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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended July 31, 2002
or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to _________
Commission File 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
Incorporation or Organization) Identification No.)
Foster Plaza 7
661 Andersen Drive
Pittsburgh, PA 15220
(Address of Principal Executive Offices and Zip Code)
(412) 937-2300
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------------ -----------------------
Common Stock, $.01 par value New York Stock Exchange
Preferred Stock Purchase Rights, with respect
to Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
requirement for the past 90 days. Yes [x] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and need not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
===============================================================================
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant at October 25, 2002 was $239,740,320.
The number of shares outstanding of the registrant's Common Stock at October 25,
2002, is 44,492,975.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Cable Design Technologies Corporation Proxy Statement for the
Annual Meeting of Stockholders to be held on December 10, 2002, (the "Proxy
Statement") are incorporated by reference into Part III of this Annual Report on
Form 10-K.
CABLE DESIGN TECHNOLOGIES CORPORATION
Table of Contents
PART I
Page
Item 1. Business ................................................... 2
Item 2. Properties ................................................. 11
Item 3. Legal Proceedings .......................................... 11
Item 4. Submission of Matters to a Vote of Security Holders ........ 11
PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters .......................... 12
Item 6. Selected Financial Data .................................... 13
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............ 14
Item 7a. Quantitative and Qualitative Disclosures
About Market Risk ........................................ 26
Item 8. Financial Statements and Supplementary Data ................ 28
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ................... 59
PART III
Item 10. Directors and Executive Officers of the Registrant ......... 60
Item 11. Executive Compensation ..................................... 61
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters ............... 61
Item 13. Certain Relationships and Related Transactions ............. 61
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K .................................. 62
Signatures ................................................. 66
Certifications ............................................. 67
PART I.
ITEM 1. BUSINESS
General
Cable Design Technologies Corporation ("CDT" or "the Company") is a leading
designer and manufacturer of advanced connectivity products for the network
communication and specialty electronic marketplaces. Network communication
encompasses connectivity products used within local area computer networks and
communication infrastructures for the electronic and optical transmission of
data, voice and multimedia. Products include 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. Specialty electronic
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.
Our sales for the fiscal year ended July 31, 2002 ("fiscal 2002") were
$553.8 million as compared to $763.2 million for the year ended July 31, 2001
("fiscal 2001"), representing a decrease of 27%, and our net income, excluding
business restructuring expenses in both years, was $7.1 million for fiscal 2002
compared to $37.8 million for fiscal 2001, representing a decrease of 81%.
Business restructuring expenses of $3.5 million, net of tax, were incurred in
fiscal 2002 related to restructuring activities, and charges of $14.3 million,
net of tax, were incurred in fiscal 2001 related to restructuring, goodwill
impairment, and a loss on the sale of a business. Reported net income was $3.6
million and $23.5 million for fiscal 2002 and 2001, respectively.
Network Communication segment sales were $347.6 million and $512.7 million
for fiscal 2002 and 2001, respectively, and represented 63% and 67% of total
revenues for fiscal 2002 and 2001, respectively. Specialty Electronic segment
sales were $206.2 million and $250.5 million for fiscal 2002 and 2001,
respectively, and represented 37% and 33% of total revenues in fiscal 2002 and
2001, respectively. Fiscal 2002 results were negatively impacted by the downturn
of the U.S. and European economies and, more specifically, a slowdown in the
U.S. and European network, telecommunication, information technology and
original equipment manufacturer ("OEM") marketplaces.
Business Strategy
Notwithstanding the economic and industry slowdown, our long-term
strategies have not changed. These strategies include: (i) be a leading
worldwide designer and manufacturer of electronic cable and related connectivity
products; (ii) achieve long-term growth internally and through acquisition;
(iii) expand internationally; (iv) be a low cost producer; and (v) differentiate
ourselves from our competition through outstanding service.
2
Products. We focus on designing, developing and marketing technologically
advanced network connectivity products and specialty electronic cable products
that are used in automation, process control and specialty applications.
Examples of advanced network connectivity products include copper gigabit and
fiber optic network cable and connectors, network structured wiring components,
assemblies and media conversion components, and interconnect cables for computer
and communication switching applications. We also manufacture communication
cable products used in local loop, central office and wireless applications. Our
strong position in most of these markets has enabled us to establish strategic
relationships with many customers.
Internal and Acquisition Growth. Due to the difficult economic and industry
conditions, our sales and profits have significantly declined over prior year
results. Nevertheless, long-term we are focused on effecting internal growth by
broadening our product offerings and developing new customer relationships and
external growth through strategic acquisition opportunities. We intend to
continue to seek acquisitions that will broaden our product mix and
international presence.
International Expansion. In fiscal 2002, 45% of our sales were in markets
outside of the United States and 30% were outside of North America. We believe
that the international markets represent a significant opportunity because many
systems within these markets need to be upgraded in order to participate in
high-speed worldwide communications. We intend to continue to capitalize on the
size and potential of the international markets by focusing sales and other
resources on these markets and establishing or acquiring additional capabilities
in these markets. In fiscal 2002, we acquired substantially all of the
outstanding stock of Kabelovna Decin-Podmokly, a.s., ("KDP/CDT") based in the
Czech Republic. KDP/CDT is a manufacturer of communication, fiber optic,
medical, signal and control cable and cable harnesses.
Manufacturing Infrastructure. A historic focus has been on expanding and
maintaining our manufacturing infrastructure in order to improve efficiencies to
maintain a low manufacturing cost structure as well as to meet current and
future product needs. During the three fiscal years prior to fiscal 2002, we
invested over $85 million for plant and machinery. Due to our previous capital
expenditure program, we were able to reduce capital expenditures in fiscal 2002
to $12.6 million. We believe that our equipment is among the best in the
industry for the types of products we manufacture.
Customer Service. We place a great emphasis on providing technical
resources to solve customer problems and on research and development ("R&D")
efforts to create solutions for our markets and customers. We seek highly
qualified employees with significant industry experience and continually invest
in R&D and testing resources. Customer sales support is a very important part of
our business strategy. Our operations maintain highly trained sales support
staff and maintain inventory levels of various products that are sufficient to
meet fluctuating demands for such products, in many cases with same-day or
second-day delivery.
3
In response to current economic and industry conditions, we have evaluated
our corporate structure, production technologies, R&D, manufacturing,
warehousing logistics and personnel. Included in this evaluation has been an
ongoing review of capacity and selling, general and administrative ("SG&A")
costs. Based on changing market conditions and expectations, we have and will
continue to review and implement resizing and streamlining of Company operations
that we believe to be appropriate, including workforce reductions and other
restructuring initiatives. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" under Item 7 and the Consolidated
Financial Statements and Notes thereto under Item 8 of this Annual Report on
Form 10-K for further discussion.
Network Communication Segment
The Network Communication segment encompasses connectivity products for the
electronic and optical transmission of data, voice, and multimedia over local
and wide area networks and local loop communication infrastructures. Products
include high performance fiber optic and twisted pair and coaxial copper cables
and connectors, wiring racks and panels, outlets and interconnecting hardware
for end-to-end network structured wiring systems, fiber optic assemblies and
patch cords and communication cable products for outside communication and
central office switchboard and equipment applications.
Local Area Network (LAN) Systems. LANs typically consist of one or more
computers, peripheral devices, software and interconnecting cables, connectors
and accessories. The interconnecting cables can be copper, fiber or a composite
cable including both copper and fiber. Due to the expense and increased
difficulty of installing fiber cable as compared to copper cables and the cost
of transmitters, repeaters and other electronics required for a fiber optic
system, fiber cables have generally been limited to riser applications and
backbone parts of the local area network. Copper cables, while still used in
riser and backbone applications, are predominate in premise wiring and
horizontal portions of network systems. In addition, each network system,
whether fiber or copper, includes a large number of other structured wiring
components, such as connectors, patch panels, outlets and racks. Wireless LAN
systems have made inroads in certain LAN applications. While the Company's
cables and certain other components can be utilized in connection with a
wireless LAN system, the Company does not currently offer such a system or
manufacture non-cable components that are required for such a system.
4
We manufacture and sell fiber optic, copper and composite cables,
connectors, rack enclosures and cabinets, fiber optic splitters and couplers and
other passive components used in LAN systems. Our connectors include our
patented Optimax(TM) and Quick Connect(TM) fiber optic connectors and our high
performance GigaFlex(TM) copper connector series. In addition, we offer "plug &
play" fiber optic cabling systems. We are also one of a few companies that
manufactures and sells a fully integrated end-to-end warranted network
structured wiring system. The ability to offer a fully warranted end-to-end
system is an important marketing feature that differentiates us from many of our
competitors.
The fiber optic marketplace has been one of the most negatively affected by
capital expenditure reductions. While we do not focus on the long-haul fiber
business, our fiber business has decreased significantly from prior years and
our fiber capacity is underutilized.
Interconnect and Central Office Products. Interconnect products refers to
transmission cables that are used inside computers and other electronic
equipment, as well as to connect large and small computers to a variety of
peripheral devices. Central office products refers to cable used to connect
switching and related telecommunications equipment, as well as switchboard
cable. We produce both fiber optic and copper cables for such uses. Such markets
are tied to the telecommunications industry and have been adversely affected by
the capital spending cuts of regional Bell operating companies and other
telecommunication providers. Many of the products in this category are
manufactured to OEM specifications and often require our engineers to work
closely with component engineers during the product design and development
process. We believe that our strengths in engineering and design, together with
our historical relationships and reputation with OEM's, give us an advantage in
this market.
Cellular Communication. We believe that while spending has been slowed
significantly in the short-term, the long-term growth of cellular or "wireless"
applications presents a significant opportunity. Wireless communications rely on
antenna towers, base station transmission and central office switching, with
each application requiring high performance cable and other connectivity
products. Greater traffic over cellular networks and changing transmission
networks also requires greater switching capabilities and other electronic
equipment, which drives demand for our interconnect products. We produce
specialized cables used in these applications.
Communications. We produce communication distribution cables that are used
in the telecommunications industry to service business and residential customers
in the local loop. Demands for new services and phone lines for fax,
telecommuting, digital subscriber lines and other uses, home offices and overdue
maintenance of the existing copper local loop infrastructures define this
market. The telecommunication industry has severely reduced capital
expenditures, which has negatively affected the demand for these products from
the spending peaks reached in 2000.
We have executed an agreement to sell our NORCOM operating unit. Such unit
represents our U.S. and Canadian manufacturing and sales of communication
distribution cables, our manufacturing and sales of copper multi-pair central
office products for Canada and a significant portion of our manufacturing and
sales of copper multi-pair central office cables for the U.S. The transaction is
expected to close on or about October 31, 2002, however there can be no
assurance that such transaction will be completed. See Note 19 "Subsequent
Events" under Item 8 of this Annual Report on Form 10-K.
5
Specialty Electronic Segment
The Specialty Electronic segment includes highly engineered wire and
cable products covering a broad range of specialized applications and niche
markets, including commercial aviation and marine, automotive electronics,
medical electronics, electronic testing equipment, and industrial applications,
including robotics and electronically controlled factory equipment. Also
included are cables for automation applications, such as climate control,
premise video distribution and sophisticated security and signal systems
involving motion detection; electronic card and video surveillance technologies;
process control applications, such as remote signaling and electronic monitoring
systems; sound applications, such as voice activation, evacuation and other
similar systems; and safety applications, such as data transmission cable for
advanced fire alarm and safety systems, including cable having improved safety
and performance attributes under hazardous conditions. Included in the Specialty
Electronic segment are non-cable related manufacturing activities encompassing
precision tire casting and sheet metal fabrication which are not material to our
business.
Raw Materials
The principal raw materials we use are copper and insulating compounds. Raw
materials are purchased on a consolidated basis whenever possible to reduce
costs and improve supplier service levels. Copper is purchased from several
suppliers. Price terms are generally producers' prices at time of shipment. We
do not generally engage in activities to hedge the underlying value of our
copper inventory. Currently, world stocks of and capacity for copper are
adequate to meet our requirements. We purchase insulating compounds, including
Teflon(R), from various suppliers and, while from time to time there have been
shortages of such material, supplies are currently adequate to meet our needs.
Certain of our products require bulk uncabled optical fiber singles, which are
currently purchased primarily from one supplier. Other materials used include
reels, tapes, textiles, chemicals, fiber optic components and other materials.
Currently, supplies of these fiber optic and other materials are adequate to
meet our needs.
Customers
We sell our products directly or through distributors to a variety of
customers, including original equipment manufacturers, regional Bell operating
companies, competitive local exchange carriers, and certified system vendors. We
support over 10,000 customers. No single customer accounted for more than 10% of
sales in fiscal 2002, 2001 or 2000.
Competition
The markets served by our products are competitive. Although some of our
competitors are substantially larger and have greater resources than we do, we
believe that we compete successfully in our markets due to our experienced
management and sales teams, manufacturing expertise, breadth of product
offerings, large number of customer approved specifications, emphasis on quality
and established reputation.
Backlog
Backlog orders believed to be firm were $44.5 million at July 31, 2002,
compared to $68.8 million at July 31, 2001. We believe that substantially all
the backlog is shippable within the next twelve months. Generally, customers may
cancel orders for standard products without penalty upon thirty days notice.
6
Research and Development
We engage in research and development activities including new and existing
product development. Research and development costs were $5.0 million, $5.2
million and $4.6 million in fiscal 2002, 2001 and 2000, respectively.
International Operations
Information regarding the Company's international and domestic operations
is set forth in Note 12, "Industry and Geographic Segment Information" as
presented in the Company's consolidated financial statements in Item 8 of this
Annual Report on Form 10-K.
Environmental Matters
We are subject to numerous federal, state, provincial, local and foreign
laws and regulations relating to the storage, handling, emission and discharge
of materials into the environment, including the United States Comprehensive
Environmental Response, Compensation and Liability Act, the Clean Water Act, the
Clean Air Act, the Emergency Planning and Community Right-To-Know Act and the
Resource Conservation and Recovery Act. Regulations of particular significance
to us include those pertaining to handling and disposal of solid and hazardous
waste, discharge of process wastewater and storm water and release of hazardous
chemicals. Although we believe that we are in substantial compliance with such
laws and regulations, we may from time-to-time not be in full compliance and may
be subject to fines or other penalties for noncompliance.
We do not currently anticipate any material adverse effect on our business
as a result of compliance with federal, state, provincial, local or foreign
environmental laws or regulations. However, some risk of environmental liability
and other costs is inherent in the nature of our business, and there can be no
assurance that material environmental costs will not arise in the future.
The Company was named as a third party defendant in People of the State of
California v. M&P Investments and various other parties (CIV-S-00-24411 Eastern
District, CA). The complaint, brought under federal, state and local statutory
provisions, alleges that property previously owned by a predecessor to the
Company contributed to ground water pollution in the City of Lodi, California.
The Company believes that initial reports prepared on behalf of the City of Lodi
show that the property alleged to have been owned by a predecessor to the
Company is not one of the potential pollution sources. The Company does not
believe that the resolution of this matter will have a material adverse effect
on the Company.
Environmental contamination has been identified at the Company's facility
in Kingston, Ontario. Such contamination occurred prior to the Company's
purchase of the business in 1996. Nortel Networks Corp., the prior owner of such
facility, has indemnified the Company for, and retained responsibility for,
monitoring and, as required, remediation of such contamination. There are
currently no active remediation actions being undertaken. The Company has
entered into an agreement for sale relating to the operations at such facility
(See Note 19 "Subsequent Events" under Item 8 of this Annual Report on Form
10-K).
7
Employees
As of July 31, 2002, we had approximately 3,600 full-time employees and 620
workers under contract manufacturing arrangements in Mexico. Approximately 1,400
of the full-time employees are represented by labor unions. We have not
experienced any material work stoppages at our plants and we believe that, in
general, our current relations with our employees are good. Union contracts
covering approximately 1,000 employees at various operating units have expired
and are currently being negotiated or expire within the next twelve months.
Included are contracts that expire in February 2003 relating to our NORCOM/CDT
operations in Kingston, Ontario. Such operations, however, are subject to an
agreement of sale. (See Note 19 "Subsequent Events" under Item 8 of this Annual
Report on Form 10-K). There can be no assurance that conflicts will not arise
with unions (whether in the context of contract negotiations or otherwise) or
other employee groups or that such conflicts would not have a material adverse
effect on our business.
Risk Factors
The Company's net sales, net income and growth depend largely on the U.S.
and European economies and the network infrastructure, information technology,
telecommunications and OEM marketplaces. In the event that these economies or
marketplaces do not improve, or if they were to get worse, the Company could
suffer decreased sales and net income (or net losses) and be required to enact
further restructurings. Such events could, among other things, have negative
cash flow and debt compliance impacts.
Because we operate in markets that experience rapid technological change,
certain of our products could become obsolete or marketplaces in which we sell
could become more competitive. Many of the markets that we serve are
characterized by rapid technological change. We believe that our future success
will depend in part upon our ability to enhance existing products and to develop
or acquire new products that meet or anticipate such changes. The failure to
successfully introduce new or enhanced products on a timely and cost-competitive
basis could have a material adverse effect on our business. At the same time,
however, the introduction of new or enhanced products tends to have the effect
of reducing the prices at which we can sell some of our existing product lines,
which may harm our net sales and profitability.
Many of our network cable products are subject to various industry
standards. Many of such standards, particularly for newer high bandwidth cable
products, are still being developed. In the event we are unable to meet such
standards when adopted, or if the implementation of such standards was delayed,
our business could be adversely affected.
