and per share data) ----------------------------------------------- <TABLE> <CAPTION> Three Months Ended Six Months Ended January 31, January 31, -------------------------- -------------------------- 2001 2000 2001 2000 ----------- ------------ ----------- ------------ <S> <C> <C> <C> <C> Net sales $ 202,645 $ 178,179 $ 417,371 $ 365,801 Cost of sales 143,790 127,714 294,245 259,050 ----------- ---------- ---------- ---------- Gross profit 58,855 50,465 123,126 106,751 Selling, general and administrative expenses 35,654 27,965 68,904 57,286 Amortization of goodwill 606 612 1,208 1,252 Research and development expenses 1,316 1,167 2,566 2,342 ----------- ---------- ---------- ---------- Income from operations 21,279 20,721 50,448 45,871 Interest expense, net 2,440 2,985 4,834 5,970 Other (income) expense, net (23) 507 185 1,371 ----------- ---------- ---------- ---------- Income before income taxes 18,862 17,229 45,429 38,530 Income tax provision 7,338 6,806 17,696 15,123 ----------- ---------- ---------- ---------- Net income $ 11,524 $ 10,423 $ 27,733 $ 23,407 =========== ========== ========== ========== Basic earnings per common share $ 0.26 $ 0.25 $ 0.63 $ 0.55 =========== ========== ========== ========== Diluted earnings per common share $ 0.26 $ 0.24 $ 0.61 $ 0.54 =========== ========== ========== ========== Weighted average common shares 43,717,728 42,377,340 43,674,329 42,335,789 =========== ========== ========== ========== Weighted average common and common equivalent shares 44,891,233 43,493,687 45,109,063 43,411,046 =========== ========== ========== ========== </TABLE> The accompanying notes are an integral part of these statements. 5
CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES ------------------------------------------------------ CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (In thousands, except share and per share data) ----------------------------------------------- <TABLE> <CAPTION> As of As of January 31, July 31, 2001 2000 --------------- ------------- (unaudited) ASSETS - ------ Current Assets: <S> <C> <C> Cash and cash equivalents $ 12,694 $ 16,454 Trade accounts receivable, net of allowance for uncollectible accounts of $3,908 and $6,180, respectively 139,454 145,717 Inventories 161,606 145,015 Other current assets 18,678 18,974 -------------- ------------- Total current assets 332,432 326,160 Property, plant and equipment, net 218,233 205,880 Goodwill, net 73,324 74,539 Other assets 8,530 8,774 -------------- ------------- Total assets $632,519 $615,353 ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Notes payable to banks $ 5,969 $ 5,776 Current maturities of long-term debt 4,470 3,692 Other current liabilities 86,918 99,982 -------------- ------------- Total current liabilities 97,357 109,450 Long-term debt, excluding current maturities 150,817 153,336 Other non-current liabilities 37,527 36,023 -------------- ------------- Total liabilities 285,701 298,809 -------------- ------------- Stockholders' Equity: Preferred stock, par value $.01 per share - authorized 1,000,000 shares, no shares issued --- --- Common stock, par value $.01 per share - authorized 100,000,000 shares, 47,534,341 and 47,362,880 shares issued, respectively 475 316 Paid in capital 196,277 192,956 Common stock issuable, 26,435 and 19,573 shares, respectively 464 367 Retained earnings 210,741 183,166 Treasury stock, at cost, 3,774,078 and 3,867,528 shares, respectively (47,286) (48,415) Deferred compensation (795) --- Accumulated other comprehensive deficit (13,058) (11,846) -------------- ------------- Total stockholders' equity 346,818 316,544 -------------- ------------- Total liabilities and stockholders' equity $632,519 $615,353 ============== ============= </TABLE> The accompanying notes are an integral part of these statements. 6
CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES ------------------------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED ----------------------------------------------------------- (In thousands) -------------- <TABLE> <CAPTION> Six Months Ended January 31, ------------------------------ 2001 2000 ----------- ------------ <S> <C> <C> Net cash provided by operating activities $ 16,771 $ 26,197 Cash flows from investing activities: Purchases of property, plant and equipment (22,088) (10,167) ----------- ------------ Net cash used by investing activities (22,088) (10,167) Cash flows from financing activities: Net change in revolving note borrowings (300) (9,146) Funds provided by long-term debt 1,511 133 Funds used to reduce long-term debt (2,501) (5,174) Common stock issued or issuable 838 779 Net proceeds from exercise of stock options 2,137 715 ----------- ------------ Net cash provided (used) by financing activities 1,685 (12,693) Effect of exchange rate changes on cash and cash equivalents (128) (279) ----------- ------------ Net (decrease) increase in cash (3,760) 3,058 Cash and cash equivalents, beginning of period 16,454 11,424 ----------- ------------ Cash and cash equivalents, end of period $ 12,694 $ 14,482 =========== ============ Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 5,133 $ 5,213 =========== ============ Income taxes $ 17,856 $ 16,316 =========== ============ </TABLE> The accompanying notes are an integral part of these statements. 7
