-----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, CvqPWBwr//m5EEgC1s4e1Vqk8qyFY8Y/vJUsdqWoCf1l2tcKnMtE5p/BLxLtDj/D XOS9IQlrbCSiCEJlg8q+wQ== 0000913360-99-000006.txt : 19991117 0000913360-99-000006.hdr.sgml : 19991117 ACCESSION NUMBER: 0000913360-99-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991002 FILED AS OF DATE: 19991116 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: 99758522 BUSINESS ADDRESS: STREET 1: 272 DUCHAINE BOULEVARD CITY: NEW BEDFORD STATE: MA ZIP: 02745 BUSINESS PHONE: 405089981131 MAIL ADDRESS: STREET 1: 272 DUCHAINE BOULEVARD CITY: NEW BEDFORD STATE: MA ZIP: 02745 10-Q 1 QUARTERLY REPORT FOR PERIOD ENDED 10/2/99 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 October 2, 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 November 12, 1999 ----- ----------------------------------- Common Stock, $.01 par value 12,845,257 Page 1 of 17 pages PART I - FINANCIAL INFORMATION AFC CABLE SYSTEMS, INC. Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
October 2, December 31, 1999 1998 ---- ---- ASSETS Current assets: Cash and cash equivalents .................................. $ 3,508 $ 2,968 Investments, marketable securities (Note 6) ................ 68,589 75,510 Accounts receivable, net of allowance for doubtful accounts and sales allowances of $5,136 and $4,802, respectively . 46,221 39,748 Inventories: Finished goods .......................................... 27,344 26,314 Work-in-process ......................................... 9,695 7,386 Raw materials ........................................... 11,813 7,477 --------- ---------- 48,852 41,177 Current deferred taxes ..................................... 3,579 2,335 Other current assets (Note 10) ............................. 10,246 1,984 -------- ---------- Total current assets ....................................... 180,995 163,722 Property, plant and equipment, at cost ....................... 71,236 57,597 Less accumulated depreciation ................................ 20,908 16,459 --------- ---------- Net property, plant and equipment ............................ 50,328 41,138 Goodwill, net of accumulated amortization of $1,583 and $886, respectively (Note 4) ................................ 33,563 34,230 Other long term assets, net .................................. 2,271 2,457 -------- ---------- Total assets ................................................. $267,157 $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)
October 2, December 31, 1999 1998 ---- ---- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt ........................... $ 2,391 $ 2,426 Revolving credit note payable ............................... 17,000 7,500 Accounts payable ............................................ 19,984 18,388 Accrued expenses: Payroll and employee benefits ............................ 4,594 4,811 Other .................................................... 7,655 6,242 -------- --------- Total accrued expenses ................................... 12,249 11,053 -------- -------- Total current liabilities ..................................... 51,624 39,367 Long-term debt ................................................ 12,177 11,098 Deferred income taxes ......................................... 3,412 1,720 Other long-term liabilities ................................... 2,429 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, 12,842,132 and 12,741,468 shares issued and outstanding, respectively ............................ 128 127 Paid-in capital ............................................. 120,475 117,621 Accumulated other comprehensive income (loss) (Note 8) ...... (1,022) 580 Treasury stock, 30,732 shares and 14,137 shares, respectively, at cost .................................... (900) (364) Retained earnings ........................................... 78,834 68,167 -------- --------- 197,515 186,131 -------- -------- Total liabilities and shareholders' equity .................... $267,157 $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 October 2, September 26, 1999 1998 ---- ---- Net sales ..................................................... $ 75,493 $67,523 Cost of goods sold ............................................ 50,779 46,374 -------- -------- Gross profit .................................................. 24,714 21,149 Selling, general and administrative expenses .................. 13,304 11,289 -------- -------- Income from operations ........................................ 11,410 9,860 Other income (expense): Interest expense ............................................ (369) (139) Net investment and other income ............................. 1,129 1,034 -------- --------- 760 895 -------- --------- Income before taxes and extraordinary item .................... 12,170 10,755 Income taxes .................................................. 