Fiber optic and wireless technologies represent substitutes for copper
based cable products. A significant decrease in the cost and complexity of
installation of fiber optic systems, or increase in the cost of copper based
systems, could make fiber optic systems superior on a price performance basis to
copper systems and may have a material adverse effect on our business. Also,
wireless technology, as it relates to premise network and communication systems,
may represent a threat to both copper and fiber optic cable based systems by
reducing the need for premise wiring. While we sell fiber optic cable and
components and cable that is used in various wireless applications, if fiber
optic systems or wireless technology were to significantly erode the markets for
copper based systems or, in the case of wireless technology, fiber optic based
systems, our sales of fiber optic and wireless products may not be sufficient to
offset any decrease in sales or profitability of other products that may occur.
8
Technological advances could require significant capital or other
expenditures to manufacture new products or maintain market positions. Our
failure to make such capital expenditures on a timely basis or our making
capital expenditures in markets that fail to adequately develop could have an
adverse effect on us. Further, as other manufacturers make capital expenditures
to enable them to manufacture products similar to those manufactured by us,
markets for such products may become more competitive resulting in decreases in
sales and profits.
Price fluctuations or shortages of raw materials could adversely affect our
operations. Copper is a principal raw material purchased by us and our sales may
be affected by the market price of copper. Significant fluctuations in the price
of copper or other raw materials could have a negative effect on our business.
We generally do not engage in hedging transactions for copper or other raw
materials and we may not be able to pass on increases in the price of copper and
other raw materials to our customers. The inability of suppliers to supply raw
materials used in our production could have a material adverse effect on our
business until a replacement supplier is found or substitute materials are
approved for use.
Our business is subject to the economic and political risks of maintaining
facilities and selling products in foreign countries. During fiscal 2002, 45% of
our sales were in markets outside the United States. Our operations may be
adversely affected by significant fluctuations in the value of the U.S. dollar
against foreign currencies or by the enactment of exchange controls or foreign
governmental or regulatory restrictions on the transfer of funds. Furthermore,
our foreign operations are subject to risks inherent in maintaining operations
abroad such as economic and political destabilization, international conflicts,
restrictive actions by foreign governments, nationalizations and adverse foreign
tax laws.
Our markets are competitive. We are subject to competition from a
substantial number of international and regional competitors, some of which have
greater financial, engineering, manufacturing and other resources than we do.
Our competitors can be expected to continue to improve the design and
performance of their products and to introduce new products with competitive
price and performance characteristics. Furthermore, maintaining our current
technological advantages will require continued investment by us in engineering,
research and development, marketing and customer service and support. There can
be no assurance that we will have sufficient resources to continue to make such
investments or that we will be successful in maintaining such advantages. Also,
such competitive markets have in the past, including during fiscal 2002, placed
significant pricing pressures on most products we manufacture. Such competitive
pricing pressures could continue and adversely affect our sales, margins and net
income.
Potential environmental, product, warranty or other liabilities could
adversely impact our financial position. Risk of environmental, product and
warranty liabilities, and other costs associated therewith, are inherent in the
nature of our business. We cannot assure you that material environmental,
product or warranty costs will not arise in the future.
9
Losing the services of key personnel or adverse relations with employees
could harm our business. Our continued success depends on the efforts and
abilities of our executive officers and other key employees. The loss of any of
our executive officers or other key employees could adversely affect our
operations. Our ability to attract and retain quality employees in all
disciplines is important to our future success. See also "Business-Employees".
The Company's credit facility contains various covenants and the Company
reduced the facility size to $150 million from $200 million. Breaches of the
financial or other covenants contained in our credit facility could occur as the
result of various events, including decreased earnings, unexpected charges,
restructurings initiated by the Company or asset impairment or write-downs. Any
such default would have material adverse consequences. On October 10, 2002, the
Company reached an agreement with the agent for our bank group whereby the
availability under such facility was reduced to $150 million. While the Company
believes such facility size is appropriate under current conditions, the Company
could face a liquidity shortfall if certain events were to occur, including
significant sales growth (requiring working capital increases), unexpected costs
or charges or significant losses.
Many of the Company's products are sold through distribution. While the
Company deals with many distributors, there are a number of significant
distributors in the U.S. Any consolidation relating to these distribution
channels could potentially have adverse results, including reduced ability to
access the end marketplace. In addition, the Company may have significant credit
exposures to certain of these distributors.
We may not be able to successfully identify, finance or integrate
acquisitions. Growth through acquisition has been, and is expected to continue
to be, an important part of our strategy. We cannot assure that we will be
successful in identifying, financing and closing acquisitions at favorable
prices and terms. Potential acquisitions may require us to obtain additional or
new financing, and such financing may not be available on terms acceptable to
us, or at all. Further, we cannot assure that we will be successful in
integrating any such acquisitions that are completed. Also, integration of any
such acquisitions may require substantial management, financial and other
resources and may pose risks with respect to production, customer service and
market share of existing operations.
Anti-takeover provisions could delay or prevent a change in control or
adversely impact the price of our common stock. Provisions of our Rights Plan
and our certificate of incorporation, and provisions of the Delaware General
Corporation Law could each have the effect of deterring hostile takeovers or
delaying, deterring or preventing a change in control of our Company, including
transactions in which stockholders might otherwise receive a premium for their
shares over current market prices.
10
Disclosure Regarding Forward-Looking Statements
Certain of the statements in this Annual Report on Form 10-K and the
Company's 2002 Annual Report to Stockholders, in which this 10-K is included,
are forward-looking statements, including, without limitation, statements
regarding future financial results, profits and performance and other beliefs,
expectations or opinions of the Company and its management. These statements are
subject to various risks and uncertainties, many of which are outside the
control of the Company, including those risk factors described in this Annual
Report on Form 10-K and other SEC 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.
ITEM 2. PROPERTIES
The Company uses various owned or leased properties as manufacturing
facilities, warehouses, and sales and administration offices. The Company
believes that current facilities, together with planned expenditures for normal
maintenance, capacity and technological improvements, will provide adequate
production capacity to meet expected demand for its products.
At July 31, 2002, the Company operated a total of 42 plants and warehouses
of which (a) the locations in North America had approximately 2.6 million square
feet, of which 0.6 million square feet were leased, and of which approximately
1.8 million square feet are utilized by businesses in the Network Communication
segment; and (b) the locations outside of North America had approximately 1.4
million square feet, of which 0.8 million square feet were leased, and of which
approximately 0.8 million square feet are utilized by businesses in the Network
Communication segment. The locations outside of North America include facilities
located in Germany, Italy, Sweden, Denmark, the Czech Republic and the United
Kingdom. Additionally, manufacturing facilities of approximately 0.2 million
square feet are operated by third parties for the benefit of the Company in
Nogales and Tijuana, Mexico pursuant to contract manufacturing arrangements.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings and administrative
actions incidental to the operations of the Company. In the opinion of the
Company's management, such proceedings and actions should not, individually or
in the aggregate, have a material adverse effect on the Company's results of
operations or financial condition. See also Item I., Business-Environmental
Matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders.
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Our common stock is listed on the New York Stock Exchange under the symbol
"CDT". As of October 25, 2002, there were 192 holders of record of the Company's
Common Stock. The following table sets forth the range of high and low sale
prices of our common stock during the fiscal quarters indicated.
Fiscal Year Ended July 31,
High Low
------ ------
2002:
Fourth quarter $13.74 $ 6.25
Third quarter $13.56 $11.46
Second quarter $15.27 $12.14
First quarter $15.80 $10.45
2001:
Fourth quarter $16.35 $11.75
Third quarter $21.90 $10.65
Second quarter $24.75 $14.00
First quarter $29.75 $19.25
The Company did not pay cash dividends on the common stock during the
periods set forth above, and does not anticipate paying any cash dividends in
the foreseeable future.
Equity Compensation Plan Information
- -----------------------------------------------------------------------------------------------------------------
As of July 31, 2002
- -----------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
Number of securities
remaining available for
Number of securities to Weighted-average future issuance under
be issued upon exercise exercise price of equity compensation plans
of outstanding options, outstanding options, (excluding securities
warrants and rights warrants and rights reflected in column (a))
(a) (b) (c)
- -----------------------------------------------------------------------------------------------------------------
Plan Category:
Equity compensation
plans approved by
security holders 429,560 $14.65 1,759,455
Equity compensation
plans not approved
by security holders 3,764,579 $12.45 592,427
- -----------------------------------------------------------------------------------------------------------------
4,194,139 $12.67 2,351,882
=================================================================================================================
12
ITEM 6. SELECTED FINANCIAL DATA
The table below summarizes recent financial information for the Company,
and should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" presented under Part II, Item 7
of this Annual Report on Form 10-K, and the Company's financial statements and
notes thereto presented under Part II, Item 8 of this Annual Report on Form
10-K.
- -------------------------------------------------------------------------------------
For the Year Ended July, 31,
- -------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------
(In thousands, except per share information)
Statement of Income Data:
Net sales $553,754 $763,225 $797,824 $683,999 $651,668
Cost of sales 415,106 548,410 563,979 479,469 457,767
-------- -------- -------- -------- --------
Gross profit 138,648 214,815 233,845 204,530 193,901
Selling, general and
administrative expenses 110,156 134,365 123,582 111,147 104,719
Amortization of goodwill 2,052 2,378 2,482 2,463 1,772
Research and development expenses 4,988 5,211 4,626 5,450 7,863
Business restructuring expense
(income), net 5,829 17,577 (189) (1,412) 6,093
Nonrecurring expense, net -- -- -- 6,307 --
-------- -------- -------- -------- --------
Income from operations 15,623 55,284 103,344 80,575 73,454
Interest expense, net 6,796 9,018 11,770 13,346 8,560
Other expense (income), net 1,051 223 377 (18) (947)
-------- -------- -------- -------- --------
Income before income taxes
and minority interest 7,776 46,043 91,197 67,247 65,841
Income tax provision 3,888 21,903 35,291 26,723 25,335
Minority interest in earnings
of subsidiaries, net 300 684 986 883 25
-------- -------- -------- -------- --------
Net income $ 3,588 $ 23,456 $ 54,920 $ 39,641 $ 40,481
======== ======== ======== ======== ========
Diluted earnings per
common share $ 0.08 $ 0.52 $ 1.25 $ 0.91 $ 0.86
======== ======== ======== ======== ========
Shares used in diluted per
share calculation 44,631 44,927 44,086 43,693 46,982
======== ======== ======== ======== ========
Balance Sheet Data:
Total assets $585,787 $584,396 $615,353 $595,100 $505,427
Total debt $111,900 $129,230 $162,804 $218,667 $155,795
Other Key Data:
Capital expenditures $ 12,559 $ 38,082 $ 22,028 $ 25,262 $ 49,248
Statement of Income Data
excluding net of tax effect
of business restructuring and
nonrecurring expenses:
Net income $ 7,066 $ 37,781 $ 54,799 $ 42,930 $ 44,426
Diluted earnings per common
share $ 0.16 $ 0.84 $ 1.24 $ 0.98 $ 0.95
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following discussion of Cable Design Technologies Corporation's ("the
Company") consolidated historical results of operations and financial condition
should be read in conjunction with the Consolidated Financial Statements of the
Company and the Notes thereto included under Part II, Item 8 of this Annual
Report on Form 10-K.
The Company is a leading manufacturer of technologically advanced
connectivity products for the Network Communication and Specialty Electronic
marketplaces. The Network Communication segment encompasses connectivity
products used within local area computer networks and communication
infrastructures for the electronic and optical 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.
Overview
Operations for the year were negatively impacted by the slowdown in the
U.S. and European economies, particularly in the network and telecommunication
marketplaces. Sales for the year ended July 31, 2002 ("fiscal 2002") decreased
27%, to $553.8 million compared to sales of $763.2 million for the year ended
July 31, 2001 ("fiscal 2001"). Sales attributable to acquisitions represented
approximately 6% of fiscal 2002 sales. Sales for the Network Communication
segment decreased 32% to $347.6 million, and represented 63% of total company
revenue for fiscal 2002. The lower sales for this segment were primarily due to
a 60% decline in sales of products for the telecommunication marketplace,
excluding sales attributable to acquired businesses. Sales for the Specialty
Electronic segment were $206.2 million, a decrease of 18% over the prior year.
The reduction in sales for this segment was primarily due to lower sales of
industrial cables, reflecting decreased demand from electronic equipment
manufacturers in response to the economic slowdown.
The reported operating margin for fiscal 2002 was 2.8% compared to 7.2% in
fiscal 2001. The operating margin, excluding in both years the business
restructuring expenses and other charges discussed below, was 4.7% for fiscal
2002 compared to 10.0% for fiscal 2001.
14
The following business restructuring and other charges totaling
$10.4 million ($6.3 million net of tax) were incurred in fiscal 2002. A charge
of $3.3 million ($2.0 million net of tax), included in cost of sales, represents
a provision for slow moving inventory associated with products for the
telecommunication central office marketplace. Selling, general and
administrative expenses ("SG&A") include a $1.3 million ($0.8 million net of
tax) provision for a lawsuit currently in discovery, and whose worst-case
exposure is estimated at $3.0 million. Although the outcome of this matter is
not certain at this time, the provision represents management and outside
counsel's most likely estimate of exposure. Fiscal 2002 business restructuring
expenses of $5.8 million ($3.5 million net of tax) consist of $3.6 million of
severance costs associated with workforce reductions, a $1.7 million asset
impairment charge associated with property and equipment to be held for sale as
a result of facility consolidations, and $0.5 million of asset provisions
incurred in connection with the closing of the Company's wireless assembly
facility, representing primarily the write-off of inventory applicable to
terminated customer contracts. In fiscal 2001, business restructuring expenses
of $17.6 million ($14.3 million net of tax) were incurred, including a charge of
$6.1 million for severance costs, a non-cash goodwill impairment charge of $9.4
million, and a $2.1 million loss on the sale of a business. Fiscal 2001 results
also include a bad debt charge of $3.1 million ($1.9 million net of tax) related
to the bankruptcy of a large distribution customer.
Reported diluted earnings per share were $0.08 for fiscal 2002 compared to
$0.52 for fiscal 2001. Excluding the net of tax impact of the restructuring and
other charges discussed above, diluted earnings per share were $0.22 in fiscal
2002 compared to $0.88 in fiscal 2001.
The following table presents the percentage of total net sales represented
by selected financial data from the Company's consolidated statements of income,
excluding restructuring and other charges discussed above, and should be read in
conjunction with the following discussion.
- -----------------------------------------------------------------------------
Year Ended July 31, 2002 2001 2000
- -----------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0%
Gross profit 25.6%(1) 28.1% 29.3%
Selling, general and
administrative expenses 19.6%(2) 17.2%(3) 15.5%
Amortization of goodwill 0.4% 0.3% 0.3%
Research and development expenses 0.9% 0.6% 0.6%
- -----------------------------------------------------------------------------
Income from operations 4.7%(4) 10.0%(4) 12.9%(4)
(1) Excludes $3.3 million inventory provision in fiscal 2002 associated with
products for the telecommunication marketplace.
(2) Excludes $1.3 million provision for a lawsuit in fiscal 2002.
(3) Excludes a $3.1 million bad debt provision related to the bankruptcy of a
customer in fiscal 2001.
(4) Excludes charges described in notes (1), (2), and (3) for the respective
periods. Excludes business restructuring expenses of $5.8 million and
$17.6 million in fiscal 2002 and 2001, respectively. Excludes $0.2 million
of restructuring income in fiscal 2000.
15
Year Ended July 31, 2002 Compared With Year Ended July 31, 2001
Sales for fiscal 2002 decreased $209.4 million, or 27%, to $553.8 million
compared to sales of $763.2 million for fiscal 2001. Sales attributable to
acquisitions, which were primarily in the Network Communication segment,
represented approximately 6% of fiscal 2002 sales. Network Communication segment
sales decreased 32% to $347.6 million for fiscal 2002 compared to sales of
$512.7 million for fiscal 2001. The lower sales for this segment were primarily
due to the slowdown in both the U.S. and European economies, and in the
telecommunication marketplace that began in the second half of the Company's
2001 fiscal year. Sales of products for the telecommunication market continue to
be affected by very low demand, decreasing 60% year over year excluding sales
attributable to acquired businesses. Network product sales decreased 22%,
primarily due to a 60% decline in sales of the lower performance Category 5
cable and a 24% decline in sales of connectivity products. Sales of the higher
performance gigabit network cable remained relatively stable on a year over year
basis, with slightly increased volumes and improved product mix offsetting the
negative impact of declines in pricing.
Specialty Electronic segment sales decreased 18% to $206.2 million for
fiscal 2002 compared to $250.5 million for fiscal 2001. The reduction in sales
for this segment was primarily due to lower sales of industrial cables, due to
lower demand from electronic equipment manufacturers in response to the economic
slowdown.
Sales outside of North America were $165.0 million for fiscal 2002, a
decrease of 9% compared to sales of $180.3 million for fiscal 2001. The decline
in international sales was primarily due to lower sales of network and
telecommunication related products in Europe, which was partially offset by
sales attributable to acquired businesses.