CABLE DESIGN TECHNOLOGIES CORPORATION AND SUBSIDIARIES ------------------------------------------------------ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED ---------------------------------------------------------------- 1. BASIS OF PRESENTATION --------------------- The condensed consolidated financial statements presented herein are unaudited. Certain information and footnote disclosures normally prepared in accordance with generally accepted accounting principles have been either condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Although the registrant believes that all adjustments necessary for a fair presentation have been made, interim period results are not necessarily indicative of the results of operations for a full year. As such, these financial statements should be read in conjunction with the financial statements and notes thereto included in the registrant's most recent Form 10-K which was filed for the fiscal year ended July 31, 2000. 2. SIGNIFICANT ACCOUNTING POLICIES ------------------------------- Amounts billed to customers for shipping and handling costs are included in net sales in the accompanying statements of income. Shipping and handling costs incurred by the Company for the delivery of goods to customers are classified as a component of either cost of sales or selling, general and administrative expenses ("SG&A"), depending on the specific operating unit. Shipping and handling costs included in SG&A were $2.4 million and $1.9 million for the three months ended January 31, 2001 and 2000, respectively, and $5.1 million and $3.8 million for the six months ended January 31, 2001 and 2000, respectively. 3. INVENTORIES ----------- Inventories of the Company consist of the following: January 31, July 31, 2001 2000 -------------- --------------- (In thousands) Raw materials $ 44,674 $ 40,779 Work-in-process 35,419 35,268 Finished goods 81,513 68,968 -------------- --------------- $ 161,606 $ 145,015 ============== =============== 8
4. EARNINGS PER SHARE ------------------ Basic earnings per common share are computed based on the weighted average common shares outstanding. Diluted earnings per common share are computed based on the weighted average common shares outstanding plus additional shares assumed to be outstanding to reflect the dilutive effect of common stock equivalents. The following table sets forth the computation of basic and diluted earnings per share: <TABLE> <CAPTION> Three Months Ended Six Months Ended January 31, January 31, ---------------------------- ----------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- (Dollars in thousands, except per share data) <S> <C> <C> <C> <C> Net income $ 11,524 $ 10,423 $ 27,733 $ 23,407 ----------- ----------- ----------- ----------- Basic earnings per common share: Weighted average common shares outstanding 43,717,728 42,377,340 43,674,329 42,335,789 Basic earnings per common share $ 0.26 $ 0.25 $ 0.63 $ 0.55 =========== =========== =========== =========== Diluted earnings per common share: Weighted average common shares outstanding 43,717,728 42,377,340 43,674,329 42,335,789 Shares issuable from assumed exercise of dilutive stock options and vesting of restricted stock grants 1,173,505 1,116,347 1,434,734 1,075,257 ----------- ----------- ----------- ----------- Weighted average common and common equivalent shares outstanding 44,891,233 43,493,687 45,109,063 43,411,046 Diluted earnings per common share $ 0.26 $ 0.24 $ 0.61 $ 0.54 =========== =========== =========== =========== </TABLE> Options to purchase 536,500 and 159,000 shares of common stock were outstanding during the three month periods ended January 31, 2001 and 2000, respectively, and options to purchase 397,750 and 159,000 shares of common stock were outstanding during the six month periods ended January 31, 2001 and 2000, respectively, but were not included in the computation of diluted earnings per common share as the option's exercise price was greater than the average market price of the common stock for the respective periods. 5. INDUSTRY SEGMENT INFORMATION ---------------------------- The Company's operations are organized into two business segments: the Network Communication segment and the Specialty Electronic segment. Network Communication encompasses connectivity products used within computer networks and communication infrastructures for the electronic transmission of data, voice, and multimedia. Products included in this segment are high performance network cable, fiber optic cable and passive components, including connectors, wiring racks and panels, and interconnecting hardware for end-to-end network structured wiring systems, and communication cable products for local loop, central office, wireless and other applications. The Specialty Electronic segment encompasses electronic cable products for automation and process control applications as well as specialized wire and cable products for niche markets, including commercial aviation and automotive electronics. The Company evaluates segment performance based on operating profit excluding net nonrecurring items, after allocation of Corporate expenses. 9
