<PAGE>
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-09933
PROSPECTUS
6,000,000 SHARES
[LOGO]
COMMON STOCK
------------------
All of the shares of Common Stock, $.01 par value per share ("Common
Stock"), of Superior TeleCom Inc. (the "Company") offered hereby (this
"Offering") are being sold by the Company.
Prior to this Offering, there has been no public market for the Common
Stock. For information relating to the determination of the initial public
offering price, see "Underwriting."
The Company expects to use the net proceeds of this Offering to complete the
Reorganization and to reduce the amount outstanding under the Company's Bank
Credit Facility (each as defined in "Prospectus Summary"). See "Use of
Proceeds."
The Common Stock has been authorized for listing on the New York Stock
Exchange under the symbol "SUT."
------------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE COMMON STOCK OFFERED HEREBY, SEE "RISK FACTORS," COMMENCING ON
PAGE 8.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS PROCEEDS TO
TO PUBLIC AND COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share...................... $16.00 $1.12 $14.88
Total (3)...................... $96,000,000 $6,720,000 $89,280,000
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deduction of expenses payable by the Company estimated at $700,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 900,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $110,400,000, $7,728,000 and $102,672,000, respectively. See
"Underwriting" and "Use of Proceeds."
The shares are being offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters, and subject to various prior
conditions, including the right to reject orders in whole or in part. It is
expected that delivery of share certificates will be made against payment
therefor at the offices of Furman Selz LLC in New York, New York on or about
October 16, 1996.
FURMAN SELZ
OPPENHEIMER & CO., INC.
BT SECURITIES CORPORATION
----------------
The date of this Prospectus is October 11, 1996
<PAGE>
[The inside front cover page contains a diagram of the telecommunications
infrastructure, including the connections between and among telephone company
central offices, remote digital switches and private residences.]
[INSERT DIAGRAM]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS (AND
RELATED NOTES THERETO) INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE COMPANY MEANS
SUPERIOR TELECOM INC. AND ITS SUBSIDIARIES AND, UNLESS THE CONTEXT OTHERWISE
REQUIRES, SUCH SUBSIDIARIES ARE INCLUDED IN THE DESCRIPTION OF THE COMPANY. SEE
"THE COMPANY -- THE REORGANIZATION AND RELATED TRANSACTIONS." UNLESS OTHERWISE
INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES THE COMPLETION OF THE
REORGANIZATION AND RELATED TRANSACTIONS AND THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION IS NOT EXERCISED. ALL REFERENCES HEREIN TO FISCAL 1994,
FISCAL 1995 AND FISCAL 1996 MEAN THE YEARS ENDED MAY 1, APRIL 30 AND APRIL 28 OF
SUCH YEARS, RESPECTIVELY.
THE COMPANY
The Company is a leading manufacturer of copper wire and cable products for
the local loop segment of the telecommunications network in the United States
(based on 1995 data). The local loop is the segment of the telecommunications
network that connects the customer's premises to the nearest telephone company
switch or central office. Copper wire and cable is the most widely used medium
for transmission in the local loop, which comprises approximately 160 million
residential and business access lines in the United States. The Company also
develops and manufactures data communications and other electronic equipment,
including multiplexers, for defense, government and commercial applications. As
a result of acquisitions, as well as internal growth through expansion of its
customer relationships and introductions of new products, the Company's net
sales increased from $164.5 million in fiscal 1995 to $410.4 million in fiscal
1996, and operating income increased from $9.6 million to $31.8 million over the
same period. The Company believes it is well-positioned to take advantage of the
rapid changes in the telecommunications industry as the demand for voice, data
and video services over the local loop increases dramatically and new
technologies and products are developed to enable the local loop to satisfy that
demand.
TELECOMMUNICATIONS WIRE AND CABLE. The Company conducts its copper
telecommunications wire and cable products business through its subsidiary,
Superior Telecommunications Inc. ("Superior"). Superior manufactures a wide
variety of copper telecommunications wire and cable products, ranging in size
from a single twisted pair wire to a 4,200 pair cable, including hybrid cable
products such as coaxial/copper wire and fiber optic/copper wire combinations.
These products, referred to as distribution wire and cable, are variously
configured for aerial and underground use in the local loop. The Company also
has developed high speed data communication copper wire products, including
unshielded twisted pair ("UTP") wire for on-premise applications, such as in
computer networks. The Company's products are sold primarily to the regional
Bell operating companies ("RBOCs") and the two major independent telephone
companies under multi-year supply arrangements. Superior's net sales for the
twelve months ended July 28, 1996 constituted 93.8% of the Company 's net sales
for such period.
The Company has led a recent consolidation in the copper telecommunications
wire and cable industry by acquiring the U.S. and Canadian copper
telecommunications wire and cable business of Alcatel NA in May 1995 and
substantially all of the machinery, equipment and inventory of the Vancouver,
B.C. copper telecommunications wire and cable business of BICC Phillips, Inc. in
November 1995. Through these acquisitions, the Company increased its annual
production capacity from 28 billion conductor feet ("bcf") in one plant to an
aggregate of 92 bcf in four geographically diverse plants. The Company believes
that it has successfully integrated its acquired businesses, particularly by
implementing improved production techniques at each of its plants and reducing
the cost structure of its operations.
Due to further industry-wide consolidation, total industry capacity has been
reduced, the number of manufacturers has declined and the size of those
remaining has increased. As a result, the Company has become a key supplier of
copper wire and cable to six of the seven RBOCs and the two major independent
telephone companies and believes that it will continue to be able to compete
effectively as its major customers consolidate their vendor base in order to
stabilize their sources of supply and ensure timely
3
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delivery of quality products on a consistent basis. In addition, the industry
consolidation, increased demand for copper telecommunications wire and cable and
the resulting changes in the nature of customer relationships have led to a
recent improvement in the pricing environment for the Company's products.
The Company believes that copper will continue to be the transmission medium
of choice in the local loop and that demand for access to the local loop will
continue to increase for the following reasons:
-INSTALLED BASE. The installed base of copper wire and cable in the local
loop represents an investment of over $150 billion that must be maintained
by the RBOCs and other local telephone companies. Although other media,
such as fiber optic cable, are used for trunk lines between central
offices, substantially all local loop lines continue to be copper-based.
Local loop lines are continually maintained and replaced, providing a
steady demand for copper wire and cable.
-LOWER INSTALLATION COSTS AND EASE OF REPAIR. The Company believes that in
the local loop, copper has significantly lower installation costs and is
easier to repair than other media primarily because it does not require an
additional power source and other electronics. Installation of fiber optic
cable is both capital and labor intensive and deployment of fiber optic
cable generally has been limited to trunk and feeder lines and wide area
loop configurations. Therefore, the Company believes that new installations
in the local loop will continue to be copper-based.
-TECHNOLOGICAL ADVANCES. Copper dominance in the local loop continues to be
supported by technological advances that expand the use and bandwidth of
the installed local loop copper network. These advances include integrated
services digital networks ("ISDN"), and digital subscriber line ("DSL")
technologies, including high-bit-rate digital subscriber line ("HDSL") and
asymmetric digital subscriber line ("ADSL"). These technologies permit
telecommunication carriers, private network owners and end-user consumers
to employ the copper wire and cable infrastructure for high speed and
bandwidth-intensive applications.
-DEMAND FOR NEW SERVICES. Technological advances, regulatory developments
and increased competition have accelerated the demand for and introduction
of new bandwidth-intensive telecommunications services. These services
include integrated voice and data, broadcast and conference quality video,
Internet and on-line data services access, high speed LAN to LAN
connectivity, collaborative network processing and other specialized,
bandwidth-intensive applications.
-DEMAND FOR MULTIPLE RESIDENTIAL ACCESS LINES. An increasing number of U.S.
households are installing additional access lines for multiple telephone
lines, facsimile machines, access to the Internet, home offices and other
purposes. Additional access lines increase the demand for copper
telecommunications wire and cable in the local loop.
DATA COMMUNICATIONS AND ELECTRONICS. The Company, through its subsidiary
DNE Systems, Inc. ("DNE"), designs and fabricates data communications equipment,
integrated access devices and other electronic products. DNE is a supplier to
the U.S. defense industry of data and voice multiplexers used in tactical secure
military applications. Multiplexers are integrated access devices that combine
several information carrying channels into one line, thereby permitting
simultaneous multiple voice and data communications over a single line. DNE also
produces military avionic products, including switches, dimmers, relays and
other electrical controllers, various sensors and refueling amplifiers. DNE has
reduced its dependence on the defense market in recent years, primarily through
the development of contract subsystem manufacturing services for commercial and
(non-defense) governmental customers. DNE's net sales for the twelve months
ended July 28, 1996 constituted 6.2% of the Company's net sales for such period.
BUSINESS STRATEGY. The Company's strategy is to (i) respond to the current
and changing requirements of its customers' communications networks and expand
its business in the local loop by continuing to develop, manufacture and sell a
full line of copper telecommunications wire and cable products; (ii) expand its
product lines to include transmission media such as data communications cable,
including UTP products, and hybrid wire products, including coaxial/copper wire
and fiber optic/copper wire combinations; (iii) take
4
<PAGE>
advantage of strategic acquisition opportunities in data communications cable,
the local loop and its other markets; and (iv) expand its international business
through increased export sales and the establishment of joint ventures or
similar arrangements.
THE REORGANIZATION. On October 2, 1996, The Alpine Group, Inc. ("Alpine"),
which then owned all of the outstanding capital stock of the Company, Superior
and DNE, caused Superior and DNE to declare dividends on their common stock in
an aggregate amount of $117.1 million. Superior also issued to Alpine 20,000
shares of its 6% Cumulative Preferred Stock ("Superior Preferred Stock"). Alpine
then contributed to the Company all of the issued and outstanding common stock
of Superior and DNE (together with the foregoing transactions, the
"Reorganization"). See "The Company -- The Reorganization and Related
Transactions."
In connection with the Reorganization, the Company entered into a five-year
revolving credit facility (the "Bank Credit Facility") under which it borrowed
$154.7 million to repay the net amount of the intercompany debt owed to Alpine
and to pay to Alpine a portion of the dividends declared as part of the
Reorganization. The net proceeds of this Offering will be used to pay the
remainder of the declared dividends and to reduce the amount outstanding under
the Bank Credit Facility. See "The Company -- The Reorganization and Related
Transactions -- Bank Credit Facility" and "Use of Proceeds."
Upon completion of this Offering, Alpine will own 50.1% of the outstanding
capital stock of the Company (approximately 46.6% if the Underwriters'
over-allotment option is exercised in full). If the over-allotment option
granted to the Underwriters by the Company is exercised, Alpine intends to
restore its ownership of the outstanding Common Stock to 50.1% by contributing
to the capital of the Company a portion of Superior Preferred Stock in exchange
for shares of Common Stock. The amount of Superior Preferred Stock to be
contributed by Alpine will be that number of shares having an aggregate
liquidation value equal to the aggregate price paid by the Company (including
brokers' commissions) for shares of Common Stock to be transferred by the
Company to Alpine. The Company intends to acquire such shares of Common Stock
through open market purchases or otherwise using only net proceeds of the
exercise of the over-allotment option. The Company will use any balance of those
net proceeds to reduce outstanding debt under the Bank Credit Facility. See "Use
of Proceeds," "Principal Stockholders" and "Certain Transactions and
Relationships." See "Principal Stockholders" and "Certain Transactions and
Relationships."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby (1)............. 6,000,000 (1)
Common Stock to be outstanding after this
Offering................................... 12,024,048 (1)(2)
Use of proceeds............................. The net proceeds of this Offering will be used
to pay the unpaid portion of the dividends
declared in connection with the
Reorganization and to reduce the amount
outstanding under the Bank Credit Facility.
See "Use of Proceeds."
New York Stock Exchange Symbol.............. SUT
</TABLE>
- ------------------------
(1) Excludes up to 900,000 shares that may be sold pursuant to the Underwriters'
over-allotment option.
(2) Excludes 1,250,000 shares of Common Stock issuable pursuant to options that
may be granted pursuant to the Company's 1996 Stock Option Plan and 250,000
shares issuable pursuant to the Company's Employee Stock Purchase Plan. See
"Management -- Executive Compensation -- Compensation Under Plans."
5
<PAGE>
SUMMARY FINANCIAL DATA
The financial data of the Company set forth below have been derived from the
combined financial statements of Superior and DNE (which have been reorganized
as the Company). The combined financial data for the fiscal years ended 1994,
1995 and 1996, are derived from the combined financial statements of the Company
that have been audited by Arthur Andersen LLP, as indicated in their report
included elsewhere in this Prospectus. The unaudited combined financial data for
the three months ended July 29, 1995 and July 28, 1996 are derived from
unaudited combined financial statements included elsewhere in this Prospectus.