Gross profit for fiscal 2002 decreased 35% to $138.6 million compared to
$214.8 million for fiscal 2001. The decline in gross profit was due to lower
sales volumes, as well as lower gross margins in both business segments. The
reduction in gross profit was partially mitigated by the Company's cost
reduction actions during fiscal 2002. The decrease in the segment gross margins
was primarily due to volume inefficiencies and greater pricing pressure for the
Company's products. Volume inefficiencies were due to the absorption of
manufacturing expenses over lower production levels, particularly for
telecommunication equipment related products. Pricing pressures resulted from
the slowdown in both the economy and particularly the telecommunication
marketplace. Gross profit for fiscal 2002 was also negatively impacted by a $3.3
million provision for slow moving inventory associated with products for the
central office telecommunication marketplace. Excluding this provision, the
gross margin for fiscal 2002 was 25.6% compared to 28.1% for fiscal 2001.
16
SG&A decreased $24.2 million, or 18%, to $110.2 million for fiscal 2002
compared to $134.4 million for fiscal 2001. Excluding the additional SG&A of
acquired businesses, the decline in SG&A was $30.6 million, or 23%, primarily
due to lower sales volume related expenses, reduced employee related costs
resulting in part from restructuring activities, and a decrease in bad debt
provisions. The year over year decline in bad debt expense was partially due to
the fact that a $3.1 million bad debt charge was incurred in fiscal 2001 related
to the bankruptcy of a customer. These declines in SG&A were partially offset by
a $1.3 million fiscal 2002 provision for a lawsuit currently in discovery, and
whose worst-case exposure is estimated at $3.0 million. Excluding the $1.3
million provision in fiscal 2002 and the $3.1 million bad debt charge in fiscal
2001, SG&A as a percentage of sales increased to 19.6% this year compared to
17.2% for fiscal 2001, reflecting the lower sales volume. Research and
development expenses decreased $0.2 million to $5.0 million compared to $5.2
million in fiscal 2001.
Business restructuring expenses of $5.8 million ($3.5 million net of tax)
were incurred in fiscal 2002, including $3.6 million of severance costs
associated with workforce reductions and a $2.2 million charge associated with
property and equipment to be held for sale and other costs incurred in
connection with the closing of the Company's wireless assembly facility.
Approximately $5.1 million of the fiscal 2002 restructuring expenses were
associated with operations in the Network Communication segment. Business
restructuring expenses for fiscal 2001 of $17.6 million ($14.3 million net of
tax) include $6.1 million of severance costs associated with workforce
reductions, a non-cash goodwill impairment charge of $9.4 million, and a $2.1
million loss on the sale of a business. Approximately $11.0 million of the
fiscal 2001 restructuring expenses were associated with operations in the
Network Communication segment.
Reported income from operations was $15.6 million for fiscal 2002 compared
to $55.3 million for fiscal 2001. Income from operations, excluding business
restructuring expenses and other charges (see "Overview") in both years, was
$26.0 million, or 4.7% of sales, for fiscal 2002 compared to $76.0 million, or
10.0% of sales, for fiscal 2001.
Net interest expense decreased $2.2 million to $6.8 million for fiscal 2002
compared to $9.0 million for fiscal 2001, due both to a lower average interest
rate and a lower average balance of outstanding debt.
The effective tax rate for fiscal 2002 was 50.0% compared to 47.6% for
fiscal 2001. The high effective tax rate in fiscal 2002 was primarily due to the
unfavorable relative effect of permanent non-deductible expenses on lower pretax
income, as well as an unfavorable effect due to the geographical mix of taxable
earnings. For fiscal 2001, $8.9 million of the business restructuring expenses
for goodwill impairment and loss on the sale of a business were not deductible
for income tax purposes. Excluding the effect of these non-deductible business
restructuring expenses, the effective tax rate for fiscal 2001 was 39.7%.
Reported diluted earnings per share were $0.08 for fiscal 2002 on net
income of $3.6 million, compared to $0.52 for fiscal 2001 on net income of $23.5
million. Diluted earnings per share, excluding the net of tax impact of the
restructuring and other charges (see "Overview"), were $0.22 in fiscal 2002,
compared to $0.88 in fiscal 2001. The lower fiscal 2002 net income was primarily
due to the effect of the lower sales volume and the lower gross margin
percentage.
17
Year Ended July 31, 2001 Compared With Year Ended July 31, 2000
Sales decreased $34.6 million, or 4%, to $763.2 million for fiscal 2001
compared to $797.8 million for the year ended July 31, 2000 ("fiscal 2000").
Sales attributable to acquisitions represented approximately 1% of fiscal 2001
sales.
Network Communication segment sales declined 6%, to $512.7 million for
fiscal 2001 compared to sales of $545.0 million in fiscal 2000. The decline in
sales for this segment was primarily due to a 58% decline in sales of wireless
products attributable to the previously reported loss of the principal customer
for wireless assembly services. Additionally, the slowdown in the U.S. economy
and the telecommunication market which began in the second half of the fiscal
year negatively impacted sales in the Network Communication segment, including
sales of computer interconnect products, primarily for telecom switching
applications, which declined 23% and central office products which increased
only 5% for the full year compared to a 75% increase for the first half of
fiscal 2001. An increase of 36% in sales of enhanced gigabit network cables was
more than offset by a 44% decline in sales of the lower performance rated
Category 5 network cable. Another area of growth was a 46% increase in sales of
fiber optic connectivity products, primarily single mode cable.
Fiscal 2001 sales for the Specialty Electronic segment decreased $2.3
million, or 1%, to $250.5 million. Incremental sales attributable to businesses
acquired during fiscal 2000 contributed $5.7 million to sales for this segment.
Excluding acquisitions, the 3% sales decline in this segment was primarily due
to lower sales of industrial cables, which the Company believes reflects
adjusted inventory levels at electronic equipment distributors in response to
the economic slowdown.
Sales outside of North America increased $1.7 million, or 1%, to $180.3
million in fiscal 2001 compared to $178.6 million in fiscal 2000. The increase
in international sales was primarily due to the acquisition of ITC/CDT in fiscal
year 2000, as well as higher first half sales of central office cable products
in Western Europe. These increases were partially offset by the unfavorable
foreign currency translation effect on sales by the Company's European
subsidiaries due to a decline in the value of certain European currencies
against the dollar.
Gross profit decreased $19.0 million, or 8%, to $214.8 million in fiscal
2001 compared to $233.8 million for fiscal 2000. The decline in gross profit was
due to lower sales volume, as well as reduced gross margins for both the Network
Communication and Specialty Electronic segments primarily due to volume
inefficiencies as a result of the lower sales volume. The overall gross margin
for fiscal 2001 was 28.1% compared to 29.3% for fiscal 2000. The lower Network
Communication segment gross margin was primarily due to lower margins for
network cable, network structured wiring components, computer interconnect, and
outside plant communication cable. In addition to volume inefficiencies, the
gross margin for this segment was unfavorably impacted by lower pricing on
Category 5 and 5e network cable and a shift in product mix for structured wiring
components. The reduction in gross margin for the Specialty Electronic segment
was due to a lower margin for automation and process control products due
primarily to a higher average cost of copper, volume inefficiencies and
competitive market conditions, as well as a lower margin for aerospace and
automotive cables due to product mix.
18
SG&A increased $10.8 million, or 9%, to $134.4 million for fiscal 2001
compared to $123.6 million for fiscal 2000. The increase in SG&A was primarily
due to an increase in bad debt expense, the additional SG&A of acquired
businesses and costs associated with the establishment of the European and Fiber
Optic management groups in the first fiscal quarter. The increase in bad debt
expense was primarily due to the bankruptcy of a large distribution customer,
and higher provisions for bad debts, particularly in the fourth fiscal quarter,
due to the slowdown in the telecommunication marketplace and the overall
economy. SG&A as a percentage of sales increased to 17.6% for fiscal 2001
compared to 15.5% for fiscal 2000, due to the factors noted above combined with
the lower sales volume. Research and development expenses increased $0.6 million
to $5.2 million compared to $4.6 million in fiscal 2000.
Business restructuring expenses of $17.6 million ($14.3 million net of tax)
were incurred during fiscal 2001 related to severance costs, goodwill
impairment, and a loss on the sale of a business. In the fourth quarter of
fiscal 2001, a business restructuring expense of $6.1 million ($3.8 million, net
of tax) was incurred representing severance costs associated with a workforce
reduction of 641, including workers under contract manufacturing arrangements.
Also in the fourth quarter, the Company incurred a non-cash goodwill impairment
charge of $9.4 million ($8.4 million, net of tax). The majority of the goodwill
impairment charge was not deductible for tax purposes. The goodwill impairment
charge reflects the Company's evaluation of the recoverability of the carrying
value of goodwill for certain of its operations based on the estimates of future
cash flows for the affected operations. Fiscal 2001 business restructuring
expenses also include a $2.1 million loss on the sale of a business in the third
quarter. Business restructuring income of $0.2 million ($0.1 million net of tax)
was recognized in fiscal 2000.
Reported income from operations was $55.3 million for fiscal 2001 compared
to $103.3 million for fiscal 2000. Income from operations, excluding business
restructuring expenses in both years, decreased $30.3 million, or 29%, to $72.9
million in fiscal 2001 compared to $103.2 million for fiscal 2000, and the
operating margin was 9.5% for fiscal 2001 compared to 12.9% for fiscal 2000.
Interest expense for fiscal 2001 decreased $2.8 million to $9.0 million
compared to $11.8 million for fiscal 2000. The decrease was primarily due to the
lower average balance of debt outstanding, as the Company reduced debt by $28.7
million during fiscal 2001. The effective tax rate for fiscal 2001 increased to
47.6% compared to 38.7% for fiscal 2000, primarily due to the fact that $8.9
million of the business restructuring expenses for goodwill impairment and loss
on the sale of a business were not deductible for income tax purposes. Excluding
the effect of the non-deductible business restructuring expenses in fiscal 2001,
the effective tax rate was 39.7%.
Earnings per share decreased to $0.52 per diluted share on net income of
$23.5 million for fiscal 2001 compared to $1.25 per diluted share on net income
of $54.9 million for fiscal 2000. Excluding business restructuring expenses in
both years, fiscal 2001 earnings per share decreased 32% to $0.84 per diluted
share on net income of $37.8 million, compared to $1.24 per diluted share for
fiscal 2000 on net income of $54.8 million.
19
Liquidity and Capital Resources
The Company generated $61.9 million, $58.2 million and $75.7 million of net
cash from operating activities in fiscal 2002, 2001 and 2000, respectively. The
increase in fiscal 2002 was primarily due to favorable changes in working
capital accounts, which more than offset a decline in net income. The fiscal
2001 decrease from fiscal 2000 was primarily due to lower net income.
During fiscal 2002 operating working capital decreased $31.9 million. The
decrease in operating working capital was primarily the result of decreases in
inventory and accounts receivable of $30.0 million and $17.9 million,
respectively, which were partially offset by a decrease in accounts payable and
other accrued liabilities of $17.2 million. The change in operating working
capital excludes changes in cash and current maturities of long-term debt.
Net cash used by investing activities was $41.8 million in fiscal 2002,
$36.8 million in fiscal 2001 and $30.4 million in fiscal 2000. Fiscal 2002 cash
used by investing activities included $12.6 million expended for capital
projects and $29.3 million for the acquisition of businesses. In fiscal 2001,
the Company expended $38.1 million for capital projects and received $1.3
million of proceeds from the sale of a business. Fiscal 2000 cash used for
investing included $22.0 million for capital expenditures and $8.3 million for
the acquisition of businesses. Capital expenditures were primarily invested in
additional equipment to expand capacity for both Network Communication and
Specialty Electronic products. Capital expenditures in fiscal 2001 included
approximately $7 million to purchase two previously leased buildings.
Net cash used by financing activities during fiscal 2002 of $20.4 million
included $21.3 million to reduce debt and $1.5 million for payment of deferred
financing fees, which were partially offset by $2.4 million received from the
exercise of stock options and issuance of common stock pursuant to the Company's
employee stock purchase plan. Fiscal 2001 net cash used by financing activities
of $22.7 million included $28.7 million of cash used to reduce debt and $6.0
million received from the exercise of stock options and issuance of common
stock. In fiscal 2000, the Company used $39.6 million for financing activities,
including a debt reduction of $52.3 million. The Company received $12.7 million
of proceeds from the exercise of stock options and issuance of common stock in
fiscal 2000.
20
The Company entered into a new unsecured revolving credit facility on
December 17, 2001 which provides for borrowings of up to $200.0 million (the
"U.S. Facility"), including a $50.0 million European sub-facility and a $15.0
million U.K. sub-facility. The Company also entered into a separate $65.0
million revolving facility for it's Canadian operations (the "Canadian
Facility"), which facility is supported by a letter of credit under the U.S.
Facility and reduces the availability under the U.S. Facility. The U.S. and
Canadian Facilities expire on January 2, 2005 and December 2, 2004,
respectively. Borrowings under the U.S. Facility bear interest at either LIBOR
plus 1.05% to 2.00%, or a base rate, as defined, plus 0.20% to 0.50%. The
applicable interest rate margin is based on the Company's leverage ratio as
calculated under the facility. A facility fee margin of 0.20% to 0.50%, which is
also based on the Company's leverage ratio, is payable on the maximum facility
amount. Fees for letters of credit under the U.S. Facility are charged at the
applicable interest rate margin. Borrowings under the Canadian Facility bear
interest at the Canadian Banker's Acceptance rate, plus an applicable margin of
0.30%. A facility fee of 0.15% is payable on the Canadian Facility. As of July
31, 2002, the Company had availability of approximately $78.3 million and $14.9
million under the U.S. Facility and Canadian Facility, respectively.
On October 10, 2002, the Company and the agent under the U.S. and Canadian
Facilities reached an agreement whereby the Company reduced total available
borrowings under the U.S. and Canadian Facilities to $150.0 million, reduced the
European and U.K. sub-facility limits to $37.5 million and $11.3 million,
respectively, and provided security for the loans in the form of a pledge of
substantially all of the Company's U.S. and Canadian non-real estate assets.
The U.S. and Canadian Facilities have customary financial and non-financial
covenants. The financial covenants consist of "fixed charge" and "leverage"
ratios and a minimum net worth test. Compliance with these covenants is
dependant on a number of factors, including, in the case of the fixed charge
ratio, trailing four fiscal quarter capital expenditures and tax, interest and
scheduled principal payments and, in the case of the leverage ratio, the
Company's consolidated debt. Important to both of these ratios is the Company's
net income before interest, taxes, depreciation and amortization (EBITDA), as
calculated under the U.S. Facility, for the trailing four fiscal quarters. In
the case of the leverage ratio, pro forma adjustments are made to EBITDA for
acquisitions and, in the case of both ratios, add-backs to EBITDA are permitted
at the discretion of the lenders in the case of certain types of charges. The
Company is currently in compliance with all financial and non-financial
covenants. Continued compliance with the financial covenants is dependent on the
levels of the various components that are included in the calculations.
Based on current expectations, management believes that the Company's cash
flow from operations and the available portion of its credit facilities will
provide it with sufficient liquidity to meet its current liquidity needs.
21
Contractual Obligations and Commercial Commitments
The following table summarizes our significant contractual obligations as
of July 31, 2002:
Payments Due per Period
----------------------------------------------
Total Less than After
Payments Due 1 year 1-3 years 4-5 years 5 years
-----------------------------------------------------------
(Dollars in thousands)
Long-term debt $109,356 $ 1,685 $106,571 $ 865 $ 235
Capital leases 1,994 757 1,057 180 --
Operating leases 18,643 5,823 8,018 3,434 1,368
----------------------------------------------------------
Total contractual
cash obligations $129,993 $ 8,265 $115,646 $ 4,479 $ 1,603
==========================================================
In July 2002 the Company entered into a sublease agreement for one of its
facilities. The Company remains primarily liable under the terms of the original
lease, therefore operating lease payments presented above include all amounts
due under the original lease agreement, and have not been reduced by anticipated
sublease income. The Company received $0.1 million of sublease income in fiscal
2002. There was no income received from sublease rentals in fiscal 2001 or 2000.
In addition to the above contractual obligations, the Company had
outstanding letters of credit of $1.9 million and $3.9 million as of July 31,
2002 and 2001, respectively. Outstanding letters of credit as of July 31, 2001
included $3.1 million in connection with the purchase of ITC/CDT (see Note 11
"Acquisitions" under Part II, Item 8 of this Annual Report on Form 10-K). As of
July 31, 2002 and 2001, the Company also maintained a $1.2 million bond in
connection with workers' compensation self-insurance in the state of
Massachusetts.
Critical Accounting Policies
We prepare our consolidated financial statements and accompanying notes in
accordance with accounting principles generally accepted in the United States of
America. Preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, net sales, and expenses. The Company bases its estimates on
historical experience and various other assumptions that we believe to be
reasonable based on specific circumstances. On an on-going basis, the Company
evaluates its estimates, including those related to sales rebates and
allowances, product returns, bad debts, inventory obsolescence, long-lived
assets, restructuring, pension and other post-retirement benefits, income taxes,
and contingencies and litigation, and revises its estimates when changes in
events or circumstances indicate that revisions may be necessary. Actual results
may differ from these estimates.
The Company believes that the following critical accounting policies
require its more significant judgments and estimates used in the preparation of
the consolidated financial statements.
22
Allowances for sales rebates, discounts, allowances, price protection
programs, and product returns are estimated based on historical experience,
contract terms, inventory levels at distributors, and other factors. A decline
in market conditions could result in increased estimates of these amounts,
resulting in an incremental reduction of net sales. Allowances for bad debts are
estimated based on past collection history and specific risks identified in our
outstanding accounts receivable. If the financial condition of the Company's
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required.
