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Author: rolv Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 118  
Subject: 10K filed Date: 1/29/2002 6:18 PM
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January 29, 2002

OPTICAL CABLE CORP (OCCF)
Annual Report (SEC form 10-K)
Item 7. Management's Discussion and Analysis of Financial Condition and Result - of Operations -
Forward-Looking Information

This report may contain certain "forward-looking" information within the meaning of the federal securities laws. The forward-looking information may include, among other information, statements concerning our outlook for the future, statements of belief, future plans, strategies or anticipated events, and similar information and statements concerning matters that are not historical facts. The forward-looking information is subject to risks and uncertainties that may cause actual events to differ materially from our expectations. Factors that could cause or contribute to such differences include, but are not limited to, the level of sales to key customers or distributors; the economic conditions affecting network service providers; the slowdown in corporate spending on information technology; actions by competitors; fluctuations in the price of raw materials (including optical fiber); our dependence on a single manufacturing facility; our ability to protect our proprietary manufacturing technology; market conditions influencing prices or pricing; our dependence on a limited number of suppliers; volume commitments made to certain of our suppliers; an adverse outcome in litigation, claims and other actions, and potential litigation, claims and other actions against us, including, but not limited to, the shareholder litigation that has been filed and other claims related to actions of our former Chairman, President and Chief Executive Officer; the effect of sales of common stock by the various brokerage firms alleging that our former Chairman, President and Chief Executive Officer pledged substantially all of his personally-held unregistered shares of the Company to cover personal margin loans; technological changes and introductions of new competing products; the current recession; terrorist attacks or acts of war, particularly given the acts of terrorism against the United States on September 11, 2001 and subsequent military responses by the United States; ability to retain key personnel; changes in market demand; exchange rates; productivity; weather; and market and economic conditions in the areas of the world in which the Company operates and markets its products.

Amounts presented in the following discussion have been rounded to the nearest hundred thousand, unless the amounts are less than one million, in which case the amounts have been rounded to the nearest thousand.

Overview

We are a leading manufacturer of a broad range of tight-buffered fiber optic cables primarily for the local area network and premise markets, often referred to as the enterprise market. Our tight-buffered fiber optic cables are well- suited for use in short to moderate distance applications to connect metropolitan, access and enterprise networks. Our tight-buffered fiber optic cables are derived from technology originally developed for military applications requiring rugged, flexible and compact fiber optic cables. Our tight-buffered fiber optic cables can be used both indoors and outdoors, are easy and economical to install, provide a high degree of reliability and offer industry leading performance characteristics. We have designed and implemented an efficient and automated manufacturing process based on proprietary technologies. This enables us to produce high quality indoor/outdoor tight- buffered fiber optic cable rapidly and cost efficiently.

We sell our products through our sales force to original equipment manufacturers and to major distributors, regional distributors and various smaller distributors. In fiscal years 2001, 2000 and 1999, 49.6%, 58.0% and 63.2% of our net sales were from sales to our distributors. International net sales were 23.3%, 21.2% and 19.7% in fiscal years 2001, 2000 and 1999. Substantially all of our international sales are denominated in U.S. dollars.


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 and the customer takes ownership and assumes risk of loss, based on shipping terms. In fiscal year 2001, 13.6% of our net sales were attributable to one major domestic distributor. In fiscal years 2000 and 1999, this same distributor accounted for 12.5% and 15.8% of our net sales, respectively. Subsequent to October 31, 2001, this distributor advised us that it will no longer stock our products as part of its regular product offering. In fiscal years 2000 and 1999, 15.5% and 14.8% of our net sales were attributable to a second major distributor. This second distributor filed for protection from its creditors under bankruptcy laws in January 2001. As of October 31, 2000, we reserved and expensed approximately $1.8 million for estimated uncollectible accounts receivable from this second distributor. As of January 31, 2001, we wrote off that $1.8 million reserve as well as expensed an additional $419,000, for a total expense of $2.2 million for estimated uncollectible accounts receivable from this distributor over fiscal years 2001 and 2000. Other than these two distributors, no single customer accounted for more than 10% of our net sales in fiscal years 2001, 2000 or 1999.