The Company has no inter-segment revenues. Summarized financial information for the Company's business segments is as follows: <TABLE> <CAPTION> Network Specialty Communication Electronic Segment Segment Total ------------------ -------------------- ---------------- Three Months Ended January 31, (In thousands) <S> <C> <C> <C> Sales: 2001 $140,235 $ 62,410 $202,645 2000 $120,288 $ 57,891 $178,179 Segment Operating Profit: 2001 $ 12,741 $ 8,538 $ 21,279 2000 $ 12,085 $ 8,636 $ 20,721 <CAPTION> Network Specialty Communication Electronic Segment Segment Total ------------------ -------------------- ---------------- Six Months Ended January 31, (In thousands) Sales: 2001 $285,129 $132,242 $417,371 2000 $246,302 $119,499 $365,801 Segment Operating Profit: 2001 $ 30,731 $ 19,717 $ 50,448 2000 $ 27,401 $ 18,470 $ 45,871 </TABLE> 6. OTHER COMPREHENSIVE INCOME -------------------------- Comprehensive income is defined as all changes in stockholders' equity during a period except those resulting from investment by or distribution to stockholders. The Company's comprehensive income differs from net income due to foreign currency translation adjustments. Comprehensive income was $15.5 million and $8.3 million for the three months and $26.5 million and $22.6 million for the six months ended January 31, 2001 and 2000, respectively. 7. RECLASSIFICATIONS ----------------- Certain reclassifications have been made to the prior year statements to conform with the current year presentation. 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cable Design Technologies is a leading manufacturer of technologically advanced connectivity products for the Network Communication and Specialty Electronic marketplaces. Network Communication encompasses connectivity products used within computer networks and communication infrastructures for the electronic transmission of data, voice and multimedia. Products included in this segment are high bandwidth network and interconnect cables, fiber optic cable and passive components, including connectors, wiring racks and panels, and interconnecting hardware for end-to-end network structured wiring systems, and communication cable products for local loop, central office, wireless and other applications. The Specialty Electronic segment encompasses electronic cable products for automation and process control applications as well as specialized wire and cable products for niche markets, including commercial aviation and automotive electronics. This discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Company's unaudited condensed consolidated financial statements and the notes thereto. Results of Operations Overview Sales for the three months ended January 31, 2001 ("second quarter 2001") were $202.6 million, an increase of 14% compared to the three months ended January 31, 2000 ("second quarter 2000"). Excluding the impact of unfavorable foreign currency translation on sales, the increase was 17% over the same period last year. Sales for the Network Communication segment increased 17% to $140.2 million, and represented 69% of total revenue. The increase in sales for this segment was led by 88% growth in sales of gigabit network cables (Category 5e and Category 6), 83% growth in sales of central office telecommunication and 90% growth in sales of fiber optic connectivity products. Sales for the Specialty Electronic segment were $62.4 million, an increase of 8% compared to the second quarter 2000. During the second quarter 2001, the Company incurred a bad debt charge of $3.1 million for Anicom, a distributor that filed for bankruptcy. Excluding the Anicom bad debt charge, the operating margin increased to 12.0% for the second quarter 2001 compared to 11.6% for the second quarter 2000. The operating margin as reported was 10.5% for the second quarter 2001. Excluding the Anicom bad debt charge, net income for the second quarter 2001 increased $3.1 million, or 29%, to $13.5 million ($0.30 per diluted share) compared to net income of $10.4 million ($0.24 per diluted share) for the second quarter 2000. Reported net income for the second quarter 2001 was $11.5 million ($0.26 per diluted share). Sales for the six months ended January 31, 2001 ("first half 2001") increased $51.6 million, or 14%, to $417.4 million compared to $365.8 million for the six months ended January 31, 2000 ("first half 2000"). Sales for the Network Communication segment increased $38.8 million, or 16%, to $285.1 million for the first half 2001, primarily as the result of growth in sales of gigabit network cables, central office telecommunication and fiber optic connectivity products, which grew 66%, 75% and 72%, respectively. Specialty Electronic segment sales increased 11%, to $132.2 million for the first half 2001, primarily due to a 17% increase in sales of industrial cables. The operating margin, excluding the Anicom bad debt charge, was 12.8% for the first half 2001 versus 12.5% for the same period last year. The operating margin as reported for the first half 2001 was 12.1%. Excluding the Anicom bad debt charge, net income increased $6.3 million, or 27%, to $29.7 million ($0.66 per diluted share) for the first half 2001 compared to $23.4 million ($0.54 per diluted share) for the first half 2000. Reported net income for the first half 2001 was $27.7 million ($0.61 per diluted share). Three Months Ended January 31, 2001 Compared to Three Months Ended January 31, 2000 Sales for the second quarter 2001 increased $24.4 million, or 14%, to $202.6 million compared to $178.2 million for the second quarter 2000. Sales for the Network