The financial data are provided on (i) an historical basis for fiscal 1994, 1995
and 1996 and for the three months ended July 29, 1995 and July 28, 1996; and
(ii) a pro forma basis for the fiscal year ended April 28, 1996 and for the
three months ended July 28, 1996 after giving effect to the following
transactions as if they had occurred as of May 1, 1995: (1) the Alcatel
acquisition, (2) the Reorganization and related transactions and (3) this
Offering. The unaudited pro forma financial information is provided for
comparative purposes only and does not purport to be indicative of the results
that actually would have been obtained if the events set forth had been effected
on the dates indicated or of those results that may be obtained in the future.
The historical results presented below reflect the operations of Superior since
its acquisition by Alpine in November 1993 and the operations of the Alcatel
Business (as defined below in "The Company -- Background") since its acquisition
by Alpine in May 1995.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
-------------------------------------------------- -----------------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
------------------------------------- ----------- ---------------------- -----------
APRIL 30, APRIL 28, APRIL 28, JULY 29, JULY 28, JULY 28,
MAY 1, 1994 1995 1996 1996 1995 1996 1996
----------- ----------- ----------- ----------- ----------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............................. $ 68,510 $ 164,485 $ 410,413 $ 417,934 $ 99,324 $ 123,824 $ 123,824
Cost of goods sold.................... 56,250 142,114 362,854 369,780 89,821 105,447 105,447
----------- ----------- ----------- ----------- ----------- --------- -----------
Gross profit........................ 12,260 22,371 47,559 48,154 9,503 18,377 18,377
Selling, general and administrative
expense.............................. 8,884 11,632 14,223 16,256 3,299 3,888 4,388
Amortization of goodwill.............. 2,186 1,124 1,556 1,570 374 432 432
----------- ----------- ----------- ----------- ----------- --------- -----------
Operating income.................... 1,190 9,615 31,780 30,328 5,830 14,057 13,557
Interest expense, net................. (1,742) (3,700) (17,006) (10,931) (3,733) (4,258) (2,728)
Preferred stock dividends of
subsidiary (1)....................... -- -- -- (1,200) -- -- (300)
Other income (expense), net........... (61) 231 55 55 28 (53) (53)
----------- ----------- ----------- ----------- ----------- --------- -----------
Income (loss) from continuing
operations before income taxes..... (613) 6,146 14,829 18,252 2,125 9,746 10,476
Provision for income taxes............ (521) (2,240) (6,722) (7,781) (451) (3,778) (4,310)
----------- ----------- ----------- ----------- ----------- --------- -----------
Income (loss) from continuing
operations......................... (1,134) 3,906 8,107 10,471 1,674 5,968 6,166
(Loss) from discontinued operations... (287) (176) -- -- -- -- --
----------- ----------- ----------- ----------- ----------- --------- -----------
Income (loss) before extraordinary
item............................... (1,421) 3,730 8,107 10,471 1,674 5,968 6,166
Extraordinary (loss) on early
extinguishment of debt (2)........... -- -- (2,645) -- (2,811) -- --
----------- ----------- ----------- ----------- ----------- --------- -----------
Net income (loss)................... $ (1,421) $ 3,730 $ 5,462 $ 10,471 (1,137) $ 5,968 $ 6,166
----------- ----------- ----------- ----------- ----------- --------- -----------
----------- ----------- ----------- ----------- ----------- --------- -----------
Per share of common stock (3):
Income from continuing operations...............................
$ 0.67 $ 0.87 $ 0.14 $ 0.50 $ 0.51
Extraordinary (loss) on early extinguishment of debt (2)........
(0.22 ) -- (0.23 ) -- --
----------- ----------- ----------- --------- -----------
Net income (loss).............................................
$ 0.45 $ 0.87 $ (0.09 ) $ 0.50 $ 0.51
----------- ----------- ----------- --------- -----------
----------- ----------- ----------- --------- -----------
</TABLE>
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<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
-------------------------------------------------- -----------------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
------------------------------------- ----------- ---------------------- -----------
APRIL 30, APRIL 28, APRIL 28, JULY 29, JULY 28, JULY 28,
MAY 1, 1994 1995 1996 1996 1995 1996 1996
----------- ----------- ----------- ----------- ----------- --------- -----------
(IN THOUSANDS)
OTHER DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA (4)............................ $ 5,525 $ 14,201 $ 40,231 $ 38,869 $ 7,793 $ 16,308 $ 15,808
Depreciation and amortization (5)..... 4,335 4,586 8,451 8,541 1,963 2,251 2,251
Capital expenditures.................. 1,560 1,782 4,339 4,339 1,204 1,511 1,511
Cash flows from operating
activities........................... 1,999 7,444 27,238 29,602 22,930 12,292 12,490
Cash flows from investing
activities........................... (5,243) (1,739) (111,776) (111,776) (93,178) (1,595) (1,595)
Cash flows from financing
activities........................... 2,367 (6,109) 84,616 85,096 70,500 (11,146) (10,606)
</TABLE>
<TABLE>
<CAPTION>
AT JULY 28, 1996
----------------------
ACTUAL PRO FORMA
--------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................................... $ 54,609 $ 55,149
Total assets.......................................................................... 232,360 236,000
Total debt (6)........................................................................ 114,753 131,839
Total stockholders' equity............................................................ 57,432 23,986
</TABLE>
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(1) Represents dividends on Superior Preferred Stock issued to Alpine as part of
the Reorganization and related transactions.
(2) Relates to the early extinguishment of $140.0 million principal amount of
debt incurred by Superior in connection with the Alcatel acquisition, during
the first quarter of fiscal 1996 and to the early extinguishment of a $2.5
million subordinated note issued to DNE's former parent during the second
quarter of fiscal 1996. The debt was substantially replaced by promissory
notes payable to Alpine.
(3) Based upon 12,024,048 shares outstanding subsequent to this Offering.
(4) EBITDA represents operating income plus depreciation and amortization, and
provision for non-cash compensation expense (primarily stock options and
restricted stock grants). EBITDA is presented because the Company believes
such information is a widely accepted finanical indicator of the Company's
ability to generate cash and to service debt. However, although the Company
has measured EBITDA consistently between periods presented, EBITDA as a
measure of liquidity is not governed by generally accepted accounting
principles ("GAAP"), and, as such, may not be comparable to other similarly
titled measures of other companies. The Company believes that EBITDA, while
providing useful information, should not be considered in isolation or as an
alternative to either (i) operating income determined in accordance with
GAAP as an indicator of operating performance or (ii) cash flows from
operating activities determined in accordance with GAAP as a measure of
liquidity.
(5) Includes $76,000 in fiscal 1994 for a non-cash compensation expense.
(6) Actual amount includes $102.9 million of intercompany debt owed to Alpine at
July 28, 1996.
7
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RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY, IN ADDITION TO OTHER
INFORMATION IN THIS PROSPECTUS, THE FOLLOWING CAUTIONARY STATEMENTS AND FACTORS.
DEPENDENCE ON SIGNIFICANT CUSTOMERS
The telecommunications wire and cable business is dependent on the RBOCs and
other major independent telephone holding companies. For the twelve months ended
July 28, 1996, six RBOCs and the two major independent telephone companies
accounted for 82.9% of the Company's net sales. Five of these customers, Bell
South Corporation, North Supply Corporation (Sprint), GTE Corporation, SBC
Corporation and NYNEX Corporation accounted for 19.1%, 16.0%, 15.3%, 12.7% and
12.1%, respectively, of the Company's net sales for that period. As a result of
announced industry consolidations, it is expected that the number of RBOCs will
be reduced from seven to five. Continued consolidation among the RBOCs could
alter these customers' purchasing patterns and affect the pricing in the copper
telecommunications wire and cable business. Adverse conditions affecting the
industries in which the Company's customers are engaged, or the loss of any of
its significant customers, could materially adversely affect the Company's
results of operations and financial condition.
RAPID TECHNOLOGICAL CHANGE
The commercial development of fiber optics has had and is expected to
continue to have an effect on the Company's copper telecommunications wire and
cable business. Fiber optic technology has had a major impact on certain
components of the telecommunications network where its utilization is
cost-effective, particularly in trunk lines and the long distance network. To a
lesser degree, fiber optic cable has been deployed in certain high-density
feeder applications between telephone central offices or remote locations and
major distribution points, which has further reduced the total market for
products manufactured by the Company. In the local loop portion of the
telecommunications network, however, copper wire has remained the most widely
used medium for transmission. Telephone companies are evaluating (and in
isolated cases installing on a test basis) alternative technologies, including
coaxial and fiber optic cable for providing video entertainment or other new
services. The Company believes, however, that the great majority of businesses
and homes in America will continue to be connected with the telecommunications
infrastructure via a copper-based local loop. Nevertheless, because the
telecommunications industry is undergoing rapid and intense technological
change, it is not possible at this time to predict the impact that these
developments may have on the total demand for copper wire in the local loop. A
relatively small decline in the level of purchases of copper telecommunications
wire and cable by the RBOCs and other telephone companies could have a
disproportionately adverse effect on the copper telecommunications wire and
cable industry, including the Company.
Wireless technologies such as microwave, satellite and cellular transmission
have had, and will continue to have, an impact on the market for copper
telecommunications wire and cable products. In addition, there can be no
assurance that other, newly-developed technologies will not have an adverse
impact on the market for copper telecommunications wire and cable products.
COMPETITION
The Company operates in industries that are highly competitive. In the
telecommunications wire and cable business, the Company has three major domestic
competitors: Cable Systems International, Inc.; General Cable Corporation, a
subsidiary of Wassall, plc; and Essex Group Incorporated, a subsidiary of
BCP/Essex Holding, Inc. The Company and other telecommunications wire and cable
producers increasingly compete on the basis of service and quality, as well as
price. There can be no assurance that the Company will be able to compete
successfully or that such competition will not have a material adverse effect on
the Company's business or financial results.
8
<PAGE>
RAW MATERIALS
The principal raw materials used by Superior in the manufacture of its wire
and cable products are copper, aluminum, bronze and plastics such as
polyethylene and polyvinyl chloride. These raw materials are available from
several sources and Superior has not experienced any shortages of these raw
materials in the recent past. These raw materials are subject to price
fluctuations. The price of copper has been subject to considerable volatility
over the past several years. While fluctuations in the price of copper directly
affect the per unit prices of Superior's products, this volatility has not had,
nor is it expected to have, a material impact on Superior's profitability due to
Superior's contractual arrangements with its principal customers that provide
for the pass-through of changes in copper costs. Nevertheless, sharp increases
in the price of copper may temporarily reduce demand if telephone companies
decide to defer their purchases of copper telecommunications wire and cable
products until copper prices decline. The resulting decrease in Superior's sales
would adversely affect the Company's results of operations during the relevant
period.
CHANGING REGULATORY FRAMEWORK
The U.S. Congress recently enacted the Telecommunications Reform Act of
1996, which mandated fundamental changes in the regulation of the
telecommunications industry. It is not possible at this time to predict the
impact that this legislation and the regulations implementing it may have on the
total demand for copper wire in the local loop.
CONTROL BY ALPINE
Upon completion of this Offering, Alpine will own 50.1% of the outstanding
Common Stock of the Company (approximately 46.6% if the Underwriters'
over-allotment option is exercised in full). If the over-allotment option
granted to the Underwriters by the Company is exercised, Alpine intends to
engage in open-market purchases of Common Stock to restore its ownership of the
outstanding Common Stock to 50.1%. See "Use of Proceeds." Accordingly, Alpine
will have the ability to elect all of the members of the Company's Board of
Directors and approve other actions requiring approval by a majority of
stockholders, including certain fundamental corporate transactions such as a
merger or sale of all or substantially all of the assets of the Company, and
otherwise control the management and affairs of the Company. However, Alpine has
advised the Company that it will use its best efforts to ensure that, following
completion of this Offering, a majority of the members of the Company's Board of
Directors will not be affiliates of Alpine. Alpine is a publicly-held
diversified industrial holding company. In addition to the businesses operated
by the Company, Alpine is engaged through another subsidiary, in the manufacture
and sale of specialty refractory products. Alpine's Chairman and Chief Executive
Officer, Steven S. Elbaum, is also the Chairman and Chief Executive Officer of
the Company.
Alpine has pledged its shares of Common Stock as collateral for the benefit
of holders of certain indebtedness of Alpine. So long as Alpine holds a
controlling interest in the Company, if Alpine were to default on such
indebtedness and the pledge were to be foreclosed, control of the Company would
change, which change of control would constitute an event of default under the
Bank Credit Facility. Action by the Bank Credit Facility lenders as a result of
such an event of default could have a material adverse effect on the Company.
