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, 2011
OR
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number 0-27022
OPTICAL CABLE CORPORATION
(Exact name of registrant as specified in its charter)
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|
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Virginia
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54-1237042
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
|
5290 Concourse Drive
Roanoke, Virginia 24019
(Address of principal executive offices, including zip code)
(540)
265-0690
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. (1) Yes
x
No
¨
, (2) Yes
x
No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes
¨
No
¨
NA
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a
non-accelerated filer. (See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Act).
Large Accelerated Filer
¨
Accelerated Filer
¨
Non-accelerated Filer
¨
Smaller Reporting Company
x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
¨
No
x
As of March 10, 2011, 6,210,572 shares of the registrants Common Stock, no par value, were outstanding.
OPTICAL CABLE CORPORATION
Form 10-Q Index
Three Months Ended January 31, 2011
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
OPTICAL CABLE CORPORATION
Condensed
Consolidated Balance Sheets
(Unaudited)
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Assets
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January 31,
2011
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October 31,
2010
|
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Current assets:
|
|
|
|
|
|
|
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Cash and cash equivalents
|
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$
|
2,374,416
|
|
|
$
|
2,522,058
|
|
Trade accounts receivable, net of allowance for doubtful accounts of $120,909 at January 31, 2011 and $120,450 at
October 31, 2010
|
|
|
10,599,540
|
|
|
|
10,659,623
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Other receivables
|
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411,901
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|
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606,435
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Income taxes refundable
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|
|
|
|
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373,090
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Inventories
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14,424,109
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14,422,787
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Prepaid expenses and other assets
|
|
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681,222
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|
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|
332,475
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|
Deferred income taxes - current
|
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|
1,769,990
|
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1,750,542
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|
|
|
|
|
|
|
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Total current assets
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30,261,178
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30,667,010
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Property and equipment, net
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12,952,662
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13,125,114
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Intangible assets, net
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601,359
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695,580
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Deferred income taxes - noncurrent
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638,890
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626,132
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Other assets, net
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82,631
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|
|
|
176,930
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|
|
|
|
|
|
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Total assets
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$
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44,536,720
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$
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45,290,766
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Liabilities and Shareholders Equity
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Current liabilities:
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Current installments of long-term debt
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$
|
180,083
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|
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$
|
177,350
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Accounts payable and accrued expenses
|
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|
4,730,258
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|
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5,339,941
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Accrued compensation and payroll taxes
|
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|
2,506,777
|
|
|
|
2,181,235
|
|
Income taxes payable
|
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|
110,240
|
|
|
|
63,590
|
|
|
|
|
|
|
|
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|
|
|
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Total current liabilities
|
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7,527,358
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7,762,116
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Note payable to bank
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700,000
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Long-term debt, excluding current installments
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8,146,769
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|
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8,191,785
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Other noncurrent liabilities
|
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1,043,887
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1,056,803
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|
|
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Total liabilities
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16,718,014
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17,710,704
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|
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Shareholders equity:
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Preferred stock, no par value, authorized 1,000,000 shares; none issued and outstanding
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Common stock, no par value, authorized 50,000,000 shares; issued and outstanding 6,210,572 shares at January 31, 2011 and
6,280,173 at October 31, 2010
|
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|
5,980,341
|
|
|
|
5,987,777
|
|
Retained earnings
|
|
|
22,178,898
|
|
|
|
21,869,667
|
|
|
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|
|
|
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Total shareholders equity attributable to Optical Cable Corporation
|
|
|
28,159,239
|
|
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27,857,444
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Noncontrolling interest
|
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(340,533
|
)
|
|
|
(277,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
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|
|
27,818,706
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|
|
|
27,580,062
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Commitments and contingencies
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|
|
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Total liabilities and shareholders equity
|
|
$
|
44,536,720
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|
|
$
|
45,290,766
|
|
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|
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See accompanying condensed notes to condensed consolidated financial statements.
2
OPTICAL CABLE CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended
January 31,
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|
2011
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|
2010
|
|
Net sales
|
|
$
|
17,712,784
|
|
|
$
|
15,007,235
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Cost of goods sold
|
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11,287,944
|
|
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9,506,134
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Gross profit
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6,424,840
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|
|
|
5,501,101
|
|
|
|
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Selling, general and administrative expenses
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|
5,980,919
|
|
|
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6,049,043
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|
Royalty income, net
|
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|
(161,124
|
)
|
|
|
(246,203
|
)
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Amortization of intangible assets
|
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107,702
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|
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146,808
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Income (loss) from operations
|
|
|
497,343
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|
|
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(448,547
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)
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|
Other expense, net:
|
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|
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|
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Interest income
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|
|
|
|
|
|
943
|
|
Interest expense
|
|
|
(149,957
|
)
|
|
|
(146,012
|
)
|
Other, net
|
|
|
31,083
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|
|
|
(6,994
|
)
|
|
|
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|
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|
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Other expense, net
|
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|
(118,874
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)
|
|
|
(152,063
|
)
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Income (loss) before income taxes
|
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|
378,469
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|
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(600,610
|
)
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Income tax expense (benefit)
|
|
|
39,309
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|
(222,197
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)
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Net income (loss)
|
|
$
|
339,160
|
|
|
$
|
(378,413
|
)
|
|
|
|
Net loss attributable to noncontrolling interest
|
|
|
(63,151
|
)
|
|
|
(62,559
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)
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|
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|
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|
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Net income (loss) attributable to Optical Cable Corporation
|
|
$
|
402,311
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|
$
|
(315,854
|
)
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|
|
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|
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Net income (loss) attributable to Optical Cable Corporation per share: Basic and diluted
|
|
$
|
0.06
|
|
|
$
|
(0.05
|
)
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|
|
|
|
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|
|
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See accompanying condensed notes to condensed consolidated financial statements.
3
OPTICAL CABLE CORPORATION
Condensed Consolidated Statement of Shareholders Equity
(Unaudited)
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|
|
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|
|
|
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|
|
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|
|
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Three Months Ended January 31, 2011
|
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Common Stock
|
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|
Retained
Earnings
|
|
|
Total
Shareholders
Equity Attributable
to OCC
|
|
|
Noncontrolling
Interest
|
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|
Total
Shareholders
Equity
|
|
|
Shares
|
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Amount
|
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|
|
|
|
|
|
|
|
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Balances at October 31, 2010
|
|
|
6,280,173
|
|
|
$
|
5,987,777
|
|
|
$
|
21,869,667
|
|
|
$
|
27,857,444
|
|
|
$
|
(277,382
|
)
|
|
$
|
27,580,062
|
|
|
|
|
|
|
|
|
Share-based compensation, net
|
|
|
(61,281
|
)
|
|
|
(7,436
|
)
|
|
|
|
|
|
|
(7,436
|
)
|
|
|
|
|
|
|
(7,436
|
)
|
|
|
|
|
|
|
|
Repurchase and retirement of common stock (at cost)
|
|
|
(8,320
|
)
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|
|
|
|
|
|
(30,974
|
)
|
|
|
(30,974
|
)
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|
|
|
|
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|
(30,974
|
)
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|
Common stock dividends declared, $0.01 per share
|
|
|
|
|
|
|
|
|
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|
(62,106
|
)
|
|
|
(62,106
|
)
|
|
|
|
|
|
|
(62,106
|
)
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
402,311
|
|
|
|
402,311
|
|
|
|
(63,151
|
)
|
|
|
339,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 31, 2011
|
|
|
6,210,572
|
|
|
$
|
5,980,341
|
|
|
$
|
22,178,898
|
|
|
$
|
28,159,239
|
|
|
$
|
(340,533
|
)
|
|
$
|
27,818,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying condensed notes to condensed consolidated financial statements.
4
OPTICAL CABLE CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
339,160
|
|
|
$
|
(378,413
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion
|
|
|
691,593
|
|
|
|
743,237
|
|
Bad debt expense
|
|
|
3,194
|
|
|
|
20,126
|
|
Deferred income tax expense (benefit)
|
|
|
(32,206
|
)
|
|
|
386,527
|
|
Share-based compensation expense
|
|
|
180,461
|
|
|
|
229,078
|
|
Gain on sale of property and equipment
|
|
|
(31,800
|
)
|
|
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
56,889
|
|
|
|
707,939
|
|
Other receivables
|
|
|
194,534
|
|
|
|
(212,790
|
)
|
Income taxes refundable
|
|
|
373,090
|
|
|
|
(617,699
|
)
|
Inventories
|
|
|
(1,322
|
)
|
|
|
(1,320,186
|
)
|
Prepaid expenses and other assets
|
|
|
(348,747
|
)
|
|
|
(143,083
|
)
|
Other assets, net
|
|
|
1,640
|
|
|
|
1,641
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
(626,470
|
)
|
|
|
(578,550
|
)
|
Accrued compensation and payroll taxes
|
|
|
325,542
|
|
|
|
(276,439
|
)
|
Income taxes payable
|
|
|
46,650
|
|
|
|
|
|
Other noncurrent liabilities
|
|
|
(21,298
|
)
|
|
|
61,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
1,150,910
|
|
|
|
(1,377,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of and deposits for the purchase of property and equipment
|
|
|
(292,915
|
)
|
|
|
(123,980
|
)
|
Investment in intangible assets
|
|
|
(13,481
|
)
|
|
|
(4,227
|
)
|
Proceeds from sale of property and equipment
|
|
|
31,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(274,596
|
)
|
|
|
(128,207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Payroll taxes withheld and remitted on share-based payments
|
|
|
(187,897
|
)
|
|
|
(32,703
|
)
|
Proceeds from note payable to bank, net
|
|
|
|
|
|
|
750,000
|
|
Principal payments on long-term debt and note payable to bank
|
|
|
(742,283
|
)
|
|
|
(39,711
|
)
|
Repurchase of common stock
|
|
|
(30,974
|
)
|
|
|
|
|
Common stock dividends paid
|
|
|
(62,802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(1,023,956
|
)
|
|
|
677,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(147,642
|
)
|
|
|
(827,670
|
)
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
2,522,058
|
|
|
|
1,948,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
2,374,416
|
|
|
$
|
1,120,664
|
|
|
|
|
|
|
|
|
|
|
See accompanying condensed notes to condensed consolidated financial statements.
