UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission file number 0-27022
OPTICAL CABLE CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1237042
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
5290 Concourse Drive
Roanoke, Virginia 24019
(Address of principal executive offices, including zip code)
(540) 265-0690
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
--- --- --- ---
As of March 9, 1998, 38,364,612 shares of the registrant's Common
Stock, no par value, were outstanding. Of these outstanding shares, 36,000,000
shares were held by Robert Kopstein, Chairman of the Board, President and Chief
Executive Officer of the registrant.
OPTICAL CABLE CORPORATION
FORM 10-Q INDEX
THREE MONTHS ENDED JANUARY 31, 1998
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Balance Sheets - January 31, 1998
and October 31, 1997 .......................................2
Condensed Statements of Income - Three Months
Ended January 31, 1998 and 1997 ............................3
Condensed Statement of Changes in Stockholders'
Equity - Three Months Ended January 31, 1998 ...............4
Condensed Statements of Cash Flows - Three Months
Ended January 31, 1998 and 1997 ............................5
Condensed Notes to Condensed Financial Statements .........6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .....................9-11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ...........................12
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OPTICAL CABLE CORPORATION
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS JANUARY 31, OCTOBER 31,
1998 1997
---- ----
Current assets:
Cash and cash equivalents $ 2,489,726 $ 985,807
Trade accounts receivable, net of allowance for doubtful
accounts of $269,500 at January 31, 1998 and $307,400
at October 31, 1997 8,715,313 9,931,276
Other receivables 575,282 540,102
Due from employees 6,459 3,534
Inventories 12,353,867 12,019,443
Prepaid expenses 123,249 121,046
Deferred income taxes 136,822 81,484
------------ -------------
Total current assets 24,400,718 23,682,692
Other assets, net 46,702 50,953
Property and equipment, net 11,415,423 11,480,433
----------- -------------
Total assets $ 35,862,843 $ 35,214,078
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,683,708 $ 2,593,256
Accrued compensation and payroll taxes 609,026 612,736
Income taxes payable 981,254 564,999
------------ -------------
Total current liabilities 4,273,988 3,770,991
Deferred income taxes 88,365 64,382
------------ -------------
Total liabilities 4,362,353 3,835,373
------------ -------------
Stockholders' equity:
Preferred stock, no par value, authorized 1,000,000 shares;
none issued and outstanding - -
Common stock, voting; no par value, authorized 50,000,000
shares; issued and outstanding 38,486,318 shares at
January 31, 1998 and 38,675,416 shares at October 31, 1997 16,892,929 18,594,116
Retained earnings 14,607,561 12,784,589
------------ -------------
Total stockholders' equity 31,500,490 31,378,705
Commitments and contingencies
------------ -------------
Total liabilities and stockholders' equity $ 35,862,843 $ 35,214,078
============ =============
See accompanying condensed notes to condensed financial statements.
2
OPTICAL CABLE CORPORATION
CONDENSED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED
JANUARY 31,
--------------------------------
1998 1997
---- ----
Net Sales $ 11,873,115 $ 12,491,311
Cost of goods sold 6,804,207 7,139,646
-------------- ----------------
Gross profit 5,068,908 5,351,665
Selling, general and administrative expenses 2,283,226 2,138,576
-------------- ---------------
Income from operations 2,785,682 3,213,089
Other income (expense):
Interest income 26,609 5,160
Interest expense - (10,201)
Other, net (3,419) (4,178)
-------------- --------------
Other income (expense), net 23,190 (9,219)
-------------- --------------
Income before income tax expense 2,808,872 3,203,870
Income tax expense 985,900 1,123,509
-------------- --------------
Net income $ 1,822,972 $ 2,080,361
============== ==============
Earnings per share (note 5):
Earnings per common share $ 0.047 $ 0.054
============== ==============
Earnings per common share - assuming
dilution $ 0.047 $ 0.053
============== ==============
See accompanying condensed notes to condensed financial statements.
