-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QBe7ONE3EsILr7gjKyJJtEx4LPUmMUUqu7MKu0Ii7175+D/r2DGp+yxau4I7S6tx aF4hEbCCX3lpiz+NHq31cw== 0000913360-99-000004.txt : 19990818 0000913360-99-000004.hdr.sgml : 19990818 ACCESSION NUMBER: 0000913360-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990703 FILED AS OF DATE: 19990817 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AFC CABLE SYSTEMS INC CENTRAL INDEX KEY: 0000913360 STANDARD INDUSTRIAL CLASSIFICATION: DRAWING AND INSULATING NONFERROUS WIRE [3357] IRS NUMBER: 951517994 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23070 FILM NUMBER: 99694446 BUSINESS ADDRESS: STREET 1: 50 KENNEDY PLAZA STREET 2: SUITE 1250 CITY: PROVIDENCE STATE: RI ZIP: 02903 BUSINESS PHONE: 4014532000 MAIL ADDRESS: STREET 1: 50 KENNEDY PLAZA STREET 2: SUITE 1250 CITY: PROVIDENCE STATE: RI ZIP: 02903 10-Q 1 QUARTERLY REPORT FOR PERIOD ENDED 7/3/99 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 3, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-23070 AFC CABLE SYSTEMS, INC. (Exact name of registrant as specified in its charter) DELAWARE 95-1517994 (State or other jurisdiction of incorporation or organization) (I.R.S.Employer Identification No.) 50 KENNEDY PLAZA, SUITE 1250, PROVIDENCE, RHODE ISLAND 02903 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (401) 453-2000
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 of the Registrant's Common Stock outstanding as of the latest practicable date: Class Outstanding as of August 16, 1999 ----- ---------------------------------- Common Stock, $.01 par value 12,835,882 Page 1 of 16 pages PART I - FINANCIAL INFORMATION AFC CABLE SYSTEMS, INC. Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
July 3, December 31, 1999 1998 ---- ---- ASSETS Current assets: Cash and cash equivalents ................................. $ 1,917 $ 2,968 Investments, marketable securities (Note 6) ............... 75,901 75,510 Accounts receivable, net of allowance for doubtful accounts and sales allowances of $4,139 and $4,802, respectively 48,013 39,748 Inventories: Finished goods ......................................... 26,483 26,314 Work-in-process ........................................ 9,033 7,386 Raw materials .......................................... 9,141 7,477 -------- --------- 44,657 41,177 Current deferred taxes .................................... 2,813 2,335 Other current assets ...................................... 3,559 1,984 -------- --------- Total current assets ...................................... 176,860 163,722 Property, plant and equipment, at cost ...................... 68,176 57,597 Less accumulated depreciation ............................... 19,377 16,459 -------- --------- Net property, plant and equipment ........................... 48,799 41,138 Goodwill, net of accumulated amortization of $1,370 and $886, respectively ........................................ 33,782 34,230 Other long term assets, net ................................. 2,356 2,457 -------- -------- Total assets ................................................ $261,797 $241,547 ========= =========
Note: The balance sheet at December 31, 1998 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes. 2 AFC CABLE SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS--Continued (In thousands, except share data)
July 3, December 31, 1999 1998 ---- ---- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt .......................... $ 2,391 $ 2,426 Revolving credit note payable .............................. 13,000 7,500 Accounts payable ........................................... 18,477 18,388 Accrued expenses: Payroll and employee benefits ........................... 3,590 4,811 Other ................................................... 5,948 6,242 -------- ------- Total accrued expenses ..................................... 9,538 11,053 -------- ------- Total current liabilities .................................... 43,406 39,367 Long-term debt ............................................... 12,461 11,098 Deferred income taxes ........................................ 2,760 1,720 Other long-term liabilities .................................. 2,417 3,231 Shareholders' equity: Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued Common stock, $.01 par value, 50,000,000 shares authorized, 12,826,101 and 12,741,468 shares issued and outstanding, respectively ........................... 128 127 Paid-in capital ............................................ 119,406 117,621 Accumulated other comprehensive income (Note 8) ............ (307) 580 Treasury stock, 30,732 shares and 14,137 shares, respectively, at cost ................................... (900) (364) Retained earnings .......................................... 82,426 68,167 -------- -------- 200,753 186,131 -------- -------- Total liabilities and shareholders' equity ................... $261,797 $241,547 ========= ========
Note: The balance sheet at December 31, 1998 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes. 3 AFC CABLE SYSTEMS, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share data)