The Company maintains reserves to reduce the value of inventory based on
the lower of cost or market principle. The net realizable market value of
inventory is estimated based on current levels and aging of inventory on hand,
forecasted demand, market conditions, and other factors. Changes in these
factors, including fluctuations in market conditions, could result in additional
inventory write-downs.
The Company evaluates the recoverability of property, plant and equipment,
goodwill and intangible assets on an ongoing basis when events or circumstances
indicate that the carrying amount of any such asset may not be fully
recoverable. Our evaluation of potential impairment is based upon market prices,
if available, or assumptions about the estimated future undiscounted cash flows
that these assets are expected to generate. Judgment is required in determining
the timing of the testing, and in the assumptions regarding estimates of future
cash flows, which are subject to significant uncertainty.
Accruals for the estimated costs of restructuring activities are made in
accordance with the requirements of Emerging Issues Task Force Issue 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including certain costs incurred in a restructuring). In
some instances, actual costs may differ from the estimated costs due to changes
in facts and circumstances that were not foreseen at the time the initial costs
were recorded.
The Company estimates the expected return on plan assets, discount rate,
rate of compensation increase, future health care costs, withdrawal and
mortality rates, among other things, and relies on actuarial estimates to assess
the future potential liability and funding requirements of the Company's defined
benefit and postretirement plans. Differences between our estimates and actual
results may significantly affect the cost of our obligations under these plans.
The Company estimates its tax liability based on current tax laws in the
statutory jurisdictions in which it operates. These estimates include judgments
about deferred tax assets and liabilities resulting from temporary differences
between assets and liabilities recognized for financial reporting purposes and
such amounts recognized for tax purposes. Fluctuations in the actual outcome of
these future tax consequences, including changes in tax laws, could result in
potential significant losses or gains.
The Company accrues for contingencies in accordance with Statement of
Financial Accounting Standard No. 5, Accounting for Contingencies, when it is
probable that a liability or loss has been incurred and the amount can be
reasonably estimated. Contingencies by their nature relate to uncertainties that
require our exercise of judgment both in assessing whether or not a liability or
loss has been incurred and estimating the amount of probable loss.
23
Effects of Inflation
The Company does not believe that inflation had a significant impact on the
Company's results of operations for the periods presented. On an ongoing basis,
the Company attempts to minimize any effects of inflation on its operating
results by controlling costs of operations and, whenever possible, seeking to
ensure that selling prices reflect increases in costs due to inflation.
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
generally engage in activities to hedge the underlying value of its copper
inventory.
New Accounting Standards
The Financial Accounting Standards Board ("FASB") issued Statements of
Financial Accounting Standards ("SFAS") No. 141, Business Combinations ("SFAS
141") and No. 142, Goodwill and Other Intangible Assets ("SFAS 142") in June
2001. SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. All of the Company's
acquisitions in recent years were accounted for under the purchase method. The
adoption of SFAS 141 had no impact on the consolidated financial statements.
Under SFAS 142, goodwill and intangible assets with indefinite lives are no
longer amortized but are reviewed annually, or more frequently if impairment
indicators arise, for impairment. Separable intangible assets that are not
deemed to have indefinite lives will continue to be amortized over their useful
lives, but with no maximum life. The Company will adopt SFAS 142 effective
August 1, 2002 and will perform the required impairment tests on goodwill and
indefinite-lived intangible assets prior to the end of the second fiscal quarter
of 2003. Effective August 1, 2002, the Company will no longer record
amortization expense on goodwill and indefinite-lived intangible assets. Such
amortization expense was $2.1 million in fiscal 2002.
Also in June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations ("SFAS 143"). SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets. The Company is required to adopt SFAS 143 on August 1, 2002, and does
not expect adoption of this statement to have a material impact on its financial
position, results of operations or cash flows.
24
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 supercedes SFAS 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, and provides further guidance regarding the accounting and
disclosure of long-lived assets. The Company is required to adopt SFAS 144
effective August 1, 2002, and does not expect adoption of this statement to have
a material impact on its financial position, results of operations or cash
flows.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections ("SFAS 145"). SFAS 145 updates, clarifies and simplifies existing
accounting pronouncements. The provisions of this standard related to SFAS No.
13 are effective for transactions occurring after May 15, 2002. All other
provisions of this standard must be applied for financial statements issued on
or after May 15, 2002. The adoption of SFAS 145 has not had a material impact on
the Company's financial position, results of operations or cash flows.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities ("SFAS 146"). SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). The provisions of SFAS
146 are effective for exit or disposal activities that are initiated after
December 31, 2002, with early adoption encouraged. The Company is currently
evaluating the effects of SFAS 146 on its financial position, results of
operations and cash flows.
Forward Looking Statements-Under the Private Securities Litigation Act of 1995
Certain of the statements in this Annual Report on Form 10-K and the
Company's 2002 Annual Report to Stockholders, in which this 10-K is included,
are forward-looking statements, including, without limitation, statements
regarding future financial results, profits and performance and other beliefs,
expectations or opinions of the Company and its management. These statements are
subject to various risks and uncertainties, many of which are outside the
control of the Company, including those risk factors described in this Annual
Report on Form 10-K and other SEC 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.
25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks, primarily from interest rates,
foreign currency exchange rates and certain commodity prices, which arise from
transactions that are entered into in the normal course of business. We seek to
minimize these risks through our normal operating and financing activities and,
when considered appropriate, through the use of derivative financial
instruments. The Company does not hold derivative financial instruments for
trading purposes.
Interest Rate Sensitivity
The table below provides information about the Company's financial
instruments, primarily debt obligations, which are sensitive to changes in
interest rates. The table presents principal cash flows and related weighted
average interest rates for debt obligations by expected maturity date and the
currency in which the instrument's cash flows are denominated. Weighted average
variable interest rates are based on the rates in effect at the reporting date
for the respective debt obligations. No assumptions have been made for future
changes in such variable rates. The fair value of fixed rate debt obligations as
determined under current market interest rate assumptions does not differ
materially from the carrying value as presented below. The information is
provided in U.S. dollar equivalents, which is the Company's reporting currency.
- -----------------------------------------------------------------------------------
Expected Maturity Date For Periods Ending July 31,
- -----------------------------------------------------------------------------------
Demand There-
Type* Notes 2003 2004 2005 2006 2007 After Total
- -----------------------------------------------------------------------------------
(U.S. dollar equivalents in millions) Balance/Average Interest Rate
Short-term Obligations:
Australian dollar VR $0.6 $0.6
6.4% 6.4%
Long-term debt:
U.S. dollar FR $0.3 $0.1 $0.1 $0.0 $0.0 $0.0 $0.5
6.3% 7.7% 7.7% 5.2% 5.2% 5.2% 6.8%
Euro FR $2.1 $1.8 $0.7 $0.6 $0.5 $0.2 $5.9
5.6% 5.7% 5.6% 5.4% 5.3% 5.3% 5.6%
U.S. dollar VR $17.5 $17.5
3.5% 3.5%
Canadian dollar VR $50.1 $50.1
2.9% 2.9%
Euro VR $35.0 $35.0
5.0% 5.0%
British pound VR $2.3 $2.3
5.6% 5.6%
*VR-Variable interest rate; FR-Fixed interest rate
26
Foreign Currency Exchange Rates
We have operating subsidiaries located in various countries outside of the
United States, including Canada, Germany, the United Kingdom and the Czech
Republic. Foreign currency exposures may arise from transactions entered into by
the Company's subsidiaries that are denominated in currencies other than the
functional currency of the subsidiary, as well as from foreign denominated
revenue and profit translated into U.S. dollars. We periodically enter into
foreign currency forward contracts to hedge certain balance sheet exposures
against future movements in foreign exchange rates. The Company's strategy is to
negotiate the terms of the derivatives such that they are highly effective,
resulting in the change in the fair value of the derivatives largely offsetting
the impact of the underlying hedged items. Any resulting gains or losses from
hedge ineffectiveness are reflected directly in income (see Note 16 "Derivative
Financial Instruments and Fair Value of Financial Instruments" under Part II,
Item 8 of this Annual Report on Form 10-K for further discussion). Assuming a
hypothetical 10 percent adverse change in the foreign currency contracts
outstanding, and holding all other variables constant, the value of foreign
currency forward contracts would have decreased by $0.7 million as of July 31,
2002. The Company had no such contracts outstanding at July 31, 2001.
Commodity Price Risk
Copper is a primary raw material purchased by the Company and is purchased
from several suppliers. Price terms are generally producers' prices at time of
shipment. We do not generally engage in activities to hedge the underlying value
of our copper inventory.
27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Cable Design Technologies Corporation:
We have audited the accompanying consolidated balance sheet of Cable Design
Technologies Corporation and subsidiaries as of July 31, 2002, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of Cable
Design Technologies Corporation and subsidiaries as of July 31, 2001 and for the
two years then ended were audited by other auditors who have ceased operations.
Those auditors expressed an unqualified opinion on those financial statements in
their report dated September 26, 2001.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of July 31,
2002, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
October 11, 2002 (October 25, 2002 as to the third paragraph of Note 19)
28
INFORMATION REGARDING PREDECESSOR INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
THE FOLLOWING REPORT IS A COPY OF A PREVIOUSLY ISSUED REPORT BY ARTHUR ANDERSEN
LLP. THE REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP NOR HAS ARTHUR
ANDERSEN LLP CONSENTED TO ITS INCLUSION IN THIS ANNUAL REPORT ON FORM 10-K.
REPORT OF PREVIOUS INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF CABLE DESIGN
TECHNOLOGIES CORPORATION AND SUBSIDIARIES:
We have audited the accompanying consolidated balance sheets of Cable
Design Technologies Corporation (a Delaware corporation) and Subsidiaries as of
July 31, 2001 and 2000, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended July 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cable Design Technologies
Corporation and Subsidiaries as of July 31, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended July 31, 2001, in conformity with accounting principles generally accepted
in the United States.
/s/ Arthur Andersen LLP
Pittsburgh, Pennsylvania
September 26, 2001
29
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------------
Year Ended July 31, 2002 2001 2000
- -------------------------------------------------------------------------------------
(In thousands, except per share information)
Net sales $553,754 $763,225 $797,824
Cost of sales 415,106 548,410 563,979
-------- -------- --------
Gross profit 138,648 214,815 233,845
Selling, general and administrative expenses 110,156 134,365 123,582
Amortization of goodwill 2,052 2,378 2,482
Research and development expenses 4,988 5,211 4,626
Business restructuring expense (income), net
(See Note 17) 5,829 17,577 (189)
-------- -------- --------
Income from operations 15,623 55,284 103,344
Interest expense, net 6,796 9,018 11,770
Other expense, net 1,051 223 377
-------- -------- --------
Income before income taxes and minority
interest 7,776 46,043 91,197
Income tax provision (See Note 9) 3,888 21,903 35,291
Minority interest in earnings
of subsidiaries, net 300 684 986
--------- --------- ---------
Net income $ 3,588 $ 23,456 $ 54,920
======== ======== ========
Basic earnings per common share (See Note 10) $ 0.08 $ 0.54 $ 1.29
======== ======== ========
Diluted earnings per common share (See Note 10) $ 0.08 $ 0.52 $ 1.25
======== ======== ========
Weighted average common shares outstanding 44,244 43,743 42,665
======== ======== ========
Weighted average common shares outstanding and
common stock equivalents 44,631 44,927 44,086
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
30
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------
July 31, 2002 2001
- --------------------------------------------------------------------------------------
(Dollars in thousands, except per share information)
ASSETS
Current assets:
Cash and cash equivalents $ 16,755 $ 14,625
Trade accounts receivable, net of allowance for
uncollectible accounts of $6,396 and $6,361, respectively 90,329 99,238
Inventories (See Note 3) 137,117 158,415
Prepaid expenses and other current assets 14,908 13,618
Deferred income taxes 13,292 12,183
-------- --------
Total current assets 272,401 298,079
Property, plant and equipment, net (See Note 4) 239,727 218,993
Goodwill, net 62,988 59,001
Intangible assets, net 6,232 4,641
Other assets 4,439 3,682
-------- --------
Total assets $585,787 $584,396
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term obligations $ 550 $ 4,915
Current maturities of long-term debt (See Note 5) 2,442 118,902
Accounts payable 26,572 27,260
Accrued payroll and related benefits 14,746 18,634
Accrued taxes 5,169 4,227
Accrued marketing program costs 4,133 4,751
Other accrued liabilities 19,083 20,870
-------- --------
Total current liabilities 72,695 199,559
Long-term debt (See Note 5) 108,908 5,413
Deferred income taxes 28,173 23,725
Other non-current liabilities 14,544 11,721
-------- --------
Total liabilities 224,320 240,418
-------- --------
Commitments and contingencies (See Note 14)
Minority interest in subsidiaries 4,567 3,053
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, 48,090,790 and 47,672,133 shares issued, respectively 481 477
Paid-in capital 200,714 198,056
Common stock issuable, 28,000 shares as of July 31, 2001 -- 358
Deferred compensation -- (600)
Retained earnings 210,052 206,464
Treasury stock, at cost, 3,609,738 and 3,652,138 shares,
respectively (45,188) (45,719)
Accumulated other comprehensive deficit (9,159) (18,111)
-------- --------
Total stockholders' equity 356,900 340,925
-------- --------
Total liabilities and stockholders' equity $585,787 $584,396
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
31
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------
Year Ended July 31, 2002 2001 2000
- ------------------------------------------------------------------------------------
(Dollars in thousands)
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 3,588 $ 23,456 $ 54,920
ADJUSTMENTS FOR NON-CASH ITEMS TO RECONCILE
NET INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation 20,417 18,574 17,088
Amortization 3,742 3,969 4,361
Goodwill impairment charge -- 9,391 --
Loss on sale of assets 17 2,064 --
Non-cash restructuring charges 2,108 -- --
Deferred income taxes (342) 440 3,308
Tax benefit of option exercises 317 832 2,147
Stock option compensation expense 97 16 68
CHANGES IN ASSETS AND LIABILITIES NET OF EFFECTS
OF BUSINESSES ACQUIRED:
Accounts receivable 17,850 43,783 (12,902)
Inventories 30,050 (17,825) (2,967)
Prepaid and other current assets (316) (6,609) 3,632
Accounts payable (5,096) (19,119) 8,494
Accrued payroll and related benefits (4,483) (5,095) 3,326
Accrued taxes (889) (1,652) (4,711)
Other accrued liabilities (6,711) 4,361 (2,228)
Other non-current assets 67 168 (662)
Other non-current liabilities 1,463 1,412 1,817
-------- -------- --------
Net cash provided by operating activities 61,879 58,166 75,691
-------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (12,559) (38,082) (22,028)
Acquisition of businesses, including
transaction costs, net of cash acquired (29,255) -- (8,331)
Proceeds on sale of assets 55 1,327 --
-------- -------- --------
Net cash used in investing activities (41,759) (36,755) (30,359)
-------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Net change in demand note borrowings (4,438) (426) (3,083)
Funds provided by long-term debt 59,079 29,949 34,707
Funds used to reduce long-term debt (75,938) (58,290) (83,984)
Proceeds from common shares issued or issuable 980 1,654 1,484
Proceeds from exercise of stock options 1,441 4,388 11,247
Payments of deferred financing fees (1,494) -- --
-------- -------- --------
Net cash used by financing activities (20,370) (22,725) (39,629)
-------- -------- --------
Effect of currency translation on cash and
cash equivalents 2,380 (515) (673)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 2,130 (1,829) 5,030
Cash and cash equivalents, beginning of year 14,625 16,454 11,424
-------- -------- --------
Cash and cash equivalents, end of year $ 16,755 $ 14,625 $ 16,454
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
32
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Accumulated
----------------- Common Other Total
Par Paid-In Stock Retained Treasury Deferred Comprehensive Stockholders'
(Dollars in thousands) Shares Value Capital Issuable Earnings Stock Compensation Deficit Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1999 46,168,392 $308 $178,979 $253 $128,246 $(49,262) $ -- $ (6,422) $252,102
Net income -- -- -- -- 54,920 -- -- -- 54,920
Currency translation adjustments -- -- -- -- -- -- -- (5,424) (5,424)
----------
Comprehensive income 49,496
Exercise of options and
related tax benefits 1,064,913 7 12,606 -- -- -- -- -- 12,613
Stock grants 2,490 -- 30 -- -- -- -- -- 30
Issuance of 67,650 shares
treasury stock -- -- (66) -- -- 847 -- -- 781
Employee stock purchase plan
shares issued 127,085 1 1,339 (253) -- -- -- -- 1,087
Employee stock purchase plan,
19,573 shares issuable -- -- -- 367 -- -- -- -- 367
Stock option compensation expense -- -- 68 -- -- -- -- -- 68
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 2000 47,362,880 316 192,956 367 183,166 (48,415) -- (11,846) 316,544
Net income -- -- -- -- 23,456 -- -- -- 23,456
Currency translation adjustments -- -- -- -- -- -- -- (6,265) (6,265)
----------
Comprehensive income 17,191
Stock split -- 158 -- -- (158) -- -- -- --
Exercise of options and
related tax benefits 173,119 2 2,558 -- -- -- -- -- 2,560
Stock grants 3,816 -- 90 -- -- -- -- -- 90
Restricted stock grants 38,163 -- 900 -- -- -- (600) -- 300
Issuance of 215,390 shares
treasury stock -- -- (36) -- -- 2,696 -- -- 2,660
Employee stock purchase plan
shares issued 94,155 1 1,572 (367) -- -- -- -- 1,206
Employee stock purchase plan,
28,000 shares issuable -- -- -- 358 -- -- -- -- 358
Stock compensation expense -- -- 16 -- -- -- -- -- 16
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 2001 47,672,133 477 198,056 358 206,464 (45,719) (600) (18,111) 340,925
Net income -- -- -- -- 3,588 -- -- -- 3,588
Currency translation adjustments -- -- -- -- -- -- -- 10,007 10,007
Minimum pension liability, net of
tax of $466 -- -- -- -- -- -- -- (1,055) (1,055)
----------
Comprehensive income 12,540
Exercise of options and
related tax benefits 272,984 3 1,268 -- -- -- -- -- 1,271
Stock grants 5,928 -- 90 -- -- -- -- -- 90
Issuance of 42,400 shares
treasury stock -- -- (133) -- -- 531 -- -- 398
Employee stock purchase plan
shares issued 139,745 1 1,336 (358) -- -- -- -- 979
Stock compensation expense -- -- 97 -- -- -- 600 -- 697
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 2002 48,090,790 $481 $200,714 $ -- $210,052 $(45,188) $ -- $(9,159) $356,900
The accompanying notes are an integral part of these consolidated financial
statements
33
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements reflect the application of the
following significant accounting policies:
Principles of Consolidation
The consolidated financial statements include the accounts of Cable Design
Technologies Corporation and its majority owned subsidiaries. All material
intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Translation of Foreign Currency Financial Statements
The financial statements of foreign subsidiaries are translated using the
exchange rate in effect at period end for balance sheet accounts and the average
exchange rate in effect during the period for income and expense accounts.