3
OPTICAL CABLE CORPORATION
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
THREE MONTHS ENDED JANUARY 31, 1998
----------------------------------------------------------------
Common Stock Total
------------ Retained Stockholders'
Shares Amount Earnings Equity
------ ------ -------- ------
Balances at October 31, 1997 38,675,416 $18,594,116 $ 12,784,589 $ 31,378,705
Net income - - 1,822,972 1,822,972
Repurchase of common stock (189,098) (1,701,187) - (1,701,187)
---------- ------------ ------------ ------------
Balances at January 31, 1998 38,486,318 $ 16,892,929 $ 14,607,561 $ 31,500,490
========== ============ ============ ============
See accompanying condensed notes to condensed financial statements.
4
OPTICAL CABLE CORPORATION
CONDENSED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED
JANUARY 31,
-----------------------
1998 1997
---- ----
Cash flows from operating activities:
Net income $1,822,972 $2,080,361
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 187,385 172,975
Bad debt expense (recovery) (37,900) 30,000
Deferred income taxes (31,355) (18,512)
(Increase) decrease in:
Trade accounts receivable 1,253,863 744,000
Other receivables (35,180) (370,574)
Due from employees (2,925) (2,650)
Inventories (334,424) 731,396
Prepaid expenses (2,203) (57,899)
Increase (decrease) in:
Accounts payable and accrued expenses 306,637 (3,104,935)
Accrued compensation and payroll taxes (3,710) (75,174)
Income taxes payable 416,255 1,027,021
---------- ----------
Net cash provided by operating activities 3,539,415 1,156,009
Cash flows from investing activities:
Purchase of property and equipment (334,309) (2,147,441)
---------- ----------
Net cash used in investing activities (334,309) (2,147,441)
Cash flows from financing activities:
Net payments on notes payable - (383,000)
Repurchase of common stock (1,701,187) -
---------- ----------
Net cash used in financing activities (1,701,187) (383,000)
---------- ----------
Net increase (decrease) in cash and cash equivalents 1,503,919 (1,374,432)
Cash and cash equivalents at beginning of period 985,807 1,677,739
---------- ----------
Cash and cash equivalents at end of period $2,489,726 $ 303,307
========== ==========
See accompanying condensed notes to condensed financial statements.
5
OPTICAL CABLE CORPORATION
CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED JANUARY 31, 1998
(Unaudited)
(1) GENERAL
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all material adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months ended
January 31, 1998 are not necessarily indicative of the results that may be
expected for the fiscal year ending October 31, 1998. The unaudited condensed
financial statements and condensed notes are presented as permitted by Form 10-Q
and do not contain certain information included in the Company's annual
financial statements and notes. For further information, refer to the financial
statements and notes thereto included in the Company's annual report on Form
10-K for the fiscal year ended October 31, 1997.
(2) INVENTORIES
Inventories at January 31, 1998 and October 31, 1997 consist of the following:
JANUARY 31, OCTOBER 31,
1998 1997
---- ----
Finished goods $ 5,139,757 $ 4,854,697
Work in process 2,816,917 1,976,970
Raw materials 4,344,234 5,125,044
Production supplies 52,959 62,732
----------- -----------
$12,353,867 $12,019,443
=========== ===========
(3) NOTES PAYABLE
On February 25, 1998, the Company and its bank executed a loan commitment
letter, which renewed its $5 million secured revolving line of credit available
for general corporate purposes and its $10 million secured line of credit to
fund potential acquisitions, mergers or joint ventures. The lines of credit bear
interest at 1.50 percent above the monthly LIBOR rate and are equally and
ratably secured by the Company's accounts receivable, contract rights,
inventory, furniture and fixtures, machinery and equipment and general
intangibles. The lines of credit will expire on February 28, 1999, unless
renewed or extended.
(Continued)
6
OPTICAL CABLE CORPORATION
CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(4) STOCKHOLDERS' EQUITY
On October 29, 1997, the Company's Board of Directors authorized the repurchase
of up to $5 million of the Company's common stock in the open market or in
privately negotiated transactions. During the three months ended January 31,
1998, the Company repurchased 189,098 shares of its common stock for $1,701,187.
Subsequent to January 31, 1998 and through March 9, 1998, the Company
repurchased 181,956 additional shares of its common stock in connection with its
share repurchase program.
(5) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share (SFAS No. 128). SFAS
No. 128 establishes new standards for computing and presenting earnings per
share (EPS) and applies to entities with publicly held common stock or potential
common stock. It replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.