5
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Consolidated Financial Statements
Three Months Ended January 31, 2011
(Unaudited)
The accompanying
unaudited condensed consolidated financial statements of Optical Cable Corporation and its subsidiaries (collectively, the Company or OCC) have been prepared in accordance with U.S. 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 U.S. generally accepted accounting principles
for complete financial statements. In the opinion of management, all material adjustments considered necessary for a fair presentation have been included. Operating results for the three months ended January 31, 2011 are not necessarily
indicative of the results for the fiscal year ending October 31, 2011 because the following items, among other things, may impact those results: changes in market conditions, seasonality, changes in technology, competitive conditions, ability
of management to execute its business plans, as well as other variables, uncertainties, contingencies and risks set forth as risks in the Companys Annual Report on Form 10-K for the fiscal year ended October 31, 2010 (including those set
forth in the Forward-Looking Information section), or as otherwise set forth in other filings by the Company as variables, contingencies and/or risks possibly affecting future results. The unaudited condensed consolidated financial
statements and condensed notes are presented as permitted by Form 10-Q and do not contain certain information included in the Companys annual consolidated financial statements and notes. For further information, refer to the consolidated
financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended October 31, 2010.
Certain reclassifications have been made to the prior periods condensed consolidated statement of cash flows to place them on a basis comparable with the current periods condensed consolidated
statement of cash flows.
(2)
|
Stock Option Plan and Other Share-Based Compensation
|
As of January 31, 2011, there were approximately 215,000 remaining shares available for grant under the Optical Cable Corporation 2005 Stock Incentive Plan (the 2005 Plan).
Share-based compensation expense for employees and non-employee Directors recognized in the condensed consolidated statements of
operations for the three months ended January 31, 2011 and 2010 was $180,461 and $229,078, respectively, and was entirely related to compensation expense recognized in connection with the vesting of restricted stock awards.
Stock Option Awards
Prior to July 2002, employees and outside contractors were issued options to purchase common stock. Additionally, during 2002, non-employee members of the Companys Board of Directors were granted
options to purchase shares of the Companys common stock. The exercise price equaled the market price of the Companys common stock on the date of grant.
6
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Consolidated Financial Statements
Three Months Ended January 31, 2011
(Unaudited)
Stock option activity during the three months ended January 31, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
options
|
|
|
Weighted-
average
exercise price
|
|
|
Weighted-
average
remaining
contractual
term (in years)
|
|
Outstanding and exercisable at October 31, 2010
|
|
|
166,577
|
|
|
$
|
7.62
|
|
|
|
1.27
|
|
Forfeited
|
|
|
(938
|
)
|
|
|
7.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at January 31, 2011
|
|
|
165,639
|
|
|
$
|
7.62
|
|
|
|
1.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Awards
The Company has granted, and anticipates granting from time to time, restricted stock awards subject to approval by the Compensation
Committee of the Board of Directors.
The Company generally grants restricted stock awards each fiscal year to members of the
Companys leadership team and select key employees. Such grants are approved by the Compensation Committee and are subject to any vesting requirements required by the Compensation Committee. According to policies adopted by the Board of
Directors, the Company targets April of each year as the time to make such grants. During fiscal year 2010, no such grants were made.
Restricted stock award activity during the three months ended January 31, 2011 consisted of 61,281 restricted shares forfeited or withheld for taxes in connection with the vesting of restricted
shares.
As of January 31, 2011, the maximum amount of compensation cost related to unvested equity-based compensation
awards in the form of service-based and operational performance-based shares that the Company will have to recognize over a 2.4 year weighted-average period is approximately $936,000.
(3)
|
Allowance for Doubtful Accounts for Trade Accounts Receivable
|
A summary of changes in the allowance for doubtful accounts for trade accounts receivable for the three months ended January 31, 2011 and 2010 follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
Balance at beginning of period
|
|
$
|
120,450
|
|
|
$
|
108,913
|
|
Bad debt expense
|
|
|
3,194
|
|
|
|
20,126
|
|
Losses charged to allowance
|
|
|
(2,735
|
)
|
|
|
(323
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
120,909
|
|
|
$
|
128,716
|
|
|
|
|
|
|
|
|
|
|
7
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Consolidated Financial Statements
Three Months Ended January 31, 2011
(Unaudited)
Inventories
as of January 31, 2011 and October 31, 2010 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
January 31,
2011
|
|
|
October 31,
2010
|
|
Finished goods
|
|
$
|
4,959,429
|
|
|
$
|
4,912,902
|
|
Work in process
|
|
|
2,902,380
|
|
|
|
3,502,842
|
|
Raw materials
|
|
|
6,280,721
|
|
|
|
5,775,919
|
|
Production supplies
|
|
|
281,579
|
|
|
|
231,124
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,424,109
|
|
|
$
|
14,422,787
|
|
|
|
|
|
|
|
|
|
|
As of
January 31, 2011 and October 31, 2010, the Companys accrual for estimated product warranty claims totaled $210,000 and $170,000, respectively, and is included in accounts payable and accrued expenses. Warranty claims expense for the
three months ended January 31, 2011 and 2010 totaled $54,075 and $37,400, respectively.
The following table summarizes
the changes in the Companys accrual for product warranties during the three months ended January 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
Balance at beginning of period
|
|
$
|
170,000
|
|
|
$
|
160,000
|
|
Liabilities accrued for warranties issued during the period
|
|
|
65,346
|
|
|
|
39,619
|
|
Warranty claims and costs paid during the period
|
|
|
(14,075
|
)
|
|
|
(37,400
|
)
|
Changes in liability for pre-existing warranties during the period
|
|
|
(11,271
|
)
|
|
|
(2,219
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
210,000
|
|
|
$
|
160,000
|
|
|
|
|
|
|
|
|
|
|
(6)
|
Long-term Debt and Note Payable to Bank
|
On May 30, 2008, the Company established $17.0 million in credit facilities (collectively, the Credit Facilities) with Valley Bank to provide for the working capital needs of the Company
and to finance the acquisition of Superior Modular Products Incorporated, doing business as SMP Data Communications (SMP Data Communications). The Credit Facilities provided a working capital line of credit (the Revolving
Loan), a real estate term loan (the Virginia Real Estate Loan), a supplemental real estate term loan (the North Carolina Real Estate Loan), and a capital acquisitions term loan (the Capital Acquisitions Term
Loan). The Capital Acquisitions Term Loan was fully funded in fiscal year 2008 and repaid in fiscal year 2009. Therefore, the $2.3 million portion of the credit facility related to the Capital Acquisitions Term Loan is no longer available.
8
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Consolidated Financial Statements
Three Months Ended January 31, 2011
(Unaudited)
Long-term debt as of January 31, 2011 and October 31, 2010 consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
January 31,
2011
|
|
|
October 31,
2010
|
|
Virginia Real Estate Loan ($6.5 million original principal) payable in monthly installments of $42,241, including interest (at
6.0%), with final payment of $5,896,867 due June 1, 2013
|
|
$
|
6,192,739
|
|
|
$
|
6,224,185
|
|
North Carolina Real Estate Loan ($2.24 million original principal) payable in monthly installments of $14,557, including interest
(at 6.0%), with final payment of $2,032,150 due June 1, 2013
|
|
|
2,134,113
|
|
|
|
2,144,950
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
8,326,852
|
|
|
|
8,369,135
|
|
Less current installments
|
|
|
180,083
|
|
|
|
177,350
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, excluding current installments
|
|
$
|
8,146,769
|
|
|
$
|
8,191,785
|
|
|
|
|
|
|
|
|
|
|
The Revolving Loan originally provided up to $6.0 million for the Companys working capital needs and
bore interest at LIBOR plus 2.15%, but provided a lower rate option if the Company maintained specific depository amounts with Valley Bank. The Revolving Loan was modified on February 16, 2010 (Amended Revolving Loan) and provided
up to $3.0 million for the Companys working capital needs and bore interest at LIBOR plus 2.15%, but at no time was the applicable rate to decrease below 4.5% per annum. The Company could borrow up to 85% of the Companys
consolidated eligible accounts receivable (excluding foreign accounts receivable), plus 35% of certain consolidated uninsured foreign receivables (or 100% of insured foreign receivables, without duplication) up to a maximum of $1.5 million plus 25%
of the Companys consolidated eligible inventory. The Amended Revolving Loan was due to expire on May 31, 2010.
On
April 30, 2010, the Company and SunTrust Bank entered into a revolving credit facility consisting of a Commercial Note and Agreement to Commercial Note under which SunTrust Bank provides the Company with a revolving line of credit for the
working capital needs of the Company (the Commercial Loan). The Commercial Loan provides a $6.0 million working capital line of credit, expires May 31, 2012, and replaces the Companys Amended Revolving Loan with Valley Bank.