POTENTIAL CONFLICTS TO WHICH CERTAIN DIRECTORS AND OFFICERS MAY BE SUBJECT
Upon completion of this Offering certain of the Company's directors and
officers, including the Chief Executive Officer and Chief Financial Officer,
will also be directors and/or officers of Alpine and may be subject to various
conflicts of interest in connection with, for example, the negotiation of
agreements between the two companies for the provision of services and the
performance by the two companies under their existing agreements. Each of these
persons will devote such time to the business and affairs of the Company as is
appropriate under the circumstances. Each such person, however, has other duties
and responsibilities with Alpine that may conflict with the time which might
otherwise be devoted to his duties with the Company. See "Management" and
"Certain Transactions and Relationships."
9
<PAGE>
INTERCORPORATE RELATIONSHIPS WITH ALPINE
The Company may be subject to various conflicts of interest arising out of
the relationship between it and Alpine. The Audit Committee of the Company's
Board of Directors (the "Audit Committee"), which will be comprised solely of
directors who are not affiliated with Alpine, will be responsible for the review
and approval of all future agreements between the Company and its subsidiaries
and Alpine, including amendments to a transitional services agreement between
Alpine and the Company (the "Services Agreement"). The Audit Committee will also
establish policies to ensure that the Company's purchase of services from Alpine
are commercially reasonable. See "Certain Transactions and Relationships."
Pursuant to the Services Agreement, Alpine provides, through April 30, 1998,
certain services to the Company, including, among other things, assistance with
public company reporting, certain financial reporting functions, legal
compliance, banking, risk management and operational and strategic matters. The
terms upon which these services will be provided to and by the Company and the
compensation therefor were not determined in arms' length negotiations. The
Services Agreement provides for the payment by the Company to Alpine of $0.9
million per year plus reimbursement of any third party expenses incurred by
Alpine. The Company believes that $0.9 million represents a reasonable estimate
of the cost of obtaining the services described above. See "Certain Transactions
and Relationships -- Services Agreement."
Superior and DNE are currently included in the consolidated group of
domestic corporations of which Alpine is the common parent for federal income
tax and certain other purposes. Upon consummation of this Offering, the Company
will cease to be included in the consolidated group for federal income tax
purposes of which Alpine is the common parent. Alpine has agreed to indemnify
the Company for any consolidated federal income tax liability (and certain state
and local tax liabilities), including any amounts determined to be due as a
result of redeterminations of the tax liability of Alpine arising from an audit
or otherwise, and certain other liabilities of Alpine or any of its
subsidiaries, that the Company is actually required to pay but only to the
extent, if any, that such liability exceeds the amount of such liability
attributable to Superior, DNE or the Company. See "Certain Transactions and
Relationships." The value of this indemnity is dependent upon the financial
condition of Alpine. Neither the Company nor any of its affiliates is aware of
any potential federal income tax liability of the Company or its subsidiaries
(other than the Company's own tax liability) for which the Company would be
liable.
SUBSTANTIAL LEVERAGE
The Company has incurred substantial indebtedness to finance the
Reorganization and related transactions. In the ordinary course of business, the
Company will incur additional indebtedness to fund working capital requirements.
At July 28, 1996, after giving effect to this Offering, the Reorganization and
related transactions, the Company's consolidated debt would have been $131.8
million, Superior Preferred Stock, at liquidation value, would have been $20.0
million, its stockholders' equity would have been $24.0 million (with its net
tangible book value being ($24.0) million) and its ratio of debt plus Superior
Preferred Stock to stockholders' equity would have been 6.3 to 1.0. See
"Capitalization." However, based on pro forma results for the twelve months
ended July 28, 1996, the ratio of EBITDA to interest expense plus dividends on
the Superior Preferred Stock would have been 3.9 to 1.0. The Company believes
that, based upon current levels of operations, it will be able to meet its debt
service obligations. However, if the Company's business operations were to
deteriorate substantially, there can be no assurance that the Company would be
able to do so.
ENVIRONMENTAL MATTERS
The Company's operations are subject to numerous federal, state and local
laws and regulations relating to the storage, handling, emission, transportation
and discharge of hazardous materials and waste products. In the ordinary course
of its business, the Company uses solvents and similar hazardous materials in
its manufacturing operations in compliance with those laws and regulations. The
Company does not believe that the impact of these laws, regulations and uses has
had or will have a material effect on the Company's results of operations and
financial condition. See "Business -- Environmental Matters."
10
<PAGE>
DIVIDEND POLICY
Following the consummation of this Offering, the Company intends to retain
any future earnings for use in its businesses and therefore does not anticipate
paying any cash dividends on the Common Stock in the foreseeable future. In
addition, the terms of the Bank Credit Facility provide certain limitations and
restrictions on the declaration and payment of dividends. See "Dividend Policy."
POTENTIAL EFFECTS OF ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and Bylaws contain provisions
that may discourage or prevent certain types of transactions involving an actual
or potential change in control of the Company, including transactions in which
the stockholders might otherwise receive a premium for their shares over then
current market prices, and may limit the ability of the stockholders to approve
transactions that they may deem to be in their best interests. In addition, the
Board of Directors has the authority to fix the rights and preferences of shares
of the Company's Preferred Stock and to issue such shares, which may have the
effect of delaying or preventing a change in control of the Company, without
action by the Company's stockholders. These factors may discourage bids for the
Common Stock at a premium over the market price of the Common Stock and may
adversely affect the market price of the Common Stock and the voting and other
rights of the holders of Common Stock.
DILUTION
Investors in this Offering will incur an immediate and substantial dilution
in net tangible book value per share of Common Stock from the initial offering
price upon completion of the Reorganization and related transactions. Dilution
is a reduction in book value of a purchaser's investment measured by the
difference between the purchase price and the net tangible book value per share
of Common Stock after this Offering. See "Dilution."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There has been no public market for the Common Stock prior to this Offering,
and there can be no assurance that a significant public market for the Common
Stock will develop or will continue after this Offering. The initial public
offering price for the Common Stock was determined by negotiations between the
Company and Furman Selz LLC, Oppenheimer & Co., Inc. and BT Securities
Corporation, as representatives of the Underwriters (the "Representatives").
There can be no assurance that the market price of the Common Stock will not
decline below the initial public offering price. The Company believes factors
such as announcements of new products or technological innovations by the
Company or third parties, as well as variations in the Company's results of
operations, market conditions, analysts' estimates and the stock market may
cause the market price of the Common Stock to fluctuate significantly. In
addition, future sales of Common Stock by Alpine following the completion of the
Reorganization and related transactions and the expiration of an agreed 180-day
lock-up period could have an adverse effect on the market price of the Common
Stock. See "Shares Eligible for Future Sale" and "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, 12,024,048 shares of Common Stock will be
outstanding. The shares of Common Stock sold in this Offering will be freely
tradeable by persons other than "affiliates" of the Company, without restriction
under the Securities Act of 1933, as amended (the "Securities Act"). The
remaining shares of Common Stock outstanding will be "restricted securities"
(the "Restricted Shares") within the meaning of Rule 144 ("Rule 144")
promulgated under the Securities Act and may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available, including the exemptions contained in Rule 144. The Securities and
Exchange Commission (the "Commission") has proposed to amend the holding period
required by Rule 144 to permit sales of restricted securities after one year
rather than the current two years (and two years rather than three years for
"non-affiliates" who desire to trade free of other Rule 144 restrictions). If
such proposed amendment were enacted, the Restricted Shares held by Alpine would
become freely tradeable (subject to any applicable contractual restrictions) at
earlier dates. Such shares will also be subject to the 180-day lock-up agreement
with the
11
<PAGE>
Underwriters. All of the Restricted Shares will be held by Alpine upon
completion of this Offering. Alpine has no current intention of seeking an early
release from the provisions of the lock-up agreement. See "Shares Eligible for
Future Sale."
THE CAUTIONARY STATEMENTS SET FORTH ABOVE AND ELSEWHERE IN THIS PROSPECTUS
SHOULD BE READ AS ACCOMPANYING FORWARD-LOOKING STATEMENTS INCLUDED UNDER "USE OF
PROCEEDS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND ELSEWHERE HEREIN. THE RISKS DESCRIBED IN SUCH
STATEMENTS COULD CAUSE THE COMPANY'S RESULTS TO DIFFER MATERIALLY FROM THOSE
EXPRESSED IN OR INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.
12
<PAGE>
THE COMPANY
GENERAL
The Company was incorporated in Delaware in July 1996. The Company's
principal offices are located at 1790 Broadway, New York, New York 10019 and its
telephone number is (212) 757-3333.
BACKGROUND
Superior, which has been in operation since 1954, was acquired by Alpine in
November 1993 as a result of a merger between Alpine and Superior's corporate
parent. In May 1995, Superior increased its presence in the North American
telecommunications industry by acquiring the U.S. and Canadian copper wire and
cable business (the "Alcatel Business") of Alcatel NA Cable Systems, Inc. and
Alcatel Canada Wire, Inc. (collectively, "Alcatel NA"). In December 1995,
Superior acquired substantially all of the machinery, equipment and inventory of
the Vancouver, B.C. telecommunications wire and cable business of BICC Phillips,
Inc. (the "BICC Transaction"). DNE, which has been in operation since 1951, was
acquired by Alpine in February 1992.
THE REORGANIZATION AND RELATED TRANSACTIONS
THE REORGANIZATION. As part of the Reorganization, Alpine caused Superior
and DNE to declare dividends on their common stock in an aggregate amount of
$117.1 million. Superior also issued to Alpine 20,000 shares of Superior
Preferred Stock, which has the terms described below. Alpine then contributed to
the Company all of the issued and outstanding common stock of Superior and DNE.
Concurrently with the foregoing, the Company entered into the Bank Credit
Facility under which it borrowed $154.7 million to repay the net amount of the
intercompany debt owed to Alpine (which was $87.9 million), and to pay to Alpine
$63.8 million of the declared dividends. The net proceeds of this Offering will
be used to pay the remainder of the declared dividends and to reduce the amount
outstanding under the Bank Credit Facility. See "Use of Proceeds."
Each share of the Superior Preferred Stock has a liquidation value of $1,000
except that under certain defaults under the Bank Credit Facility, such
liquidation value will be reduced to zero until all obligations under the Bank
Credit Facility are paid or discharged. Each share of the Superior Preferred
Stock bears an annual dividend of $60.00, payable quarterly, and ranks senior as
to dividends to Superior's common stock except that, so long as any amounts
remain outstanding under the Bank Credit Facility, Superior may declare and pay
dividends or make other distributions on its common stock. The Superior
Preferred Stock has no voting rights, other than those provided by law, except
that the approval of the holders of the majority of such stock is required for
(i) any authorization, creation, or issuance of any shares of any other class or
series of capital stock of Superior ranking senior to or on parity with the
Superior Preferred Stock or (ii) certain amendments to Superior's charter.
The Superior Preferred Stock is redeemable, in whole or in part, at its
liquidation value at Superior's option at any time, at the holder's option in
certain amounts during each of the sixth through ninth years after its issuance
and at any time thereafter (except that, if there are any obligations of the
Company outstanding under the Bank Credit Facility, then a holder may not redeem
any Superior Preferred Stock during such period until such obligations are paid
or discharged).
If the over-allotment option granted to the Underwriters by the Company is
exercised, Alpine intends to restore its ownership of the outstanding Common
Stock to 50.1% by contributing to the capital of the Company a portion of
Superior Preferred Stock in exchange for shares of Common Stock or by a
substantially equivalent transaction. The amount of Superior Preferred Stock to
be contributed by Alpine will be that number of shares having an aggregate
liquidation value equal to the aggregate price paid by the Company (including
brokers' commissions) for shares of Common Stock to be transferred by the
Company to Alpine. The Company intends to acquire such shares of Common Stock
through open market purchases
13
<PAGE>
or otherwise using only net proceeds of the exercise of the over-allotment
option. The Company will use any balance of those net proceeds to reduce
outstanding debt under the Bank Credit Facility. See "Use of Proceeds,"
"Principal Stockholders" and "Certain Transactions and Relationships."
THE BANK CREDIT FACILITY. Under the Bank Credit Facility, up to $175.0
million is available. Obligations under the Bank Credit Facility are guaranteed
by each of the Company's direct and indirect domestic subsidiaries. The loans
under the Bank Credit Facility are secured by all the common stock of each
direct and indirect subsidiary of the Company (but only 65% of the common stock
of Superior's Canadian subsidiary), and all other property, equipment, inventory
and accounts receivable of each such subsidiary. The Bank Credit Facility
contains customary performance and financial covenants.