Communication segment were $140.2 million for the second quarter 2001, an increase of 17% compared to sales of $120.3 million for the second quarter 2000. The increase in sales for the Network Communication segment was primarily due to an increase in sales of gigabit network cables, central office telecommunication and fiber optic connectivity products, which grew 88%, 83%, and 90%, respectively, over the same period last year. The increase in sales of gigabit network cables was driven by demand for higher bandwidth within premise network systems. The increase in sales of central office products and fiber optic connectivity products, particularly single-mode fiber optic cable, was primarily due to demand from communication services companies for the build-out of the broadband telecommunication infrastructure. Demand from companies for single-mode fiber for use in their premise communication network systems also contributed to the growth in sales of fiber optic connectivity products. The increase in sales for these product lines was partially offset by a 48% decline in sales of the lower performance rated Category 5 network cable due to a shift in demand to the higher performance gigabit network cables, and a 50% reduction in sales of wireless assembly services due to 11
the previously reported loss of the principal customer for these services. Second quarter 2001 sales for the Specialty Electronic segment increased 8% to $62.4 million compared to $57.9 million for the second quarter 2000. The increase in sales for this segment was primarily due to an increase in sales of automation and process control cables, including sales attributable to the recently acquired Industria Tecnica Cavi ("ITC/CDT"). Sales outside of North America were $47.9 million for the second quarter 2001, an increase of 15% compared to sales of $41.7 million for the second quarter 2000. The increase in international sales was primarily due to higher sales in Western Europe of computer interconnect and central office cable products, as well as sales of Specialty Electronic cable products attributable to the ITC/CDT acquisition. Gross profit for the second quarter 2001 increased $8.4 million, or 17%, to $58.9 million compared to $50.5 million for the second quarter 2000, primarily due to an increase in gross profit for the Network Communication segment as a result of the increase in sales for this segment. The gross margin for the second quarter 2001 was 29.0% compared to 28.3% for the second quarter 2000. The increase in the gross margin was the result of a slightly higher gross margin for the Network Communication segment, partially offset by a small decline in the gross margin for the Specialty Electronic segment. The higher Network Communication gross margin was primarily due to an increase in the gross margin for communication products resulting from an improved product mix due to higher sales of central office products. The lower Specialty Electronic segment gross margin was primarily due to a lower margin for automation and process control products due to a higher average cost of copper and competitive market conditions. Selling, general and administrative expenses ("SG&A") for the second quarter 2001 were $35.7 million compared to $28.0 million for the same period last year. The increase in SG&A was primarily due to a bad debt charge of $3.1 million for Anicom, a distributor that filed for bankruptcy, as well as costs associated with the recently established European and Fiber Optic management groups. Excluding the Anicom bad debt charge, SG&A as a percentage of sales was 16.1% compared to 15.7% for the second quarter 2000. Income from operations for the second quarter 2001 increased $0.6 million, or 3%, to $21.3 million compared to $20.7 million for the second quarter 2000. Excluding the Anicom bad debt charge, the operating margin increased to 12.0% compared to 11.6% for the second quarter 2000. The operating margin as reported for the second quarter 2001 was 10.5%. Interest expense decreased $0.6 million to $2.4 million for the second quarter 2001 compared to $3.0 million for the second quarter 2000, primarily due to the lower average balance of debt outstanding. The effective tax rate was 38.9% for the second quarter 2001 compared to 39.5% for the second quarter 2000. Net income for the second quarter 2001 increased $1.1 million, or 11%, to $11.5 million ($0.26 per diluted share) compared to net income of $10.4 million ($0.24 per diluted share) for the second quarter 2000. Six Months Ended January 31, 2001 Compared to Six Months Ended January 31, 2000 Sales for the first half 2001 increased $51.6 million, or 14%, to $417.4 million compared to $365.8 million for the first half 2000. Network Communication segment sales increased 16% to $285.1 million for the first half 2001. The growth in sales for the Network Communication segment was primarily due to increased sales of gigabit network cables, central office telecommunication and fiber optic connectivity products, which grew 66%, 75%, and 72%, respectively, over the first half 2000. The increase in sales of gigabit network cables was driven by demand for higher bandwidth within premise network systems. The increase in sales of central office products was driven by the growth of competitive local exchange carriers, Internet service providers