Under the Commercial Loan, the Company may borrow an aggregate principal amount at any one time outstanding not to exceed the lesser of (i) $6.0 million, or (ii) the sum of 85% of certain receivables aged 90 days or less plus 35% of the
lesser of $1.0 million or certain foreign receivables plus 25% of certain raw materials inventory. Advances under the Commercial Loan accrue interest at the greater of (x) LIBOR plus 2.0%, or (y) 3.0%. Accrued interest on the outstanding
principal balance is due on the first day of each month beginning June 1, 2010, with all then outstanding principal, interest, fees and costs due at the Commercial Loan Termination Date of May 31, 2012.
As of January 31, 2011, the Company did not have any outstanding borrowings on its Commercial Loan and, as a result, the Company has
$6.0 million in available credit.
In connection with the Company obtaining the Commercial Loan with SunTrust Bank on
April 30, 2010, the Company entered into a Second Loan Modification Agreement with Valley Bank whereby upon satisfaction and termination of the Amended Revolving Loan, Valley Bank consented to the release of
9
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Consolidated Financial Statements
Three Months Ended January 31, 2011
(Unaudited)
certain collateral used to secure the Amended Revolving Loan, including but not limited to the Companys accounts, deposit accounts, inventory and general intangibles and permitted the
existence of the Commercial Loan.
The Commercial Loan is secured by a first priority lien on all of the Companys
inventory, accounts, general intangibles, deposit accounts, instruments, investment property, letter of credit rights, commercial tort claims, documents and chattel paper. The Virginia Real Estate Loan and the North Carolina Real Estate Loan are
secured by a first priority lien on all of the Companys personal property and assets, except for the Companys inventory, accounts, general intangibles, deposit accounts, instruments, investment property, letter of credit rights,
commercial tort claims, documents and chattel paper, as well as a first lien deed of trust on the Companys real property, in both cases including the assets at the Companys Asheville facility.
(7)
|
Fair Value of Financial Instruments
|
The carrying amounts reported in the condensed consolidated balance sheets as of January 31, 2011 and October 31, 2010 for cash and cash equivalents, trade accounts receivable, income taxes
refundable, other receivables, accounts payable and accrued expenses, including accrued compensation and payroll taxes, the current installments of long-term debt and income taxes payable approximate fair value because of the short maturity of these
instruments. The carrying value of the Companys note payable to bank and long-term debt, excluding current installments, approximates the fair value based on similar long-term debt issues available to the Company as of January 31, 2011
and October 31, 2010. Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
(8)
|
Net Income (Loss) Per Share
|
Basic net income (loss) per share excludes dilution and is computed by dividing net income (loss) available to common shareholders by the weighted-average number of common shares outstanding for the
period. Diluted net income (loss) per share 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 net income (loss) of the Company.
10
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Consolidated Financial Statements
Three Months Ended January 31, 2011
(Unaudited)
The following is a reconciliation of the numerators and denominators of the net income
(loss) per share computations for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended January 31, 2011
|
|
Net income
attributable to OCC
(numerator)
|
|
|
Shares
(denominator)
|
|
|
Per share
amount
|
|
Basic net income per share
|
|
$
|
402,311
|
|
|
|
6,258,713
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
402,311
|
|
|
|
6,258,713
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended January 31, 2010
|
|
Net
loss
attributable to OCC
(numerator)
|
|
|
Shares
(denominator)
|
|
|
Per share
amount
|
|
Basic net loss per share
|
|
$
|
(315,854
|
)
|
|
|
5,859,891
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per share
|
|
$
|
(315,854
|
)
|
|
|
5,859,891
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options that could potentially dilute net income (loss) per share in the future that were not included
in the computation of diluted net income (loss) per share (because to do so would have been antidilutive for the periods presented) totaled 165,639 and 166,577 for the three months ended January 31, 2011 and 2010, respectively.
Unvested shares as of January 31, 2011, totaling 295,199 were included in the computation of basic and diluted net income per share
for the three months ended January 31, 2011 (because to exclude such shares would have been antidilutive, or in other words, excluding such shares would have increased net income per share).
Unvested shares as of January 31, 2010, totaling 648,930, were not included in the computation of basic and diluted net loss per
share for the three months ended January 31, 2010 (because to include such shares would have been antidilutive for that period, or in other words, to do so would have reduced the net loss per share for the period).
On October 16, 2009, the Companys Board of Directors approved a plan to purchase and retire up to 325,848 shares of the
Companys common stock, or approximately 5% of the shares then outstanding. The Company anticipates that the purchases will be made over a 12- to 24-month period unless the entire number of shares expected to be purchased under the plan is
sooner acquired. As of January 31, 2011, the Company had repurchased and retired a total of 151,143 shares of its outstanding common stock under the plan approved on October 16, 2009. The repurchase of shares and the costs associated with
the repurchase, including brokerage and legal fees, totaled $30,974 for the three months ended January 31, 2011. As of January 31, 2011, 6,210,572 shares of the Companys common stock were outstanding.
11
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Consolidated Financial Statements
Three Months Ended January 31, 2011
(Unaudited)
On January 17, 2011, the Company declared a quarterly cash dividend of $0.01 per
share on its common stock totaling $62,106. This amount is included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheet as of January 31, 2011.
(10)
|
Segment Information and Business and Credit Concentrations
|
The Company provides credit, in the normal course of business, to various commercial enterprises, governmental entities and not-for-profit organizations. Concentration of credit risk with respect to trade
receivables is limited due to the Companys large number of customers. The Company also manages exposure to credit risk through credit approvals, credit limits and monitoring procedures. Management believes that credit risks as of
January 31, 2011 and October 31, 2010 have been adequately provided for in the condensed consolidated financial statements.
No single customer accounted for more than 10% of the Companys consolidated net sales during the three months ended January 31, 2011. For the three months ended January 31, 2010,
approximately 10.0% of consolidated net sales were attributable to one major domestic distributor.
For the three months ended
January 31, 2011 and 2010, approximately 72% and 69%, respectively, of consolidated net sales were from customers located in the United States, and approximately 28% and 31%, respectively, were from customers outside of the United States. For
the three months ended January 31, 2011 and 2010, 11.5% and 12.1%, respectively, of consolidated net sales were attributable to one country outside of the United States.
The Company has a single reportable segment for purposes of segment reporting, exclusive of Centric Solutions LLC (Centric Solutions). For the three months ended January 31, 2011, Centric
Solutions generated revenues totaling $19,598 and incurred operating losses of $264,008. For the three months ended January 31, 2010, Centric Solutions generated revenues totaling $42,107 and incurred operating losses of $364,265. Total assets
of Centric Solutions of approximately $271,000 (net of intercompany amounts) are included in the total consolidated assets of the Company as of January 31, 2011.
Applied
Optical Systems, Inc. (AOS), a wholly owned subsidiary of the Company since October 31, 2009, is the defendant in a patent infringement lawsuit brought by Amphenol Fiber Systems International (AFSI) in the U.S. District
Court for the Eastern District of Texas, Marshall Division, styled
Fiber Systems International, Inc. v. Applied Optical Systems, Inc
., Civil Action No. 2:06-cv-473. AFSIs Complaint claimed that specific multi-channel tactical fiber
optic connector assemblies that AOS manufactures and sells, directly or indirectly, primarily to the United States Government, infringed certain of the plaintiffs patent rights.
On November 19, 2009, a jury unanimously determined that one of the AOS fiber optic connector designs that was the subject of the
suit does not infringe on AFSIs U.S. Patent No. 6,305,849. In an earlier U.S. District Court ruling, the two other AOS fiber optic connector designs that were at issue in the suit were found not to infringe on the patent as a matter of
law. The U.S. District Court previously had granted judgment as a matter of law to AFSI on AOSs counterclaims for fraud, negligent misrepresentation, and unfair competition. The U.S. District Court also granted partial summary judgment to AFSI
on AOSs
12
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Consolidated Financial Statements
Three Months Ended January 31, 2011
(Unaudited)
antitrust counterclaims. AOSs remaining counterclaim of inequitable conduct was tried to the Court on April 8, 2010. By opinion and order issued July 7, 2010, the U.S. District
Court found that AFSI did not commit inequitable conduct and that AFSIs U.S. Patent No. 6,305,849 was not unenforceable.
The U.S. District Court, on motion of AFSI, had previously entered a preliminary injunction enjoining AOS from making sales of the accused products. However, the preliminary injunction specifically
excludes products sold to the U.S. Government or sold for ultimate delivery to the U.S. Government. On August 3, 2010, the U.S. District Court entered an order dissolving the preliminary injunction. AOS has moved to execute on the $250,000
injunction bond which AFSI was required to post in order to obtain the preliminary injunction. The U.S. District Court has not yet ruled on this motion.
On August 3, 2010, the U.S. District Court also entered a final judgment in favor of AOS on the patent infringement claims, stating defendant AOS did not infringe claim 31 of the 849
patent and plaintiff AFSI takes nothing by way of its patent infringement claims. It also awarded judgment to AFSI on all of AOSs counterclaims.
AFSI has filed various post-judgment motions asking the U.S. District Court to vacate, alter or amend its judgment, including a motion for judgment as a matter of law or, alternatively, for a new trial.