Concurrently with the completion of this Offering, the total amount
available under the Bank Credit Facility will be reduced to $150.0 million. The
Company is required to reduce the total commitments under the Bank Credit
Facility by $25.0 million on each of the third and fourth anniversaries of the
closing of the Bank Credit Facility. The Bank Credit Facility has a five-year
term. Interest is payable quarterly based upon the prime rate plus 0.5% or the
Eurodollar rate plus 1.5%; the variable components of these rates are subject to
periodic adjustment after the first anniversary of the closing of the facility
based on the Company's debt to EBITDA ratio on a trailing twelve month basis.
The effective rate of interest is expected to be initially approximately 7.5%.
14
<PAGE>
USE OF PROCEEDS
The net proceeds of this Offering (after deducting the underwriting
discounts and commissions and estimated expenses of this Offering payable by the
Company) are estimated to be approximately $88.6 million ($102.0 million if the
Underwriters' over-allotment option is exercised in full). All such net proceeds
will be applied by the Company as follows:
(1) $53.3 million in payment to Alpine of the balance of the
dividends declared by Superior and DNE in connection with the
Reorganization; and
(2) the balance to reduce the amount outstanding under the Bank
Credit Facility and for working capital purposes.
If the Underwriters' over-allotment option is exercised in part or in full,
the Company will use the net proceeds thereof (i) to reduce outstanding debt
under the Bank Credit Facility and (ii) to purchase the shares of Common Stock
to be delivered to Alpine in exchange for shares of Superior Preferred Stock (or
effect a substantially equivalent transaction) to enable Alpine to restore its
ownership of Common Stock to 50.1%. See "The Company--The Reorganization and
Related Transactions."
The initial borrowings under the Bank Credit Facility, which were
approximately $154.7 million, were used to: (i) repay to Alpine the net amount
of outstanding intercompany debt (which was $87.9 million); (ii) pay to Alpine
approximately $63.8 million of the dividends previously declared; and (iii) pay
all expenses of the financing. The intercompany debt being repaid consists of
indebtedness evidenced by promissory notes payable by Superior, DNE and
Superior's subsidiary to Alpine or arising under revolving credit facilities
between Superior and DNE on the one hand and Alpine on the other. The interest
rates payable on such indebtedness ranged from 8% to 14% and the maturity of
such indebtedness ranged from current to 2003. See "Certain Transactions and
Relationships -- Intercompany Debt."
Interest on amounts outstanding under the Bank Credit Facility are payable
quarterly based upon the prime rate plus 0.5% or the Eurodollar rate plus 1.5%.
The variable components of these rates are subject to periodic adjustment, after
the first anniversary of the closing of the facility, based on the Company's
debt to EBITDA ratio on a trailing twelve month basis. The effective rate of
interest is initially expected to be approximately 7.5%. The Bank Credit
Facility has a five-year term. The Company is required to reduce the total
commitments under the Bank Credit Facility by $25.0 million on each of the third
and fourth anniversaries of the closing of the facility.
DIVIDEND POLICY
The Company is newly-formed and has not paid dividends on the Common Stock.
Following the completion of this Offering, the Company intends to retain any
future earnings for use in its businesses and therefore does not anticipate
paying any dividends on the Common Stock in the foreseeable future. In addition,
the Bank Credit Facility contains restrictions on the declaration and payment of
dividends by the Company.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Superior and DNE as of
July 28, 1996 on an actual basis and of the Company on a pro forma basis, as
adjusted to reflect: (i) the completion of the Reorganization and related
transactions; (ii) the sale by the Company of the 6,000,000 shares of Common
Stock offered hereby, and the application of the net proceeds therefrom as
described under "Use of Proceeds;" and (iii) initial borrowings under the Bank
Credit Facility.
<TABLE>
<CAPTION>
JULY 28, 1996
-----------------------
ACTUAL PRO FORMA
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Due to Alpine and affiliate............................................................... $ 102,914 $ --
Bank Credit Facility...................................................................... -- 120,000
Other..................................................................................... 11,839 11,839
---------- -----------
Total debt.............................................................................. 114,753 131,839
---------- -----------
Preferred stock of subsidiary (1)......................................................... -- 20,000
---------- -----------
Stockholders' equity:
Common Stock, Superior, $0.01 par value per share, 10,000 shares authorized, 1,000 shares
issued................................................................................... -- --
Common Stock, DNE, $1.00 par value per share, 100,000 shares authorized, 750 shares
issued................................................................................... 1 --
Common Stock, $0.01 par value per share, 25,000,000 shares authorized, 12,024,048 shares
issued (2)............................................................................... -- 121
Additional paid-in capital................................................................ 42,254 23,865
Retained earnings (3)..................................................................... 15,177 --
---------- -----------
Total stockholders' equity.............................................................. 57,432 23,986
---------- -----------
Total capitalization.................................................................. $ 172,185 $ 175,825
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Represents 20,000 shares of Superior Preferred Stock.
(2) Excludes 900,000 shares of Common Stock subject to the Underwriters'
over-allotment option.
(3) Includes a cumulative translation adjustment of ($406,000).
16
<PAGE>
DILUTION
The net tangible book value of the Company at July 28, 1996 prior to giving
effect to the Reorganization and this Offering was $60,240 or $0.01 per share of
Common Stock based upon 6,024,048 shares issued. The net tangible book value of
the Company at July 28, 1996, after giving effect to the Reorganization
(excluding the dividends declared by Superior and DNE), was $(10.5) million, or
approximately $(1.73) per share. Net tangible book value per share is determined
by dividing the net tangible book value of the Company (tangible assets less all
liabilities) by the total number of outstanding shares of Common Stock. New
investors purchasing shares in the Offering will realize an immediate dilution
of $17.99 per share. The following table illustrates this per share dilution to
new investors:
<TABLE>
<CAPTION>
Initial public offering price per share (1)................................. $ 16.00
<S> <C> <C>
Net tangible book value per share after the Reorganization but before the
dividend and this Offering............................................... (1.73)
Decrease per share attributable to the dividends and the sale of Common
Stock offered hereby (2)................................................. (0.26)
---------
Pro forma net tangible book value per share after this Offering............. (1.99)
---------
Dilution per share to new investors (3)..................................... $ 17.99
---------
---------
</TABLE>
The following table summarizes as of July 28, 1996 the differences between
the number of shares of Common Stock purchased from the Company, the total
consideration paid, and the average price per share paid by the existing
stockholder and by the purchasers of Common Stock in the Offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------ --------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholder (4)........................... 6,024,048 50.1% $ 42,255,000 30.6% $ 7.01
New investors...................................... 6,000,000 49.9% 96,000,000 69.4% $ 16.00
------------ --------- -------------- ---------
Total...................................... 12,024,048 100% $ 138,255,000 100%
------------ --------- -------------- ---------
------------ --------- -------------- ---------
</TABLE>
- ------------------------
(1) Before deduction of underwriting discount and estimated offering expenses
payable by the Company.
(2) After deduction of underwriting discount and estimated offering expenses
payable by the Company.
(3) Dilution is determined by subtracting the per share pro forma net tangible
book value of the Common Stock after this Offering from the initial public
offering price per share. In the event the Underwriters' over-allotment
option is exercised in full, the dilution in net tangible book value per
share to new investors would be approximately $16.81.
(4) Does not include 635,000 shares of Common Stock that will be issuable upon
the exercise of stock options that will be granted concurrently with or
immediately following the completion of this Offering, with exercise prices
equal to the initial public offering price per share pursuant to the
Company's 1996 Stock Option Plan. See "Management -- Executive Compensation
-- Compensation Under Plans."
17
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
For financial statement presentation purposes, the historical financial
statements of the Company are based upon the combined historical financial
statements of Superior and DNE (which have been reorganized as the Company).
The following unaudited pro forma condensed combined financial statements of
the Company give effect to the acquisition of the Alcatel Business, the
Reorganization and related transactions and this Offering as if such
transactions had occurred as of May 1, 1995. The unaudited pro forma financial
information is provided for comparative purposes only and does not purport to be
indicative of the results that actually would have been obtained if the events
set forth above had been effected on the dates indicated or of those results
that may be obtained in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JULY 28, 1996
<TABLE>
<CAPTION>
REORGANIZATION
AND OFFERING PRO FORMA
ACTUAL ADJUSTMENTS COMBINED
---------- --------------- -----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales............................................................... $ 123,824 $ 123,824
Cost of goods sold...................................................... 105,447 105,447
---------- -----------
Gross profit.......................................................... 18,377 18,377
Selling, general and administrative expense............................. 3,888 $ 500(a) 4,388
Amortization of goodwill................................................ 432 -- 432
---------- ------ -----------
Operating income...................................................... 14,057 (500) 13,557
Interest expense, net................................................... (4,258) 1,530(b) (2,728)
Preferred stock dividends of subsidiary................................. -- (300)(c) (300)
Other income (expense), net............................................. (53) -- (53)
---------- ------ -----------
Income before taxes................................................... 9,746 730 10,476
Provision for income taxes.............................................. (3,778) (532)(d) (4,310)
---------- ------ -----------
Net income............................................................ $ 5,968 $ 198 $ 6,166
---------- -----------
---------- ------ -----------
------
Per share of common stock (based upon 12,024,048 shares outstanding):
Net income ........................................................... $ 0.50 $ 0.51
---------- -----------
---------- -----------
</TABLE>
18
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
TWELVE MONTHS ENDED APRIL 28, 1996 (THE COMPANY) AND
THE ELEVEN-DAY PERIOD ENDED MAY 11, 1995 (ALCATEL BUSINESS)
<TABLE>
<CAPTION>
ALCATEL PRO FORMA REORGANIZATION
ACQUISITION FOR ALCATEL AND OFFERING PRO FORMA
ACTUAL ADJUSTMENTS ACQUISITION ADJUSTMENTS COMBINED
---------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales................................. $ 410,413 $ 7,521(e) $ 417,934 $ 417,934
Cost of goods sold........................ 362,854 7,018(e) 369,780 369,780
(92)(f)
---------- ----------- ----------- -----------
Gross profit............................ 47,559 595 48,154 48,154
Selling, general and administrative
expense.................................. 14,223 336(e) 14,256 $ 2,000(a) 16,256
(303)(g)
Amortization of goodwill.................. 1,556 14(f) 1,570 -- 1,570
---------- ----------- ----------- ------ -----------
Operating income........................ 31,780 548 32,328 (2,000) 30,328
Interest expense, net..................... (17,006) -- (17,006) 6,075(b) (10,931)
Preferred stock dividends of subsidiary... -- -- -- (1,200)(c) (1,200)
Other income, net......................... 55 -- 55 -- 55
---------- ----------- ----------- ------ -----------
Income before taxes..................... 14,829 548 15,377 2,875 18,252
Provision for income taxes................ (6,722) -- (6,722) (1,059)(d) (7,781)
---------- ----------- ----------- ------ -----------
Income from continuing operations....... $ 8,107 $ 548 $ 8,655 $ 1,816 $ 10,471
---------- ----------- ----------- -----------
---------- ----------- ----------- ------ -----------
------
Per share of common stock (based upon
12,024,048 shares outstanding):
Income from continuing operations....... $ 0.67 $ 0.87
---------- -----------
---------- -----------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
19
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JULY 28, 1996
ASSETS
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS COMBINED
---------- ------------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current assets:
Cash............................................................... $ 139 $ 60(h) $ 679
88,580(i)
120,000(j)
(3,100)(j)
(205,000)(k)
Accounts receivable, net........................................... 53,223 53,223
Inventories........................................................ 47,737 47,737
Other current assets............................................... 5,999 5,999
---------- ------------------ -----------
Total current assets............................................. 107,098 540 107,638
Property, plant and equipment, net................................... 76,143 76,143
Goodwill, net........................................................ 47,897 47,897
Long-term investments and other assets............................... 1,222 3,100(j) 4,322
---------- ------------------ -----------
Total assets..................................................... $ 232,360 $ 3,640 $ 236,000
---------- -----------
---------- ------------------ -----------
------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................. $ 364 $ 364
Accounts payable................................................... 39,348 39,348
Accrued expenses................................................... 12,777 12,777
---------- -----------
Total current liabilities........................................ 52,489 52,489
Long-term debt, less current portion................................. 11,475 $ 120,000(j) 131,475
Due to Alpine and affiliate.......................................... 102,914 (102,914)(k) --
Other long-term obligations.......................................... 8,050 8,050
Preferred stock of subsidiary........................................ -- 20,000(l) 20,000
Stockholders' equity:
Common stock $.01 par value; authorized 25,000,000 shares; issued
12,024,048 pro forma as of the offering........................... 1 60(h) 121
60(i)
Capital in excess of par value..................................... 42,254 88,520(i) 23,865
(86,909)(k)
(20,000)(l)
Retained earnings.................................................. 15,177 (15,177)(k) --
---------- ------------------ -----------
Total stockholders' equity........................................... 57,432 (33,446) 23,986
---------- ------------------ -----------
Total liabilities and stockholders' equity....................... $ 232,360 $ 3,640 $ 236,000
---------- -----------
---------- ------------------ -----------
------------------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
20
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a) Represents management's estimate of the additional general and
administrative expenses associated with the Company's status as a separate
public company, of which $0.2 million for the three months ended July 28,
1996 and $0.9 million for the year ended April 28, 1996, represents the
amount that the Company would have paid to Alpine for services rendered
under the Services Agreement. See "Certain Transactions and
Relationships--Services Agreement."