A significant percentage of the selling price of our fiber optic cable is based on the cost of raw materials used. Because single-mode fiber is less expensive than multimode fiber, single-mode fiber optic cables have a lower per unit selling price than comparable multimode fiber optic cables. We believe that the metropolitan and access markets are predominantly users of single-mode fiber optic cable, and that increasingly, single-mode fiber is also being used for other short to moderate distance installations. To the extent that our product mix shifts toward single-mode cables (whether or not as a result of a shift in our sales mix shifts toward the metropolitan and access markets), we will have to increase the volume of our sales to maintain our current level of net sales. Although we currently have excess capacity, increased volume may require us to expand our manufacturing capacity more rapidly.

Cost of goods sold consists of the cost of materials, compensation costs, product warranty costs and overhead related to our manufacturing operations. The largest percentage of costs included in cost of goods sold is attributable to costs of materials which are variable as opposed to fixed costs. As a result, cost of goods sold typically changes in proportion to increases and decreases in net sales.

Selling, general and administrative expenses consist of the compensation costs for sales and marketing personnel, shipping costs, travel expenses, customer support expenses, trade show expenses, advertising, bad debt expense, the compensation cost for administration, finance and general management personnel, as well as legal and accounting fees.

Other income (expense), net consists primarily of realized and unrealized net gains (losses) on trading securities, interest income and interest expense. In January 2000, we began actively buying and selling shares in the Nasdaq 100 Trust, which is designed to closely track the price and yield performance of the Nasdaq 100 stock index. We utilized short-term margin borrowings payable to an investment broker to finance our position in these trading securities. Our margin borrowings were collateralized by the trading securities and were subject to margin provisions, which could have resulted in the sale of some or all of, and on certain occasions did result in the sale of some of, the trading securities to meet margin calls. Our active trading in the Nasdaq 100 Trust continued through May 14, 2001, the date of the last purchase of these shares. On October 3, 2001, as part of a policy to invest future excess funds only in short-term interest bearing investments, we sold all of our remaining investment in the Nasdaq 100 Trust and paid off the outstanding margin borrowings. Our Board of Directors has adopted an Investment Objectives and Guidelines policy, in which we state that we will make no additional cash investments in the above- mentioned Nasdaq 100 Trust or in stocks of other companies. In addition, our Investment Objectives and Guidelines policy states that any future investments will be in U.S. dollar denominated, short-term, interest-bearing, investment- grade securities.


For accounting purposes, we categorized our investment in the Nasdaq 100 Trust as trading securities, and we recorded the investment on our balance sheet at fair value, which was based on quoted market prices. Purchases and sales of trading securities were recognized on a trade-date basis, the date the order to buy or sell is executed. Net realized gains or losses were determined on the first-in, first-out cost method. We marked our investment to market on each balance sheet date. Any decline in fair value was recorded as an unrealized loss, while any increase in fair value was recorded as an unrealized gain. Realized gains and losses and unrealized holding gains and losses for trading securities were included in other income (expense), net.

In fiscal year 2001, we recognized realized net losses of $11.4 million in connection with our securities trading activities in other expense, net. In fiscal year 2001, we incurred interest expense of $305,000 on the margin borrowings. As of October 31, 2001, we held no trading securities in accordance with our current investment policy and had no outstanding margin borrowings.

In fiscal year 2000, we recognized realized and unrealized net gains of $289,000 in other income, net and continued to hold approximately $18.0 million of these trading securities as of October 31, 2000. The amount of net unrealized holding loss included in other income, net in fiscal year 2000 was $500,000. As of October 31, 2000, we had short-term margin borrowings of $5.7 million payable to an investment broker related to the trading securities. We incurred interest expense of $57,000 on the margin borrowings in fiscal year 2000.

Results of Operations

The following table sets forth selected line items from our statements of operations as a percentage of net sales for the periods indicated:


Years Ended October 31,
------------------------------------
2001 2000 1999
------------------------------------
Net sales 100.0 % 100.0% 100.0%
Cost of goods sold 59.6 53.0 54.3
------- ------- --------
Gross profit 40.4 47.0 45.7
Selling, general and administrative expenses 28.3 25.8 21.3
------- ------- --------
Income from operations 12.1 21.2 24.4
Other income (expense), net (19.4) 0.7 0.3
------- ------- --------
Income (loss) before income tax
expense (7.3) 21.9 24.7
Income tax expense 3.8 7.7 8.3
------- ------- --------
Net income (loss) (11.1)% 14.2% 16.4%
======= ======= ========
--------------------------------------------------------------------------------------