The U.S. District Court has not yet ruled on these motions. In the event the U.S. District Court denies AFSIs post-judgment motions, it is anticipated that AFSI will pursue an appeal. In the event AFSI were to pursue such an appeal, it could
seek reversal of the U.S. District Courts judgment and request that the appellate court remand the case for a new trial and/or request that the appellate court enter judgment in its favor on the issue of infringement and remand the case for
trial only on the issue of damages. In the event of an appeal by AFSI, AOS may also appeal the U.S. District Courts rulings and/or decisions on AOSs counterclaims.
In the event either the U.S. District Court or the appellate court were to order a new trial, the evidence adduced at the first trial indicated that AFSIs claimed damages were no more than $160,000
based on certain pretrial rulings by the U.S. District Court. The amount of damages sought in a retrial could potentially be higher. Additionally, in the event a new trial were ordered, a finding of infringement could result in entry of a permanent
injunction that would preclude AOS from selling the infringing products.
There have been no material developments in this
matter during the three months ended January 31, 2011. The Company does not believe this matter will have a material adverse effect on the Companys financial position, results of operations or liquidity.
From time to time, the Company is involved in other various claims, legal actions and regulatory reviews arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Companys financial position, results of operations or liquidity.
(12)
|
New Accounting Standards
|
There are no new accounting standards issued, but not yet adopted by the Company, which are expected to be applicable to its financial
position, operating results or financial statement disclosures.
13
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
Forward-Looking Information
This Form 10-Q may contain certain forward-looking information within the meaning of the federal securities laws. The forward-looking information may include, among other information, (i) statements
concerning our outlook for the future, (ii) statements of belief, anticipation or expectation, (iii) future plans, strategies or anticipated events, and (iv) similar information and statements concerning matters that are not
historical facts. Such forward-looking information is subject to variables, uncertainties, contingencies and risks that may cause actual events to differ materially from our expectations, and such variables, uncertainties, contingencies and risks
may also adversely affect Optical Cable Corporation and its subsidiaries (collectively, the Company or
OCC
®
), the Companys future results of operations and future financial condition, and/or the
future equity value of the Company. Factors that could cause or contribute to such differences from our expectations or could adversely affect the Company include, but are not limited to, the level of sales to key customers, including distributors;
timing of certain projects and purchases by key customers; the economic conditions affecting network service providers; corporate and/or government spending on information technology; actions by competitors; fluctuations in the price of raw
materials (including optical fiber, copper, gold and other precious metals, and plastics and other materials affected by petroleum product pricing); fluctuations in transportation costs; our dependence on customized equipment for the manufacture of
our products and a limited number of production facilities; our ability to protect our proprietary manufacturing technology; our ability to replace royalty income as existing patented and licensed products expire by developing and licensing new
products; market conditions influencing prices or pricing; our dependence on a limited number of suppliers; the loss of or conflict with one or more key suppliers or customers; an adverse outcome in litigation, claims and other actions, and
potential litigation, claims and other actions against us; an adverse outcome in regulatory reviews and audits and potential regulatory reviews and audits; adverse changes in state tax laws and/or positions taken by state taxing authorities
affecting us; technological changes and introductions of new competing products; changes in end-user preferences for competing technologies, relative to our product offering; economic conditions that affect the telecommunications sector, certain
technology sectors or the economy as a whole; changes in demand of our products from certain competitors for which we provide private label connectivity products; terrorist attacks or acts of war, and any current or potential future military
conflicts; changes in the level of military spending by the United States government; ability to retain key personnel; inability to recruit needed personnel; poor labor relations; the inability to successfully complete the integration of the
operations of companies acquired by us; the impact of changes in accounting policies and related costs of compliance, including changes by the Securities and Exchange Commission (SEC), the Public Company Accounting Oversight Board (PCAOB), the
Financial Accounting Standards Board (FASB), and/or the International Accounting Standards Board (IASB); our ability to continue to successfully comply with, and the cost of compliance with, the provisions of Section 404 of the Sarbanes-Oxley
Act of 2002 or any revisions to that act which apply to us; the impact of changes and potential changes in federal laws and regulations adversely affecting our business and/or which result in increases in our direct and indirect costs, including our
direct and indirect costs of compliance with such laws and regulations; the impact of the Patient Protection and Affordable Care Act of 2010, the Health Care and Education Reconciliation Act of 2010, and any revisions to those acts that apply to us
and the related legislation and regulation associated with those acts, which directly or indirectly results in increases to our costs; the impact of changes in state or federal tax laws and regulations increasing our costs; impact of future
consolidation among competitors and/or among customers adversely affecting our position with our customers and/or our market position; actions by customers adversely affecting us in reaction to the expansion of our product offering in any manner,
including, but not limited to, by offering products that compete with our customers, and/or by entering into alliances with, making investments in or with, and/or acquiring parties that compete with and/or have conflicts with customers of ours;
voluntary or involuntary delisting of the Companys capital stock from any exchange on which it is traded; the deregistration by the Company from SEC reporting requirements, as a result of the small number of
14
holders of the Companys capital stock; adverse reactions by customers, vendors or other service providers to unsolicited proposals regarding the ownership or management of the Company; the
additional costs of considering and possibly defending our position on such unsolicited proposals; impact of weather or natural disasters in the areas of the world in which we operate, market our products and/or acquire raw materials; an increase in
the number of the Companys capital stock issued and outstanding; economic downturns and/or changes in market demand, exchange rates, productivity, or market and economic conditions in the areas of the world in which we operate and market our
products; and our success in managing the risks involved in the foregoing.
We caution readers that the foregoing list of important factors is
not exclusive. Furthermore, we incorporate by reference those factors included in current reports on Form 8-K, and/or in our other filings.
Dollar amounts presented in the following discussion have been rounded to the nearest hundred thousand, unless the amounts are less than one million and
except in the case of the table set forth in the Results of Operations section, in which cases the amounts have been rounded to the nearest thousand.
Overview of Optical Cable Corporation
Optical Cable Corporation (or
OCC
®
) is a leading manufacturer of a broad range of fiber optic and copper data communication cabling and
connectivity solutions primarily for the enterprise market, offering an integrated suite of high quality, warranted products which operate as a system solution or seamlessly integrate with other providers offerings. Our product offerings
include designs for uses ranging from commercial, enterprise network, datacenter, residential and campus installations to customized products for specialty applications and harsh environments, including military, industrial, mining and broadcast
applications. Our products include fiber optic and copper cabling, fiber optic and copper connectors, specialty fiber optic and copper connectors, fiber optic and copper patch cords, pre-terminated fiber optic and copper cable assemblies, racks,
cabinets, datacom enclosures, patch panels, face plates, multi-media boxes, and other cable and connectivity management accessories, and are designed to meet the most demanding needs of end-users, delivering a high degree of reliability and
outstanding performance characteristics.
OCC
®
is internationally recognized for pioneering the design and production of fiber optic cables for the most demanding military field applications, as well as of fiber
optic cables suitable for both indoor and outdoor use, and creating a broad product offering built on the evolution of these fundamental technologies. OCC also is internationally recognized for its role in establishing copper connectivity data
communications standards, through its innovative and patented technologies.
Founded in 1983, Optical Cable Corporation is headquartered in
Roanoke, Virginia with offices, manufacturing and warehouse facilities located in Roanoke, Virginia, near Asheville, North Carolina, and near Dallas, Texas. We primarily manufacture our high quality fiber optic cables at our Roanoke facility which
is ISO 9001:2008 registered and MIL-STD-790F certified, our high quality enterprise connectivity products at our Asheville facility which is ISO 9001:2008 registered, and our high quality military and harsh environment connectivity products and
systems at our Dallas facility which is ISO 9001:2008 registered and MIL-STD-790F certified.
OCC sells its products internationally and
domestically through its sales force to its customers, which include major distributors, regional distributors, various smaller distributors, original equipment manufacturers and value-added resellers.
On May 30, 2008, Optical Cable Corporation acquired Superior Modular Products Incorporated, doing business as SMP Data Communications (SMP
Data Communications), located near Asheville, North Carolina. Our Asheville team designs and manufactures fiber and copper connectivity products for the enterprise market,
15
including a broad range of commercial and residential applications. We refer to these products as our enterprise connectivity product offering. Our Asheville team is internationally recognized
for its role in establishing copper connectivity data communications standards, through innovative and patented technologies. The products manufactured at our Asheville facility are marketed and sold under the names Optical Cable Corporation and OCC
by our integrated sales team. On October 31, 2009, we merged SMP Data Communications with and into Optical Cable Corporation, and SMP Data Communications ceased to exist as a separate entity.
On October 31, 2009, Optical Cable Corporation acquired Applied Optical Systems, Inc. (AOS), located near Dallas, Texas. Our Dallas team
designs, develops and manufactures a broad range of specialty fiber optic connectors and connectivity solutions primarily for use in military and other harsh environment applications. We refer to these products as our applied interconnect systems
product offering. Founded in 2003, AOS is a wholly owned subsidiary of Optical Cable Corporation. We market and sell the products manufactured at our Dallas facility under the names Optical Cable Corporation and OCC through the efforts of our
integrated sales team.
Optical Cable Corporation, OCC
®
, Superior Modular Products, SMP Data Communications, Applied Optical Systems, and associated logos are trademarks of Optical Cable Corporation.