Quarter ended July 3, June 27, 1999 1998 ---- ---- Net sales .................................................. $ 77,931 $ 69,466 Cost of goods sold ......................................... 53,144 48,401 -------- -------- Gross profit ............................................... 24,787 21,065 Selling, general and administrative expenses ............... 13,544 11,400 -------- -------- Income from operations ..................................... 11,243 9,665 Other income (expense): Interest expense ......................................... (427) (255) Net investment and other income .......................... 1,350 875 -------- -------- 923 620 -------- -------- Income before taxes ........................................ 12,166 10,285 Income taxes ............................................... 4,776 4,007 -------- -------- Net income (Note 8) ........................................ $ 7,390 $ 6,278 ======== ======== Basic earnings per common share (Note 7) ................... $ .58 $ .52 ======== ======== Diluted earnings per common share (Note 7) ................. $ .56 $ .50 ======== ========
See accompanying notes 4 AFC CABLE SYSTEMS, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share data)
Six months ended July 3, June 27, 1999 1998 ---- ---- Net sales .................................................... $150,819 $134,752 Cost of goods sold ........................................... 102,648 94,325 -------- -------- Gross profit ................................................. 48,171 40,427 Selling, general and administrative expenses ................. 26,406 22,202 -------- -------- Income from operations ....................................... 21,765 18,225 Other income (expense): Interest expense ........................................... (866) (388) Net investment and other income ............................ 2,438 1,454 -------- -------- 1,572 1,066 -------- -------- Income before taxes .......................................... 23,337 19,291 Income taxes ................................................. 9,077 7,523 -------- -------- Net income (Note 8) .......................................... $ 14,260 $ 11,768 ======== ======== Basic earnings per common share (Note 7) ..................... $ 1.12 $ 1.00 ======== ======== Diluted earnings per common share (Note 7) ................... $ 1.09 $ .96 ======== ========
See accompanying notes 5 AFC CABLE SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Six months ended July 3, June 27, 1999 1998 ---- ---- OPERATING ACTIVITIES Net income .................................................. $ 14,260 $ 11,768 Adjustments to reconcile net income to cash provided by operating activities: Depreciation ........................................... 2,918 2,055 Amortization of intangibles ............................ 484 258 Net realized gain on available-for-sale securities ..... (636) (43) Deferred income taxes .................................. 1,044 (428) Provision for bad debts ................................ 260 121 Provision for sales allowances ......................... (412) (1,169) Compensation expense for restricted stock and compensatory options ............................ 38 38 Increase (decrease) in cash arising from changes in assets and liabilities: Accounts receivable ............................... (7,736) (5,412) Inventories ....................................... (3,480) 1,970 Other current assets .............................. (1,575) (408) Other long-term assets ............................ 213 (266) Accounts payable .................................. 2,089 2009 Accrued payroll and employee benefits ............. (1,221) (264) Other accrued liabilities ......................... (294) (1,149) Long-term liabilities ............................. (814) 577 --------- --------- Net cash provided by operating activities ................... 5,138 9,657 INVESTING ACTIVITIES Acquisition, including expenses, less cash acquired ......... (36) (2,847) Capital expenditures ........................................ (10,579) (5,045) Purchase of available-for-sale securities ................... (24,454) (69,642) Proceeds from sale of available-for-sale securities ......... 22,802 38,463 --------- --------- Net cash used in investing activities ....................... (12,267) (39,071) FINANCING ACTIVITIES Net revolving line of credit borrowings (repayments) ........ 5,500 (3,230) Net proceeds from long-term debt ............................ 950 - Payments on long-term debt, including current portion ....... (1,622) (105) Proceeds from issuance of common stock ...................... 1,786 36,476 Purchase of treasury stock .................................. (536) (272) -------- --------- Net cash provided by financing activities ................... 6,078 32,869 -------- --------- Net increase (decrease) in cash and cash equivalents ........ (1,051) 3,455 Cash and cash equivalents at beginning of period ............ 2,968 2,803 -------- --------- Cash and cash equivalents at end of period .................. $ 1,917 $ 6,258 ======== ========= Supplemental schedule of cash flow information: Cash paid during the period for interest $ 920 $ 206 ======== ========= Cash paid during the period for income taxes $ 9,622 $ 8,266 ======== =========