Net Sales. Net sales increased 3.8% from $58.2 million in fiscal year 2000 to $60.4 million in fiscal year 2001. This increase was attributable to record net sales during our first and second quarters of fiscal year 2001, substantially offset by lower sales in the third and fourth quarters. The decrease in net sales in the third and fourth quarters resulted from the impact of weak economic conditions on market demand, as the industries we serve reduced or delayed capital spending. During fiscal year 2001, a decrease in demand for cable containing multimode fiber (which typically has a higher relative sales price) was partially offset by an increase in demand for cable containing single-mode fiber (which typically has a lower relative sales price). Total fiber meters shipped increased 9.8% from 199.3 million fiber meters shipped in fiscal year 2000, to 218.8 million fiber meters shipped in fiscal year 2001. This net increase in fiber meters shipped was a result of a 5.2 million decrease in multimode fiber meters shipped and a 24.7 million increase in single-mode fiber meters shipped. Cable containing multimode fiber is generally used for communications over shorter distances where the higher bandwidth capacity and the higher transmission equipment cost of single-mode fiber is not required. Multimode fiber cable is often used in datacom applications. Cable containing single-


mode fiber is generally used for communications over longer distances and where higher bandwidth capacity is required. Single-mode fiber cable is often used in telecom, CATV and various internet applications. Net sales increased 14.8% from $50.7 million in fiscal 1999 to $58.2 million in fiscal 2000. This increase was attributable to increased sales volume. Total fiber meters shipped increased 18.5% from 168.2 million during fiscal year 1999 to 199.3 million shipped for the same period in 2000. This increase in fiber meters shipped was a result of a 13.8 million increase in multimode fiber meters shipped and a 17.3 million increase in single-mode fiber meters shipped.

Gross Profit. Gross profit decreased 10.7% from $27.3 million in fiscal year 2000 to $24.4 million in fiscal year 2001. Gross margin, or gross profit as a percentage of net sales, was 47.0% in fiscal year 2000 compared to 40.4% in fiscal year 2001. This decrease in gross margin is primarily attributable to adjustments booked in the fourth quarter of fiscal year 2001 that increased cost of goods sold. These adjustments included a $1.2 million write-down of slow moving and impaired inventory to net realizable value, the disposal of $197,000 of impaired finished goods inventory during the fourth quarter of fiscal year 2001, and adjustments of approximately $1.3 million caused by book to physical variances resulting from year-end physical inventory counts, a substantial portion of which related to work-in-process inventories. Net sales to distributors were 58.0% of net sales in fiscal year 2000 compared to 49.6% in fiscal year 2001, while during fiscal year 2001 there was an increase in the ratio of large orders to total orders. Gross profit increased 18.1% from $23.2 million in fiscal year 1999 to $27.3 million in fiscal year 2000. Gross margin was 45.7% in fiscal year 1999 compared to 47.0% in fiscal year 2000. This slight increase was due to the impact of the decrease in the ratio of large orders, the decrease in the ratio of net sales attributable to our distributors and reduced raw fiber prices during the year. Net sales to distributors were 63.2% of total net sales in fiscal year 1999 compared to 58.0% in fiscal year 2000.

Selling, General and Administrative. Selling, general and administrative expenses increased 14.0% from $15.0 million in fiscal year 2000 to $17.1 million in fiscal year 2001. Selling, general and administrative expenses as a percentage of net sales were 25.8% in fiscal year 2000 compared to 28.3% in fiscal year 2001. This increase is partly attributable to various charges incurred during the fourth quarter of fiscal year 2001, including a $902,000 charge for an anticipated settlement with the Equal Opportunity Commission (EEOC) for alleged prior discriminatory practices and related complaints (on December 13, 2001 we reached an agreement with the EEOC as to the amount of a settlement, but it is subject to final documentation and judicial review and approval), a $411,000 charge to write off deferred costs related to the aborted securities offering previously anticipated during fiscal year 2001, and a $102,000 charge for costs related to a business development project. In addition, legal expenses for fiscal year 2001 totaled $705,000 compared to $250,000 in fiscal year 2000. Also contributing to the increase in selling, general and administrative expenses in fiscal year 2001 were higher other professional fees. Bad debt expense for fiscal year 2001 totaled $1.1 million, of which $508,000 related to an increase in the bad debt reserve in the fourth quarter and $419,000 related to one of our distributors that filed for protection from its creditors under the bankruptcy laws in January 2001. By comparison bad debt expense for fiscal year 2000 totaled $2 million, of which $1.8 million related to a specific reserve for estimated uncollectible accounts receivable from that same bankrupt distributor. Selling, general and administrative expenses increased 39.1% from $10.8 million in fiscal year 1999 to $15.0 million in fiscal year 2000. Selling, general and administrative expenses as a percentage of net sales were 21.3% in fiscal year 1999 compared to 25.8% in fiscal year 2000. This increase was primarily the result of an increase in bad debt expense of $2 million. This increase is primarily attributable to a $1.8 million specific reserve for estimated uncollectible accounts receivable from one of our distributors that filed for protection from its creditors under the bankruptcy laws in January 2001. Other factors that contributed to the increase in selling, general and administrative expenses in fiscal year 2000 include an increase in our sales force, the continued expansion of marketing efforts and an increase in legal fees associated with the EEOC litigation and related complaints that had been filed against us with the EEOC.