Summary of Company Performance for First Quarter 2011
|
|
|
Consolidated net sales for the first quarter of fiscal year 2011 increased 18.0% to $17.7 million compared to consolidated net sales of $15.0 million
for the same period last year. We experienced an increase in net sales during the first quarter of fiscal year 2011 in both our commercial market and our specialty markets compared to the same period last year.
|
|
|
|
Gross profit increased 16.8% to $6.4 million for the first quarter of fiscal year 2011 compared to $5.5 million for the same period last year.
|
|
|
|
OCC achieved increases in net sales during the first quarter of fiscal year 2011 while reducing expenses. Specifically, selling, general and
administrative expenses decreased 1.1% during the quarter compared to the same period last year.
|
|
|
|
We reported net income attributable to OCC of $402,000, or $0.06 per share, during the first quarter of fiscal year 2011, compared to a net loss
attributable to OCC of $316,000, or $0.05 per share, for the comparable period last year.
|
|
|
|
OCC again generated positive cash flow from operating activitieswith net cash provided by operating activities of $1.2 million in the first
quarter of fiscal year 2011.
|
|
|
|
We paid off the $700,000 balance of our revolving credit facility during the first quarter of fiscal year 2011, resulting in $6.0 million in unused and
available credit under this facility.
|
|
|
|
OCC also declared its second quarterly dividend of $0.01 per share of common stock on January 17, 2011.
|
Results of Operations
All of our sales
to customers located outside of the United States are denominated in U.S. dollars. We can experience fluctuations in the percentage of net sales to customers located outside of the United States from period to period based on the timing of large
orders, coupled with the impact of increases and decreases in sales to customers located in the United States.
16
Net sales
consist of gross sales of products less discounts, refunds and returns. Revenue is
recognized at the time of product shipment or delivery to the customer (including distributors) provided that the customer takes ownership and assumes risk of loss (based on shipping terms), collection of the relevant receivable is probable,
persuasive evidence of an arrangement exists and sale price is fixed or determinable. Our customers generally do not have the right of return unless a product is defective or damaged and is within the parameters of the product warranty in effect for
the sale.
Cost of goods sold
consists of the cost of materials, product warranty costs and compensation costs, and overhead and other
costs related to our manufacturing operations. The largest percentage of costs included in cost of goods sold is attributable to costs of materials.
Our gross profit margin percentages are heavily dependent upon product mix on a quarterly basis and may deviate from expectations based on both anticipated and unanticipated changes in product mix.
Additionally, gross profit margins tend to be higher when we achieve higher net sales levels, as certain fixed manufacturing costs are spread over higher sales volumes.
Selling, general and administrative expenses
(SG&A expenses) consist of the compensation costs for sales and marketing personnel, shipping costs, trade show expenses, customer
support expenses, travel expenses, advertising, bad debt expense, the compensation costs for administration and management personnel, legal and accounting fees, costs incurred to settle litigation or claims and other actions against us, and other
costs associated with our operations.
Royalty income, net
consists of royalty income earned on licenses associated with our patented
products, net of royalty and related expenses.
Amortization of intangible assets
consists of the amortization of developed technology
acquired in the acquisition of SMP Data Communications on May 30, 2008 and the amortization of intellectual property and customer list acquired in the acquisition of AOS on October 31, 2009. Amortization of intangible assets is calculated
using an accelerated method and straight line method over the estimated useful lives of the intangible assets.
Other income, net
consists of interest income, interest expense, and other miscellaneous income and expense items not directly attributable to our operations.
The following table sets forth and highlights fluctuations in selected line items from our condensed consolidated statements of operations for the
periods indicated:
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|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
January 31
|
|
|
Percent
Change
|
|
|
|
2011
|
|
|
2010
|
|
|
Net sales
|
|
$
|
17,713,000
|
|
|
$
|
15,007,000
|
|
|
|
18.0
|
%
|
Gross profit
|
|
|
6,425,000
|
|
|
|
5,501,000
|
|
|
|
16.8
|
|
SG&A expenses
|
|
|
5,981,000
|
|
|
|
6,049,000
|
|
|
|
(1.1
|
)
|
Net income (loss) attributable to OCC
|
|
|
402,000
|
|
|
|
(316,000
|
)
|
|
|
227.4
|
|
Net Sales
Consolidated net sales for the first quarter of fiscal year 2011 increased 18.0% to $17.7 million compared to net sales of $15.0 million for the same
period last year. The increase in net sales during the first quarter of fiscal year 2011 when compared to the same period last year was attributable to increases in both our commercial market and our specialty markets. Net sales to customers located
in the United States increased 21.6% in the first quarter of fiscal year 2011 compared to the same period last year, and net sales to customers located outside of the United States increased 9.9%.
17
The increase in net sales when comparing the first quarter of fiscal year 2011 to the first quarter of
fiscal year 2010, is due primarily to the increase in net sales of our applied interconnect system products. Applied interconnect system products were new to the OCC product line in the first quarter of fiscal year 2010, due to the acquisition of
AOS effective October 31, 2009. As a result of the integration process over the last year, we gained synergies due to our integrated sales force and also gained efficiencies associated with throughput in the AOS production facility, resulting
in significant increases in net sales in the second half of fiscal year 2010 and continuing into the first quarter of fiscal year 2011.
We
believe our consolidated net sales may be negatively impacted by the continuing global economic recession. However, when comparing net sales for the first quarter of fiscal year 2011 to the first quarter of fiscal year 2010, the sale of our fiber
optic cable, enterprise connectivity and applied interconnect systems products have improved.
Gross Profit
Our gross profit increased 16.8% to $6.4 million in the first quarter of fiscal year 2011, compared to $5.5 million in the first quarter of fiscal year
2010. Gross profit margin, or gross profit as a percentage of net sales, decreased slightly to 36.3% in the first quarter of fiscal year 2011 from 36.7% in the first quarter of fiscal year 2010. Historically, our enterprise connectivity and applied
interconnect systems products have lower gross profit margins than our fiber optic cable productsa trend we expect to continue.
Our
gross profit margin percentages are heavily dependent upon product mix on a quarterly basis and may deviate from expectations based on both anticipated and unanticipated changes in product mix. Additionally, our gross profit margins for our product
lines tend to be higher when we achieve higher net sales levels of those product lines, as certain fixed manufacturing costs are spread over higher sales volumes; however, when comparing the first quarter of fiscal year 2011 to the first quarter of
fiscal year 2010, the level of increased sales volume was not sufficient to overcome other factors.
Selling, General, and Administrative
Expenses
OCC achieved increases in net sales during the first quarter of fiscal year 2011 while reducing SG&A expenses 1.1% during the
first quarter of fiscal year 2011 compared to the same period last year. SG&A expenses as a percentage of net sales were 33.8% in the first quarter of fiscal year 2011 compared to 40.3% in the first quarter of fiscal year 2010. The lower
percentage in the first quarter of fiscal year 2011 relates to the fact that net sales increased while SG&A expenses remained fairly stable at approximately $6.0 million during the first quarters of fiscal years 2011 and 2010.
Royalty Income, Net
We recognized
royalty income, net of royalty and related expenses, totaling $161,000 during the first quarter of fiscal year 2011, compared to royalty income, net of royalty and related expenses, totaling $246,000 during the same period last year. Certain of our
license agreements, which generate royalty income, include annual maximum royalty payments determined on a calendar year basis. The rate at which the maximum royalty threshold was met during calendar year 2010 negatively affected royalty income in
our first quarter of fiscal year 2011 compared to the same period last year. Additionally, the decrease in sales of licensed product by licensees during the first quarter of fiscal year 2011 contributed to the decrease in royalty income, net when
comparing the first quarter of fiscal year 2011 to the first quarter of fiscal year 2010. This income is largely offset by the expense of the amortization of the intangible assets associated with our royalty income, net (as further described
18
in the
Amortization of Intangible Assets
section described herein), resulting from the required write-up of intangible assets to fair value when acquired as part of the acquisition of SMP
Data Communications on May 30, 2008. Certain patents which generate a portion of our royalty income will expire beginning during our 2012 fiscal year. As a result, we expect royalty income will begin to decline.
Amortization of Intangible Assets
We
recognized $108,000 of amortization expense, associated with intangible assets, for the first quarter of fiscal year 2011, compared to amortization expense of $147,000 during the first quarter of fiscal year 2010. The decrease in amortization
expense, when comparing the two periods, is primarily due to the fact that the purchased developed technology asset, acquired in connection with the acquisition of SMP Data Communications, is being amortized using a declining balance method over the
useful life of the asset; therefore, the amortization expense decreases as the asset ages.
Other Expense, Net
We recognized other expense, net in the first quarter of fiscal year 2011 of $119,000 compared to other expense, net of $152,000 in the first quarter of
fiscal year 2010. Other expense, net is comprised of interest income, interest expense and other miscellaneous items which may fluctuate from period to period.
Income (Loss) Before Income Taxes
We reported income before income taxes of $378,000 for
the first quarter of fiscal year 2011 compared to a loss before income taxes of $601,000 for the first quarter of fiscal year 2010. This change was primarily due to the increase in gross profit of $924,000 in the first quarter of fiscal year 2011
compared to the same period in 2010.
Income Tax Expense (Benefit)
Income tax expense totaled $39,000 in the first quarter of fiscal year 2011 compared to income tax benefit of $222,000 for the same period in fiscal year 2010. Our effective tax rate for the first quarter
of fiscal year 2011 was 10.4% compared to 37.0% for the first quarter of fiscal year 2010.
Generally, fluctuations in our effective tax rates
are primarily due to permanent differences in U.S. GAAP and tax accounting for various tax deductions and benefits, but can also be significantly different from the statutory tax rate when income or loss before taxes is at a level, generally close
to breakeven, that permanent differences in U.S. GAAP and tax accounting treatment have a disproportional impact on the projected effective tax rate.