(b) Represents the net adjustment to net interest expense resulting from the
difference between the interest expense on the debt incurred by the Company
in connection with the Reorganization and related transactions and the
historical interest expense on the intercompany debt repaid, determined as
follows:
<TABLE>
<CAPTION>
JULY 28, APRIL 28,
1996 1996
--------- -------------
<S> <C> <C>
Interest on Bank Credit Facility (assuming a 7.5% interest rate).... $ 2,250 $ 9,000
Amortization of deferred financing costs............................ 155 620
Less: historical interest on debt being repaid...................... (3,935) (15,695)
--------- -------------
Total adjustment................................................ $ (1,530) $ (6,075)
--------- -------------
--------- -------------
</TABLE>
The adjustment to interest expense assumes that the average amount
outstanding under the Bank Credit Facility was $120.0 million. An increase
or decrease in the interest rate on loans by the Bank Credit Facility of one
percent (1.0%) will increase or decrease interest expense by $1.2 million.
(c) Reflects dividends on Superior Preferred Stock issued by Superior, a
subsidiary of the Company, under the Reorganization. See "The Company -- The
Reorganization and Related Transactions." The Superior Preferred Stock bears
an annual dividend per share of $60 and is redeemable at the option of the
holder in certain amounts in each of the sixth through ninth years of
issuance and at any time thereafter.
(d) Adjusted to reflect an effective tax rate of 40%, which is the Company's
estimate of the effective tax rate inclusive of both state and federal
income taxes. The effective rate is applied to income from continuing
operations before income taxes, excluding minority interest.
(e) Reflects the results of operations of the Alcatel Business for the 11-day
period ended May 11, 1995, the date of acquisition.
(f) Reflects the changes in historical depreciation expense and the amortization
of goodwill resulting from the Alcatel acquisition.
(g) Reflects the elimination of selling, general and administrative expense
incurred by the Alcatel Business in the historical periods offset by
additional selling, general and administrative expense which the Company
estimates was incurred subsequent to the Alcatel acquisition and related
directly to the ongoing operations of the Alcatel Business.
(h) Reflects the initial subscription of 6,024,048 shares of Common Stock and
the related proceeds.
(i) Reflects the issuance of 6,000,000 shares of Common Stock pursuant to this
Offering and the estimated net proceeds of $88.6 million. On completion of
this Offering there will be 12,024,048 shares of Common Stock outstanding
consisting of the 6,024,048 shares issued on initial subscription and the
6,000,000 shares issued pursuant to this Offering.
(j) Reflects $120.0 million of borrowings under the Bank Credit Facility
outstanding after this Offering (assuming the repayment of $34.7 million of
indebtedness under the Bank Credit Facility) and $3.1 million in related
deferred financing costs.
(k) Reflects the payment by Superior and DNE to Alpine of an aggregate of $205.0
million, consisting of the repayment of existing intercompany debt owed to
Alpine and the payment of that portion of the dividend that is paid
concurrently with the Reorganization. See "Use of Proceeds."
(l) Reflects the issuance of Superior Preferred Stock that Superior issued in a
recapitalization in connection with Reorganization.
21
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL DATA OF THE COMPANY
Set forth below are certain selected historical combined financial data of
the Company. These financial data include the combined results of operations of
DNE and Superior on a prospective basis from the date such entities were
acquired by Alpine. With respect to DNE, such acquisition occurred in February
1992; thus, the results of DNE are included for the 2 1/2 month period ended
April 30, 1992, and for the four-year period ended April 28, 1996. With respect
to Superior, such acquisition occurred in November 1993; thus, the results for
Superior are included for the six-month period ended May 1, 1994, for the years
ended April 30, 1995 and April 28, 1996 and for the quarterly periods ended July
29, 1995 and July 28, 1996. In addition, the results of operations of Superior
for the year ended April 28, 1996 and for the quarterly periods ended July 29,
1995 and July 28, 1996 include the operations of the Alcatel Business which was
acquired by Superior on May 11, 1995. This information should be read in
conjunction with the combined financial statements of DNE and Superior and
related notes included in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
2 1/2 MONTHS
ENDED FISCAL YEAR ENDED QUARTER ENDED
------------ ------------------------------------------ ------------------
APRIL 30, APRIL 30, MAY 1, APRIL 30, APRIL 28, JULY 29, JULY 28,
1992 1993 1994 1995 1996 1995 1996
------------ --------- ------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $4,590 $ 27,897 $68,510 $ 164,485 $ 410,413 $ 99,324 $123,824
Cost of sales...................................... 3,054 15,915 56,250 142,114 362,854 89,821 105,447
------ --------- ------- --------- --------- -------- --------
Gross profit..................................... 1,536 11,982 12,260 22,371 47,559 9,503 18,377
Selling, general & administrative expense.......... 1,209 9,068 8,884 11,632 14,223 3,299 3,888
Amortization of goodwill........................... -- 267 2,186 1,124 1,556 374 432
------ --------- ------- --------- --------- -------- --------
Operating income................................. 327 2,647 1,190 9,615 31,780 5,830 14,057
Interest expense, net.............................. (140) (600) (1,742) (3,700) (17,006) (3,733) (4,258)
Other income (expense)............................. 2 70 (61) 231 55 28 (53)
------ --------- ------- --------- --------- -------- --------
Income (loss) from continuing operations before
taxes........................................... 189 2,117 (613) 6,146 14,829 2,125 9,746
Provision for income taxes......................... -- (462) (521) (2,240) (6,722) (451) (3,778)
------ --------- ------- --------- --------- -------- --------
Income (loss) from continuing operations......... 189 1,655 (1,134) 3,906 8,107 1,674 5,968
(Loss) from discontinued operations................ -- -- (287) (176) -- -- --
------ --------- ------- --------- --------- -------- --------
Income (loss) before extraordinary item.......... 189 1,655 (1,421) 3,730 8,107 1,674 5,968
Extraordinary (loss) on early extinguishment of
debt.............................................. -- -- -- -- (2,645) (2,811) --
------ --------- ------- --------- --------- -------- --------
Net income (loss)................................ $ 189 $ 1,655 $(1,421) $ 3,730 $ 5,462 $ (1,137) $ 5,968
------ --------- ------- --------- --------- -------- --------
------ --------- ------- --------- --------- -------- --------
Per share of common stock (based upon 12,024,048
shares outstanding subsequent to this Offering):
Income from continuing operations................................................................. $ 0.67 $ 0.14 $ 0.50
Extraordinary (loss) on early extinguishment of debt.............................................. (0.22) (0.23) --
--------- -------- --------
Net income (loss)............................................................................... $ 0.45 $ (0.09) $ 0.50
--------- -------- --------
--------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
APRIL APRIL APRIL
30, 30, MAY 1, APRIL 30, 28, JULY 28,
1992 1993 1994 1995 1996 1996
-------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital................................................. $ 5,773 $ 7,346 $ 23,558 $ 22,750 $ 58,726 $ 54,609
Total assets.................................................... 12,918 18,500 115,338 120,127 244,065 232,360
Total debt, including intercompany.............................. 8,412 8,342 39,095 37,067 125,760 114,753
Total stockholders' equity...................................... 1,807 4,916 48,123 49,854 51,656 57,432
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company, through its two subsidiaries, Superior and DNE, is engaged in
the manufacture and sale of copper wire and cable for the telecommunications
industry and data communication and other electronic products and systems for
defense, governmental and commercial applications.
RESULTS OF OPERATIONS
To facilitate a meaningful comparison between periods, this Management's
Discussion and Analysis focuses on pro forma information for the periods
covered, which management believes provides comparability among historical
periods. Period-to-period comparisons of the Company's historical financial
information are less relevant to an understanding of the Company due to the
significance of the Superior acquisition on November 11, 1993 and the Alcatel
acquisition on May 11, 1995. Accordingly, the information in the following
tables and the period-to-period comparisons in this Management's Discussion and
Analysis are based on pro forma data which reflects the impact of the Superior
acquisition and the Alcatel acquisition as if both occurred at the beginning of
the periods presented.
The pro forma data included in the following table for the three months
ended July 28, 1996 and for fiscal year ended April 28, 1996 are derived from
Pro Forma Condensed Combined Statements of Operations included elsewhere herein.
The pro forma data included in the following table for the three months ended
July 29, 1995 and for fiscal 1995 and 1994 have been prepared in a manner
substantially consistent with the aforementioned Pro Forma Condensed Combined
Statements of Operations except for the assumption that this Offering, the
Reorganization and related transactions, the Superior acquisition and the
Alcatel acquisition occurred on May 1, 1993. Such pro forma data for the three
months ended July 29, 1995 and for fiscal 1995 and 1994 include the historical
results of operations of the Company, the historical results of the Alcatel
Business and Superior prior to their respective acquisition by the Company, and
certain pro forma adjustments as more fully described in the footnotes
accompanying the Combined Supplemental Unaudited Pro Forma Operating Data set
forth in the table below. The pro forma data are not necessarily indicative of
the results that would have been achieved had such acquisitions actually
occurred on May 1, 1993, nor are they necessarily indicative of the Company's
future results.
For the twelve months ended July 28, 1996, 88.2% of Superior's net sales
were made to the RBOCs and the two major independent telephone companies.
Superior's sales to these customers are generally pursuant to multi-year supply
agreements under which the customer agrees to have Superior provide certain of
the customer's wire or cable needs as a primary supplier during the term of the
agreement. Prior to awarding a contract, customers typically forecast their
needs, and manufacturers such as Superior bid and quote prices based on the
forecasted order amount. The agreements are generally of a "framework" nature,
establishing prices, subject to adjustment, in certain circumstances, for
fluctuations in copper prices and other raw materials costs and providing other
general terms of purchase and sale. The agreements generally do not obligate
Superior's customers to purchase any minimum amount of the Superior's products.
The terms of these agreements vary from one to seven years. Certain of the
agreements, including agreements with three of the RBOCs and one of the major
independent telephone companies, provide that the customer may terminate the
agreement without cause and either without notice or on 30 or 90 days' notice.
Superior was recently awarded contracts by two RBOCs, including one with which
it did not previously do business. The Company believes that these contracts
will continue to contribute a significant amount of incremental sales to its
results of operations in fiscal 1997 and beyond. The Company believes that these
contracts are part of a recent trend of the RBOCs to enter into longer term
arrangements with a fewer number of suppliers, and that this trend will
continue. See "Business -- Telecommunications Wire and Cable -- Marketing and
Distribution."
Price increases instituted during fiscal 1996 related to both wire and cable
products reflected a reversal of a trend of lower market prices experienced in
fiscal 1994 and early fiscal 1995. During such period,
23
<PAGE>
industry-wide capacity exceeded demand, resulting in a very competitive market
environment. Since such time, reductions in manufacturing capacity coupled with
increasing product demand, as well as the resulting changes in customer
relationships, have resulted in an increase in market prices. The price
increases instituted throughout fiscal 1996 significantly impacted profitability
during the second half of fiscal 1996 and the first quarter of fiscal 1997.
The Alcatel Business, which was acquired in May 1995, was particularly
impacted in fiscal 1995 by the cycle of lower market prices in fiscal 1995, due
to the timing of its contract expirations and the resulting rebidding and
obtaining of new contract awards during a period of very competitive pricing.
The Company has subsequently renegotiated substantially all of these contracts
on improved pricing terms. These contracts generally have terms and provisions
similar to Superior's other customer contracts described above.
The cost of copper has been subject to considerable volatility over the past
several years. While fluctuations in the price of copper directly affect the per
unit prices of Superior's products, this volatility has not had, nor is it
expected to have, a material impact on Superior's profitability due to the
copper price pass-through arrangements contained in the contracts under which
Superior's telecommunications wire and cable products are sold. Generally, the
copper price component passed through in each contract for a particular quarter
is based on the average COMEX copper price over the three-month period ending at
or before the beginning of that quarter. Each month, the Company estimates its
product deliveries several months into the future and enters into price
commitments with its suppliers for a portion of its estimated copper rod
requirements for delivery on a forward basis. The Company uses these forward
purchase commitments to minimize the differences between its raw material copper
costs charged to cost of sales and the pass-through pricing charged to its
customers.