See accompanying notes 6 AFC CABLE SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS JULY 3, 1999 NOTE 1. BASIS OF PRESENTATION The accompanying unaudited financial statements of AFC Cable Systems, Inc. (the "Company" or "AFC") 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 financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended July 3, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. Certain prior year amounts have been reclassified to conform to current period presentation. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1998. NOTE 2. INCOME TAXES For the six month periods ended July 3, 1999 and June 27, 1998, the Company's effective tax rates of approximately 38.9% and 39.0%, respectively, were greater than the statutory rate due primarily to state income taxes. NOTE 3. CONTINGENCIES The Company is a defendant in certain claims that relate to matters that occurred prior to present ownership. In accordance with the purchase and sale agreement, the prior owner has indemnified the Company for such claims and, accordingly, the matters are being defended by the prior owners and its insurance companies. Management is of the opinion that these claims relate to the prior owners and therefore will not have a material adverse effect on the Company's financial position or results of operations. Additionally, the Company is a party to one environmental matter not covered by the indemnification. In this matter, a number of responsible parties entered into a consent decree with the EPA in 1991 and subsequently, such parties as plaintiffs have sought contribution from the Company, which was not named as a responsible party by the EPA. The Company has admitted that a predecessor of the business currently operated by the Company had disposed of a de minimis amount of waste at the site. On December 17, 1996, the United States District Court for the District of Massachusetts entered a judgment in favor of the Company with respect to this claim. As of July 3, 1999, there is an appeal pending with the U.S. Court of Appeals for the First Circuit. On March 12, 1998, a municipality named one of the Company's wholly-owned subsidiaries in a suit seeking compensation for expenses allegedly incurred by the municipality in connection with environmental contamination apparently caused by the predecessor operator of the business. The Company believes that any amounts recovered by the municipality and other costs and expenses associated with this action are, subject to certain limitations, covered by indemnification from the predecessor entity and its stockholders under the related asset purchase agreement. NOTE 4. GOODWILL Goodwill consists of the excess cost over the fair value of the assets of acquired businesses and is amortized on a straight-line basis over periods of 20 to 40 years. Accumulated amortization of goodwill totaled $1,370,000 at July 3, 1999 and $886,000 at December 31, 1998. NOTE 5. FINANCING Borrowings under the unsecured revolving line of credit were $13.0 million at July 3, 1999. The weighted average interest rate on outstanding borrowings under the line of credit as of July 3, 1999 was 6.012%. Total letter of credit borrowings at July 3, 1999 under the line of credit were $1,738,000. On February 5, 1999, the Company borrowed $950,000 from a commercial bank 7 for the purpose of purchasing the Painesville, OH manufacturing facility formerly leased by the Company for its Federal Hose Manufacturing operation. The loan is for a term of fifteen years and is secured by a mortgage on the real estate. Principal is payable in equal monthly installments plus interest commencing March 1, 1999 and maturing on February 4, 2014. The loan will bear interest at one half of one percent below the prime rate or, at the Company's option, at a fixed annual rate equal to the LIBOR rate or a Cost of Funds rate selected by the Company and approved by the lender. At July 3, 1999, the loan bears an interest rate of 6.65%. On March 1, 1999, the Company issued promissory notes for a total of $2.0 million in connection with contingent consideration in the acquisition of Georgia Pipe Company. Principal is payable in full on March 1, 2001 along with all accrued interest. The notes bear interest on a floating basis at a rate equal to the prime rate. Interest is payable quarterly on the first day each of June, September, December and March commencing June 1, 1999. At July 3, 1999, the notes carried a rate of 8.0%. On May 11, 1999, the Company signed a promissory note with a commercial bank for total borrowings of $1.7 million for the purpose of paying off the mortgage on the Ottawa, IL facility occupied by B&B Electronics Manufacturing Company, Inc., and for the construction of an additional facility on the same site which will accommodate the engineering, information technology and technical support functions for that business. As of July 3, 1999, advances taken on this loan totaled approximately $772,000, and were used primarily for the payoff of the previous mortgage. During the construction phase, monthly interest payments will be made at the rate of 7.0%. Upon conversion to a conventional mortgage on November 7, 1999, principal and interest will be payable monthly and the loan will bear interest at one and one half percent above the LIBOR rate. The loan will mature in fifteen years and is secured by a mortgage on the real estate. NOTE 6. INVESTMENTS The following is a summary of securities held by the Company. All securities are classified as available-for-sale.