Net Income (Loss)
Net income attributable to OCC for the first quarter of fiscal year 2011
was $402,000 compared to a net loss attributable to OCC of $316,000 for the first quarter of fiscal year 2010. This change was due primarily to income before taxes experienced in the first quarter of fiscal year 2011 compared to a loss before taxes
for the comparable period last year, partially offset by the recognition of tax expense in the first quarter of fiscal year 2011 compared to a tax benefit in the same period last year.
Financial Condition
Total assets decreased $754,000, or 1.7%, to $44.5 million at
January 31, 2011, from $45.3 million at October 31, 2010. This decrease was primarily due to a $373,000 decrease in income taxes refundable, a $195,000 decrease in other receivables, and a $148,000 decrease in cash and cash
equivalents. Further detail regarding the decrease in cash and cash equivalents is provided in our discussion of Liquidity and Capital Resources. The decrease in income taxes refundable is primarily the result of tax refunds received in
the first quarter of fiscal year 2011 and the decrease in other receivables is primarily the result of a decrease in royalty receivable due to the decreased sale of licensed product by licensees.
19
Total liabilities decreased $993,000, or 5.6%, to $16.7 million at January 31, 2011, from
$17.7 million at October 31, 2010. This decrease was primarily due to a $700,000 decrease in note payable to bank as a result of the repayment of the balance on our revolving credit facility and a $284,000 decrease in accounts payable and
accrued expenses, including accrued compensation and payroll taxes, largely due to the timing of related payments when comparing the two periods.
Total shareholders equity attributable to OCC at January 31, 2011 increased $302,000 in the first quarter of fiscal year 2011. The increase resulted from the net income attributable to OCC of
$402,000, partially offset by the repurchase and retirement of 8,320 shares of our common stock for $31,000 and the dividend declared of $62,000.
Liquidity and Capital Resources
Our primary capital needs during the first quarter of
fiscal year 2011 have been to fund working capital requirements and capital expenditures and to repay the outstanding balance on our revolving credit facility. Our primary source of capital for these purposes has been existing cash and cash provided
by operations. As of January 31, 2011, we had no outstanding balance under our revolving credit facility. As of October 31 2010, we had an outstanding loan balance under our revolving credit facility totaling $700,000. Our long-term debt
continues to amortize as scheduled. As of January 31, 2011 and October 31, 2010, we had outstanding loan balances associated with our long-term debt totaling $8.3 million and $8.4 million, respectively.
Our cash totaled $2.4 million as of January 31, 2011, a decrease of $148,000, compared to $2.5 million as of October 31, 2010. The decrease in
cash for the three months ended January 31, 2011 primarily resulted from net cash used in financing activities of $1.0 million, primarily related to the repayment of the $700,000 balance on our revolving credit facility, and capital
expenditures totaling $293,000, partially offset by the net cash provided by operating activities of $1.2 million.
On January 31, 2011,
we had working capital of $22.7 million compared to $22.9 million on October 31, 2010. The ratio of current assets to current liabilities as of January 31, 2011 and October 31, 2010 was 4.0 to 1.
Net Cash
Net cash provided by operating
activities was $1.2 million in the first quarter of fiscal year 2011, compared to net cash used in operating activities of $1.4 million in the first quarter of fiscal year 2010. Net cash provided by operating activities during the first quarter of
fiscal year 2011 primarily resulted from net income of $339,000, plus net adjustments to reconcile net income to net cash provided by operating activities, including depreciation, amortization and accretion of $692,000 and share-based compensation
expense of $180,000. Additionally, decreases in income taxes refundable of $373,000 and other receivables of $195,000 further contributed to net cash provided by operating activities. All of the aforementioned factors positively affecting cash
provided by operating activities were partially offset by the increase in prepaid expenses and other assets of $349,000 and the decrease in accounts payable and accrued expenses, including accrued compensation and payroll taxes, of $301,000. Net
cash used in operating activities during the first quarter of fiscal year 2010 primarily resulted from a net loss of $378,000, the increase in inventories of $1.3 million and the decrease in accounts payable and accrued expenses, including accrued
compensation and payroll taxes, of $855,000. The aforementioned factors contributing to cash used in operating activities were partially offset by certain adjustments to reconcile net loss to net cash used in operating activities, including
depreciation and amortization of $743,000.
20
Net cash used in investing activities totaled $275,000 and $128,000 in the first quarters of fiscal years
2011 and 2010, respectively. Net cash used in investing activities during the first quarters of fiscal years 2011 and 2010 resulted primarily from purchases of property and equipment and deposits for the purchase of property and equipment.
Net cash used in financing activities totaled $1.0 million in the first quarter of fiscal year 2011, compared to net cash provided by
financing activities of $678,000 in the first quarter of fiscal year 2010. Net cash used in financing activities in the first quarter of fiscal year 2011 resulted primarily from the repayment of the $700,000 balance on our revolving credit facility
and the payment of dividends of $63,000 previously declared on October 21, 2010. Net cash provided by financing activities in the first quarter of fiscal year 2010 resulted primarily from proceeds from a note payable to our bank under our line
of credit in the amount of $750,000.
Credit Facilities
On May 30, 2008, we established $17.0 million in credit facilities (collectively, the Credit Facilities) with Valley Bank to provide for our working capital needs and to finance the
acquisition of SMP Data Communications. The Credit Facilities provided a working capital line of credit (the Revolving Loan), a real estate term loan (the Virginia Real Estate Loan), a supplemental real estate term loan (the
North Carolina Real Estate Loan), and a capital acquisitions term loan (the Capital Acquisitions Term Loan). The Capital Acquisitions Term Loan was fully funded in fiscal year 2008 and repaid in fiscal year 2009. Therefore,
the $2.3 million portion of the credit facility related to the Capital Acquisitions Term Loan is no longer available.
The Revolving Loan
originally provided up to $6.0 million for our working capital needs and bore interest at LIBOR plus 2.15%, but provided a lower rate option if we maintained specific depository amounts with Valley Bank. The Revolving Loan was modified on
February 16, 2010 (Amended Revolving Loan) and provided up to $3.0 million for our working capital needs and bore interest at LIBOR plus 2.15%, but at no time was the applicable rate to decrease below 4.5% per annum. We could
borrow up to 85% of our consolidated eligible accounts receivable, (excluding foreign accounts receivable), plus 35% of certain consolidated uninsured foreign receivables (or 100% of insured foreign receivables, without duplication) up to a maximum
of $1.5 million plus 25% of our consolidated eligible inventory. The Amended Revolving Loan was due to expire on May 31, 2010.
On
April 30, 2010, we entered into a revolving credit facility with SunTrust Bank consisting of a Commercial Note and Agreement to Commercial Note under which SunTrust Bank provides us with a revolving line of credit for our working capital needs
(the Commercial Loan). The Commercial Loan provides a $6.0 million working capital line of credit, expires May 31, 2012, and replaces our Amended Revolving Loan with Valley Bank. Under the Commercial Loan, we may borrow an aggregate
principal amount at any one time outstanding not to exceed the lesser of (i) $6.0 million, or (ii) the sum of 85% of certain receivables aged 90 days or less plus 35% of the lesser of $1.0 million or certain foreign receivables plus 25% of
certain raw materials inventory. Advances under the Commercial Loan accrue interest at the greater of (x) LIBOR plus 2.0%, or (y) 3.0%. Accrued interest on the outstanding principal balance is due on the first day of each month beginning
June 1, 2010, with all then outstanding principal, interest, fees and costs due at the Commercial Loan Termination Date of May 31, 2012.
As of January 31, 2011, we had no outstanding borrowings on our Commercial Loan and, as a result, we had $6.0 million in available credit.
In connection with us obtaining the Commercial Loan with SunTrust Bank, on April 30, 2010, we entered into a Second Loan Modification Agreement with Valley Bank whereby upon satisfaction and
termination of the Amended Revolving Loan, Valley Bank consented to the release of certain collateral used to secure the Amended Revolving Loan, including but not limited to our accounts, deposit accounts, inventory and general intangibles, and
permitted the existence of the Commercial Loan.
21
The Virginia Real Estate Loan was fully funded on May 30, 2008. The Virginia Real Estate Loan accrues
interest at 6% and payments of principal and interest are based on a 25 year amortization. Payments on the Virginia Real Estate Loan will be made in 59 equal installments of principal and interest in the amount of $42,241 for the period from
July 1, 2008 through May 1, 2013. The balance of the Virginia Real Estate Loan will be due June 1, 2013. As of January 31, 2011, we had outstanding borrowings of $6.2 million under our Virginia Real Estate Loan.
The North Carolina Real Estate Loan was fully funded on May 30, 2008. The North Carolina Real Estate Loan accrues interest at 6% and payments of
principal and interest are based on a 25 year amortization. Payments on the North Carolina Real Estate Loan will be made in 59 equal installments of principal and interest in the amount of $14,557 for the period from July 1, 2008 through
May 1, 2013. The balance of the North Carolina Real Estate Loan will be due June 1, 2013. As of January 31, 2011, we had outstanding borrowings of $2.1 million under our North Carolina Real Estate Loan.