Unrealized gains or losses arising from translation are charged or credited
directly to accumulated other comprehensive income/(deficit), a component of
stockholders' equity. Gains and losses on foreign currency transactions are
included in the consolidated statement of income as they occur.
Revenue Recognition
Revenue is recognized when goods are delivered and title passes, the sales
price is fixed or determinable and collection is reasonably assured, and all
significant contractual obligations have been satisfied. Delivery is determined
by the Company's shipping terms, which are primarily FOB shipping point. Revenue
is recognized net of deductions for estimated returns, discounts, rebates, price
protection programs with distributors, and other allowances, which are based on
historical experience, inventory levels in the distributor channel and other
related factors.
Shipping and Handling Fees and Costs
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 $8.9 million, $9.8 million, and $8.0
million for the years ended July 31, 2002, 2001 and 2000, respectively.
34
Stock-Based Compensation
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method prescribed by Accounting
Principles Board ("APB") Opinion 25, Accounting for Stock Issued to Employees,
and has provided in Note 8 "Stock Benefit Plans" the pro forma disclosures of
the effect on net income and earnings per common share as if the fair
value-based method had been applied in measuring compensation expense.
Derivative Financial Instruments
Fair value hedges are hedges of recognized assets or liabilities. The
Company periodically enters into foreign currency forward contacts, accounted
for as fair value hedges, to minimize the effect of future movements in foreign
exchange rates on recognized assets or liabilities. Such forward contracts
mature in six months or less. The Company formally documents all relationships
between hedging instruments and hedged items, as well as its risk management
objective and strategy for undertaking hedge transactions. This process includes
linking all derivatives that are designated as foreign currency fair value
hedges to specific assets or liabilites. These derivatives are recognized on the
balance sheet at their fair values, which are determined based on quoted market
prices of comparable instruments or, if none are available, on pricing models or
formulas using current assumptions. Changes in the fair value of these
derivatives that are highly effective as, and that are designated and qualify
as, fair value hedges along with the loss or gain on the hedged asset or
liability are recorded in current period earnings in other expenses, net in the
consolidated statement of income. If it is determined that a derivative is not
highly effective as a hedge or that it has ceased to be a highly effective
hedge, the Company discontinues hedge accounting prospectively. The Company does
not hold derivative financial instruments for trading purposes.
Cash and Cash Equivalents
Cash and cash equivalents represent amounts on deposit in banks and all
highly liquid investments with an original maturity of three months or less at
the date of purchase.
Inventories
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market. Inventory costs include material, labor and manufacturing overhead.
Property, Plant and Equipment
Property, plant and equipment are recorded on the cost basis. Provisions
for depreciation and amortization are computed using the straight-line method
based upon the estimated useful lives of the assets. Maintenance and repair
costs are charged to operations as incurred. Major replacements or improvements
are capitalized. Cost and accumulated depreciation of property sold or retired
are removed from the accounts and any resulting gain or loss is recognized in
the current period statement of income.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair market
value of identifiable net assets acquired in connection with various business
acquisitions and combinations. Goodwill is being amortized using the
straight-line method over periods of between 20 to 40 years. Accumulated
amortization of goodwill was $13.5 million and $11.1 million at July 31, 2002
and 2001, respectively.
The Company evaluates the carrying value of goodwill when events or
circumstances indicate that the recorded amount of goodwill may not be fully
recoverable on the basis of estimated undiscounted cash flows over the remaining
amortization period-See Note 17 "Business Restructing Expenses".
35
Intangible assets consist of patents, trademarks and non-compete
agreements, which are being amortized over periods ranging from five to ten
years. Accumulated amortization for intangible assets was $3.7 million and $2.4
million at July 31, 2002 and 2001, respectively.
Income Taxes
Income taxes are accounted for in accordance with the liability method,
under which deferred tax assets or liabilities are computed based on the
temporary differences between the financial statement and income tax bases of
assets and liabilities using the enacted marginal tax rate. These differences
are classified as current or non-current based upon the classification of the
related asset or liability. For temporary differences that are not related to an
asset or liability, classification is based upon the expected reversal date of
the temporary difference.
Comprehensive Income
Comprehensive income consists of net income, foreign currency translation
adjustments and minimum pension liabilities and is presented in the accompanying
consolidated statements of stockholders' equity.
Reclassifications
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year presentation.
Statements of Cash Flows
Supplemental disclosure of cash flow information.
- -------------------------------------------------------------------------------
Year Ended July 31, 2002 2001 2000
- -------------------------------------------------------------------------------
(Dollars in thousands)
Cash paid during the year for:
Interest $ 6,380 $ 9,596 $12,772
Income taxes $ 5,181 $28,072 $30,992
Impact of Newly Issued Accounting Standards
The Financial Accounting Standards Board ("FASB") issued Statements of
Financial Accounting Standards ("SFAS") No. 141, Business Combinations ("SFAS
141") and No. 142, Goodwill and Other Intangible Assets ("SFAS 142") in June
2001. SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. All of the Company's
acquisitions in recent years were accounted for under the purchase method. The
adoption of SFAS 141 had no impact on the consolidated financial statements.
Under SFAS 142, goodwill and intangible assets with indefinite lives are no
longer amortized but are reviewed annually, or more frequently if impairment
indicators arise, for impairment. Separable intangible assets that are not
deemed to have indefinite lives will continue to be amortized over their useful
lives, but with no maximum life. The Company will adopt SFAS 142 effective
August 1, 2002 and will perform the required impairment tests on goodwill and
indefinite-lived intangible assets prior to the end of the second fiscal quarter
of 2003. Effective August 1, 2002, the Company will no longer record
36
amortization expense on goodwill and indefinite-lived intangible assets.
Such amortization expense was $2.1 million in fiscal 2002.
Also in June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations ("SFAS 143"). SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets. The Company is required to adopt SFAS 143 on August 1, 2002, and does
not expect adoption of this statement to have a material impact on its financial
position, results of operations or cash flows.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 supercedes SFAS 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, and provides further guidance regarding the accounting and
disclosure of long-lived assets. The Company is required to adopt SFAS 144
effective August 1, 2002, and does not expect adoption of this statement to have
a material impact on its financial position, results of operations or cash
flows.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections ("SFAS 145"). SFAS 145 updates, clarifies and simplifies existing
accounting pronouncements. The provisions of this standard related to SFAS No.
13 are effective for transactions occurring after May 15, 2002. All other
provisions of this standard must be applied for financial statements issued on
or after May 15, 2002. The adoption of SFAS 145 has not had a material impact on
the Company's financial position, results of operations or cash flows.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities ("SFAS 146"). SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). The provisions of SFAS
146 are effective for exit or disposal activities that are initiated after
December 31, 2002, with early adoption encouraged. The Company is currently
evaluating the effects of SFAS 146 on its financial position, results of
operations and cash flows.
NOTE 2. STOCKHOLDERS' EQUITY
A three for two stock split in the form of a common stock dividend was
effected on August 22, 2000.
On December 10, 1996, the Board of Directors adopted a Rights Agreement
("Rights Agreement"). Under the Rights Agreement, one Preferred Share Purchase
Right ("Right") for each outstanding share of the Company's common stock was
distributed to stockholders of record on December 26, 1996. Each Right entitles
the holder to buy one-two thousand two hundred fiftieth of a share of a new
series of junior participating preferred stock for an exercise price of $66.67.
The Company has designated 100,000 shares of the previously authorized $0.01 par
value preferred stock as junior participating preferred stock in connection with
the Rights Agreement. The Rights are exercisable only if a person or group (with
certain exceptions) acquires, or announces a tender offer to acquire, 20% or
more of the Company's common stock (the "Acquirer"). If the Acquirer purchases
37
20% or more of the total outstanding shares of the Company's common stock, or if
the Acquirer acquires the Company in a reverse merger, each Right (except those
held by the Acquirer) becomes a right to buy shares of the Company's common
stock having a market value equal to two times the exercise price of the Right.
If the Company is acquired in a merger or other business combination, or 50% or
more of the Company's assets or earning power is sold or transferred, each Right
(except those held by the Acquirer) becomes a right to buy shares of the common
stock of the Acquirer having a market value of two times the exercise price. The
Company may exchange the Rights for shares of the Company's common stock on a
one-to-one basis at any time after a person or group has acquired 20% or more of
the outstanding stock. The Company is entitled to redeem the Rights at $0.01 per
Right (payable in cash or common stock of the Company, at the Company's option)
at any time before public disclosure that a 20% position has been acquired. The
Rights expire on December 11, 2006, unless previously redeemed or exercised.
NOTE 3. INVENTORIES
Inventories of the Company consist of the following:
- -------------------------------------------------------------------------------
July 31, 2002 2001
- -------------------------------------------------------------------------------
(Dollars in thousands)
Raw materials $ 35,663 $ 40,959
Work in process 28,585 29,095
Finished goods 72,869 88,361
-------- --------
Total inventories $137,117 $158,415
======== ========
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment of the Company consist of the following:
- -------------------------------------------------------------------------------
July 31, 2002 2001
- -------------------------------------------------------------------------------
(Dollars in thousands)
Asset (Asset estimated useful lives):
Land $ 13,946 $ 12,259
Buildings and improvements (10-40 years) 81,546 73,670
Machinery and equipment (3-15 years) 229,171 195,125
Furniture and fixtures (5-10 years) 15,077 14,204
Construction in progress 6,852 9,738
-------- --------
Total 346,592 304,996
Less: accumulated depreciation 106,865 86,003
-------- --------
Net property, plant and equipment $239,727 $218,993
======== ========
38
NOTE 5. FINANCING ARRANGEMENTS
The Company entered into an unsecured revolving credit facility (the
"Revolving Credit Facility") on December 17, 2001 which provides for borrowings
of up to $200.0 million (the "U.S. Facility"), including a $50.0 million
European sub-facility and a $15.0 million U.K. sub-facility (combined, the
"European sub-facilities"). The Company also entered into a separate $65.0
million revolving facility for it's Canadian operations (the "Canadian
Facility"), which facility is supported by a letter of credit under the U.S.
Facility and reduces the availability under the U.S. Facility. Borrowings under
the U.S. Facility bear interest at either the London Inter-Bank Offer Rate
("LIBOR") plus an applicable margin of 1.05% to 2.00%, or a base rate, as
defined, plus an applicable margin of 0.20% to 0.50%. The applicable interest
rate margin is based on the Company's leverage ratio as calculated under the
facility. A facility fee margin of 0.20% to 0.50%, which is also based on the
Company's leverage ratio, is payable on the maximum facility amount. Fees for
letters of credit under the U.S. Facility are charged at the applicable LIBOR
interest rate margin, which was 1.625% as of July 31, 2002. Borrowings under the
Canadian Facility bear interest at the Canadian Banker's Acceptance rate, plus
an applicable margin of 0.30%. A facility fee of 0.15% is payable on the
Canadian Facility. The Revolving Credit Facility requires the Company to
maintain certain customary financial and non-financial covenants, including the
maintenance of minimum consolidated net worth and restrictions on payment of
dividends. The Company is in compliance with all applicable covenants. As of
July 31, 2002, the Company had availability of approximately $93.2 million under
the Revolving Credit Facility (based on the $200.0 million borrowing
availability in effect at such time). The borrowing availability under the U.S.
and Canadian Facilities was reduced by the Company on October 10, 2002 and
certain security was granted to the bank group-See Note 19 "Subsequent Events".
Long-term debt consists of the following:
- ------------------------------------------------------------------------------
July 31, 2002 2001
- ------------------------------------------------------------------------------
(Dollars in thousands)
U.S. revolver, due January 2, 2005,
bears interest at LIBOR plus 1.625%, or
approximately 3.495% at July 31, 2002 $ 17,500 $ 23,500
European sub-facilities, due January 2, 2005,
bears interest at rates of LIBOR plus 1.625%,
or the base rate, as defined, and ranged from
5.049% to 5.564% at July 31, 2002 37,317 --
Canadian revolver, due
December 2, 2004, bears interest
at Canadian Banker's Acceptance Rate plus 0.30%, or
approximately 2.86% at July 31, 2002 50,136 61,950
Deutschmark sub-facility -- 30,320
Capital lease obligations 1,994 1,973
Other indebtedness 4,403 6,572
-------- --------
111,350 124,315
Less: current portion 2,442 118,902
-------- --------
Total long-term debt $108,908 $ 5,413
======== ========
39
The scheduled aggregate annual principal payments of long-term debt as of
July 31, 2002, are as follows:
- -------------------------------------------------------------------------------
Year Ended July 31, Long-term Debt
- -------------------------------------------------------------------------------
(Dollars in thousands)
2003 $ 2,442
2004 1,880
2005 105,748
2006 586
2007 459
Thereafter 235
--------
Total $111,350
========
Short term obligations consist of borrowings under a revolving demand
facility in Australia (the "Australian Facility") and, through December 17,
2001, included borrowings under a revolving demand facility in the United
Kingdom (the "U.K. Agreement") (collectively, "the Foreign Facilities").
The Australian Facility is a revolving demand facility with maximum
availability of approximately $0.6 million, and is guaranteed by the Company.
The U.K. Agreement, which was retired at the time the Company entered into the
Revolving Credit Facility, was comprised of a sterling overdraft and
multi-currency demand facility in an aggregate amount of approximately $10.7
million. The Company had outstanding borrowings of $0.6 million and $4.9 million
and maximum borrowings of $6.2 million and $6.2 million under the Foreign
Facilities as of and for the years ended July 31, 2002 and 2001, respectively.
Weighted average outstanding borrowings were $2.2 million and $5.5 million, and
the effective interest rates were 5.4% and 6.3% for the years ended July 31,
2002 and 2001, respectively.
NOTE 6. RETIREMENT AND OTHER EMPLOYEE BENEFITS
The Company and its subsidiaries have various defined contribution and
defined benefit plans covering substantially all of its employees. Benefits
provided under the Company's defined benefit pension plans are primarily based
on years of service and the employee's compensation. The defined contribution
plans provide benefits primarily based on compensation levels.
40
Defined Benefit Plans
The Company maintains defined benefit plans for one of its U.S. locations
(the "U.S. Plan") and for certain employees in Canada (the "Canadian
Plans").
The following sets forth the changes in benefit obligations and plan
assets, and reconciles amounts recognized in the Company's consolidated balance
sheets:
- -------------------------------------------------------------------------------
U.S. Plan Canadian Plans
- -------------------------------------------------------------------------------
Year Ended July 31, 2002 2001 2002 2001
- -------------------------------------------------------------------------------
(Dollars in thousands)
Benefit obligation at beginning of year $2,199 $2,159 $14,065 $13,396
Service cost 40 44 2,247 2,321
Interest cost 149 146 1,158 1,008
Plan amendments -- -- 90 (899)
Gain on curtailment -- -- (45) --
Other loss (gain) 8 (10) 1,059 (1,098)
Benefits paid (151) (140) (432) (259)
Effect of currency translation -- -- (507) (404)
------ ------ ------- -------
Benefit obligation at end of year $2,245 $2,199 $17,635 $14,065
====== ====== ======= =======
Fair value of plan assets at beginning
of year $2,555 $2,734 $ 8,776 $ 7,955
Company contributions -- -- 2,329 1,976
Actual return on plan assets (89) (39) (319) (799)
Benefits paid (151) (140) (198) (116)
Effect of currency translation -- -- (309) (240)
------ ------ ------- -------
Fair value of plan assets at end of year $2,315 $2,555 $10,279 $ 8,776
====== ====== ======= =======
Funded status $ 70 $ 356 $(7,356) $(5,289)
Unrecognized net actuarial loss 528 202 2,113 138
Unrecognized prior service cost 96 111 1,043 1,424
------ ------ ------- -------
Net amount recognized $ 694 $ 669 $(4,200) $(3,727)
====== ====== ======= =======
41
Amounts recognized in the consolidated balance sheets consist of:
- ------------------------------------------------------------------------------
U.S. Plan Canadian Plans
- ------------------------------------------------------------------------------
July 31, 2002 2001 2002 2001
- ------------------------------------------------------------------------------
(Dollars in thousands)
Prepaid benefit cost $694 $669 $ -- $ --
Accrued benefit liability -- -- (6,762) (4,967)
Intangible asset -- -- 1,041 1,240
Minimum pension liability -- -- 1,521 --
---- ---- ------- -------
Net amount recognized $694 $669 $(4,200) $(3,727)
==== ==== ======= =======
A minimum pension liability adjustment is required when the actuarial
present value of accumulated benefits exceeds plan assets and accrued pension
liabilities.