Income from Operations. Income from operations decreased 40.8% from $12.3 million in fiscal year 2000 to $7.3 million in fiscal year 2001. This decrease was due to the $2.9 million decrease in gross profit and the $2.1 million increase in selling, general and administrative expenses. Income from operations decreased 0.3% from $12.4 million in fiscal year 1999 to $12.3 million in fiscal year 2000. This slight decrease was due to the $4.2 million increase in gross profit, offset by the $4.2 million increase in selling, general and administrative expenses.

Other Income (Expense), Net. Other income, net decreased from $417,000 in fiscal year 2000 to other expense, net of $(11.7) million in fiscal year 2001. This decrease was primarily due to losses on our trading securities. We recognized gains on trading securities, net of $289,000 in fiscal year 2000 compared to losses on trading securities, net of $11.4 million in fiscal year 2001. In addition, in fiscal year 2000, we incurred interest expense of $57,000, compared to $363,000 in fiscal year 2001. Also, interest income was $184,000 lower in fiscal year 2001 when compared to fiscal year 2000. Please see our discussion of trading securities in "Overview" above. Other income, net increased 151.3% from $166,000 in fiscal year 1999 to $417,000 in fiscal year 2000. We began investing in trading securities and recognized related gains on trading securities, net of $289,000 in other income, net for fiscal year 2000. The increase in other income, net resulting from gains on trading securities, net was partially offset by interest expense of $57,000 on short-term margin borrowings related to the trading securities.

Income (Loss) Before Income Tax Expense. Income (loss) before income tax expense decreased from $12.7 million in fiscal year 2000 to $(4.4) million in fiscal year 2001. This decrease was primarily due to the $11.4 million losses on trading securities, net and the $2.1 million increase in selling, general and administrative expenses, and the $2.9 million decrease in gross profit. Income before income tax expense increased 1.7% from $12.5 million in fiscal year 1999 to $12.7 million in fiscal year 2000. This increase was primarily due to increases in sales volume, gross profit and other income, net, partially offset by the $4.2 million increase in selling, general and administrative expenses.

Income Tax Expense. Income tax expense decreased 48.7% from $4.5 million in fiscal year 2000 to $2.3 million in fiscal year 2001. Notwithstanding the loss before income taxes during fiscal year 2001, we reported income tax expense in fiscal year 2001 rather than an income tax benefit, due to the establishment of a valuation allowance for deferred tax assets in the amount of $4.1 million relating to the capital loss carryforward generated by the sale of our trading securities during fiscal year 2001. As of October 31, 2001, this valuation allowance was established because we believe it is more likely than not that we will not be able to generate future taxable capital gains to realize the benefit of our deferred tax asset related to the capital loss carryforward generated by our securities trading losses. In addition, the capital loss carryforward may be limited due to certain stock ownership changes. In order to fully realize this deferred tax asset, we would need to generate future taxable capital gains of approximately $11.1 million prior to the expiration of the capital loss carryforward in 2006. Income tax expense increased 6.3% from $4.2 million in fiscal year 1999 to $4.5 million in fiscal year 2000. Our effective tax rate was 33.7% in fiscal year 1999 compared to 35.2% in fiscal year 2000. Fluctuations in our effective tax rates are due primarily to the amount and timing of the tax benefits related to our Extraterritorial Income Exclusion and foreign sales corporation which exempts from federal income taxation a portion of the net profit realized from sales outside of the United States of products manufactured in the United States.