The Commercial Loan is secured by a first priority lien on all of our inventory, accounts, general intangibles, deposit accounts, instruments, investment
property, letter of credit rights, commercial tort claims, documents and chattel paper. The Virginia Real Estate Loan and the North Carolina Real Estate Loan are secured by a first priority lien on all of our personal property and assets, except for
our inventory, accounts, general intangibles, deposit accounts, instruments, investment property, letter of credit rights, commercial tort claims, documents and chattel paper, as well as a first lien deed of trust on our real property, in both cases
including the assets at our Asheville facility.
Capital Expenditures
We did not have any material commitments for capital expenditures as of January 31, 2011. During our 2011 fiscal year budgeting process, we included an estimate for capital expenditures for the
fiscal year of $2.0 million. This budget includes estimates for capital expenditures for new manufacturing equipment, improvements to existing manufacturing equipment, new information technology equipment and software, upgrades to existing
information technology equipment and software, furniture and all other capitalizable expenditures for property, plant and equipment. These expenditures will be funded out of our working capital or borrowings under our credit facilities. Capital
expenditures are reviewed and approved based on a variety of factors including, but not limited to, current cash flow considerations, the expected return on investment, project priorities, impact on current or future product offerings, availability
of personnel necessary to implement and begin using acquired equipment, and economic conditions in general. Historically, we have spent less than our budgeted capital expenditures in any given year.
Corporate acquisitions and other strategic investments are considered outside of our annual capital expenditure budgeting process.
Future Cash Flow Considerations
We
believe that our future cash flow from operations, our cash on hand and our existing or any replacement credit facilities will be adequate to fund our operations for at least the next twelve months.
From time to time, we are involved in various claims, legal actions and regulatory reviews arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material adverse effect on our financial position, results of operations or liquidity.
22
Seasonality
Historically, net sales are relatively lower in the first half of each fiscal year and relatively higher in the second half of each fiscal year, which we believe may be partially due to construction
cycles and budgetary considerations of our customers. For example, our trend has been that an average of approximately 45% of our net sales occurred during the first half of the fiscal year and an average of approximately 55% of our net sales
occurred during the second half of the fiscal year for the past ten fiscal years, excluding fiscal years 2001, 2002 and 2009. Fiscal years 2001, 2002 and 2009 are excluded because we believe net sales did not follow this pattern due to overall
economic conditions in the industry and/or in the world during these years.
We typically expect net sales to be relatively lower in the first
half of each fiscal year and relatively higher in the second half of each fiscal year. We believe this historical seasonality pattern is generally indicative of an overall trend and reflective of the buying patterns and budgetary cycles of our
customers. However, this pattern may be substantially altered during any quarter or year by the timing of larger projects, other economic factors impacting our industry or impacting the industries of our customers and end-users and macro-economic
conditions. While we believe seasonality may be a factor that impacts our quarterly net sales results, we are not able to reliably predict net sales based on seasonality because these other factors can also substantially impact our net sales
patterns during the year.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations is based on the condensed consolidated financial statements and accompanying condensed notes that have been prepared in
accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial reporting information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The preparation of these condensed consolidated
financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Note 1 to the consolidated financial statements filed with our Annual Report on Form 10-K for fiscal year 2010 provides a summary of our significant
accounting policies. Those significant accounting policies detailed in our fiscal year 2010 Form 10-K did not change during the period from November 1, 2010 through January 31, 2011.
New Accounting Considerations
There are
no new accounting standards issued, but not yet adopted by us, which are expected to be applicable to our financial position, operating results or financial statement disclosures.
23
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the Exchange Act)) that are designed to be effective in providing reasonable assurance that information required to be disclosed in reports under the Exchange Act are recorded, processed and summarized and reported within the
time periods specified in the rules and forms of the Securities and Exchange Commission (the SEC), and that such information is accumulated and communicated to management to allow for timely decisions regarding required disclosure.
Our management evaluated, with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer
(principal financial officer), the effectiveness of the Companys disclosure controls and procedures as of January 31, 2011. Based on this evaluation process, the Chief Executive Officer and Chief Financial Officer have concluded that the
Companys disclosure controls and procedures were effective as of January 31, 2011 and that there were no changes in the Companys internal control over financial reporting that occurred during the last fiscal quarter ended
January 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
24
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes the Companys purchases of its common stock for the three months ended January 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Total number
of shares
purchased (1)
|
|
|
Average
price paid
per share (2)
|
|
|
Total number of
shares purchased as
part of publicly
announced plans
or
programs
|
|
|
Maximum number
of shares that may
yet be purchased
under the plans or
programs
(1)
|
|
November 1, 2010 November 30, 2010
|
|
|
6,800
|
|
|
|
3.23
|
|
|
|
6,800
|
|
|
|
176,225
|
|
December 1, 2010 December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,225
|
|
January 1, 2011 January 31, 2011
|
|
|
1,520
|
|
|
|
5.93
|
|
|
|
1,520
|
|
|
|
174,705
|
|
(1)
|
On October 16, 2009, the Companys Board of Directors approved a plan to purchase and retire up to 325,848 shares of the Companys common stock, or
approximately 5% of the shares then outstanding. At the time the plan was approved, the Company anticipated that the purchases would be made over a 12- to 24-month period unless the entire number of shares expected to be purchased under the plan is
sooner acquired. For the three month period ended January 31, 2011, the Company repurchased and retired 8,320 shares of its outstanding common stock. The repurchase, including brokerage and legal fees, for the three month period ended
January 31, 2011 totaled approximately $31,000. As of January 31, 2011, 6,210,572 shares of the Companys common stock were outstanding.
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(2)
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The average price paid per share set forth above includes the purchase price paid for the shares, and brokerage and legal fees paid by the Company. The average purchase
price per share (excluding brokerage and legal fees) paid by the Company for the three months ended January 31, 2011 was $3.67.
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25
PART II. OTHER INFORMATION
Item 6. Exhibits
The
exhibits listed on the Exhibit Index are filed as part of, and incorporated by reference into, this report.
26
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.
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OPTICAL CABLE CORPORATION
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(Registrant)
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Date: March 17, 2011
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/s/ Neil D. Wilkin, Jr.
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Neil D. Wilkin, Jr.
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Chairman of the Board of Directors, President and Chief Executive Officer
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Date: March 17, 2011
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/s/ Tracy G. Smith
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Tracy G. Smith
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Senior Vice President and Chief Financial Officer
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27
Exhibit Index
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Exhibit
No.
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Description
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2.1
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Agreement and Plan of Merger dated May 30, 2008 by and among Optical Cable Corporation, Aurora Merger Corporation, Preformed Line Products Company and Superior Modular Products
Incorporated (incorporated herein by reference to Exhibit 2.1 to the Companys Current Report on Form 8-K filed June 2, 2008).
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3.1
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Articles of Amendment filed November 5, 2001 to the Amended and Restated Articles of Incorporation, as amended through November 5, 2001 (incorporated herein by reference to Exhibit
1 to the Companys Form 8-A filed with the Commission on November 5, 2001).
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3.2
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Bylaws of Optical Cable Corporation, as amended (incorporated herein by reference to Exhibit 3.2 to the Companys Quarterly Report on Form 10-Q for the third quarter ended
July 31, 2004 (file number 0-27022)).
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3.3
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Amended and Restated Bylaws of Optical Cable Corporation (incorporated herein by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K filed October 21,
2010).
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4.1
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Form of certificate representing Common Stock (incorporated herein by reference to Exhibit 4.1 to the Companys Quarterly Report on Form 10-Q for the third quarter ended July
31, 2004 (file number 0-27022)).
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4.2
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Rights Agreement dated as of November 2, 2001 (incorporated herein by reference to Exhibit 4 to the Companys Form 8-A filed with the Commission on November 5,
2001).
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4.3
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Form of certificate representing preferred share purchase right (incorporated herein by reference to Exhibit 5 to the Companys Form 8-A filed with the Commission on November
5, 2001).
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4.4
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Credit Agreement dated May 30, 2008 by and between Optical Cable Corporation and Superior Modular Products Incorporated as borrowers and Valley Bank as lender in the amount of
$17,000,000 consisting of a Revolver in the amount of $6,000,000; Term Loan A in the amount of $2,240,000; Term Loan B in the amount of $6,500,000; and a Capital Acquisitions Term Loan in the amount of $2,260,000 (incorporated herein by reference to
Exhibit 4.16 of the Companys Annual Report on Form 10-K for the period ended October 31, 2008).
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4.5
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Credit Line Deed of Trust dated May 30, 2008 between Optical Cable Corporation as Grantor, LeClairRyan as Trustee and Valley Bank as Beneficiary (incorporated herein by reference to
Exhibit 4.17 of the Companys Annual Report on Form 10-K for the period ended October 31, 2008).
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4.6
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Deed of Trust, Security Agreement and Fixtures Filing dated May 30, 2008 by and between Superior Modular Products Incorporated as Grantor, LeClairRyan as Trustee and Valley Bank as
Beneficiary (incorporated herein by reference to Exhibit 4.18 of the Companys Annual Report on Form 10-K for the period ended October 31, 2008).
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4.7
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Security Agreement dated May 30, 2008 between Optical Cable Corporation and Superior Modular Products Incorporated and Valley Bank (incorporated herein by reference to Exhibit 4.19
of the Companys Annual Report on Form 10-K for the period ended October 31, 2008).
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4.8
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Revolving Loan Note in the amount of $6,000,000 by Optical Cable Corporation and Superior Modular Products Incorporated dated May 30, 2008 (incorporated herein by reference to
Exhibit 4.20 of the Companys Annual Report on Form 10-K for the period ended October 31, 2008).