Gross Estimated Gross Unrealized Fair Cost Unrealized Gains Losses Value -------------- ----------------- --------------- -------------- (In Thousands) JULY 3, 1999 U.S. corporate debt securities $ 20,956 $ 71 $ (610) $ 20,417 U.S. treasury securities and obligations of U.S. Government agencies ......... 49,336 0 (1,386) 47,950 Equity securities ............. 6,618 1,192 (276) 7,534 ------------ --------------- ------------- ------------- Total included in investments . $ 76,910 $ 1,263 $(2,272) $ 75,901 ============ =============== ============= ============= DECEMBER 31, 1998 U.S. corporate debt securities $ 13,806 $ 117 $(442) $ 13,481 U.S. treasury securities and obligations of U.S. Government agencies ......... 55,229 108 (187) 55,150 Equity securities ............. 6,002 1,193 (316) 6,879 ----------- --------------- ------------- ------------ Total included in investments . $ 75,037 $ 1,418 $(945) $ 75,510 =========== =============== ============= ============
Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. Realized gains and (losses) included in investment income amounted to $642,000 and $(6,000) in the six months ended July 3, 1999. 8 NOTE 7. EARNINGS PER SHARE Basic earnings per share represents net income divided by the weighted average number of shares of Common Stock outstanding during the year. Diluted earnings per share represents net income divided by weighted average shares outstanding adjusted for the dilutive effect of the assumed exercise of outstanding options and warrants. The following table sets forth the computation of basic and diluted earnings per share for the three and six month periods ended July 3, 1999 and June 27, 1998:
Quarter ended Six months ended July 3, June 27, July 3, June 27, 1999 1998 1999 1998 -------------- --------------- --------------- ---------------- Net income (in thousands) ........ $7,390 $6,278 $14,260 $11,768 Basic average shares ............. 12,744,492 12,060,875 12,731,610 11,712,219 Effect of dilutive securities: Stock options and stock awards . 341,941 462,018 340,828 424,044 Stock warrants ................. 0 10,406 0 51,118 ------------- -------------- -------------- -------------- 341,941 472,424 340,828 475,162 ------------- -------------- -------------- -------------- Dilutive average shares .......... 13,086,433 12,533,299 13,072,438 12,187,381 ============= ============== ============== ============== Basic earnings per share ......... $.58 $0.52 $1.12 $1.00 ============= ============== ============== ============== Diluted earnings per share ....... $.56 $0.50 $1.09 $0.96 ============= ============== ============== ==============
NOTE 8. COMPREHENSIVE INCOME The components of comprehensive income, net of related tax, for the three and six month periods ended July 3, 1999 and June 27, 1998 are as follows:
Three months ended Six months ended July 3, June 27, July 3, June 27, (In thousands) 1999 1998 1999 1998 ------------ ------------ ----------- ----------- Net income $7,390 $6,278 $14,260 $11,768 Unrealized gains (losses) on securities (655) 162 (887) 61 ============ =========== ========== ========== Comprehensive income $6,735 $6,440 $13,373 $11,829 ============ =========== ========== ==========
9 9. SEGMENT INFORMATION The Company has thirteen business units which have separate management teams and infrastructures that in most cases offer different products and services. The business units have been aggregated into two reportable segments, Wire and Cable and Modular Wiring and Components. The Wire and Cable segment produces armored cable, flexible conduit, specialty cable, electrical fittings, and connectors. These products are sold mainly to electrical distributors in the domestic market through a network of independent sales representatives. The Modular Wiring and Components segment produces flexible and premise wiring systems and related electrical components and lighting controls. These products are primarily sold to electrical distributors in the domestic market through a network of independent sales representatives. Not included in the Company's two reportable segments are business units whose revenue consists of the manufacturing and distribution of plastic and fabric hoses and the manufacturing of special processed metal. These business units along with corporate investments are included within the "all other" category in the tables below. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on income before taxes of the respective business units. Intersegment sales, which are immaterial, are made on a basis intended to reflect the market value of products recognizing prevailing market prices and have been eliminated from sales data reported below. REPORTABLE SEGMENT DATA (in thousands)