and application service providers within the telecommunication industry. Factors contributing to the increase in sales of fiber optic connectivity products include demand from companies for single-mode fiber for use in their premise communication network systems as well as demand from communication services companies for the build-out of the broadband telecommunication infrastructure. The increase in sales from these product lines was partially offset by a 38% decline in sales of the lower performance rated Category 5 network cable due to a shift in demand to the higher performance gigabit network cables, and a 46% reduction in sales of wireless assembly services due to the previously reported loss of the principal customer for these services. First half 2001 sales for the Specialty Electronic segment increased 11% to $132.2 million compared to $119.5 million for the first half 2000. The increase in sales for this segment was primarily due to an increase in sales of automation and process control cables, including sales attributable to the recently acquired ITC/CDT. Sales outside of North America were $94.1 million for the first half 2001, an increase of 14% compared to sales of $82.7 million for the first half 2000. The increase in international sales was primarily due to higher sales of computer interconnect and central office cable products in Western Europe, network and wireless products in the Pacific Rim, as well as sales of Specialty Electronic cable products attributable to the ITC/CDT acquisition. 12
Gross profit for the first half 2001 increased $16.3 million, or 15%, to $123.1 million compared to $106.8 million for the first half 2000, primarily due to an increase in gross profit for the Network Communication segment as a result of the increase in sales for this segment. The gross margin for the first half 2001 was 29.5% compared to 29.2% for the first half 2000. The increase in the gross margin was the result of a slightly higher gross margin for the Network Communication segment, partially offset by a small decline in the gross margin for the Specialty Electronic segment. The higher Network Communication gross margin was primarily due to an increase in the gross margin for communication products resulting from an improved product mix due to higher sales of central office products, as well as a higher margin for network products due primarily to better product mix. The lower Specialty Electronic segment gross margin was primarily due to a lower gross margin for automation and process control products due to a higher average cost of copper and competitive market conditions. SG&A for the first half 2001 increased $11.6 million to $68.9 million compared to $57.3 million for the first half 2000. The increase in SG&A was primarily due to the $3.1 million Anicom bad debt charge incurred in the second quarter 2001, additional SG&A of businesses acquired, higher sales volume, and the costs associated with the recently established European and Fiber Optic management groups. Excluding the Anicom bad debt charge, SG&A as a percentage of sales for the first half 2001 was 15.8% compared to 15.7% for the first half 2000. Income from operations for the first half 2001 increased $4.5 million, or 10%, to $50.4 million compared to $45.9 million for the first half 2000. Excluding the Anicom bad debt charge, the operating margin increased to 12.8% compared to 12.5% for the first half 2000. The operating margin as reported for the first half 2001 was 12.1%. Interest expense decreased $1.2 million to $4.8 million for the first half 2001 compared to $6.0 million for the first half 2000, primarily due to the lower average balance of debt outstanding. The effective tax rate was 39.0% for the first half 2001 compared to 39.2% for the first half 2000. Net income for the first half 2001 increased $4.3 million, or 18%, to $27.7 million ($0.61 per diluted share) compared to net income of $23.4 million ($0.54 per diluted share) for the first half 2000. Financial Condition Liquidity and Capital Resources - ------------------------------- The Company generated $16.8 million of net cash from operating activities during the first half 2001, after providing for a $23.6 million increase in operating working capital. The change in operating working capital was primarily the result of an increase in inventories of $17.2 million and decreases in accrued employee benefits, income taxes and other accrued liabilities of $9.8 million, which were partially offset by a decrease in accounts receivable of $5.9 million. The change in operating working capital excludes changes in cash and cash equivalents and current maturities of long-term debt. The Company invested $22.1 million during the first half 2001 in facilities and machinery and equipment, including the purchase of a building which was previously leased. Net cash provided by financing activities of $1.7 million included $3.0 million received from the exercise of stock options and issuance of common stock, partially offset by $1.3 million used to reduce outstanding debt. The Company's primary credit agreement (the "Credit Agreement") consists of a $121.3 million U.S. revolving facility and a CDN $115.0 million Canadian revolving facility equivalent to approximately $76.7 million. The U.S. revolving facility includes a $50.0 million Deutschmark