4,805 4,155 -------- --------- Income before extraordinary item .............................. 7,365 6,600 Extraordinary item, net of tax (Note 10) ...................... (10,957) - -------- ---------- Net income (loss) (Note 8) .................................... $(3,592) $ 6,600 ======== ========== Basic earnings (loss) per common share (Note 7): Income before extraordinary item .............................. $ .58 $ .52 Extraordinary item, net of tax ................................ (.86) - ---------- ---------- Net income (loss) ............................................. $ (.28) $ .52 ========= ========== Diluted earnings (loss) per common share (Note 7): Income before extraordinary item .............................. $ .56 $ .51 Extraordinary item, net of tax ................................ (.83) - ---------- ---------- Net income (loss) ............................................. $ (.27) $ .51 ========== ==========
See accompanying notes. 4 AFC CABLE SYSTEMS, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share data)
Nine months ended October 2, September 26, 1999 1998 ---- ---- Net sales ..................................................... $226,312 $202,275 Cost of goods sold ............................................ 153,427 140,699 --------- ---------- Gross profit .................................................. 72,885 61,576 Selling, general and administrative expenses .................. 39,710 33,491 --------- ---------- Income from operations ........................................ 33,175 28,085 Other income (expense): Interest expense ............................................ (1,235) (527) Net investment and other income ............................. 3,567 2,488 --------- ---------- 2,332 1,961 --------- ---------- Income before taxes and extraordinary item .................... 35,507 30,046 Income taxes .................................................. 13,882 11,678 --------- --------- Income before extraordinary item .............................. 21,625 18,368 Extraordinary item, net of tax (Note 10) ...................... (10,957) - --------- --------- Net income (Note 8) ........................................... $ 10,668 $ 18,368 ========== ========= Basic earnings per common share (Note 7): Income before extraordinary item .............................. $ 1.70 $ 1.53 Extraordinary item, net of tax ................................ (.86) - ---------- --------- Net income .................................................... $ .84 $ 1.53 ========== ========= Diluted earnings per common share (Note 7): Income before extraordinary item .............................. $ 1.65 $ 1.47 Extraordinary item, net of tax ................................ (.84) - ---------- ---------- Net income .................................................... $ .81 $ 1.47 ========== ==========
See accompanying notes. 5 AFC CABLE SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Nine months ended October 2, September 26, 1999 1998 ---- ---- OPERATING ACTIVITIES Net income .................................................... $ 10,668 $ 18,368 Adjustments to reconcile net income to cash provided by operating activities: Depreciation ............................................. 4,449 3,153 Amortization of intangibles .............................. 697 402 Net realized gain on available-for-sale securities ....... (683) (33) Deferred income taxes .................................... 1,341 (467) Provision for bad debts .................................. 343 188 Provision for sales allowances ........................... 490 (619) Compensation expense for compensatory options ............ 57 57 Extraordinary item, net of tax, related to investing activities (Note 10) ........................ 10,957 - Increase (decrease) in cash arising from changes in assets and liabilities: Accounts receivable ................................. (7,306) (5,224) Inventories ......................................... (7,675) 2,825 Other current assets (Note 10) ...................... (8,262) (283) Other long-term assets .............................. 210 (388) Accounts payable .................................... 3,596 787 Accrued payroll and employee benefits ............... (217) 386 Other accrued liabilities ........................... 1,356 (767) Long-term liabilities ............................... (802) 661 ---------- --------- Net cash provided by operating activities ..................... 9,219 19,046 INVESTING ACTIVITIES Acquisitions, including expenses, less cash acquired .......... (30) (2,890) Capital expenditures .......................................... (13,639) (7,712) Merger expenses paid, net of tax (Note 10) .................... (10,957) - Purchase of available-for-sale securities ..................... (33,746) (89,649) Proceeds from sale of available-for-sale securities ........... 