Modular Wire and Wiring and All Cable Components Other Total ----------- ------------- ---------- ---------- QUARTER ENDED JULY 3, 1999 Net sales ................ $61,272 $11,671 $4,988 $77,931 Income before taxes ...... 9,075 1,611 1,480 12,166 Segment assets ........... 136,534 31,320 93,943 261,797 Depreciation ............. 1,166 193 115 1,474 Capital expenditures ..... 3,829 335 49 4,213 QUARTER ENDED JUNE 27, 1998 Net sales ................ $51,590 $11,929 $5,947 $69,466 Income before taxes ...... 7,628 1,390 1,267 10,285 Segment assets ........... 98,565 25,238 87,904 211,707 Depreciation ............. 783 162 85 1,030 Capital expenditures ..... 2,499 282 187 2,968
10
Modular Wire and Wiring and All Cable Components Other Total ----------- ------------ ---------- --------- SIX MONTHS ENDED JULY 3, 1999 Net sales ............... $117,600 $23,316 $9,903 $150,819 Income before taxes ..... 17,369 3,056 2,912 23,337 Segment assets .......... 136,534 31,320 93,943 261,797 Depreciation ............ 2,308 380 230 2,918 Capital expenditures .... 8,785 717 1,077 10,579 SIX MONTHS ENDED JUNE 27, 1998 Net sales ............... $100,368 $22,366 $12,018 $134,752 Income before taxes ..... 14,139 2,726 2,426 19,291 Segment assets .......... 98,565 25,238 87,904 211,707 Depreciation ............ 1,581 308 166 2,055 Capital expenditures .... 4,063 651 331 5,045
NOTE 10. MERGER On January 27, 1999, the Company entered into a definitive agreement with Thomas & Betts Corporation ("T&B") whereby the Company would be acquired by T&B in a stock-for-stock merger to be accounted for as a pooling of interests. The merger agreement provides that each share of the Company's common stock outstanding immediately prior to the merger, except for treasury stock or stock owned by T&B (which immediately prior to the merger will be canceled and retired) will, at the time of the merger, be converted into the right to receive .83 shares of T&B common stock. The merger agreement has been amended to extend the termination date of the merger agreement from June 30, 1999 to August 30, 1999. Upon the consummation of the merger, the Company will pay a contingent fee to its investment banker and recognize certain other merger related costs. During the quarter ended July 3, 1999, the Company received two unsolicited third party proposals to acquire a majority of the outstanding common stock of the Company. The Company is currently evaluating these proposals. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Comparative Results of Operations for the Three and Six Months Ended July 3, 1999 and June 27, 1998 This report contains certain forward-looking statements within the meaning of section 21E of the Securities Exchange Act of 1934, as amended. These statements include, among others, statements relating to future events or the future financial performance of the Company. Such statements are only expectations and actual events or results may differ materially. Factors which could cause actual results to differ materially from those indicated in such forward-looking statements are set forth in "Factors That May Affect Future Performance" in the Company's Annual Report on Form 10-K for the year 1998. MERGER On January 27, 1999, the Company entered into an agreement with Thomas & Betts Corporation ("T&B") whereby the Company would become, through a stock-for-stock merger, a wholly-owned subsidiary of T&B. The transaction is intended to be accounted for as a pooling of interests. The transaction is subject to the approval of the shareholders of both companies. During the quarter ended July 3, 1999, the Company received two unsolicited third party proposals to acquire a majority of the outstanding common stock of the Company. The Company is currently evaluating these proposals. RESULTS OF OPERATIONS NET SALES. Net sales for the quarter ended July 3, 1999 increased $8.4 million, or 12.1%, to $77.9 million from $69.5 million for the quarter ended June 27, 1998. Net sales for the six months ended July 3, 1999 increased $16.0 million, or 11.9%, to $150.8 million from $134.8 million for the six months ended June 27, 1998. Net sales for the Wire and Cable Segment increased $9.7 million, or 18.8%, to $61.3 million for the quarter ended July 3, 1999 from $51.6 million for the quarter ended June 27, 1998. For the six months ended July 3, 1999, net sales for the Wire and Cable Segment increased $17.2 million, or 17.1%, to $117.6 million from $100.4 million for the six months ended June 27, 1998. These increases are attributable primarily to the addition of sales by Spiraduct and Georgia Pipe, which were acquired in May and October of 1998, respectively, and to higher sales of the Company's (a) line of fittings