Assets of the U.S. and Canadian plans are invested primarily in equity and
fixed income securities.
The weighted-average assumptions as of the end of the periods were as
follows:
- ------------------------------------------------------------------------------
U.S. Plan Canadian Plans
- ------------------------------------------------------------------------------
July 31, 2002 2001 2000 2002 2001 2000
- ------------------------------------------------------------------------------
Discount rate 7.00% 7.00% 7.00% 7.00% 7.50% 7.00%
Expected rate of return
on plan assets 7.50% 8.50% 8.50% 8.00% 8.00% 8.00%
Rate of compensation increase 0.00% 0.00% 0.00% 4.00% 4.00% 4.00%
The components of net periodic pension benefit (income) expense for fiscal
2002, 2001 and 2000 were as follows:
- -------------------------------------------------------------------------------
U.S. Plan Canadian Plans
- -------------------------------------------------------------------------------
Year Ended July 31, 2002 2001 2000 2002 2001 2000
- -------------------------------------------------------------------------------
(Dollars in thousands)
Service cost $ 40 $ 44 $ 48 $2,247 $2,321 $2,064
Interest cost 149 146 142 1,158 1,008 666
Expected return on plan assets (210) (227) (213) (766) (722) (467)
Curtailment loss -- -- -- 172 -- --
Net amortization (4) (2) (3) 243 196 28
---- ---- ----- ------ ------ ------
Net periodic benefit (income) expense $(25) $(39) $(26) $3,054 $2,803 $2,291
==== ==== ==== ====== ====== ======
42
In determining net periodic benefit (income) expense, unrecognized prior
service costs are amortized over periods ranging from 5 to 16 years.
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the Canadian pension plans with accumulated benefit
obligations in excess of plan assets were $12.6 million, $12.4 million, and $6.2
million, respectively, as of July 31, 2002, and $10.7 million, $9.9 million and
$5.2 million, respectively, as of July 31, 2001.
Under the Asset Purchase Agreement between the Company and Nortel Networks
Corp. ("Nortel") dated December 19, 1995, Nortel has retained responsibility
under certain of the Canadian pension plans with respect to services prior to
the date of acquisition. In the event Nortel were unable to pay these
obligations, the Company would be liable for all or most of such obligations.
Defined Contribution Plans
The Company also maintains defined contribution and profit-sharing plans
for eligible employees. Certain contributions are made under the matching
provision of 401(k) plans, while the remainder are made at the discretion of the
Company's Board of Directors. Expenses incurred by the Company in connection
with these defined contribution and profit-sharing plans were $2.7 million, $5.7
million, and $5.3 million for the years ended July 31, 2002, 2001 and 2000,
respectively.
NOTE 7. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Certain of the Company's operations are covered by postretirement health
and life insurance benefits under unfunded plans.
The components that comprise the changes in the benefit obligation were as
follows:
- -------------------------------------------------------------------------------
Year Ended July 31, 2002 2001
- -------------------------------------------------------------------------------
(Dollars in thousands)
Benefit obligation at beginning of year $6,487 $6,594
Service cost 215 276
Interest cost 495 466
Plan amendments 509 --
Gain on curtailment (349) --
Actuarial loss (gain) 1,798 (621)
Benefits paid (30) (29)
Effect of currency translation (252) (199)
------ ------
Benefit obligation at end of year $8,873 $6,487
====== ======
43
Amounts recognized in the consolidated balance sheets consist of:
- -------------------------------------------------------------------------------
July 31, 2002 2001
- -------------------------------------------------------------------------------
(Dollars in thousands)
Funded status $(8,873) $(6,487)
Unrecognized net loss 1,823 204
------- -------
Accrued postretirement benefit liability $(7,050) $(6,283)
======= =======
The weighted-average assumptions as of the end of the periods were as
follows:
- -------------------------------------------------------------------------------
July 31, 2002 2001 2000
- -------------------------------------------------------------------------------
Discount rate 7.00% 7.50% 7.00%
Rate of compensation increase 3.00% 4.00% 4.00%
The components of postretirement expense for fiscal 2002, 2001 and 2000
were as follows:
- -------------------------------------------------------------------------------
Year Ended July 31, 2002 2001 2000
- -------------------------------------------------------------------------------
(Dollars in thousands)
Service cost $ 215 $276 $278
Interest cost 495 466 436
Curtailment loss 235 -- --
Net amortization 65 120 149
------ ---- ----
Net postretirement
benefit expense $1,010 $862 $863
====== ==== ====
Future benefits were estimated assuming medical costs would increase at
approximately a 9.00% annual rate for fiscal 2003, decreasing gradually to 5.00%
in fiscal year 2007 and thereafter, and dental costs would increase at
approximately 5.00% for fiscal 2003 and thereafter.
Assuming a 1.00% increase in this annual trend, the accumulated
postretirement benefit obligation would have increased by $1,141,000 and
$783,000 at July 31, 2002 and 2001, respectively and the postretirement benefit
expense would have increased by approximately $95,000, $100,000 and $98,000 for
fiscal 2002, 2001 and 2000, respectively. Conversely, assuming a 1.00% decrease
in this annual trend, the accumulated postretirement benefit obligation would
have decreased by $923,000 and $629,000 at July 31, 2002 and 2001, respectively,
and the postretirement benefit expense would have decreased by approximately
$75,000, $79,000 and $78,000 for fiscal 2002, 2001 and 2000, respectively.
44
NOTE 8. STOCK BENEFIT PLANS
During fiscal 1999 the Company established the CDT Employee Stock Purchase
Plan (the "ESPP") which provides eligible employees the right to purchase common
stock of the Company on a quarterly basis at the lower of 85% of the common
stock's fair market value on the first business day of a fiscal quarter or on
the last business day of a fiscal quarter. There are 750,000 shares of common
stock reserved for issuance under the ESPP. As of July 31, 2002, 389,015 shares
of common stock remain available for issuance under the ESPP.
In December 1995, the Company adopted the Non-Employee Director Stock Plan
(the "Non-Employee Plan"). The Non-Employee Plan provides that shares of common
stock having a fair market value of $15,000 be granted annually to each
non-employee director each August 1. Shares granted under the Non-Employee Plan
were 5,928 in fiscal 2002, 3,816 in fiscal 2001, and 2,490 in fiscal 2000.
A Long Term Performance Incentive Plan (the "2001 Plan") was approved by
the shareholders in December 2000, and authorizes the grant of various types of
incentive awards with respect to 1,800,000 shares of the Company's common stock.
As of July 31, 2002, 1,370,440 shares are available for issuance under this
plan.
A Long Term Performance Incentive Plan (the "1999 Plan") was adopted in
April 1999 and amended in June 1999 and authorizes the grant of various types of
incentive awards with respect to 2,260,500 shares of the Company's common stock.
As of July 31, 2002, 165,230 shares are available for issuance under the 1999
Plan.
A Supplemental Long Term Performance Incentive Plan (the "Supplemental
Plan") was adopted in December 1995 and authorizes the grant of awards with
respect to 2,700,000 shares of common stock, of which 1,687,500 shares are
reserved for grants only to new members of the Company's management who are
employed in connection with acquisitions by the Company. As of July 31, 2002,
278,950 shares of common stock are available for grant under the Supplemental
Plan.
A Long Term Performance Incentive Plan (the "Stock Option Plan") was
adopted in September 1993 and provides for the granting to employees and other
key individuals stock options, stock appreciation rights, restricted stock,
performance units and other types of incentive awards. An aggregate of 982,625
shares of common stock were reserved for issuance pursuant to the Stock Option
Plan, and 3,983 are available for issuance as of July 31, 2002.
The Company maintains a Stock Purchase and Option Plan (the "Former Plan")
that was terminated as to future grants effective upon completion of the
Company's initial public offering on November 24, 1993. Options issued under the
Former Plan expire on the earlier of ten years after the date of grant (July
1988 through September 1992) or ten days after termination of employment.
Substantially all of the options granted under the Former Plan were exercised
prior to July 31, 1998.
45
The terms of stock options issued under the Former Plan, Stock Option Plan,
Supplemental Plan, 1999 Plan and 2001 Plan (collectively "the Option Plans")
include vesting over periods ranging from three to five years, an exercise price
equal to the fair market value of the stock at the date of grant, and a maximum
option term of ten years from the date of grant.
Certain information regarding stock option transactions is summarized
below:
- ----------------------------------------------------------------------------------------
Year Ended July 31, 2002 2001 2000
- ----------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ----------------------------------------------------------------------------------------
Outstanding, beginning
of year 4,444,573 $12.34 4,535,840 $11.51 5,454,068 $10.73
Granted 560,000 14.51 359,250 21.88 262,500 20.63
Exercised (315,384) 4.29 (388,567) 11.29 (1,132,563) 9.93
Forfeited (495,050) 17.06 (61,950) 13.80 (48,165) 9.63
--------- ------ --------- ------ --------- ------
Outstanding,
end of year 4,194,139 $12.67 4,444,573 $12.34 4,535,840 $11.51
Exercisable at
end of year 3,014,816 $12.19 2,185,331 $10.83 1,299,764 $ 9.66
--------- ------ --------- ------ --------- ------
Weighted average fair
value of options granted $ 8.70 $12.79 $11.77
Information regarding stock options outstanding as of July 31, 2002 is
summarized below:
- -----------------------------------------------------------------------------------
Options Outstanding Options Exercisable
- -----------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Range of Remaining Exercise Exercise
Exercise Prices Options Contractual Life Price Options Price
- -----------------------------------------------------------------------------------
$1.22 - $4.15 45,994 1.8 years $ 3.36 45,994 $ 3.36
$8.33 - $12.48 1,920,344 5.8 years $ 9.86 1,458,707 $ 9.97
$12.89 - $17.44 1,945,657 7.4 years $14.32 1,414,374 $14.12
$19.25 - $27.06 282,144 6.7 years $21.98 95,741 $21.67
46
The Company accounts for the Option Plans and the ESPP in accordance with
APB Opinion No. 25, Accounting for Stock Issued to Employees, under which no
compensation cost has been recognized. The supplemental information presented
below discloses pro forma net income and net income per common share as if the
Company had determined the cost of stock options in accordance with the fair
value method under SFAS No. 123, Accounting for Stock-Based Compensation.
- -------------------------------------------------------------------------------
Year Ended July 31, 2002 2001 2000
- -------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Net income: As reported $3,588 $23,456 $54,920
Pro forma $ 194 $18,899 $51,023
Basic earnings per share: As reported $ 0.08 $ 0.54 $ 1.29
Pro forma $ 0.00 $ 0.43 $ 1.20
Diluted earnings per share: As reported $ 0.08 $ 0.52 $ 1.25
Pro forma $ 0.00 $ 0.42 $ 1.18
The fair value of each option grant is estimated as of the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions for grants issued in fiscal 2002, 2001 and 2000, respectively:
risk-free interest rates of 4.34%, 5.78% and 6.36%; expected volatility of
61.4%, 64.1% and 59.0%; expected life of three to six years for all options; and
an expected dividend yield of zero for all options. The Black-Scholes option
pricing model was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. In
addition, option pricing models require the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of the
Company's stock options. Incentive stock awards are granted at the discretion of
the Company's Board of Directors, therefore, the type and number of awards
previously issued may not be indicative of those to be granted in future
periods.
During fiscal 2001, the Company granted an employee award of 38,163 shares
of restricted stock. The associated compensation expense was amortized over the
vesting period. The award vested in fiscal 2002, and compensation expense
recognized related to this award was $0.6 million and $0.3 million in fiscal
2002 and 2001, respectively.
NOTE 9. INCOME TAXES
Except for the effects of the reversal of net deductible temporary
differences, the Company is not aware of any factors which would cause any
significant differences between book and taxable income in future years.
Although there can be no assurances that the Company will generate any earnings
or specific level of continuing earnings in future periods, management believes
that it is more likely than not that the net deductible differences will reverse
during periods when the Company generates sufficient net taxable income.
47
Income before income taxes and minority interest, as shown in the
accompanying consolidated statements of income, includes the following
components:
- -------------------------------------------------------------------------------
Year Ended July 31, 2002 2001 2000
- -------------------------------------------------------------------------------
(Dollars in thousands)
Domestic $6,809 $32,910 $54,914
Foreign 967 13,133 36,283
------ ------- -------
Income before income taxes and
minority interest $7,776 $46,043 $91,197
====== ======= =======
Taxes on income, as shown in the accompanying consolidated statements of
income, include the following components:
- ------------------------------------------------------------------------------
Year Ended July 31, 2002 2001 2000
- ------------------------------------------------------------------------------
(Dollars in thousands)
Current provision:
Federal $1,056 $13,094 $16,536
State 589 2,839 3,159
Foreign 1,633 5,530 12,279
------ ------- -------
Total current provision 3,278 21,463 31,974
Deferred provision (benefit):
Federal 936 (165) 2,225
State 160 (28) 382
Foreign (486) 633 710
------ ------- -------
Total deferred provision 610 440 3,317
------ ------- --------
Income tax provision $3,888 $21,903 $35,291
====== ======= =======
48
The effective rate differs from the statutory rate for the following
reasons:
- -------------------------------------------------------------------------------
Year Ended July 31, 2002 2001 2000
- -------------------------------------------------------------------------------
(Dollars in thousands)
Tax provision based on the U.S. federal
statutory tax rate $2,617 $15,876 $31,574
State income taxes, net of federal
income tax benefit 487 1,827 2,302
Research and development
tax credit (Canada) (232) (254) (224)
Foreign tax rates different from U.S.
federal statutory rate 1,146 1,424 857
Goodwill and other nondeductible expenses 410 3,460 584
All other, net (540) (430) 198
------ ------- -------
Income tax provision $3,888 $21,903 $35,291
====== ======= =======
The components of the deferred tax assets and liabilities recorded in the
accompanying consolidated balance sheets at July 31, 2002 and 2001, which
include net deferred tax liabilities recorded in connection with acquisitions
were as follows:
- -------------------------------------------------------------------------------
July 31, 2002 2001
- -------------------------------------------------------------------------------
(Dollars in thousands)
Deferred Tax Assets:
Accruals $ 4,998 $ 5,803
Postretirement and pension accruals 3,495 3,061
Asset valuations 7,092 6,359
Net operating loss carryforwards 2,168 --
Uniform cost capitalization 1,266 1,361
Other 201 101
-------- --------
Total deferred tax assets $ 19,220 $ 16,685
-------- --------
Deferred Tax Liabilities:
Excess of book basis over tax basis
of fixed assets $(33,871) $(28,179)
Other (230) (48)
-------- --------
Total deferred tax liabilities (34,101) (28,227)
-------- --------
Net deferred tax liability $(14,881) $(11,542)
======== ========
Reconciliation to the consolidated balance sheets:
Current deferred tax asset, net $ 13,292 $ 12,183
Non-current deferred tax liability, net (28,173) (23,725)
-------- -------
Net deferred tax liability $(14,881) $(11,542)
======== ========
49
The Company currently intends that undistributed earnings of its foreign
subsidiaries will be permanently reinvested outside of the United States. As
such, a deferred tax liability has not been provided on the unremitted earnings
of the Company's foreign subsidiaries.
NOTE 10. EARNINGS PER COMMON SHARE
Basic earnings per common share are computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per
common share are computed based on the weighted average common shares
outstanding plus additional potential shares assumed to be outstanding to
reflect the dilutive effect of common stock equivalents. Additional potential
shares are calculated for each measurement period based on the treasury stock
method, under which repurchases are assumed to be made at the average fair
market value price per share of the Company's common stock during the period.
The following table sets forth the computation of basic and diluted
earnings per share:
- -----------------------------------------------------------------------------------
Year Ended July 31, 2002 2001 2000
- -----------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Numerator:
Net income $3,588 $23,456 $54,920
Denominator:
Weighted average common shares
outstanding 44,244,255 43,742,832 42,665,123
Common stock equivalents 387,227 1,184,453 1,421,076
---------- ---------- ----------
Weighted average common shares outstanding
and common stock equivalents 44,631,482 44,927,285 44,086,199
Basic earnings per
common share $ 0.08 $ 0.54 $ 1.29
Diluted earnings per
common share $ 0.08 $ 0.52 $ 1.25
Options to purchase 2,227,801, 526,000, and 247,500 shares of common stock
were outstanding during fiscal 2002, 2001, and 2000, respectively, but were not
included in the computation of diluted earnings per common share as the options'
exercise prices were greater than the average market price of the common stock
for the respective periods.
A three for two stock split in the form of a common stock dividend was
effected on August 22, 2000.
NOTE 11. ACQUISITIONS
On December 4, 2001, the Company purchased 83.6%, and subsequently, through
July 31, 2002, has purchased an additional 10.6%, of the outstanding stock of
Kabelovna Decin-Podmokly, a.s., ("KDP/CDT") based in the Czech Republic. KDP/CDT
is a manufacturer of communication, fiber optic, medical, signal and control
cable and cable harnesses.