24
<PAGE>
COMBINED SUPPLEMENTAL UNAUDITED PRO FORMA OPERATING DATA (1)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------- QUARTERS ENDED
APRIL APRIL ------------------
MAY 1, 30, 28, JULY 29, JULY 28,
1994 1995 1996 1995 1996
-------- --- --- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
Net sales
Telecommunications wire and cable.......................................... $311,904 $340,756 $391,758 $101,580 $117,969
Data communications and electronics........................................ 21,653 27,907 26,176 5,265 5,855
-------- --- --- -------- --------
Combined net sales....................................................... 333,557 368,663 417,934 106,845 123,824
-------- --- --- -------- --------
-------- --- --- -------- --------
Gross profit (2)(3)
Telecommunications wire and cable.......................................... $ 34,091 $28,433 $40,267 $ 8,505 $ 16,859
Data communications and electronics........................................ 8,252 8,221 7,887 1,593 1,518
-------- --- --- -------- --------
Combined gross profit.................................................... 42,343 36,654 48,154 10,098 18,377
-------- --- --- -------- --------
-------- --- --- -------- --------
Selling, general and administrative expense (4)
Telecommunications wire and cable.......................................... $ 5,249 $6,170 $8,408 $ 1,749 $ 2,322
Data communications and electronics........................................ 6,574 6,511 5,848 1,583 1,566
Corporate (5).............................................................. 2,000 2,000 2,000 500 500
-------- --- --- -------- --------
Combined selling, general and administrative expense..................... 13,823 14,681 16,256 3,832 4,388
-------- --- --- -------- --------
-------- --- --- -------- --------
Amortization of goodwill (6)
Telecommunications wire and cable.......................................... $ 1,570 $1,570 $1,570 $ 388 $ 432
Data communications and electronics (7).................................... 1,753 -- -- -- --
-------- --- --- -------- --------
Combined amortization of goodwill........................................ 3,323 1,570 1,570 388 432
-------- --- --- -------- --------
-------- --- --- -------- --------
Operating income
Telecommunications wire and cable.......................................... $ 27,272 $20,693 $30,289 $ 6,368 $ 14,105
Data communications and electronics........................................ (75) 1,710 2,039 10 (48)
Corporate.................................................................. (2,000) (2,000) (2,000) (500) (500)
-------- --- --- -------- --------
Combined operating income................................................ 25,197 20,403 30,328 5,878 13,557
-------- --- --- -------- --------
-------- --- --- -------- --------
Operating income............................................................. $ 25,197 $20,403 $30,328 $ 5,878 $ 13,557
Interest expense (8)......................................................... (10,931) (10,931) (10,931) (2,728) (2,728)
Preferred stock dividends of subsidiary (9).................................. (1,200) (1,200) (1,200) (300) (300)
Other income (expense)....................................................... (61) 231 55 28 (53)
-------- --- --- -------- --------
Income from continuing operations before income taxes...................... 13,005 8,503 18,252 2,878 10,476
Provision for income taxes (10).............................................. (5,682) (3,881) (7,781) (1,271) (4,310)
-------- --- --- -------- --------
Income from continuing operations.......................................... $ 7,323 $4,622 $10,471 $ 1,607 $ 6,166
-------- --- --- -------- --------
-------- --- --- -------- --------
Income per share of common stock from continuing operations (based upon
12,024,048 shares outstanding).............................................. $ 0.61 $0.38 $0.87 $ 0.13 $ 0.51
-------- --- --- -------- --------
-------- --- --- -------- --------
AS A PERCENTAGE OF NET SALES
----------------------------------------
Gross margin
Telecommunications wire and cable.......................................... 10.9% 8.3% 10.3% 8.4% 14.3%
Data communications and electronics........................................ 38.1 29.5 30.1 30.3 25.9
Combined gross margin.................................................... 12.7 9.9 11.5 9.5 14.8
Operating income margin
Telecommunications wire and cable.......................................... 8.7% 6.1% 7.7% 6.3% 12.0%
Data communications and electronics........................................ (0.3) 6.1 7.8 0.2 (0.8)
Combined operating income margin......................................... 7.6 5.5 7.3 5.5 11.0
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
---------------------------------------------------------------
FISCAL YEAR ENDED QUARTER ENDED
------------------------------------- ------------------------
MAY 1, APRIL 30, APRIL 28, JULY 29, JULY 28,
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales........................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................................... 87.3 90.1 88.5 90.5 85.2
----- ----- ----- ----- -----
Gross profit................................................... 12.7 9.9 11.5 9.5 14.8
Selling, general and administrative expense...................... 4.1 4.0 3.9 3.6 3.5
Amortization of goodwill......................................... 1.0 0.4 0.3 0.4 0.3
----- ----- ----- ----- -----
Operating income............................................... 7.6 5.5 7.3 5.5 11.0
Interest expense, net............................................ 3.3 2.9 2.6 2.5 2.2
Preferred stock dividends of subsidiary.......................... 0.4 0.3 0.3 0.3 0.2
Other income (expense), net...................................... 0.0 0.0 0.0 0.0 0.1
----- ----- ----- ----- -----
Income from continuing operations before income taxes.......... 3.9 2.3 4.4 2.7 8.5
Provision for income taxes....................................... 1.7 1.1 1.9 1.2 3.5
----- ----- ----- ----- -----
Income from continuing operations.............................. 2.2 1.2 2.5 1.5 5.0
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
- ------------------------
(1) The Combined Supplemental Unaudited Pro Forma Operating Data give effect to
the following transactions as if such transactions occurred on May 1, 1993:
(a) this Offering;
(b) the Reorganization and related transactions;
(c) the acquisition of Superior; and
(d) the acquisition of the Alcatel Business.
(2) Reduced by $250,000 in fiscal 1994 and 1995 to reflect reduced operating
expenses resulting from the Alcatel acquisition.
(3) Adjusted to reflect reductions to the historical depreciation expense
resulting from the Alcatel and Superior acquisitions. The adjustments to
depreciation expense amounted to $3.0 million, $2.9 million and $92,000 in
fiscal 1994, 1995 and 1996, respectively.
(4) Adjusted to reduce historical selling, general and administrative expenses
incurred by the Alcatel Business of $11.6 million and $10.3 million in
fiscal 1994 and 1995 and $0.3 million in the quarter ended July 29, 1995 by
$10.4 million and $9.1 million in fiscal 1994 and 1995, respectively, and
$0.3 million in the quarter ended July 29, 1995. The reduction represented
management fees, allocated administrative fees and employee costs incurred
by the Alcatel Business to the extent such charges were eliminated
subsequent to the Alcatel acquisition.
(5) Reflects estimated additional general and administrative expenses associated
with the Company's status as an independent public company, including $0.2
million for the quarter ended July 28, 1996 and $0.9 million for the year
ended April 28, 1996 which would have been payable pursuant to the Services
Agreement.
(6) Adjusted to reflect incremental amortization resulting from the Alcatel and
Superior acquisitions of $1.1 million and $446,000 in fiscal 1994 and 1995,
respectively and $14,000 in the quarter ended July 29, 1995.
(7) Reflects a $1.5 million write-off of goodwill related to a non-strategic
product line at DNE.
(8) Adjusted to reflect the capital structure that exists as a result of the
Reorganization and related transactions and is based on certain existing
debt and an assumed $120.0 million of debt outstanding under the Bank Credit
Facility during fiscal 1994, 1995 and 1996 and during the quarter ended July
28, 1996.
26
<PAGE>
(9) Reflects dividends on Superior Preferred Stock issued to Alpine in
connection with the Reorganization.
(10)Adjusted to reflect an effective tax rate of 40%, which is the Company's
estimate of the effective tax rate inclusive of both state and federal
income taxes. The effective rate is applied to income from continuing
operations before income taxes, excluding minority interest.
PRO FORMA QUARTERLY RESULTS
The following table presents selected pro forma quarterly condensed combined
financial information for each of the nine quarters through July 28, 1996. This
information is unaudited, but in the opinion of the Company's management,
reflects all adjustments (consisting only of normal recurring adjustments) that
the Company considers necessary for a fair presentation of this information in
accordance with generally accepted accounting principles. Such quarterly results
are not necessarily indicative of future results of operations. The Company's
net sales in the winter months are generally lower than during the summer months
due to reduced construction activities by the RBOCs and the two major
independent telephone companies. This seasonality is generally reflected in
lower net sales for the third fiscal quarter.
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
------------------------------------------------------------------------------------
JULY OCT. JAN. APRIL JULY OCT. JAN. APRIL JULY
1994 1994 1995 1995 1995 1995 1996 1996 1996
------- ------- ------- -------- -------- -------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................................... $92,056 $82,558 $93,577 $100,472 $106,845 $109,076 $91,185 $110,828 $123,824
Cost of sales................................ 80,801 74,824 84,920 91,464 96,747 98,036 80,284 94,713 105,447
------- ------- ------- -------- -------- -------- ------- -------- --------
Gross profit............................... 11,255 7,734 8,657 9,008 10,098 11,040 10,901 16,115 18,377
Selling, general and administrative
expense..................................... 3,591 3,802 3,561 3,727 3,832 3,888 3,984 4,552 4,388
Amortization of goodwill..................... 391 392 393 394 388 390 397 395 432
------- ------- ------- -------- -------- -------- ------- -------- --------
Operating Income........................... 7,273 3,540 4,703 4,887 5,878 6,762 6,520 11,168 13,557
Interest expense............................. (2,733) (2,733) (2,733) (2,733) (2,733) (2,733) (2,733) (2,733) (2,728)
Preferred stock dividends of subsidiary...... (300) (300) (300) (300) (300) (300) (300) (300) (300)
Other income (expense), net.................. 38 39 33 121 28 (4) (7) 38 (53)
------- ------- ------- -------- -------- -------- ------- -------- --------
Income from continuing operations before
income taxes.............................. 4,278 546 1,703 1,975 2,873 3,725 3,480 8,173 10,476
Provision for income taxes................... (1,831) (339) (801) (910) (1,269) (1,610) (1,512) (3,389) (4,310)
------- ------- ------- -------- -------- -------- ------- -------- --------
Income from continuing operations.......... $ 2,447 $ 207 $ 902 $ 1,065 $ 1,604 $ 2,115 $ 1,968 $ 4,784 $ 6,166
------- ------- ------- -------- -------- -------- ------- -------- --------
------- ------- ------- -------- -------- -------- ------- -------- --------
Income per share from continuing operations
(based upon 12,024,048 shares
outstanding)................................ $ 0.20 $ 0.02 $ 0.07 $ 0.09 $ 0.13 $ 0.18 $ 0.16 $ 0.40 $ 0.51
------- ------- ------- -------- -------- -------- ------- -------- --------
------- ------- ------- -------- -------- -------- ------- -------- --------
</TABLE>
PRO FORMA QUARTER ENDED JULY 29, 1995 COMPARED TO PRO FORMA QUARTER ENDED JULY
28, 1996
NET SALES
Combined net sales for the three months ended July 28, 1996 were $123.8
million, representing an increase of $17.0 million, or 15.9%, over combined net
sales of $106.8 million for the same period in fiscal 1996.
Superior's net sales of $118.0 million for the three months ended July 28,
1996, were $16.4 million, or 16.1%, greater than net sales of $101.6 million for
the same period in fiscal 1996. After adjusting for the contractual pass-through
of lower copper prices, in the form of reduced selling prices resulting from
lower copper costs during the fiscal quarter ended July 29, 1996, net sales
would have increased by approximately $21.4 million or 21.1% as compared to the
July 28, 1995 fiscal quarter. Approximately $16.5 million of the adjusted
increase in net sales resulted from sales volume of both wire and cable
products. This increase was attributable to additional sales volume under the
new multi-year supply agreements referred to above as well
27
<PAGE>
as to the continued increase in demand for copper wire and cable products in the
local loop. The remaining $4.9 million increase in sales in the fiscal quarter
ended July 28, 1996 resulted from non-copper based price increases instituted
during the latter half of fiscal 1996 under the new multi-year supply
agreements.
DNE's net sales for the three months ended July 28, 1996 were $5.9 million,
representing an increase of $0.6 million, or 11.2%, as compared to net sales of
$5.3 million for the same period in fiscal 1996. Sales in DNE's contract
manufacturing service operations increased in the current fiscal quarter by $1.4
million, offset somewhat by a decline in sales of military avionic products.