Net Income (Loss). Net income decreased from $8.3 million in fiscal year 2000 to a net loss of $(6.7) million in fiscal year 2001. This decrease was primarily due to the $11.4 million in losses on trading securities, net and the $2.1 million increase in selling, general and administrative expenses, the $2.9 million decrease in gross profit, partially offset by the $2.2 million decrease in income tax expense. Net income decreased $50,000 from fiscal year 1999 to $8.3 million in fiscal year 2000. This slight decrease was due to the increase in selling, general and administrative expenses and the $265,000 increase in income tax expense, partially offset by the increases in sales volume, gross margin and other income, net.


Liquidity and Capital Resources

Our primary capital needs have been to fund working capital requirements and capital expenditures. Our primary source of capital for these purposes has been cash provided from operations and borrowings under our bank lines of credit described below. The outstanding balance under our lines of credit totaled $8.3 million as of the end of fiscal year 2001. There was no balance outstanding under our lines of credit as of the end of fiscal year 2000. During the course of fiscal year 2001, we also used $9.3 million to repurchase shares of our common stock under our share repurchase program described below.

Our cash and cash equivalents totaled $2.1 million as of October 31, 2001, an increase of $629,000, compared to $1.5 million as of October 31, 2000. The cash and cash equivalents increase in fiscal year 2001 was primarily due to cash provided by operating activities of $3.9 million (which includes the liquidation of all trading securities on October 3, 2001, as part of a policy to invest future excess funds only in short-term interest-bearing investments and the pay off of all margin borrowings in connection with the securities trading), and borrowings under our bank lines of credit in the amount of $8.3 million, which was partially offset by the purchase of property and equipment totaling $2.5 million and the repurchase of common stock totaling $9.3 million related to our common stock repurchase program.

On October 31, 2001, we had working capital of $14.2 million, compared to $32.0 million as of October 31, 2000, a decrease of $17.8 million. The ratio of current assets to current liabilities as of October 31, 2001, was 2.0 to 1, compared to 4.6 to 1 as of October 31, 2000. The change in working capital was primarily caused by a decrease in trading securities of $18.0 million, a decrease in trade accounts receivable, net of $679,000, an increase in the amount payable under our bank lines of credit of $8.3 million and an increase in accounts payable and accrued expenses of $3.1 million, partially offset by an increase in inventories of $6.5 million and a decrease in the amount payable to investment broker of $5.7 million.

Net cash provided by operating activities was $3.9 million in fiscal year 2001. Net cash used in operating activities was $5 million in fiscal year 2000. Net cash provided by operating activities was $11.9 million for fiscal year 1999. Net cash provided by operating activities in fiscal year 2001 was primarily affected by the sale of approximately $18.0 million in trading securities resulting in a realized loss of $11.4 million, cash provided by operating income, and an increase in accounts payable and accrued expenses and other liabilities of $3.6 million, partially offset by an increase in inventories of $6.5 million and a decrease in the amount payable to investment broker of $5.7 million. For fiscal year 2000, net cash used in operating activities was primarily affected by the net purchase of approximately $18.5 million in trading securities, an increase in trade accounts receivable of $3.0 million, and a decrease in accounts payable and accrued expenses of $1.1 million, partially offset by cash provided by operating income, realized net gains on trading securities of $788,000, a decrease in inventories of $1.2 million and an increase in amounts payable to investment broker of $5.7 million. Net cash provided by operating activities in fiscal year 1999 was primarily provided by operating income, a decrease in inventory of $1.2 million and an increase in accounts payable and accrued expenses of $1.3 million. We have entered into written agreements to purchase raw optical fiber. These commitments total $12.2 million, $14.1 million, $8.6 million, and $1.2 million in fiscal years 2002, 2003, 2004 and 2005, respectively.

Net cash used in investing activities totaled $2.6 million, $1.4 million and $553,000 for fiscal years 2001, 2000 and 1999. Net cash used in investing activities was mainly for expenditures related to facilities and equipment for fiscal years 2001, 2000 and 1999. There are no material commitments for capital expenditures as of October 31, 2001.

Net cash used in financing activities was $715,000 for fiscal year 2001. Net cash provided in financing activities was $1 million for fiscal year 2000. Net cash used in financing activities was $5.7 million for fiscal


year 1999. Net cash used in financing activities for the fiscal year 2001 was primarily the result of $9.3 million used to repurchase shares of our common stock, partially offset by an $8.3 million increase in our bank lines of credit. Net cash provided by financing activities for fiscal year 2000 was primarily related to proceeds received from the exercise of employee stock options. Net cash used in financing activities for fiscal year 1999 was primarily related to the repurchase of shares of our common stock.