38,830 54,349 --------- --------- Net cash used in investing activities ......................... (19,542) (45,902) FINANCING ACTIVITIES Net revolving line of credit borrowings (repayments) .......... 9,500 (6,230) Net proceeds from long-term debt .............................. 950 - Payments on long-term debt, including current portion ......... (1,906) (127) Proceeds from issuance of common stock ........................ 2,855 36,511 Purchase of treasury stock .................................... (536) (272) --------- ---------- Net cash provided by financing activities ..................... 10,863 29,882 --------- ---------- Net increase in cash and cash equivalents ..................... 540 3,026 Cash and cash equivalents at beginning of period .............. 2,968 2,803 --------- ---------- Cash and cash equivalents at end of period .................... $ 3,508 $ 5,829 ========= ========== Supplemental schedule of cash flow information: Cash paid during the period for interest .................... $ 1,280 $ 287 ========= ========== Cash paid during the period for income taxes ................ $11,720 $12,230 ========= ==========
See accompanying notes. 6 AFC CABLE SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS OCTOBER 2, 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 nine month periods ended October 2, 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 nine month periods ended October 2, 1999 and September 26, 1998, the Company's effective tax rates of approximately 39.1% and 38.9%, 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. On September 15, 1999, the U.S. Court of Appeals for the First Circuit affirmed the District Court's judgement in favor of the Company. 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 $1,583,000 at October 2, 1999 and $886,000 at December 31, 1998. NOTE 5. FINANCING Borrowings under the unsecured revolving line of credit were $17.0 million at October 2, 1999. The weighted average interest rate on outstanding borrowings under the line of credit as of October 2, 1999 was 5.843%. Total letter of credit borrowings at October 2, 1999 under the line of credit were $1,547,000. 7 On February 5, 1999, the Company borrowed $950,000 from a commercial bank 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 October 2, 1999, the loan bears a fixed 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 October 2, 1999, the notes carried a rate of 8.25%. 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 October 2, 1999, advances taken on this loan totaled approximately $900,000. Approximately $769,000 of this amount was used to payoff 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 May 7, 2000, which date is an extension from the original conversion date of 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. On November 3, 1999, the Company borrowed $5,000,000 from a commercial bank for the purpose of financing the Company's 75,000 square foot distribution/office facility in New Bedford, Massachusetts, the construction of which was completed in the second quarter of 1999. The construction was originally financed with borrowings under the Company's unsecured revolving line of credit. The loan is secured by a mortgage on the real estate. Principal will be amortized over twenty years and is payable in equal monthly installments plus interest commencing December 1, 1999 and maturing on October 28, 2004, with remaining principal and accrued interest due on that date. The loan will bear interest at a floating rate equal to the prime rate, or, at the option of the Company, at a fixed annual rate equal to either the LIBOR rate or a Cost of Funds rate selected by the Company and approved by the lender. The loan currently carries a rate of 6.41%. 8 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) OCTOBER 2, 1999 U.S. corporate debt ............. $ 21,064 $ 28 $ (1,039) $ 20,053 securities U.S. treasury securities and obligations of U.S. Government agencies ........ 43,440 - (1,485) 41,955 Equity securities ............... 6,131 886 (436) 6,581 ============= ================ =============== ============== Total included in investments ... $ 70,635 $ 914 $(2,960) $ 68,589 ============= ================ =============== ============== DECEMBER 31, 1998 U.S. corporate debt ............. $ 13,806 $ 117 $(442) $ 13,481 securities 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 $702,000 and $(19,000) in the nine months ended October 2, 1999. 9 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 nine month periods ended October 2, 1999 and September 26, 1998:
Quarter ended Nine months ended October 2, September 26, October 2, September 26, 1999 1998 1999 1998 -------------- --------------- --------------- ---------------- (Dollars in thousands) Income before extraordinary item $ 7,365 $ 6,600 $ 21,625 $ 18,368 Extraordinary item, net of tax (10,957) - (10,957) - -------------- --------------- --------------- ---------------- Net income (loss) $(3,592) $ 6,600 $ 10,668 $ 18,368 Basic average shares 12,811,301 12,653,944 12,758,173 12,026,127 Effect of dilutive securities: Stock options and stock awards 377,007 360,531 353,615 402,873 Stock warrants - - - 34,079 -------------- --------------- --------------- ---------------- 377,007 360,531 353,615 436,952 -------------- --------------- --------------- ---------------- Dilutive average shares 13,188,308 13,014,475 13,111,788 12,463,079 ============== =============== =============== ================ Basic earnings per share: Income before extraordinary item $ .58 $.52 $1.70 $1.53 ============== =============== =============== ================ Extraordinary item, net of tax (.86) - (.86) - ============== =============== =============== ================ Net income (loss) $(.28) $.52 $.84 $1.53 ============== =============== =============== ================ Diluted earnings per share: Income before extraordinary item $.56 $.51 $1.65 $1.47 ============== =============== =============== ================ Extraordinary item, net of tax (.83) - (.84) - ============== =============== =============== ================ Net income (loss) $(.27) $.51 $.81 $1.47 ============== =============== =============== ================
NOTE 8. COMPREHENSIVE INCOME The components of comprehensive income, net of related tax, for the three and nine month periods ended October 2, 1999 and September 26, 1998 are as follows:
Quarter ended Nine months ended October 2, September 26, October 2, September 26, (In thousands) 1999 1998 1999 1998 ------------- --------------- -------------- -------------- Net income (loss) ............... $(3,592) $6,600 $10,668 $18,368 Unrealized gains (losses) on securities ................... (716) (278) (1,602) (217) ============= =============== ============== ============== Comprehensive income (loss) ..... $(4,308) $6,322 $ 9,066 $18,151 ============= =============== ============== ==============
10 NOTE 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, 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 OCTOBER 2, 1999 Net sales ................. $57,558 $12,386 $5,549 $75,493 Income before taxes and extraordinary item .. 8,914 1,687 1,569 12,170 Segment assets ............ 147,710 32,759 86,688 267,157 Depreciation .............. 1,222 192 117 1,531 Capital expenditures ...... 2,549 446 65 3,060 QUARTER ENDED SEPTEMBER 26, 1998 Net sales ................. $50,252 $11,756 $5,515 $67,523 Income before taxes ....... 7,195 1,856 1,704 10,755 Segment assets ............ 100,512 26,417 88,272 215,201 Depreciation .............. 857 156 85 1,098 Capital expenditures ...... 2,288 168 211 2,667
11
Modular Wire and Wiring and All Cable Components Other Total --------------- --------------- -------------- --------------- NINE MONTHS ENDED OCTOBER 2, 1999 Net sales ................. $175,158 $35,701 $15,453 $226,312 Income before taxes and extraordinary item .. 26,283 4,743 4,481 35,507 Segment assets ............ 147,710 32,759 86,688 267,157 Depreciation .............. 3,530 572 347 4,449 Capital expenditures ...... 11,334 1,163 1,142 13,639 NINE MONTHS ENDED SEPTEMBER 26, 1998 Net sales ................. $150,620 $34,122 $17,533 $202,275 Income before taxes ....... 21,334 4,582 4,130 30,046 Segment assets ............ 100,512 26,417 88,272 215,201 Depreciation .............. 2,438 464 251 3,153 Capital expenditures ...... 6,351 819 542 7,712
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 provided that each share of the Company's common stock outstanding immediately prior to the merger be converted into the right to receive .83 shares of T&B common stock. On August 27, 1999, the Company notified T&B that the Company had received a superior proposal from Tyco International Ltd. ("Tyco"). The Company subsequently terminated the merger agreement with T&B and paid the $16 million termination fee required under that agreement. On August 31, 1999, the Company entered into a definitive merger agreement with a subsidiary of Tyco whereby the Company would be acquired by the subsidiary of Tyco in a stock-for-stock merger. The Company recognized an extraordinary charge in the quarter ended October 2, 1999 for the $16 million termination fee plus other merger-related costs of approximately $1,963,000 resulting in an extraordinary charge of $10,957,000 ($.84 per diluted share for the nine months ended October 2, 1999), net of income tax benefit of $7,006,000 which was recorded as a current asset. The merger agreement with the subsidiary of Tyco provides that AFC stockholders will receive a fraction of a Tyco common share for each share of AFC common stock. The fraction is designed to give AFC stockholders $45.00 in value of Tyco common shares. If, however, the price of Tyco shares is below $91.18 (before giving effect to the October 21, 1999 2-for-1 split of Tyco's common stock) during a measuring period prior to the merger, AFC stockholders could receive less than $45.00 in Tyco stock. Stockholders of the Company must approve the transaction with Tyco before it can take place. The Company has scheduled a special meeting of its stockholders for November 22, 1999 to vote on this matter. Upon the consummation of the merger, the Company will pay a contingent fee to its investment banker and recognize certain other merger related costs. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Comparative Results of Operations for the Three and Nine Months Ended October 2, 1999 and September 26, 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. On August 31, 1999, the Company entered into a merger agreement with a subsidiary of Tyco International Ltd. ("Tyco"), terminated the merger agreement with T&B and paid the $16 million termination fee to T&B provided for under the T&B agreement. The agreement that the Company entered into with Tyco provides that the Company will become, through a stock-for-stock merger, a subsidiary of Tyco. The transaction is subject to the approval of the Company's stockholders. A special meeting of the Company's stockholders has been scheduled for November 22, 1999 for the purpose of considering and voting upon a proposal to approve and adopt the merger agreement with Tyco. RESULTS OF OPERATIONS NET SALES. Net sales for the quarter ended October 2, 1999 increased $8.0 million, or 11.9%, to $75.5 million from $67.5 million for the quarter ended September 26, 1998. Net sales for the nine months ended October 2, 1999 increased $24.0 million, or 11.9%, to $226.3 million from $202.3 million for the nine months ended September 26, 1998. Net sales for the Wire and Cable Segment increased $7.3 million, or 14.5%, to $57.6 million for the quarter ended October 2, 1999 from $50.3 million for the quarter ended September 26, 1998. For the nine months ended October 2, 1999, net sales for the Wire and Cable Segment increased $24.6 million, or 16.3%, to $175.2 million from $150.6 million for the nine months ended September 26, 1998. These increases are mainly attributable to the addition of sales by Spiraduct and Georgia Pipe, which were acquired in May and October of 1998, respectively. Net sales for the Modular Wiring and Components segment increased $0.6 million, or 5.1%, to $12.4 million for the quarter ended October 2, 1999 from $11.8 million for the quarter ended September 26, 1998. For the nine months ended October 2, 1999, net sales for this segment increased $1.6 million, or 4.7%, to $35.7 million from $34.1 million for the nine months ended September 26, 1998. These increases are attributable primarily to higher sales of photo controls, other lighting products and electronic interfaces and connectors for the computer industry. Net sales of other products for the quarter ended October 2, 1999 were $5.5 million, approximately equal to net sales for the quarter ended September 26, 1998. For the nine months ended October 2, 1999, net sales of other products decreased $2.0 million, or 11.4%, to $15.5 million from $17.5 million for the nine months ended September 26, 1998. This decrease is 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 October 2, 1999 increased $3.6 million, or 17.1%, to $24.7 million from $21.1 million for the quarter ended September 26, 1998. Gross profit for the nine months ended October 2, 1999 increased $11.3 million, or 18.3%, to $72.9 million from $61.6 million for the nine months ended September 26, 1998. Gross margin increased to 32.7% for the quarter ended October 2, 1999 from 31.3% for the quarter ended September 26, 1998. Gross margin for the nine months ended October 2, 1999 increased to 32.2% from 30.4% for the nine months ended September 26, 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. 13 INCOME FROM OPERATIONS. Income from operations for the quarter ended October 2, 1999 increased $1.5 million, or 15.2%, to $11.4 million from $9.9 million for the quarter ended September 26, 1998. Income from operations for the nine months ended October 2, 1999 increased $5.1 million, or 18.1%, to $33.2 million from $28.1 million for the nine months ended September 26, 1998. Income from operations as a percentage of net sales increased to 15.1% for the quarter ended October 2, 1999 from 14.6% for the quarter ended September 26, 1998. For the nine months ended October 2, 1999, income from operations as a percentage of net sales increased to 14.7% from 13.9% for the nine months ended September 26, 1998. These increases resulted from improved gross margin, partially offset by increases in freight costs, compensation expense, advertising expense and new product development costs. INCOME BEFORE EXTRAORDINARY ITEM. Income before extraordinary item for the quarter ended October 2, 1999 increased $0.8 million, or 12.1%, to $7.4 million from $6.6 million for the quarter