50
On August 15, 2001, the Company acquired 100% of the outstanding stock of
A.W. Industries, ("AWI/CDT"), based in Ft. Lauderdale, Florida. AWI/CDT is a
designer and manufacturer of connectors for the telecommunication and other
industries.
The aggregate purchase price of KDP/CDT and AWI/CDT was $42.7 million,
which included $15.2 million of cash acquired. The acquisitions were accounted
for under the purchase method, under which the purchase price is allocated based
on the estimated fair market value of the assets and liabilities acquired.
Acquired intangible assets were $2.4 million, and included $0.7 million assigned
to trade names that are not subject to amortization. The remaining $1.7 million
of intangible assets represent customer lists and contracts, patents, and
non-compete agreements. These intangible assets have estimated useful lives
ranging from one to five years. Allocation of the purchase price resulted in
goodwill of $2.6 million, all of which was assigned to the Network Communication
segment. None of the goodwill is deductible for tax purposes. In accordance with
SFAS No. 142, Goodwill and Other Intangible Assets, goodwill related to the
KDP/CDT and AWI/CDT acquisitions is not being amortized.
On March 31, 2000, the Company acquired the outstanding stock of Hamilton
USA, Inc. ("BoseLAN/CDT"), a Silicon Valley company located in Milpitas,
California. BoseLAN/CDT is a developer of high performance electronic and fiber
optic components. BoseLAN/CDT was merged with Red Hawk/CDT effective August 1,
2002. See Note 19 "Subsequent Events".
On February 24, 2000, the Company purchased 85% of the outstanding stock of
Industria Tecnica Cavi S.R.L. ("ITC/CDT"), and purchased the remaining 15% of
the stock in February 2002. ITC/CDT is an Italian manufacturer of coaxial cable.
The acquisitions of BoseLAN/CDT and ITC/CDT were accounted for under the
purchase method of accounting.
The results of operations of KDP/CDT, AWI/CDT, BoseLAN/CDT and ITC/CDT have
been included in the consolidated financial statements since the respective
acquisition dates. Pro forma information giving effect to the acquisitions is
not presented as their financial position and results of operations are not
material to the Company's consolidated financial statements.
NOTE 12. INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION
The Company's operations are organized into two business segments: the
Network Communication segment and the Specialty Electronic segment. The Network
Communication segment encompasses connectivity products used within computer
networks and communication infrastructures for the electronic and optical
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, including
assembly of products for the wireless marketplace. The Specialty Electronic
segment encompasses electronic cable products that are used in automation and
process control applications as well as specialized wire and cable products for
niche markets, including commercial aviation and automotive electronics.
51
The accounting policies of the reportable segments are the same as those
described in Note 1 "Significant Accounting Policies". The Company evaluates
segment performance based on operating profit, excluding business restructuring
expenses, after allocation of corporate expenses. Business restructuring
expenses of $5.8 million and $17.6 million were incurred in fiscal 2002 and
2001, respectively, and restructuring income of $0.2 million was recorded in
fiscal 2000. Approximately $5.1 million of the fiscal 2002 and $11.0 million of
the fiscal 2001 restructuring expenses were associated with operations in the
Network Communication segment. Corporate assets, which primarily consist of
cash, deferred income taxes and other deferred costs, are immaterial and are
allocated to the operating segments.
The Company has no inter-segment revenues. Summarized financial information
for the Company's operating segments as of and for the years ended July 31, is
as follows:
- ------------------------------------------------------------------------------
Network Specialty
Communication Electronic
Segment Segment Total
- ------------------------------------------------------------------------------
(Dollars in thousands)
Sales:
2002 $347,595 $206,159 $553,754
2001 512,694 250,531 763,225
2000 545,021 252,803 797,824
Depreciation and amortization expense:
2002 15,993 8,166 24,159
2001 14,346 8,197 22,543
2000 13,697 7,752 21,449
Segment operating profit:
2002 2,678 18,774 21,452
2001 39,318 33,543 72,861
2000 62,191 40,964 103,155
Total assets:
2002 360,786 225,001 585,787
2001 356,686 227,710 584,396
2000 376,966 238,387 615,353
Capital expenditures:
2002 7,589 4,970 12,559
2001 28,359 9,723 38,082
2000 16,003 6,025 22,028
52
Segment operating profit differs from consolidated income before income
taxes and minority interest reported in the consolidated statements of income as
follows:
- ----------------------------------------------------------------------------------
Year Ended July 31, 2002 2001 2000
- ----------------------------------------------------------------------------------
(Dollars in thousands)
Segment operating profit $21,452 $72,861 $103,155
Business restructuring expense (income), net 5,829 17,577 (189)
Interest expense, net 6,796 9,018 11,770
Other expense, net 1,051 223 377
------- ------- --------
Income before income taxes and
minority interest $ 7,776 $46,043 $ 91,197
======= ======= ========
The following summarizes external sales to customers and long-lived assets
located in the Company's country of domicile and certain foreign countries:
- -------------------------------------------------------------------------------
July 31, 2002 2001 2000
- -------------------------------------------------------------------------------
(Dollars in thousands)
Sales:
United States $306,728 $454,835 $497,319
Canada 82,063 128,050 121,882
Other 164,963 180,340 178,623
-------- -------- --------
Total $553,754 $763,225 $797,824
======== ======== ========
Long-lived assets:
United States $ 88,426 $ 90,631 $ 77,832
Canada 65,127 72,737 74,160
Germany 30,396 26,844 27,086
Other 57,935 31,028 29,323
-------- -------- --------
Total $241,884 $221,240 $208,401
======== ======== ========
53
NOTE 13. LEASE COMMITMENTS
Rental expense under noncancelable operating leases was approximately
$7.6 million, $5.9 million and $5.3 million for the years ended July 31, 2002,
2001 and 2000, respectively. Operating leases relate principally to
manufacturing, warehouse and office space. Minimum annual rents payable under
noncancelable leases in each of the next five years and thereafter are as
follows:
- -------------------------------------------------------------------------------
Year Ended July 31, Total
- -------------------------------------------------------------------------------
(Dollars in thousands)
2003 $ 5,823
2004 4,690
2005 3,328
2006 2,502
2007 932
Thereafter 1,368
-------
Total future minimum lease payments $18,643
=======
In July 2002 the Company entered into a sublease agreement for one of its
facilities. The Company remains primarily liable under the terms of the original
lease, therefore operating lease payments presented above include amounts due
under the terms of the original lease agreement. In fiscal 2002 the Company
recognized a loss related to such sublease of $0.4 million, which represents the
excess of remaining payments due under the terms of the original lease over
expected sublease income. The Company received $0.1 million of sublease income
in fiscal 2002. There was no income received from sublease rentals in fiscal
2001 or 2000.
Note 14. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims that arise in the
normal course of business, including patent, trademark and environmental
matters. In management's opinion, any liability that might be incurred in
connection with the resolution of such matters would not have a material effect
upon the Company's financial position, results of operations or cash flows.
Selling, general and administrative expenses for fiscal 2002 include a
$1.3 million contingency provision for a lawsuit currently in discovery, and
whose worst-case exposure is estimated at $3.0 million. Although the outcome of
this matter is not certain at this time, the provision represents management and
outside counsel's most likely estimate of exposure.
The Company has granted, in connection with the acquisition of its HEW/CDT
subsidiary in fiscal 1999, a put option to the sellers for the 20% minority
interest in HEW/CDT. The put option must be exercised on or before January 31,
2003 and, if exercised, will become effective on August 1, 2003. If the option
is exercised, the purchase price, which is based upon multiples of the average
of prior and future results of operations of HEW/CDT, will be calculated as set
forth in the agreement as of July 31, 2003, with payment due November 1, 2003.
54
The Company had outstanding letters of credit of $1.9 million and $3.9
million as of July 31, 2002 and 2001, respectively. Outstanding letters of
credit as of July 31, 2001 included $3.1 million in connection with the purchase
of ITC/CDT (see Note 11 "Acquisitions") As of July 31, 2002 and 2001 the Company
also maintains a $1.2 million bond in connection with workers' compensation
self-insurance in the state of Massachusetts.
Note 15. Related Party Transactions
In the normal course of business the Company enters into transactions for
the purchase of materials, equipment and services with entities that are
affiliated with or owned by an officer/stockholder. Transactions with related
parties totaled less than $0.1 million in fiscal 2002, and were approximately
$0.3 million and $0.9 million for the years ended July 31, 2001 and 2000,
respectively.
Note 16. Derivative Financial Instruments and Fair Value of Financial
Instruments
Concentrations of credit risk with respect to trade receivables are limited
due to the Company's wide variety of customers and the many markets into which
the Company's products are sold, as well as the many different geographic areas
in which such customers and markets are located. As a result, at July 31, 2002,
the Company does not believe it has any significant concentrations of credit
risk.
The fair values and carrying amounts of the Company's financial
instruments, primarily accounts receivable and debt, are approximately
equivalent. The debt instruments bear interest at floating rates, which are
based upon market rates, or fixed rates that approximate market rates. All other
financial instruments are classified as current and will be utilized within the
next operating cycle.
The Company purchases foreign currency forward exchange contracts, which
are highly effective as, and are designated as, fair value hedges of foreign
currency receivables. The impact of these foreign currency forward contracts,
recorded in "other expense, net" in the consolidated statement of income, was
not material for the year ended July 31, 2002. No derivative instrument
initially designated as a fair value hedge instrument was undesignated or
discontinued as a hedging instrument during the year ended July 31, 2002. The
notional amount of outstanding foreign currency exchange contracts was $6.9
million at July 31, 2002. The fair value of these contracts was not material at
July 31, 2002. The Company did not utilize any derivative instruments during the
fiscal years ended July 31, 2001 or 2000.
55
Note 17. BUSINESS RESTRUCTURING EXPENSES
The Company incurred business restructuring expenses of $5.8 million
($3.5 million net of tax) during fiscal 2002 related to various plans to reduce
costs, including workforce reductions and the consolidation of certain
facilities. The restructuring expense includes severance and other employee
termination costs of $3.6 million ($2.2 million net of tax) related to the
termination of 343 employees, of which 317 had left the Company as of July 31,
2002. Asset impairment charges of $2.2 million ($1.3 million net of tax) were
incurred related to property and equipment held for sale and costs related to
the closing of the Company's wireless assembly facility, primarily representing
the write-off of inventory applicable to terminated customer contracts.
Approximately $5.1 million of the pretax fiscal 2002 restructuring expenses were
associated with operations in the Network Communication segment.
The Company incurred business restructuring expenses of $17.6 million
($14.3 million net of tax) in fiscal 2001 related to workforce reductions,
goodwill impairment, and the sale of a business. The fiscal 2001 expense
includes a charge of $6.1 million ($3.8 million, net of tax) for severance and
other employee termination costs associated with a workforce reduction plan
affecting 641 hourly and salaried employees, including workers under contract
manufacturing arrangements. All of the employee terminations under this plan
have been completed. The restructuring charge related to a company-wide
workforce reduction rather than to a specific business segment, and is therefore
excluded from segment operating profit (see Note 12 "Industry and Geographic
Segment Information"). However, had these costs been allocated to the Company's
business segments in a manner consistent with other Corporate expenses, the
Network Communication and Specialty Electronic segments operating profit for
fiscal 2001 would have been reduced by $4.1 million and $2.0 million,
respectively. Goodwill impairment charges of $9.4 million ($8.4 million, net of
tax) were incurred in fiscal 2001 as a result of the Company's evaluation of the
recoverability of the carrying value of goodwill for certain of its operations
based on the estimates of future cash flows for these operations. Of the total
goodwill impairment charge, $3.8 million, net of tax, represented goodwill
associated with operations in the Network Communication segment, and $4.6
million, net of tax, with operations in the Specialty Electronic segment. During
fiscal 2001, the Company sold substantially all the assets of a network
distribution business located in the United Kingdom. The Company incurred a $2.1
million net of tax loss on the sale of assets.
The following table displays the activity related to the restructuring
plans:
- -------------------------------------------------------------------------------
Severance
and Other Asset
Employee Costs Write-downs Total
- -------------------------------------------------------------------------------
Restructuring reserve, July 31, 2000 $ -- $ -- $ --
Charges 6,134 11,443 17,577
Cash expenditures (543) -- (543)
Asset valuation/other adjustments -- (11,443) (11,443)
------ ------- -------
Restructuring reserve, July 31, 2001 5,591 -- 5,591
Charges 3,663 2,166 5,829
Cash expenditures (6,521) -- (6,521)
Asset valuation/other adjustments (856) (2,166) (3,022)
------ ------- -------
Restructuring reserve, July 31, 2002 $1,877 $ -- $ 1,877
====== ======= =======
56
Note 18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial data are summarized as follows:
- ---------------------------------------------------------------------------------------------------------
Fiscal Year 2002 First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Net sales $141,956 $127,065 $141,787 $142,946
Gross profit 37,784 27,092 38,522 35,250
Income (loss) from operations
before net restructuring expenses $ 7,483 (2,882) $ 9,868 $ 6,983
Income (loss ) from operations 6,144/1/ (6,783)/1/ 9,499/1/ 6,763/1/
Net income (loss) 2,830/2/ (5,294)/2/ 3,857/2/ 2,195/2/
Per share information:
Basic earnings (loss) per common share $ 0.06 $ (0.12) $ 0.09 0.05
Diluted earnings (loss) per common share $ 0.06/2/ $ (0.12)/2/ $ 0.09/2/ $ 0.05/2/
1 Includes $1.3 million, $3.9 million, $0.4 million and $0.2 million of
restructuring expense in the first, second, third and fourth quarters,
respectively (see Note 17 "Business Restructuring Expenses").
2 Excluding restructuring expense, net of tax,(see Note 17 "Business
Restructuring Expenses"), net income for the first, third and fourth quarters
was $3.6 million ($0.08 per diluted share), $4.1 million ($0.09 per diluted
share), and $2.3 million ($0.05 per diluted share), respectively, and the net
loss for the second quarter was $3.0 million ($0.07 per diluted share).
- ---------------------------------------------------------------------------------------------------------
Fiscal Year 2001 First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Net sales $214,726 $202,645 $181,384 $164,470
Gross profit 64,271 58,855 48,320 43,369
Income from operations
before restructuring expenses 29,169 21,279 14,130 8,283
Income (loss) operations 29,169 21,279 12,065/1/ (7,229)/1/
Net income (loss) 16,209 11,524 4,489/2/ (8,766)/2/
Per share information:
Basic earnings (loss) per common share $ 0.37 $ 0.26 $ 0.10 $ (0.20)
Diluted earnings (loss) per common share $ 0.36 $ 0.26 $ 0.10/2/ $ (0.20)/2/
1 Includes $2.1 million and $15.5 million of restructuring expense in the third
and fourth quarters, respectively (see Note 17 "Business Restructuring
Expenses").
2 Excluding restructuring expense (see Note 17 "Business Restructuring
Expenses"), net income was $6.6 million ($0.15 per diluted share) for the third
quarter, and $3.4 million ($0.08 per diluted share) for the fourth quarter.
57
NOTE 19. SUBSEQUENT EVENTS
The Company reached an agreement on October 10, 2002 with the agent under
its bank facility to reduce total available borrowings under the Revolving
Credit Facility to $150.0 million, and to provide security for the loans in the
form of a pledge of substantially all of the Company's U.S. and Canadian
non-real estate assets. See Note 5 "Financing Arrangements".
The Company announced certain restructuring measures on September 26, 2002,
including the consolidation of four operating units into other Company
operations and a Company-wide workforce reduction affecting approximately 8% of
total employees, including employees at the facilities to be consolidated. The
four operating units affected are: NEK/CDT, a manufacturer of network cable
products located in Sweden, will be consolidated into the Company's other
European manufacturing facilities; NorLAN/CDT, a Montreal, Canada based
manufacturer of network cable products, will be consolidated into the Company's
Nordx/CDT operations; Red Hawk/CDT, a manufacturer of media conversion, power
over Ethernet and LAN products located in California, will be consolidated into
Mohawk/CDT; and the Company's non-core Admiral/CDT and Tennecast/CDT operations,
located in Ohio, will be consolidated. The Company expects to incur pretax
charges of approximately $11 million in the first fiscal quarter 2003 associated
with the above facilities consolidations and workforce reductions, including
severance and other employee termination costs, losses on leased facilities to
be vacated, and a non-cash charge related to the write-down of certain assets as
a result of the consolidations. Additionally, the Company expects to incur
relocation and reinstallation costs, primarily related to the movement of
machinery and equipment, of $1-$2 million which will be expensed when incurred.
On October 22, 2002 the Company executed an agreement to sell substantially
all of the operating assets related to its NORCOM operating unit located in
Kingston, Ontario. NORCOM manufactures telecommunication and central office
cables. The purchase price is approximately $11.3 million plus assumption of
accounts payable and certain other current liabilities, subject to adjustments
for asset values as of the closing date. The Company will retain various
liabilities, including those relating to potential environmental and certain
pension and postretirement matters. The agreement contemplates additional
contingency payments over three years of up to $8.1 million depending primarily
on the purchaser's achievement of future business levels and, to a lesser
extent, sales of certain inventory items. The Company expects to incur pretax
charges of approximately $40 to $45 million in the first fiscal quarter 2003 as
a result of the sale transaction. The amount of such losses has not been finally
determined. The transaction is expected to close on or about October 31, 2002.
There can be no assurance that such transaction will close or, if it closes, the
amount of any adjustments to the purchase price or whether any portion of the
contingent payments will be realized.