SFAS No. 128 was required to be adopted by the Company at January 31, 1998. SFAS
No. 128 also requires restatement of all prior-period EPS data previously
presented. The following is a reconciliation of the numerators and denominators
of the basic and diluted EPS computations for the periods presented:
Net
Income Shares Per Share
THREE MONTHS ENDED JANUARY 31, 1998 (Numerator)(Denominator) Amount
----------------------------------- ------------------------------------
Earnings per common share $1,822,972 38,607,240 $ 0.047
========
Effect of dilutive stock options -- 311,728
---------- ----------
Earnings per common share - assuming dilution $ 1,822,972 38,918,968 $ 0.047
=========== ========== ========
THREE MONTHS ENDED JANUARY 31, 1997
-----------------------------------
Earnings per common share $ 2,080,361 38,675,416 $ 0.054
========
Effect of dilutive stock options -- 350,680
------------ ----------
Earnings per common share - assuming dilution $ 2,080,361 39,026,096 $ 0.053
============ ========== ========
(Continued)
7
OPTICAL CABLE CORPORATION
CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(5) (CONTINUED)
Stock options that could potentially dilute basic EPS in the future that were
not included in the computation of diluted EPS because to do so would have been
antidilutive for the periods presented totaled 238,500 for the three months
ended January 31, 1998.
On March 5, 1998, stock options totaling 60,250 shares of common stock were
exercised.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Except for the historical data set forth herein, the following discussion
contains certain forward-looking information. The Company's actual results may
differ materially from these projected results. Factors that could cause or
contribute to such differences include, but are not limited to, level of sales
to key customers, actions by competitors, fluctuations in the price of raw
materials, the Company's dependence on a single manufacturing facility, ability
to protect its proprietary manufacturing technology, dependence on a limited
number of suppliers and technological changes and introductions of new competing
products.
RESULTS OF OPERATIONS
Net Sales
Net sales consists of gross sales of products, less discounts, refunds and
returns. Net sales decreased 4.9 percent to $11.9 million in first quarter 1998
from $12.5 million for the same period in 1997. This decrease was attributable
to the completion of shipments for a large international military project in
first quarter 1997 and the delay of large potential domestic orders in first
quarter 1998 due to adverse weather conditions or economic uncertainty.
Gross Profit Margin
Cost of goods sold consists of the cost of materials, compensation costs and
overhead related to the Company's manufacturing operations. The Company's gross
profit margin (gross profit as a percentage of net sales) declined slightly to
42.7 percent in first quarter 1998 from 42.8 percent in first quarter 1997.
During first quarter 1998, sales from orders $50,000 or more approximated 18
percent compared to 26 percent for first quarter 1997. In addition, during first
quarter 1998 and 1997, net sales to distributors approximated 52 percent.
Discounts on large orders and on sales to distributors are generally greater
than for sales to the Company's other customer base.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of the compensation costs
(including sales commissions) for sales and marketing personnel, travel
expenses, customer support expenses, trade show expenses, advertising, the
compensation cost for administration, finance and general management personnel,
as well as legal and accounting fees. Selling, general and administrative
expenses as a percentage of net sales were 19.2 percent in first quarter 1998
compared to 17.1 percent in first quarter 1997. This higher percentage was
primarily the result of the fact that net sales for first quarter 1998 decreased
4.9 percent compared to first quarter 1997, while selling, general and
administrative expenses increased 6.8 percent.
Income Before Income Tax Expense
Income before income tax expense decreased 12.3 percent to $2.8 million for the
three months ended January 31, 1998 compared to $3.2 million for the three
months ended January 31, 1997. This was primarily due to decreased sales volume.
(Continued)
9
Income Tax Expense
Income tax expense decreased $138,000 to $986,000 for the three months ended
January 31, 1998 compared to $1.1 million for the same period in 1997 due to the
decrease in income before income tax expense. The Company's effective tax rate
remained unchanged at 35.1 percent during the three months ended January 31,
1998 and 1997.
Net Income
Net income for first quarter 1998 was $1.8 million compared to $2.1 million for
first quarter 1997. Despite a decrease in income tax expense of $138,000, net
income decreased $257,000 due to the $395,000 decrease in income before income
tax expense.