ended September 26, 1998. For the nine months ended October 2, 1999, income before extraordinary item increased $3.2 million, or 17.4%, to $21.6 million from $18.4 million for the nine months ended September 26, 1998. Income before extraordinary item as a percentage of net sales for the quarter ended October 2, 1999 was 9.8%, equal to that for the quarter ended September 26, 1998. For the nine months ended October 2, 1999, income before extraordinary item as a percentage of net sales increased to 9.6% from 9.1% for the nine months ended September 26, 1998. For the quarter ended October 2, 1999, increased income from operations was offset by higher interest expense and an increased effective income tax rate due to an increase in state tax expense. For the nine months ended October 2, 1999, the increase is primarily due to increased income from operations and increased income from investments in marketable securities partially offset by an increase in interest expense and a slight increase in the effective income tax rate. EXTRAORDINARY ITEM. In connection with the termination of the merger agreement with T&B the Company paid a termination fee of $16 million to T&B as provided for in the merger agreement. This fee plus approximately $1,963,000 in other merger related expenses were charged against earnings in the quarter ended October 2, 1999, resulting in an after tax charge of $10,957,000, or $.83 per diluted share and $.84 per diluted share for the three and nine month periods ended October 2, 1999, respectively. INTEREST EXPENSE. Interest expense for the quarter ended October 2, 1999 increased to $369,000 from $139,000 for the quarter ended September 26, 1998. Interest expense for the nine months ended October 2, 1999 increased to $1,235,000 from $527,000 for the nine months ended September 26, 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 $9.2 million for the nine months ended October 2, 1999 and was mainly attributable to increased profitability and accounts payable partially offset by an increase in accounts receivable resulting from higher sales, increased inventories and an increase in other current assets resulting from the tax benefit associated with the extraordinary item. Working capital on October 2, 1999 was $129.4 million and the ratio of current assets to current liabilities was 3.51 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 has replaced its former computer infrastructure with an Enterprise Resource Planning ("ERP") information system. The software and computer hardware have been installed and implementation scheduled for the third quarter 1999 was completed during the third quarter 1999. Additional software systems have been upgraded to a Y2K compliant version of the software. These systems became fully compliant in the second quarter of 1999. 14 Project expenditures to date total approximately $5.1 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 fourth quarter of 1999 to reduce potential additional exposures and to concentrate IT resources on integration testing and other Y2K-related efforts. The three remaining areas, manufacturing support processes, plant facility HVAC systems and manufactured products, which have no embedded microprocessors, 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 and third party providers have been surveyed and the Company believes that they are Y2K compliant, or will be before the end of the 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. 15 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 2.Agreement and Plan of Merger dated August 31, 1999 by and among AFC Cable Systems, Inc., Tyco International (NV) Inc. and Tyco Acquisition Corp. XXII (Incorporated herein by reference to Exhibit 2.1 of the Current Report on Form 8-K/A filed by AFC Cable Systems, Inc. on September 9, 1999, File No. 000-23070). Exhibit 27. Financial Data Schedule. (b) Current Report on Form 8-K filed with the Commission on September 7, 1999. Under Item 5 of Form 8-K, AFC Cable Systems, Inc. reported the merger agreement by and among AFC Cable Systems, Inc., Tyco International (NV) Inc. and Tyco Acquisition Corp. XXII entered into on August 31, 1999. Current Report on Form 8-K/A filed with the Commission on September 9, 1999. Under Item 5 of Form 8-K/A, AFC Cable Systems, Inc. reported the merger agreement by and among AFC Cable Systems, Inc., Tyco International (NV) Inc. and Tyco Acquisition Corp. XXII entered into on August 31, 1999. 16 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: November 12, 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 17 EX-27 2 FDS --
5 1000 9-MOS DEC-31-1999 JAN-01-1999 OCT-02-1999 3,508 68,589 51,357 5,136 48,852 180,995 71,236 20,908 267,157 51,624 0 0 0 128 197,387 267,157 226,312 226,312 153,427 153,427 0 343 1,235 35,507 13,882 21,625 0 (10,957) 0 10,668 .84 .81
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