and connectors, (b) specialty application cables and (c) flexible conduit products, mainly liquidtight conduit. Net sales for the Modular Wiring and Components segment decreased $0.2 million, or 1.7%, to $11.7 million for the quarter ended July 3, 1999 from $11.9 million for the quarter ended June 27, 1998. For the six months ended July 3, 1999, net sales for this segment increased $0.9, or 4.0%, to $23.3 million from $22.4 million for the six months ended June 27, 1998. Higher sales of photo controls, other lighting products and electronic interfaces and connectors for the computer industry in the quarter and six months ended July 3, 1999 were offset by decreased sales of modular wiring systems. Net sales of other products decreased $0.9 million, or 15.3%, to $5.0 million for the quarter ended July 3, 1999 from $5.9 million for the quarter ended June 27, 1998. For the six months ended July 3, 1999, net sales of other products decreased $2.1 million, or 17.5%, to $9.9 million from $12.0 million for the six months ended June 27, 1998. These decreases are attributable mainly to the slow-down in the oil drilling industry, which is the largest market for the Company's specialty coated metals products. Resulting excess capacity in the Company's specialty coated metals operation, however, was used for internal manufacturing requirements in the Wire and Cable segment. GROSS PROFIT. Gross profit for the quarter ended July 3, 1999 increased $3.7 million, or 17.5%, to $24.8 million from $21.1 million for the quarter ended June 27, 1998. Gross profit for the six months ended July 3, 1999 increased $7.8 million, or 19.3%, to $48.2 million from $40.4 million for the six months ended June 27, 1998. Gross margin increased to 31.8% for the quarter ended July 3, 1999 from 30.3% for the quarter ended June 27, 1998. Gross margin for the six months ended July 3, 1999 increased to 31.9% from 30.0% for the six months ended June 27, 1998. The increased gross margin is attributable to (i) improved operating efficiencies, (ii) more efficient material utilization resulting from improved manufacturing processes, (iii) increased sales of the Company's higher margin specialty application cables and electronic interface products and (iv) favorable margins on sales of the Company's line of rigid polyvinyl chloride conduit. INCOME FROM OPERATIONS. Income from operations for the quarter ended July 3, 12 1999 increased $1.5 million, or 15.5%, to $11.2 million from $9.7 million for the quarter ended June 27, 1998. Income from operations for the six months ended July 3, 1999 increased $3.6 million, or 19.8%, to $21.8 million from $18.2 million for the six months ended June 27, 1998. Income from operations as a percentage of net sales increased to 14.4% for the quarter ended July 3, 1999 from 13.9% for the quarter ended June 27, 1998. For the six months ended July 3, 1999, income from operations as a percentage of net sales increased to 14.4% from 13.5% for the six months ended June 27, 1998. These increases resulted from improved gross margin, partially offset by increases in freight costs, compensation expense, advertising expense and new product development costs. NET INCOME. Net income for the quarter ended July 3, 1999 increased $1.1 million, or 17.5%, to $7.4 million from $6.3 million for the quarter ended June 27, 1998. Net income for the six months ended July 3, 1999 increased $2.5 million, or 21.2%, to $14.3 million from $11.8 million for the six months ended June 27, 1998. Net income as a percentage of net sales increased to 9.5% for the quarter ended July 3, 1999 from 9.0% for the quarter ended June 27, 1998. For the six months ended July 3, 1999, net income as a percentage of net sales increased to 9.5% from 8.7% for the six months ended June 27, 1998. These increases are primarily due to increased income from operations and increased income from investments in marketable securities. INTEREST EXPENSE. Interest expense for the quarter ended July 3, 1999 increased to $427,000 from $255,000 for the quarter ended June 27, 1998. Interest expense for the six months ended July 3, 1999 increased to $866,000 from $388,000 for the six months ended June 27, 1998. These increases are attributable to (i) an increase in average borrowings under the Company's revolving line of credit resulting from increased accounts receivable, inventories and capital additions and (ii) higher long-term debt resulting from acquisitions consummated in 1998. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations totaled $5.1 million for the six months ended July 3, 1999 and was mainly attributable to increased profitability and accounts payable partially offset by an increase in accounts receivable resulting from higher sales and increased inventories. Working capital on July 3, 1999 was $133.5 million and the ratio of current assets to current liabilities was 4.07 to 1.00. The Company believes that existing cash and marketable securities, cash generated from operations and available borrowings under its revolving line of credit will be sufficient to meet its on-going working capital and capital expenditure requirements for the foreseeable future. YEAR 2000 The Company has identified four areas of the business on which the year 2000 ("Y2K") issue will have an impact. The company's work on the Y2K compliance initiative began in 1997 with the assessment process which defined the following four Y2K impact areas: computer systems and hardware, manufacturing support processes, plant facility HVAC systems and manufactured products. The risk assessment and exposure analysis was completed in 1997 and each of the four areas was ranked as high, medium or low. The only high-risk area identified was computer systems and hardware. As a result, the Company is replacing its existing computer infrastructure with an Enterprise Resource Planning ("ERP") information system. The software and computer hardware have been installed and implementation configuration is in process with an antici- pated production date in the third quarter 1999. Additional software systems have been upgraded to a Y2K compliant version of the currently operational software. These systems were substantially compliant in the first quarter of 1999. Project expenditures to date total approximately $3.1 million which includes the purchase of new mainframe computer hardware, ERP application software and consulting services. These costs have been funded through operating cash flows and most have been capitalized. The Company expects to incur an additional $1.0 million of incremental costs throughout the 1999 fiscal year. This will cover hardware platforms, personnel costs related to software configuration, conversion and training of the workforce. Management feels that replacing the Company's information system addresses the majority of the Company's Y2K computer issues, reducing the likelihood that a contingency plan will be necessary. In addition, management will implement a company-wide program to strictly control and limit changes to major information technology ("IT") systems during the second half of 1999 to reduce potential additional exposures and to concentrate IT resources on integration testing and other Y2K-related efforts. 13 The three remaining areas, manufacturing support processes, plant facility HVAC systems and manufactured products have been assessed and remediation was completed in the second quarter of 1999. The Company currently does not anticipate the need to develop an extensive contingency plan for these areas. The Company has completed a supplier survey which was undertaken to validate that the Company's largest suppliers will be Y2K compliant before the end of calendar year 1999. Based upon the results of this survey, the Company anticipates that these suppliers will be Y2K compliant by the end of calendar year 1999. The Company's financial institutions are currently being surveyed and the Company anticipates that they are Y2K compliant, or will be before the end of calendar year 1999. The Company believes its Y2K program is adequate to detect year 2000 compliance issues, and that it has the necessary resources to remedy them. However, the Y2K problem has many aspects and potential consequences, some of which are not reasonably foreseeable. The Company could be adversely impacted by the Y2K issue if suppliers, customers and other businesses do not address this issue successfully. There can be no assurance that unforeseen circumstances will not arise. 14 PART II - OTHER INFORMATION AFC CABLE SYSTEMS, INC. ITEM 1. LEGAL PROCEEDINGS. None ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 5. OTHER INFORMATION. None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits Exhibit 27. Financial Data Schedule. (b) No reports on Form 8-K were filed during the quarter ended July 3, 1999. 15 SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: August 16, 1999 AFC CABLE SYSTEMS, INC. By:/s/Ralph R. Papitto ------------------------ Ralph R. Papitto Chairman of the Board and Chief Executive Officer By:/s/Raymond H. Keller ------------------------- Raymond H. Keller Vice President and Chief Financial Officer 16 EX-27 2 FDS --
5 1000 6-MOS DEC-31-1999 JAN-01-1999 JUL-03-1999 1,917 75,901 52,152 4,139 44,657 176,860 68,176 19,377 261,797 43,406 0 0 0 128 200,625 261,797 150,819 150,819 102,648 102,648 0 260 866 23,337 9,077 14,260 0 0 0 14,260 1.12 1.09
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