On September 27, 2000, the EEOC filed a lawsuit under Title VII of the Civil Rights Act against us in the United States District Court for the Western District of Virginia. The lawsuit alleges a pattern or practice of discrimination on the bases of gender and race. The lawsuit seeks injunctive and other relief and damages in an unspecified amount. On December 13, 2001, the parties reached an agreement as to the amount of a settlement (subject to final documentation and judicial review and approval) that affords both individual and class relief, without any admission of liability. Pursuant to this agreement, we will pay $500,000 upon entry of a consent decree by the court, $175,000 on the first anniversary and $175,000 on the second anniversary of the consent decree to satisfy any gender and race class claims; $75,000 to one individual specifically named in the complaint; and at least $75,000 for our planned diversity, recruitment, and human resource management programs over the term of the consent decree.

The Company, Mr. Robert Kopstein, our former chairman, president, chief executive officer and majority shareholder, and various John Does (our officers and/or directors during the class period) were named as defendants in three class action lawsuits filed in the United States District Court for the Western District of Virginia. In each of the substantially similar suits, the plaintiffs purport to represent purchasers of our common stock during the period ranging from July 31, 2000 through October 8, 2001, and allege that we violated federal securities laws and made fraudulent and/or negligent misrepresentations and/or omissions. The plaintiffs in each of these lawsuits seek compensatory and exemplary damages in an unspecified amount, as well as reasonable costs and expenses incurred in the causes of action, including attorneys' fees and expert fees. Management intends to vigorously defend these lawsuits. We may, however, incur substantial costs in defending ourselves against the lawsuits, regardless of their merit or outcome. At this early stage in the lawsuits, management cannot make a reasonable estimate of the monetary amount of their resolution or estimate a range of reasonably possible losses, if any. If we are unsuccessful in defending these lawsuits, we could be subject to damages that may be substantial and could have a material adverse affect on our financial position, results of operations or liquidity.

We were named as a defendant in two lawsuits filed in United States District Court for the Southern District of New York seeking to compel us to authorize our transfer agent to transfer unregistered, restricted stock on our stock ledger. The first suit was filed on October 22, 2001, by Bear, Stearns & Co. Inc. and Bear, Stearns Securities Corporation (collectively, "Bear Stearns"). The second suit was filed on October 26, 2001, by UBS PaineWebber Inc. ("PaineWebber"). In each case the plaintiffs sought injunctive relief with respect to transfers of shares of unregistered, restricted common stock of Optical Cable Corporation sold in the course of liquidating brokerage accounts or repossessed shares of our former Chairman, President, Chief Executive Officer and majority shareholder to cover personal loans to him. Each of the lawsuits contains a claim for damages caused by the alleged wrongful refusal by us to authorize the transfers in connection with the liquidation. On October 31, 2001, the court in the Bear Stearns case entered an order directing us to authorize the stock transfers sought by Bear Stearns and imposing certain conditions on Bear Stearns in connection with such transfers. In early November 2001, we reached an agreement with PaineWebber pursuant to which we would authorize stock transfers in connection with the liquidation of unregistered, restricted stock held by PaineWebber upon the foreclosure of a brokerage account of the former officer. Neither of the cases has been dismissed; however, management believes that these


suits will be resolved without any material liability. Management also believes that any claim that we improperly interfered with the sale or transfer of the unregistered, restricted shares is without merit.

In October 1997, our Board of Directors authorized the initiation of a stock repurchase program whereby we could repurchase shares of our common stock in open market or in privately negotiated transactions. From time to time, our Board of Directors increased the total dollar amount of the stock repurchase program, which was eventually increased to $25 million. Through October 31, 2001, we had repurchased 3.2 million shares of our common stock for approximately $24.1 million under this stock repurchase program. The repurchases were funded through operating cash flow and borrowings under our lines of credit. During fiscal year 2001, we repurchased 1.1 million shares of our common stock in open market transactions at a total cost of $9.3 million. Effective September 20, 2001, we ceased the repurchase of shares of our common stock under the share repurchase program.