sub-facility. The Credit Agreement expires April 10, 2002. The Company also maintains a bank credit facility in the United Kingdom equivalent to approximately $11.0 million (the "Foreign Facility"). As of January 31, 2001, the Company had availability of $48.0 million and $4.8 million under the Credit Agreement and Foreign Facility, respectively. The Company also had a 364-day, unsecured bank revolving credit agreement which expired December 10, 2000. This facility had a maximum principal amount of $15.0 million, and there were no amounts outstanding under such facility at the time of expiration. On March 8, 2001, the Company entered into a new 364-day unsecured bank revolving credit facility with a maximum principal amount of $15.0 million. Based on an analysis of current expectations for its business, management believes that the Company's cash flow from operations and funds available under its credit agreements will provide it with sufficient liquidity to meet its current liquidity needs. 13
Fluctuation in Copper Price The cost of copper in inventories, including finished goods, reflects purchases over various periods of time ranging from one to several months for each of the Company's operations. For certain communication cable products, profitability is generally not significantly affected by volatility of copper prices as selling prices are generally adjusted for changes in the market price of copper, however, differences in the timing of selling price adjustments do occur and may impact near term results. For other products, although selling prices are not generally adjusted to directly reflect changes in copper prices, the relief of copper costs from inventory for those operations having longer inventory cycles may affect profitability from one period to the next following periods of significant movement in the cost of copper. The Company does not engage in activities to hedge the underlying value of its copper inventory. Forward-Looking Statements -- Under the Private Securities Litigation Act of 1995 Certain statements in this quarterly report are forward-looking statements, including, without limitation, statements regarding future financial results and performance, and the Company's or management's beliefs, expectations or opinions. These statements are subject to various risks and uncertainties, many of which are outside the control of the Company, including the level of market demand for the Company's products, competitive pressures, the ability to achieve reductions in operating costs and to continue to integrate acquisitions, price fluctuations of raw materials and the potential unavailability thereof, foreign currency fluctuations, technological obsolescence, environmental matters and other specific factors discussed in the Company's Annual Report on Form 10-K for the year ended July 31, 2000, and other Securities and Exchange Commission filings. The information contained herein represents management's best judgment as of the date hereof based on information currently available; however, the Company does not intend to update this information to reflect developments or information obtained after the date hereof and disclaims any legal obligation to the contrary. 14
PART II. OTHER INFORMATION Item 1. Legal Proceedings Two managers of one of the Company's subsidiaries have filed a lawsuit claiming that they are owed bonuses of approximately $2.25 million. The Company believes the bonuses were properly allocated and paid, and that the lawsuit will not have a material adverse affect on the Company. Item 2. Changes in Securities None. Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders (a) Cable Design Technologies Corporation annual meeting of stockholders was held on December 6, 2000. (b) Proxies were solicited by Cable Design Technologies Corporation and there was no solicitation in opposition to the nominees as listed in the proxy statement. All such nominees were elected pursuant to the vote of the stockholders as follows: VOTES ----- For Withheld --- -------- Bryan C. Cressey 38,089,002 77,176 Paul M. Olson 38,088,544 77,634 George C. Graeber 38,091,064 75,114 Lance Balk 38,090,164 76,014 Michael F. O. Harris 38,086,414 79,764 Glenn Kalnasy 38,038,571 127,607 Ferdinand Kuznik 38,091,064 75,114 Richard C. Tuttle 38,085,477 80,701 The adoption of the 2001 Long-Term Performance Incentive Plan was approved, by a vote of: For: 20,207,842 Against: 17,871,956 Abstain: 86,380 The firm of Arthur Andersen LLP was re-elected to serve as auditors for the fiscal year ending July 31, 2001, by a vote of: For: 37,518,419 Against: 40,932 Abstain: 606,827 15
Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 15.1 Letter of Arthur Andersen LLP regarding unaudited interim financial statement information. 99.1 Cable Design Technologies Corporation 2001 Long-Term Performance Incentive Plan adopted December 6, 2000. 99.2 Form of Stock Option Grant under CDT Non-Employee Director Stock Plan. (b) Reports on Form 8-K: None. 16
SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CABLE DESIGN TECHNOLOGIES CORPORATION /s/ Paul M. Olson ------------------------------------- March 15, 2001 Paul M. Olson President and Chief Executive Officer /s/ Kenneth O. Hale ------------------------------------- March 15, 2001 Kenneth O. Hale Vice President and Chief Financial Officer 17