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4.9
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Term Loan A Note in the amount of $2,240,000 by Optical Cable Corporation and Superior Modular Products Incorporated dated May 30, 2008 (incorporated herein by reference to Exhibit
4.21 of the Companys Annual Report on Form 10-K for the period ended October 31, 2008).
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4.10
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Term Loan B Note in the amount of $6,500,000 by Optical Cable Corporation and Superior Modular Products Incorporated dated May 30, 2008 (incorporated herein by reference to Exhibit
4.22 of the Companys Annual Report on Form 10-K for the period ended October 31, 2008).
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4.11
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Capital Acquisitions Term Note in the amount of $2,260,000 by Optical Cable Corporation and Superior Modular Products Incorporated dated May 30, 2008 (incorporated herein by
reference to Exhibit 4.23 of the Companys Annual Report on Form 10-K for the period ended October 31, 2008).
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4.12
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First Loan Modification Agreement dated February 28, 2010 by and between Optical Cable Corporation and Valley Bank (incorporated herein by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed February 22, 2010).
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4.13
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Second Loan Modification Agreement dated April 30, 2010 by and between Optical Cable Corporation, for itself and as successor by merger to Superior Modular Products Incorporated,
and Valley Bank (incorporated herein by reference to Exhibit 4.13 to the Companys Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2010).
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4.14
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Addendum A to Commercial Note dated April 30, 2010 by and between Optical Cable Corporation and SunTrust Bank (incorporated herein by reference to Exhibit 4.14 to the Companys
Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2010).
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4.15
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Commercial Note dated April 30, 2010 by and between Optical Cable Corporation and SunTrust Bank in the principal amount of $6,000,000 (incorporated herein by reference to Exhibit
4.15 to the Companys Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2010).
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4.16
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Security Agreement dated April 30, 2010 by Optical Cable Corporation in favor of SunTrust Bank (incorporated herein by reference to Exhibit 4.16 to the Companys Quarterly
Report on Form 10-Q for the quarterly period ended April 30, 2010).
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4.17
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Agreement to Commercial Note dated April 30, 2010 by and between Optical Cable Corporation and SunTrust Bank (incorporated herein by reference to Exhibit 4.17 to the Companys
Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2010).
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4.18
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Amendment No. 1 to the Rights Agreement dated as of November 2, 2001 (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated October 21,
2010).
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10.1*
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Employment Agreement by and between Optical Cable Corporation and Neil D. Wilkin, Jr. effective November 1, 2002 (incorporated by reference to Exhibit 10.1 to our Amended
Quarterly Report on Form 10-Q/A for the quarterly period ended January 31, 2003 (file number 0-27022)).
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10.2*
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Employment Agreement dated December 10, 2004 by and between Optical Cable Corporation and Tracy G. Smith (incorporated by reference herein to Exhibit 10.1 to the Companys
Current Report on Form 8-K dated January 24, 2005 (file number 0-27022)).
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10.3*
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Employment Agreement by and between Optical Cable Corporation as successor in interest to Superior Modular Products Incorporated and William R. Reynolds effective May 30, 2008
(incorporated by reference to Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q for the quarterly period ended July 31, 2008 (file number 0-27022)).
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10.4*
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Optical Cable Corporation 1996 Stock Incentive Plan (incorporated herein by reference to Exhibit 28.1 to the Companys Registration Statement on Form S-8 No.
333-09733).
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10.5*
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Optical Cable Corporation Amended 2004 Non-Employee Directors Stock Plan (incorporated herein by reference to Appendix B to the Companys definitive proxy statement on Form 14A
filed February 23, 2005).
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10.6*
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Form of December 17, 2004 restricted stock award agreement under the Optical Cable Corporation 1996 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.2 of
the Companys Current Report on Form 8-K filed January 24, 2005).
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10.7*
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Form of December 17, 2004 restricted stock award agreement under the Optical Cable Corporation 1996 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.3 of the
Companys Current Report on Form 8-K filed January 24, 2005).
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10.8*
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Form of award agreement under the Optical Cable Corporation Amended 2004 Non-Employee Directors Stock Plan (incorporated herein by reference to Exhibit 10.10 of the Companys
Annual Report on Form 10-K for the period ended October 31, 2004).
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10.9*
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Optical Cable Corporation 2005 Stock Incentive Plan (incorporated by reference to Appendix A to the Companys definitive proxy statement on Form 14A filed February 23,
2005).
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10.10*
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Form of time vesting award agreement under the Optical Cable Corporation 2005 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.12 to the Companys Quarterly
Report on Form 10-Q for the period ended April 30, 2006).
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10.11*
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Form of stock performance vesting award agreement under the Optical Cable Corporation 2005 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.13 to the
Companys Quarterly Report on Form 10-Q for the period ended April 30, 2006).
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10.12*
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Amendment No. 1 dated December 31, 2008 to Employment Agreement by and between Optical Cable Corporation and Neil D. Wilkin, Jr. effective November 1, 2002 (incorporated herein by
reference to Exhibit 10.1 of the Companys Current Report on Form 8-K filed January 6, 2009).
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10.13*
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Amendment No. 1 dated December 31, 2008 to Employment Agreement by and between Optical Cable Corporation and Tracy G. Smith effective December 10, 2004 (incorporated
herein by reference to Exhibit 10.2 of the Companys Current Report on Form 8-K filed January 6, 2009).
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10.14*
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Amendment No. 1 dated December 31, 2008 to Employment Agreement by and between Optical Cable Corporation as successor in interest to Superior Module Products Incorporated and
William R. Reynolds effective May 30, 2008 (incorporated herein by reference to Exhibit 10.3 of the Companys Current Report on Form 8-K filed January 6, 2009).
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10.15*
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Form of operational performance (Company financial performance measure) vesting award agreement under the Optical Cable Corporation 2005 Stock Incentive Plan (incorporated by
reference to Exhibit 10.20 of the Companys Quarterly Report on Form 10-Q for the period ended April 30, 2009).
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10.16
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Notice of Exercise of Warrant by the Company to purchase 98,741 shares of common stock of Applied Optical Systems, Inc. dated October 30, 2009 (incorporated herein by reference to
Exhibit 10.21 of the Companys Annual Report on Form 10-K for the period ended October 31, 2009).
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10.17
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Stock Purchase Agreement dated October 31, 2009 by and among the Company, as buyer and G. Thomas Hazelton, Jr. and Daniel Roehrs as sellers (incorporated herein by reference to
Exhibit 10.22 of the Companys Annual Report on Form 10-K for the period ended October 31, 2009).
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10.18*
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Employment agreement dated October 31, 2009, between Applied Optical Systems, Inc. and G. Thomas Hazelton, Jr. (incorporated herein by reference to Exhibit 10.23 of the
Companys Annual Report on Form 10-K for the period ended October 31, 2009).
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10.19*
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Employment agreement dated October 31, 2009, between Applied Optical Systems, Inc. and Daniel Roehrs (incorporated herein by reference to Exhibit 10.24 of the Companys Annual
Report on Form 10-K for the period ended October 31, 2009).
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10.20
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Buy-Sell Agreement dated October 31, 2009, by and between G. Thomas Hazelton, Jr., as guarantor, and the Company (incorporated herein by reference to Exhibit 10.25 of the
Companys Annual Report on Form 10-K for the period ended October 31, 2009).
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10.21
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Buy-Sell Agreement dated October 31, 2009, by and between Daniel Roehrs, as guarantor, and the Company (incorporated herein by reference to Exhibit 10.26 of the Companys
Annual Report on Form 10-K for the period ended October 31, 2009).
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10.22
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Indemnification Agreement dated October 31, 2009, between the Company and Applied Optical Systems, Inc. (incorporated herein by reference to Exhibit 10.27 of the Companys
Annual Report on Form 10-K for the period ended October 31, 2009).
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10.23
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Supplemental Agreement dated October 31, 2009, by and among the Company, as buyer, Applied Optical Systems, Inc., George T. Hazelton Family Trust, G. Thomas Hazelton, Jr., and
Daniel Roehrs (incorporated herein by reference to Exhibit 10.28 of the Companys Annual Report on Form 10-K for the period ended October 31, 2009).
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10.24
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Termination Agreement dated October 31, 2009, by and among Applied Optical Systems, Inc., the Company, as lender, and G. Thomas Hazelton, Jr. and Daniel Roehrs (incorporated
herein by reference to Exhibit 10.29 of the Companys Annual Report on Form 10-K for the period ended October 31, 2009).
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10.25
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Warrant Exercise Agreement between the Company and Applied Optical Systems, Inc. dated October 30, 2009 (incorporated herein by reference to Exhibit 10.30 of the Companys
Annual Report on Form 10-K for the period ended October 31, 2009).
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10.26
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Redemption Agreement by and between Optical Cable Corporation and BB&T Capital Markets dated November 17, 2009 (incorporated herein by reference to Exhibit 10.31 of the
Companys Quarterly Report on Form 10-Q for the period ended January 31, 2010).
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11.1
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Statement regarding computation of per share earnings (incorporated by reference to note 8 of the Condensed Notes to Condensed Consolidated Financial Statements contained
herein).
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31.1
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Certification of the Companys Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. FILED HEREWITH.
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31.2
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Certification of the Companys Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. FILED HEREWITH.
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32.1
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Certification of the Companys Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. FILED
HEREWITH.
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32.2
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Certification of the Companys Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. FILED
HEREWITH.
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*
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Management contract or compensatory plan or agreement.
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