Under a loan agreement with our bank dated March 10, 1999, we had $5 million secured revolving line of credit and a $10 million secured revolving line of credit. The lines of credit are subject to certain restrictive covenants. During fiscal year 2001, we violated certain restrictive covenants. Effective October 30, 2001, the bank waived our defaults under the loan agreement, amended the loan agreement and reduced the $10 million line of credit to $4.5 million for a maximum combined availability of $9.5 million. As of October 31, 2001, we had combined outstanding borrowings under these lines of credit in the amount of $8.3 million, with $1.2 million unused and available. The lines of credit bear interest at 1.5% above the monthly LIBOR rate (3.79% at October 31, 2001) and are equally and ratably collateralized by our accounts receivable, contract rights, inventory, furniture and fixtures, machinery and equipment and general intangibles. The lines of credit will expire on March 31, 2002, unless they are further renewed or extended. We are currently negotiating potential lines of credit of $15 to $20 million with a number of financial institutions, including our bank, to replace our current lines of credit. We believe that our cash flow from operations, current cash balances, and the lines of credit we are working to put in place will be adequate to fund our operations for at least the next twelve months.



Recent Developments

On December 3, 2001, the Company issued a press release that announced that, upon the recommendation of an independent Special Committee of its Board of Directors (the "Special Committee"), the Board of Directors had removed Robert Kopstein as the Company's Chairman, President and Chief Executive Officer. We have offered Mr. Kopstein to consider entering into a consulting arrangement with us and are currently in discussions with him.

On October 31, 2001, we announced that the Special Committee had retained C.E. Unterberg, Towbin ("Unterberg") as the exclusive financial advisor to the Company and the Special Committee. On January 17, 2002, our Board of Directors dissolved the Special Committee, however, we have continued to retain Unterberg with respect to certain strategic financial matters.

New Accounting Standards

In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires the use of the purchase method of accounting for all business combinations. The use of the pooling-of-interests method is prohibited for business combinations initiated after June 30, 2001. SFAS No. 142 requires that goodwill and certain intangible assets would no longer be amortized, but rather be tested for impairment annually or whenever an event occurs indicating that the asset may be impaired. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Neither standard is expected to have a material effect on our financial position, results of operations or liquidity.

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) normal use of the asset.

SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, an entity would recognize a gain or loss on settlement.

SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. We are currently evaluating the impact of SFAS No. 143 on our financial position, results of operations and liquidity.

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of; however, it retains many of the fundamental provisions of that Statement.


SFAS No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, it retains the requirement in APB No. 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. By broadening the presentation of discontinued operations to include more disposal transactions, the FASB has enhanced management's ability to provide information that helps financial statement users to assess the effects of a disposal transaction on the ongoing operations of an entity.

SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. Early application is encouraged. The provisions of SFAS No. 144 generally are to be applied prospectively. We are currently evaluating the impact of SFAS No. 144 on our financial position, results of operations and liquidity.

As of October 31, 2001, there are no other 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.

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Author: rolv Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112 of 118
Subject: Re: 10K filed Date: 1/31/2002 9:10 AM
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Last chance at these levels? I believe so - the worst is over and all the garbage stuffed into fiscal 2001.

View the complete filing at:

http://www.freeedgar.com/search/ViewFilingsData.asp?CIK=1000230&Directory=916641&Year=02&SECIndex=139&Extension=.tst&PathFlag=0&nStartLoc=668&nEndLoc=362822&TextFileSize=362838&DateFiled=1/29/2002&FormType=10-K&SFType=&SDFiled=&tabletype=1&tablename=&SourcePage=FilingsResults&OEMSource=&UseFrame=1&CompanyName=OPTICAL+CABLE+CORP



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Author: Petespicks Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113 of 118
Subject: Re: 10K filed Date: 2/1/2002 9:34 AM
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Anyone know anything about the two distributers that they mention as no longer carrying their product? One is in bankruptcy and the other no longer is carrying OCCF product. Why did they stop carrying it? Did they find a better alternative? Or are they doing this because they are pissed at Kopsteins's ouster? Any insight would be appreciated!!!

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Author: Margaritian Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114 of 118
Subject: Re: 10K filed Date: 2/5/2002 11:39 PM
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As I understand it:

Graybar is a national Distributor and one of the largest.
Siecor is probably the largest manufacturer of fiber in the market.

Anixter is the largest Siecor Distributor.

Siecor approached Graybar and told them that if they would carry only Siecor Fiber Optic Cable that they would offer them the same pricing that they offer Anixter.

I know that many other Distributors are very excited at the opportunity to pick up much of Graybars business.

This is just what I've heard.............




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