GROSS PROFIT
Combined gross profit for the three months ended July 28, 1996 was $18.4
million, representing an increase of $8.3 million, or 82.0%, over combined gross
profit of $10.1 million for the same period in fiscal 1996.
Superior's gross profit increased by $8.4 million, or 98.3%, to $16.9
million for the three months ended July 28, 1996, as compared to $8.5 million
for the same period in fiscal 1996. Superior's gross margin increased to 14.3%
(13.7%, if adjusted to reflect the contractual pass through of lower copper
prices) for the three months ended July 28, 1996, as compared to 8.4% for the
same period in fiscal 1996. Superior's gross margins in the fiscal quarter ended
July 28, 1996 reflected a continuing trend of steadily improving margins that
began early in fiscal 1996. Over the last four fiscal quarters Superior's gross
margin (as adjusted to reflect the contractual pass-through of a COMEX copper
price of $1.10 per pound), has improved from 9.6% in the second quarter of
fiscal 1996 to 11.3% and 13.8% in the third and fourth quarters of fiscal 1996,
respectively, and to 14.7% in the fiscal quarter ended July 28, 1996. The
continuing increase in gross margins resulted principally from the
aforementioned fiscal 1996 increase in selling prices instituted pursuant to a
majority of Superior's multi-year supply agreements, as well as production
efficiencies caused by higher production levels and the impact of cost savings
from the aforementioned completion of the integration of the Alcatel business
operations.
DNE's gross profit was $1.5 million for the three months ended July 28,
1996, representing a decline of $0.1 million, or 4.7%, as compared to $1.6
million for the same period in fiscal 1996. DNE's gross margin decreased from
30.3% to 25.9% due to the trend toward contract manufacturing operations which
have a lower gross margin than DNE's other operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE ("SG&A EXPENSE")
Combined SG&A expense for the three months ended July 28, 1996 was $4.4
million, representing an increase of $0.6 million, or 14.5% over SG&A expense of
$3.8 million for the same period in fiscal 1996.
Superior's SG&A expense for the three months ended July 28, 1996 was $2.3
million, an increase of $0.6 million, or 32.8% over SG&A expense of $1.7 million
for the same period in fiscal 1996. This increase in SG&A expense reflected
among other factors, the incremental sales and marketing staff required to
support the increased level of sales and the expansion of international and
other marketing activities associated with new product lines and entering new
geographic markets.
DNE's SG&A expense for the three months ended July 28, 1996 was $1.6 million
which is the same as the corresponding period of fiscal 1996.
OPERATING INCOME
Combined operating income for the three months ended July 28, 1996 was $13.6
million, representing an increase of $7.7 million, or 130.6%, as compared to
combined operating income of $5.9 million for the same period in fiscal 1996.
The increase in operating income was attributable to the increase in net sales
at Superior, coupled with an increase in gross margins, as more fully discussed
above.
28
<PAGE>
INCOME FROM CONTINUING OPERATIONS
Combined income from continuing operations for the three months ended July
28, 1996 was $6.2 million, representing an increase of $4.6 million, or 283.7%,
as compared to combined income from continuing operations of $1.6 million for
the same period in fiscal 1996. The increase was attributable to the same
factors impacting operating income, as described above.
PRO FORMA FISCAL 1996 COMPARED TO PRO FORMA FISCAL 1995
NET SALES
Fiscal 1996 combined net sales were $417.9 million, representing an increase
of $49.3 million, or 13.4%, over fiscal 1995 combined net sales of $368.7
million.
Superior's fiscal 1996 net sales of $391.8 million increased $51.0 million,
or 15.0%, over fiscal 1995 net sales of $340.8 million. Approximately $18.0
million of the increase in net sales was attributable to the contractual pass
through, in the form of increased selling prices, of higher copper costs in
fiscal 1996. Of the remaining $33.0 million increase in net sales, approximately
$6.0 million resulted from non-copper based price increases instituted during
fiscal 1996 under multi-year customer supply agreements with the remainder of
the increase (approximately $27.0 million) being the result of higher unit sales
volumes.
Higher unit sales volumes in fiscal 1996 occurred across all of Superior's
product lines. The increase in unit sales volume was attributable to an
expansion of multi-year contractual arrangements under new contract awards with
several RBOCs and a major independent telephone holding company, as well as to a
general increased level of demand for telecommunications wire and cable
products.
DNE's net sales in fiscal 1996 were $26.2 million, which represented a
decline of $1.7 million, or 6.2%, as compared to fiscal 1995. Increased sales in
the Company's contract manufacturing services operations and military data
communications and avionics operations were offset by completion in fiscal 1995
of a major contract with NASA for the manufacture of hardware interface modules.
GROSS PROFIT
Combined gross profit in fiscal 1996 was $48.2 million, representing an
increase of $11.5 million, or 31.4%, over fiscal 1995 combined gross profit of
$36.7 million. The combined gross margin in fiscal 1996 was 11.5% as compared to
9.9% in fiscal 1995.
Superior's gross profit increased by $11.8 million, or 41.6%, to $40.3
million in fiscal 1996. Superior's fiscal 1996 gross margin increased to 10.3%
(10.8% if adjusted to reflect increases in copper prices) as compared to 8.9% in
fiscal 1995. The improvement in Superior's gross margin was reflective of a
positive trend which began in the second fiscal quarter of fiscal 1996 and
continued through the end of the fiscal year. During fiscal 1996, Superior's
gross margin (as adjusted to reflect the contractual pass-through of a COMEX
copper price of $1.10 per pound) was 8.3% in the first quarter, increasing to
9.6%, 11.3% and 13.8% for the second, third and fourth quarters, respectively.
The continued improvement in gross margin during fiscal 1996 resulted from: (i)
the aforementioned price increases instituted during fiscal 1996, the primary
impact of which was reflected in the third and fourth quarters of the fiscal
year; (ii) non-copper raw material cost reductions, impacting primarily the
fourth quarter of fiscal 1996; (iii) improved production efficiencies caused by
higher production levels; and (iv) cost savings resulting from the completion of
the integration of the Alcatel Business operations during the latter half of the
fiscal year.
DNE's gross profit for fiscal 1996 was $7.9 million, representing a decline
of $0.3 million, or 4.1%, as compared to fiscal 1995. The reduction in DNE's
fiscal 1996 gross profit was attributable to lower net sales, the effect of
which was partially offset by a slight increase in DNE's gross margin in fiscal
1996 compared to fiscal 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Combined SG&A expense in fiscal 1996 was $16.3 million, an increase of $1.6
million, or 10.7%, as compared to fiscal 1995.
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Superior's SG&A expense in fiscal 1996 was $8.4 million, an increase of
36.3%, as compared to fiscal 1995 SG&A expenses of $6.2 million. This increase
was attributable to a number of factors including duplicative transitionary data
processing charges associated with the Alcatel acquisition, expansion of
international and other marketing activities associated with new product lines
and entering new geographic markets, increase in sales and marketing staff to
support the overall increase in sales demand, and higher expenses associated
with the development and support of data processing systems upgrades.
DNE's SG&A expense declined by $0.7 million or 10.2%, to $5.8 million in
fiscal 1996. This reduction was due primarily to a reorganization of DNE's sales
and marketing efforts and the elimination of overhead associated with activities
in non-strategic product lines and markets.
OPERATING INCOME
Combined operating income was $30.3 million in fiscal 1996, an increase of
$9.9 million, or 48.6%, as compared to fiscal 1995. The increase in operating
income was attributable to the factors discussed above including an increase in
Superior's net sales volume and in its gross margins resulting from price
increases and cost reductions.
INCOME FROM CONTINUING OPERATIONS
Combined income from continuing operations for fiscal 1996 of $10.5 million
represented an increase of $5.8 million, or 126.5%, over fiscal 1995 combined
income from continuing operations of $4.6 million. This increase was
attributable to the same factors that gave rise to the increase in combined
operating income.
PRO FORMA FISCAL 1995 COMPARED TO PRO FORMA FISCAL 1994
NET SALES
Fiscal 1995 combined net sales were $368.7 million, representing an increase
of $35.1 million, or 10.5%, over fiscal 1994 combined net sales of $333.6
million.
Superior's net sales for fiscal 1995 of $340.8 million, were $28.9 million,
or 9.3% greater than fiscal 1994 net sales of $311.9 million. However, a
majority of the fiscal 1995 sales increase ($27.0 million) was attributable to
the pass-through of higher copper costs during fiscal 1995. Excluding the impact
of such higher copper costs, Superior's fiscal 1995 net sales were relatively
constant compared to fiscal 1994 net sales.
During fiscal 1995, Superior's stand-alone historic operations (excluding
the pro forma impact of the Alcatel Business) reflected a $29.6 million, or
27.6%, increase in net sales (of which approximately $9.0 million, or 6.5%, was
attributable to the impact of higher copper costs). This increase in net sales
from Superior's stand-alone historic operations included a $15.6 million
increase in sales of wire products, which increase included the impact of two
new multi-year supply agreements for distribution wire products and increased
sales of premise wire products (including UTP). Sales growth in fiscal 1995 from
Superior's historical operations also included a $5.0 million increase in
distribution cable product sales, again resulting from new multi-year supply
agreement awards.
The stand-alone historical operations of the Alcatel Business in fiscal 1995
reflected a decline in net sales of $0.7 million ($18.0 million after
eliminating the impact of the pass-through of higher copper costs). The decline
of $18.0 million resulted from a decrease in both sales volume and selling
prices. The decrease in sales volume, estimated at $10.0 million, was the result
of the loss of two major RBOC contracts in the latter part of fiscal 1994 (a
portion of which was awarded to Superior), and reflected a trend in the RBOC
market towards the concentration of supplier relationships. Partially offsetting
the reduction in sales volume from the aforementioned RBOC contracts, was the
impact of higher sales in the spot market and the impact of two new multi-year
supply agreements entered into by the Alcatel Business in the first half of
fiscal 1995. The lower selling prices were the result of weak market conditions
that affected the Alcatel Business during that period.
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DNE's net sales in fiscal 1995 increased by $6.3 million, or 28.9%, to $27.9
million. This increase was attributable to the aforementioned NASA contract
which accounted for $7.0 million in fiscal 1995 revenues. Net sales of
datacommunications and avionics products to the military declined in fiscal 1995
to $15.9 million as compared to $18.6 million in fiscal 1994. The decline in
military product sales was offset by growth in commercial contract manufacturing
revenues of approximately $3.5 million in fiscal 1995.
GROSS PROFIT
Combined gross profit for fiscal 1995 as compared to fiscal 1994 declined by
13.4%, or $5.7 million, to $36.7 million. The combined gross margin for this
period declined from 12.7% in fiscal 1994 to 9.9% in fiscal 1995.
Superior's gross profit in fiscal 1995 of $28.4 million reflected a decline
of $5.7 million as compared to fiscal 1994. During this same period, the gross
margin declined from 10.9% in fiscal 1994 to 8.3% (9.1% if adjusted to reflect
increases in copper costs) in fiscal 1995. In fiscal 1995, Superior's
stand-alone historical operations reflected an increase in gross profit of $4.3
million (a 44.0% increase over fiscal 1994). During this same period, the gross
margin from Superior's historic operations increased to 10.4% (11.0% if adjusted
to reflect increases in copper costs) in fiscal 1995 from 9.2% in fiscal 1994.
The improvement in gross margin from Superior's historical operations in fiscal
1995 was the result of: (i) the increase in, and the higher proportion of sales
of distribution wire and premise wire which typically generate higher percentage
margins than sales of distribution cable; (ii) the increase in overall product
demand in the latter half of fiscal 1995 and the reduction in industry-wide
capacity resulting in higher pricing on products not subject to multi-year
supply agreements; and (iii) improved production efficiencies caused by higher
production levels.
The fiscal 1995 gross profit for the historical operations of the Alcatel
Business declined by $9.9 million as compared to fiscal 1994. The gross margin
for this same period declined from 10.4% to 5.5% (7.5% if adjusted to exclude
the impact of the pass-through of higher copper costs). The reduction in the
Alcatel Business's historical gross profit and gross margin during fiscal 1995
was the result of the replacement of lost contract business with spot market
sales and business under new supply agreements in the latter half of fiscal
1994, which was during a period of extremely competitive market pricing.
During fiscal 1995, DNE's gross profit remained relatively unchanged at $8.2
million. During this same period, DNE's gross margin declined from 38.1% in
fiscal 1994 to 29.5% in fiscal 1995. A trend in product mix toward lower margin
commercial and government contract manufacturing services caused this decline.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Fiscal 1995 combined SG&A expense was $14.7 million, representing an
increase of $0.9 million, or 6.2%, over fiscal 1994 combined SG&A expense of
$13.8 million.