FINANCIAL CONDITION
Total assets at January 31, 1998 were $35.9 million, an increase of $649,000, or
1.8 percent from October 31, 1997. This increase was primarily due to a decrease
of $1.2 million in trade accounts receivable resulting from the decreased sales
volume during the quarter as compared to fourth quarter 1997, offset by an
increase of $1.5 million in cash and cash equivalents.
Total stockholders' equity at January 31, 1998 increased $122,000 in first
quarter 1998 with net income retained, offset by the repurchase of common stock
in the amount of $1.7 million accounting for the increase.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of fiscal years 1998 and 1997, the Company's primary
capital needs have been to fund working capital requirements and capital
expenditures as needed. The Company also repaid some bank indebtedness during
the first quarter of fiscal year 1997. The Company's primary source of financing
has been cash provided from operations. The Company maintains bank lines of
credit; however, there were no balances outstanding under the lines as of the
end of fiscal year 1997 or the first quarter of fiscal year 1998.
On February 25, 1998, the Company and its bank executed a loan commitment
letter, which renewed its $5 million secured revolving line of credit available
for general corporate purposes and its $10 million secured line of credit to
fund potential acquisitions, mergers or joint ventures. The lines of credit are
equally and ratably secured by the Company's accounts receivable, contract
rights, inventory, furniture and fixtures, machinery and equipment and general
intangibles. The lines of credit will expire on February 28, 1999, unless
renewed or extended. As of the date hereof, the Company has no additional
material sources of financing. The Company believes that its cash flow from
operations and available lines of credit will be adequate to fund its operations
for at least the next twelve months.
On October 29, 1997, the Company's Board of Directors authorized the repurchase
of up to $5 million of the Company's common stock in the open market or in
privately negotiated transactions. Through January 31, 1998, the Company has
repurchased $1.7 million of the Company's common stock. The repurchases were
funded through cash flows from operating activities. The Company intends to use
excess working capital and other sources as appropriate to finance the remaining
share repurchase program.
(Continued)
10
Cash flows from operations were approximately $3.5 million and $1.2 million in
first quarter 1998 and 1997, respectively. Cash flows from operations in first
quarter 1998 were primarily provided by operating income and a decrease in trade
accounts receivable of $1.3 million. For first quarter 1997, cash flows from
operations were primarily provided by operating income and decreases in trade
accounts receivable of $744,000 and inventories of $731,000, offset by a
decrease in accounts payable and accrued expenses of $3.1 million.
Net cash used in investing activities was for expenditures related to facilities
and equipment and was $334,000 and $2.1 million in first quarter 1998 and 1997,
respectively. The Company's expansion of its headquarters facilities was
substantially completed as of January 31, 1997. As of January 31, 1998, there
are no material commitments for additional capital expenditures.
Net cash used in financing activities was $1.7 million and $383,000 in first
quarter 1998 and 1997, respectively. The net cash used in financing activities
for first quarter 1998 included $1.7 million related to the Company's common
stock repurchase program. The net cash used in financing activities in first
quarter 1997 consisted of repayment of debt outstanding under the Company's
lines of credit of $383,000.
11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K for the three
months ended January 31, 1998.
(27) Financial Data Schedule.
(b) Reports on Form 8-K filed during the three months ended
January 31, 1998.
None.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OPTICAL CABLE CORPORATION
(Registrant)
Date: March 13, 1998 /s/Robert Kopstein
--------------------------
Robert Kopstein
Chairman of the Board, President and
Chief Executive Officer
Date: March 13, 1998 /s/Kenneth W. Harber
-------------------------
Kenneth W. Harber
Vice President of Finance, Treasurer
and Secretary
(principal financial and accounting officer)
5
1,000
U.S. DOLLARS
3-MOS
OCT-31-1998
NOV-01-1997
JAN-31-1998
1
2,490
0
8,895
270
12,354
24,401
15,267
3,852
35,863
4,274
0
0
0
16,893
14,607
35,863
11,873
11,900
6,804
9,087
3
(38)
0
2,809
986
1,823
0
0
0
1,823
0.047
0.047