58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective April 8, 2002, the Board of Directors, upon the recommendation of
the Audit Committee, approved the engagement of Deloitte & Touche LLP as its
independent accountants for the fiscal year ending July 31, 2002 and dismissed
the firm of Arthur Andersen LLP.
The reports of Arthur Andersen LLP on our consolidated financial statements
for each of the past two fiscal years did not contain an adverse opinion or
disclaimer of opinion, nor were such reports qualified or modified as to
uncertainty, audit scope or accounting principle.
During the past two fiscal years and through April 8, 2002, there were no
disagreements between us and Arthur Andersen LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which, if not resolved to Arthur Andersen LLP's satisfaction, would
have caused the firm to make reference to the subject matter thereof in
connection with their report on our consolidated financial statements and there
were no reportable events as described in Item 304(a)(1)(v) of Regulation S-K.
During the years ended July 31, 2001 and 2000 and through April 8, 2002, we
did not consult with Deloitte & Touche LLP with respect to the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on our consolidated
financial statements, or any other matters or reportable events as set forth in
Items 304(a)(2)(i) and (ii) of Regulation S-K.
59
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Registrant's directors is set forth in the
Registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission on or before November 15, 2002. Such information is
incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
Age Present Office and Experience
- --- -----------------------------
61 Ferdinand C. Kuznik has been a director of the Company since 2000,
and Chief Executive Officer of the Company since December, 2001.
In June, 2001 Mr. Kuznik retired from Motorola, Inc. where he had
served since 1999 as Executive Vice President of Motorola, Inc. and
President of Motorola's operations in Europe, the Middle East and
Africa. From 1997 to 1999, Mr. Kuznik served as President of
Motorola's Personal Communications Sector. Mr. Kuznik
has also served as Managing Director of Philips Telecommunications
and held management positions with A.D. Little and AT&T Switching
Systems. Mr. Kuznik has a Dipl. Ing. Degree from the Technical
University of Ostrava and a Master's Degree in Computer Science
from the Illinois Institute of Technology in Chicago.
60 George C. Graeber has been Chief Operating Officer and a director of
the Company since 1998, and President of the Company since December,
2001. From 1992 to 1998, Mr. Graeber served in various other positions
with the Company, including Executive Vice President of the Company
and President of Montrose/CDT. From 1990 to 1992 Mr. Graeber was a
Vice President and General Manager of the Energy division of Anixter
International, Inc., a distributor of cable and communication
equipment. Mr. Graeber also was the President of the Industrial
Electronic division of Brintec Corp. and a Vice President
of Brand Rex Cable. Mr. Graeber has a Master's Degree in Electrical
Engineering from the University of Connecticut.
63 David R. Harden has been a Senior Vice President of CDT and President
of West Penn/CDT since 1988. He founded West Penn Wire in 1971, and
operated that company until 1984 when it was acquired by the Company.
From 1984 until 1988 Mr. Harden was an Executive Vice President of West
Penn/CDT.
41 Peter Sheehan has been an Executive Vice President of the Company
since 1998. Mr. Sheehan joined the Company in 1995 in the area of
international sales and marketing. Prior to joining the company Mr.
Sheehan was Senior Vice President of Sales and Marketing of Berk-tek,
a wire and cable company. Mr. Sheehan has a Bachelor's Degree from
Boston College.
52 Kenneth O. Hale has been Vice President and Chief Financial Officer of
the Company since 1987. Mr. Hale holds a Certified Public Accountant's
certificate and an MBA in finance from the University of Missouri. *
60
41 Charles B. Fromm was appointed Vice President and General Counsel of
the Company in October 1997, and Secretary of the Company in 1999.
Prior to joining the Company, Mr. Fromm was a Partner at Kirkland &
Ellis, New York. Mr. Fromm has a Bachelor's Degree in Business
Administration and a Juris Doctor Degree from the University of
Michigan.
55 Ian Mack was appointed President of European Operations in
August 2000. Prior thereto, Mr. Mack was managing director of Brand
Rex Limited, a division of BICC plc, a company based in the United
Kingdom.
46 Robert Canny was appointed Vice President of Specialty Products in June
2002. Mr. Canny was general manager of Thermax/CDT since its
acquisition by CDT in 1997, and from 1987 to 1997 served in various
other positions with Thermax. Prior to joining Thermax, Mr. Canny held
management and technical positions at Rockbestos, Times Fiber and
RFS Cablewave Systems. Mr. Canny has a Bachelor's Degree in Physics
from Southern Connecticut State University and a Master's Degree in
Industrial Engineering from the University of New Haven.
*Mr. Hale has announced that he will be leaving the Company
effective December 31, 2002. See Exhibit 10.24.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive officers of the Registrant is set forth in
the Registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission on or before November 15, 2002. Such information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information concerning security ownership of certain beneficial owners and
management is set forth in the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission on or before November 15,
2002. Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
set forth in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission on or before November 15, 2002. Such
information is incorporated herein by reference.
61
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The following financial statements are filed as part of this Annual
Report on Form 10-K:
a. Reports of Independent Public Accountants.
b. Consolidated Statements of Income for the years ended
July 31, 2002, 2001 and 2000.
c. Consolidated Balance Sheets as of July 31, 2002 and 2001.
d. Consolidated Statements of Cash Flow for the years ended
July 31, 2002, 2001 and 2000.
e. Consolidated Statements of Stockholders' Equity for the
years ended July 31, 2002, 2001 and 2000.
f. Notes to Consolidated Financial Statements.
2. The following documents are filed as part of this report:
a. Reports of Independent Public Accountants on Supplemental
Schedule.
b. Schedule II: Valuation and Qualifying Accounts for the
three years ended July 31, 2002.
c. List of Exhibits
All other schedules have been omitted because they are not applicable.
3. List of Exhibits
2.2 - Asset Purchase Agreement by and among Cable Design
Technologies (CDT) Canada Inc., Cable Design Technologies
Corporation and Northern Telecom Limited, dated as of
December 19, 1995. Incorporated by reference to Exhibit
10.16 to CDT's Registration Statement on Form S-3
(File No. 333-00554).
3.1 - Amended and Restated Certificate of Incorporation of CDT as
filed with the Secretary of State of Delaware on November
10, 1993, incorporated by reference to Exhibit 3.1 to CDT's
Registration Statement on Form S-1 (File No. 33-69992),
Certificate of Amendment of the Restated Certificate of
Incorporation of CDT and Certificate of Designation,
Preferences and Rights of Junior Participating Preferred
Stock, Series A of CDT, as filed with the Secretary of State
of Delaware on December 11, 1996 and incorporated by
reference to CDT's Registration Statement on Form 8-A/A, as
filed on December 23, 1996.
3.2 - By-Laws of CDT, as amended to date, incorporated by
reference to Exhibit 3.2 to the Post-Effective Amendment No.
1 to CDT's Registration Statement on Form S-3 (File No.
333-00554), as filed on February 28, 1996.
4.1 - Form of certificate representing shares of the Common Stock
of CDT. Incorporated by reference to Exhibit 4.1 to CDT's
Registration Statement on Form S-1 (File No. 33-69992).
62
4.2 - Rights Agreement dated as of December 11, 1996, between
Cable Design Technologies Corporation and The First National
Bank of Boston, as Rights Agent, including the form of
Certificate of Designation, Preferences and Rights of Junior
Participating Preferred Stock, Series A attached thereto as
Exhibit A, the form of Rights Certificate attached thereto
as Exhibit B and the Summary of Rights attached thereto as
Exhibit C. Incorporated herein by reference to CDT's
Registration Statement on Form 8-A, as filed on December 11,
1996.
10.1 - CDT Long-Term Performance Incentive Plan (adopted on
September 23, 1993). Incorporated by reference to Exhibit
10.18 to CDT's Registration Statement on Form S-1 (File No.
33-69992).
10.2 - CDT Stock Option Plan. Incorporated by reference to Exhibit
4.3 to CDT's Registration Statement on Form S-8 as filed on
December 22, 1993.
10.3 - Cable Design Technologies Corporation Management Stock Award
Plan (adopted on September 23, 1993). Incorporated by
reference to Exhibit 4.3 to CDT's Registration Statement on
Form S-8, as filed on May 2, 1994.
10.4 - Description of CDT Bonus Plan. Incorporated by reference to
Exhibit 10.20 to CDT's Registration Statement on Form S-1
(File No. 33-69992).
10.7 - Collective Labour Agreement dated June 10, 2001, between
NORDX/CDT and Canadian Union of Communications Workers Unit
4.**
10.8 - Form of Change in Control Agreement between CDT and each of
George C. Graeber, Kenneth O. Hale, Charles B. Fromm, Peter
Sheehan and Ian Mack. Incorporated by reference to
Exhibit 10.14 to CDT's Annual Report on Form 10-K, as filed
on October 27, 1999.
10.10 - Cable Design Technologies Corporation 1999 Long-Term
Performance Incentive Plan adopted April 19, 1999 and
amended June 11, 1999. Incorporated by reference to Exhibit
10.16 to CDT's Annual Report on Form 10-K, as filed on
October 27, 1999.
63
10.11 - Cable Design Technologies Corporation Employee Stock
Purchase Plan. Incorporated by reference to Exhibit 4.3 to
CDT's Registration Statement on Form S-8 (File No.
333-76351).
10.12 - Form of June 11, 1999 Stock Option Grant under the 1999
Long-Term Performance Incentive Plan. Incorporated by
reference to Exhibit 10.18 to CDT's Annual Report on Form
10-K, as filed on October 27, 1999.
10.13 - Form of April 23, 1999 Stock Option Grant. Incorporated by
reference to Exhibit 10.19 to CDT's Annual Report on Form
10-K, as filed on October 27, 1999.
10.14 - Amendment No. 1, dated March 7, 2000, to Cable Design
Technologies Corporation Non-Employee Director Stock Plan.
Incorporated by reference to Exhibit 10.14 to CDT's Annual
Report on Form 10-K, as filed on October 27, 2000.
10.15 - Amendment No. 2, dated July 13, 2000, to Cable Design
Technologies Corporation 1999 Long-Term Performance
Incentive Plan. Incorporated by reference to Exhibit 10.15
to CDT's Annual Report on Form 10-K, as filed on October
27, 2000.
10.16 - Employment agreement dated August 1, 2000, among CDT, Noslo
Ltd. and Ian Mack. Incorporated by reference to Exhibit
10.16 to CDT's Annual Report on Form 10-K, as filed on
October 27, 2000.
10.17 - Cable Design Technologies Corporation 2001 Long-Term
Performance Incentive Plan adopted December 6, 2000.
Incorporated by reference to Exhibit 99.1 to CDT's Report on
Form 10-Q as filed on March 15, 2001.
10.18 - Form of Stock Option Grant under CDT Non-Employee Director
Stock Plan. Incorporated by reference to Exhibit 99.2 to
CDT's Report on Form 10-Q as filed on March 15, 2001.
10.20 - Form of Employment Agreement dated December 10, 2001,
between Cable Design Technologies Corporation and Ferdinand
C. Kuznik. Incorporated by reference to Exhibit 10.2 to
CDT's Report on Form 10-Q as filed on March 13, 2002.
10.21 - Form of Change in Control Agreement dated December 10,
2001, between Cable Design Technologies Corporation and
Ferdinand C. Kuznik. Incorporated by reference to Exhibit
10.1 to CDT's Report on Form 10-Q as filed on March 13,
2002.
10.22 - Form of Ferdinand C. Kuznik nonqualified stock option
grant, dated January 21, 2002. Incorporated by reference to
Exhibit 10.4 to CDT's Report on Form 10-Q as filed on March
13, 2002.
10.23 - Amendment, dated December 10, 2001, to Cable Design
Technologies Corporation 2001 Long-Term Performance
Incentive Plan. Incorporated by reference to Exhibit 10.5 to
CDT's Report on Form 10-Q as filed on March 13, 2002.
64
10.24 - Form of Employment/Retention Agreement dated
August 22, 2002, between Cable Design Technologies
Corporation and Kenneth O. Hale.**
15.1 - Statement regarding predecessor Independent Public
Accountants' consent**
21.1 - List of Subsidiaries of CDT.**
23.1 - Consent of Deloitte & Touche LLP.**
99.1 - Form of Credit Agreement dated December 17, 2001, among
Cable Design Technologies Corporation, Fleet National Bank,
Fleet National Bank, London Branch, Fleet Bank Europe
Limited, and other lenders party thereto. Incorporated by
reference to Exhibit 99.1 to CDT's Report on Form 10-Q as
filed on March 13, 2002.
99.2 - Form of Credit Agreement dated December 17, 2001, among
NORDX/CDT, Inc., Cable Design Technologies Corporation,
Cable Design Technologies, Inc. and BNP Paribas (Canada).
Incorporated by reference to Exhibit 99.2 to CDT's Report on
Form 10-Q as filed on March 13, 2002.
99.3 - Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes - Oxley Act of
2002.**
** Filed Herein
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the last quarter of
the period covered by this report.
65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
Cable Design Technologies Corporation
By:/s/ Ferdinand Kuznik October 25, 2002
-------------------------------------
Ferdinand Kuznik
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on October 25, 2002.
SIGNATURE TITLE
/s/ Bryan C. Cressey
- -------------------------------- Chairman of the Board;
Bryan C. Cressey Director
/s/ Ferdinand C. Kuznik
- -------------------------------- Director; Chief Executive Officer
Ferdinand C. Kuznik (Principal Executive Officer)
/s/ George C. Graeber
- -------------------------------- Director; President, Chief Operating
George C. Graeber Officer
/s/ Kenneth O. Hale
- -------------------------------- Vice President; Chief Financial Officer;
Kenneth O. Hale (Principal Financial and
Accounting Officer)
/s/ Michael F.O. Harris
- -------------------------------- Director
Michael F. O. Harris
/s/ Glenn Kalnasy
- -------------------------------- Director
Glenn Kalnasy
/s/ Richard C. Tuttle
- -------------------------------- Director
Richard C. Tuttle
/s/ Lance Balk
- -------------------------------- Director
Lance Balk
66
CERTIFICATIONS
I, Ferdinand C. Kuznik, certify that:
1. I have reviewed this annual report on Form 10-K of Cable Design
Technologies Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report.
Date: October 25, 2002
/s/ Ferdinand C. Kuznik
- --------------------------------
Ferdinand C. Kuznik
Chief Executive Officer
I, Kenneth O. Hale, certify that:
1. I have reviewed this annual report on Form 10-K of Cable Design
Technologies Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report.
Date: October 25, 2002
/s/ Kenneth O. Hale
- --------------------------------
Kenneth O. Hale
Chief Financial Officer
67
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Cable Design Technologies Corporation:
We have audited the consolidated financial statements of Cable Design
Technologies Corporation and subsidiaries as of and for the year ended July 31,
2002, and have issued our report thereon dated October 11, 2002 (October 25,
2002 as to the third paragraph of Note 19); such consolidated financial
statements and report are included in your 2002 Annual Report to Stockholders
included in this Form 10-K. Our audit also included the financial statement
schedule of Cable Design Technologies Corporation and subsidiaries, listed in
Item 14. This financial statement schedule is the responsibility of the
Corporation's management. Our responsibility is to express an opinion based on
our audit. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
October 11, 2002 (October 25, 2002 as to the third paragraph of Note 19)
68
INFORMATION REGARDING PREDECESSOR INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
- --------------------------------------------------------------------------------
The following report is a copy of a previously issued report by Arthur Andersen
LLP. The report has not been reissued by Arthur Andersen LLP nor has Arthur
Andersen LLP consented to its inclusion in this annual report on form 10-k.
REPORT OF PREVIOUS INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements included in Cable
Design Technologies Corporation and Subsidiaries' annual report to stockholders
incorporated by reference in this Form 10-K, and have issued our report thereon
dated September 26, 2001. Our audits were made for the purpose of forming an
opinion on those financial statements taken as a whole. The schedule listed in
the accompanying index is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Pittsburgh, Pennsylvania
September 26, 2001
69
CABLE DESIGN TECHNOLOGIES CORPORATION
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JULY 31, 2002, 2001 AND 2000
(Dollars in thousands)
Additions to
Reserve from Charged Balance
Balance at Acquisitions to Costs Reduction at End
Beginning & Other and from of
of Period Adjustments Expenses Reserve Period
(a)
Allowance for uncollectible
accounts/sales returns:
Year Ended July 31, 2000 $4,926 $ 13 $3,071 $(1,830) $6,180
Year Ended July 31, 2001 $6,180 $ (94) $8,413 $(8,138) $6,361
Year Ended July 31, 2002 $6,361 $1,284 $1,463 $(2,712) $6,396
(a) Represents reserves acquired through business combinations, foreign
currency translation adjustments and reclassifications of sales return
allowances from net trade accounts receivable to allowance accounts.
70
CABLE DESIGN TECHNOLOGIES CORPORATION
INDEX TO EXHIBITS FILED HEREIN
JULY 31, 2002
EXHIBIT
NUMBER EXHIBIT
10.7 - Collective Labour Agreement dated June 10, 2001, between
NORDX/CDT and Canadian Union of Communications Workers Unit 4.
10.24 - Form of Employment/Retention Agreement dated August 22, 2002,
between Cable Design Technologies Corporation and Kenneth O.
Hale.
15.1 - Statement regarding predecessor Independent Public Accountants'
Consent.
21.1 - List of Subsidiaries of CDT.
23.1 - Consent of Deloitte & Touche LLP.
99.3 - Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.