Superior's SG&A expense in fiscal 1995 was $6.2 million, an increase of $0.9
million over fiscal 1994 SG&A expense. This increase reflected higher marketing
and engineering expense associated with the expansion of Superior's product
lines into the premise wire markets and the growth in revenues in Superior's
traditional wire and cable products and markets.
DNE's SG&A expense in fiscal 1995 as compared to fiscal 1994 was constant at
$6.5 million.
OPERATING INCOME
In fiscal 1995, combined operating income was $20.4 million, representing a
decline of $4.8 million as compared to fiscal 1994. Such decline was due
primarily to the lower comparative gross profit in fiscal 1995 which was
attributable to lower sales volumes and gross margins in the historical
operations of the Alcatel Business during such period.
INCOME FROM CONTINUING OPERATIONS
Combined income from continuing operations for fiscal 1995 of $4.6 million
represented a decline of $2.7 million compared to fiscal 1994 combined income
from continuing operations of $7.3 million. This decline was attributable to the
same factors that gave rise to the decline in combined operating income.
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SUPPLEMENTAL COMMENTS ON HISTORICAL RESULTS OF OPERATIONS
During fiscal 1994 and 1996, the Company completed the acquisition of
Superior (November 10, 1993) and the Alcatel Business (May 11, 1995). These
acquisitions significantly increased the Company's net sales and had a major
impact on its operating results and its financial condition and liquidity. The
operations of each entity are included in the historical operating results of
the Company from the respective acquisition dates.
NET SALES
Fiscal 1996 combined net sales were $410.4 million, representing an increase
of $245.9 million, or 149.5%, as compared to fiscal 1995 combined net sales of
$164.5 million. This increase is primarily attributable to the inclusion of the
net sales of the Alcatel Business acquired on May 11, 1995.
Superior's net sales for fiscal 1996 increased by $247.7 million, or 181.3%
to $384.2 million compared to fiscal 1995 net sales of $136.6 million. This
increase is primarily attributable to the Alcatel acquisition. However, also
contributing to the increase in Superior's net sales was the contractual pass
through, in the form of increased selling prices, of higher copper costs in
fiscal 1996, price increases on multi-year contracts negotiated during the
period and strong overall demand for copper wire and cable products. Partially
offsetting the increase in fiscal 1996 net sales was a $1.7 million decline in
DNE revenues. During fiscal 1996, DNE continued its transition away from its
dependence on defense and government markets by increasing its commercial
contract manufacturing services sales.
The increase in the Company's fiscal 1995 net sales of $96.0 million, or
140.1%, as compared to fiscal 1994 was primarily attributable to the inclusion
of Superior's net sales for the full fiscal year as opposed to five and one-half
months in fiscal 1994.
GROSS PROFIT
Combined gross profit increased by $25.2 million in fiscal 1996 to $47.6
million compared to combined gross profit of $22.4 million in fiscal 1995, while
the combined gross margin declined from 13.6% in fiscal 1995 to 11.6% in fiscal
1996. The increase in gross profit as well as the decline in the gross margin is
primarily attributable to the increasing contribution of Superior. Superior
operates in a lower gross margin industry than that in which DNE operates and,
therefore, as Superior's gross profit becomes a greater proportion of total
gross profit, the gross margin percentage declines. On a separate entity basis,
Superior's gross profit increased in fiscal 1996 by $25.5 million to $39.7
million, while gross margin remained constant at 10.4%. DNE's gross profit for
fiscal 1996 declined from $8.2 million in fiscal 1995 to $7.9 million, resulting
from a decrease in net sales, while gross margins remained constant at 30.0%.
Combined gross profit increased in fiscal 1995 by $10.1 million to $22.4
million, while combined gross margin declined from 17.9% in fiscal 1994 to 13.6%
in fiscal 1995. The increase in combined gross profit and decrease in combined
gross margin were primarily the result of the inclusion of Superior's operations
for the full fiscal year. The decline in DNE's gross margin from 38.1% in fiscal
1995 to 29.5% in fiscal 1996, caused primarily by the aforementioned change in
product mix from high margin government sales to lower margin contract
manufacturing services, contributed to the decline in the Company's combined
gross margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Combined SG&A expense increased in fiscal 1996 to $14.2 million from $11.6
million in fiscal 1995. SG&A expense as a percentage of net sales, however,
declined from 7.1% in fiscal 1995 to 3.5% in fiscal 1996. The increase in SG&A
expense is primarily attributable to an increase of $3.4 million in SG&A expense
at Superior resulting from the acquisition of the Alcatel Business, which was
partially offset by a decline of $0.7 million in DNE's SG&A expense. The
reduction in DNE's SG&A expense resulted from the reorganization of DNE's sales
and marketing efforts, and the termination of overheads associated with non-
strategic product lines and markets. The decline in SG&A expense as a percentage
of net sales is principally the result of the increase in net sales resulting
from the acquisition of the Alcatel Business without a corresponding percentage
increase in SG&A expense. The percentage of SG&A expense to net sales for
Superior on a standalone basis was 3.7% and 2.2% in fiscal 1995 and 1996,
respectively.
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The increase in fiscal 1995 SG&A expense of $2.7 million as compared to
fiscal 1994 resulted from the addition of Superior's results of operations for
the full fiscal year.
INTEREST EXPENSE
Combined interest expense increased to $17.4 million in fiscal 1996 from
$3.7 million in fiscal 1995, an increase of $13.7 million. This increase
resulted primarily from the debt incurred in connection with the Alcatel
acquisition. Similarly the increase in combined interest expense of $1.8 million
in fiscal 1995 as compared to fiscal 1994 resulted from debt incurred in
connection with the Superior acquisition.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended July 28, 1996, the historical combined statement
of cash flows of Superior and DNE included cash flows provided by operating
activities of $12.3 million, which included $4.1 million in cash flows generated
from reductions in working capital accounts consisting primarily of a $10.0
million decrease in inventories, offset by a $6.9 million decrease in accounts
payable due to seasonal working capital adjustments. Cash flows used for
investing activities amounted to $1.6 million, consisting primarily of capital
expenditures. Cash flows used for financing activities amounted to $11.1
million, of which $11.0 million represented a reduction of amounts outstanding
on intercompany loans.
For the year ended April 28, 1996, the historical combined statement of cash
flows for Superior and DNE included cash flows provided by operating activities
of $27.2 million, which included $10.3 million in cash flows generated from
reductions in working capital accounts consisting primarily of a $11.2 million
increase in accounts payable offset by a $2.7 million increase in accounts
receivable. For this same period cash flows used by investing activities
amounted to $111.8 million, which included $103.4 million related to the Alcatel
acquisition, $5.4 million related to the BICC Transaction and $4.3 million in
recurring capital expenditures. Cash flows provided by financing activities
amounted to $84.6 million for the year ended April 28, 1996. The components of
cash flows provided by financing activities included $140.0 million in proceeds
from notes issued by Superior (the "Superior Notes") to finance the initial
Alcatel acquisition along with $112.6 million in proceeds from intercompany
loans (net of repayments) which were used to repay the Superior Notes.
On a pro forma basis, giving effect to the Reorganization and related
transactions, the Company's capital structure consists of $131.8 million in debt
and $24.0 million in total stockholders' equity (see "Capitalization" and "Pro
Forma Condensed Combined Financial Statements"). The pro forma debt balance will
include $120.0 million outstanding under the Bank Credit Facility (assuming the
repayment of $34.7 million of indebtedness under the Bank Credit Facility).
Additional availability under the Bank Credit Facility after completion of this
Offering is expected to be $30.0 million. Obligations under the Bank Credit
Facility are guaranteed by each of the Company's direct and indirect domestic
subsidiaries. The loans under the Bank Credit Facility are secured by the common
stock of each direct and indirect subsidiary of the Company (but only 65% of the
common stock of Superior's Canadian subsidiary) and all other property,
equipment, inventory and accounts receivable of each such subsidiary. The Bank
Credit Facility contains customary performance and financial covenants.
As a result of the Alcatel acquisition, the Company's ratio of debt plus
preferred stock to equity increased from 1:1.3 at April 30, 1995 to 2.4:1 at
April 28, 1996, to 6.3:1 on a pro forma basis for the Reorganization and this
Offering at July 28, 1996. However, the Company's debt financing costs declined
as a result of the Reorganization from approximately 13.8% per year in fiscal
1996 to approximately 8.3% per year on a pro forma basis for the quarter ended
July 28, 1996 and the ratio of EBITDA to interest expense plus preferred
dividends will improve from 2.3:1 for the year ended April 28, 1996 to
approximately 3.9:1 pro forma for the twelve months ended July 28, 1996. Based
on the operating cash flows that the Company generated over fiscal 1996 and the
three months ended July 28, 1996, as discussed below, the Company expects to
generate sufficient funds from operations to enable it to reduce the balance
under the Bank Credit Facility over the next twelve months.
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During the remainder of fiscal 1997, the Company expects to have principal
debt service requirements of $0.4 million and intends to invest $4.5 million to
$6.5 million in capital expenditures for product line expansions, cost
reductions and maintenance of business activities. The Company does not
anticipate any other material commitments over this period.
The Company experienced significant growth in operating cash flows during
fiscal 1996 and for the three months ended July 28, 1996 due to (i) the impact
of the Alcatel Acquisition, (ii) improvements in gross margin and (iii)
improvements in working capital management. During the twelve months ended July
28, 1996, on a pro forma basis, the Company generated $46.8 million in EBITDA
and approximately $20.1 million in cash flows after income taxes, debt service
and capital expenditures. These amounts would have been available to reduce the
balance under the Bank Credit Facility, make additional investments in existing
and new business opportunities or increase cash balances. The Company believes
that its cash flows from operating activities will be sufficient to cover its
principal debt service requirements and its capital expenditures over the next
twelve-month period.
The Company's business is subject to significant risks that could cause the
Company's results to differ materially from those expressed in any
forward-looking statements made in this Prospectus. These risks include the
matters set forth above under this caption, under "Risk Factors," and elsewhere
herein.
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BUSINESS
INTRODUCTION
The Company is a leading manufacturer of copper telecommunications wire and
cable products for the local loop segment of the telecommunications network in
the United States (based on 1995 data). It also develops and manufactures data
communications and other electronic equipment, including multiplexers, for
defense, government and commercial applications.
The Company has led a recent consolidation in the telecommunications copper
wire and cable industry by acquiring the Alcatel Business in May 1995 and
consummating the BICC Transaction in November 1995. Through these acquisitions,
the Company increased its annual production capacity from 28 bcf in one plant to
an aggregate of 92 bcf in four geographically diverse plants. The Company
believes that it has successfully integrated its acquired businesses,
particularly by implementing improved production techniques at each of its
plants and reducing the cost structure of its operations.
Due to further industry-wide consolidation, total industry capacity has been
reduced, the number of manufacturers has declined and the size of those
remaining has increased. As a result, the Company has become a key supplier of
copper wire and cable to six of the seven RBOCs and the two major independent
telephone companies and believes that it will continue to be able to compete
effectively as its major customers consolidate their vendor base in order to
stablilize their sources of supply and ensure timely delivery of quality
products on a consistent basis. The Company estimates, based on 1995 data, that
its pro forma share of domestic copper telecommunications cable and wire
production was over 30% for fiscal 1996. The industry consolidation, increased
demand for copper telecommunications wire and cable and the resulting changes in
the nature of customer relationships have led to a recent improvement in the
pricing environment for the Company's products.
TELECOMMUNICATIONS WIRE AND CABLE
INDUSTRY OVERVIEW
Copper wire and cable is the most widely used medium for transmission in the
local loop portion of the telecommunications infrastructure. The Company
believes that copper will continue to be the transmission medium of choice in
the local loop due to factors such as: the installed base of copper cable in the
local loop representing an investment of over $150 billion that must be
maintained by the RBOCs and other local telephone companies; the lower
installation and maintenance costs of copper compared to optical fiber and other
media; technological advancements that expand the bandwidth of the installed
local loop copper network, such as ISDN, HDSL and ADSL, which allow the
continued use of copper as the transmission medium for the new voice, data,
video and multi-media uses demanded by customers; the increasing demand for new
services, which, because of technological advances, can be supported by a
copper-based local loop; and the increasing demand for multiple residential
access lines.
Demand for copper telecommunications wire and cable is dependent on several
factors, including the rate at which new lines are installed in homes and
businesses; the level of spending for highways, bridges and other parts of the
infrastructure, which often necessitates installation of new telecommunications
cable; and the level of general maintenance spending by telephone companies. The
installation of new access lines is in turn dependent on the level of new
construction and, increasingly in recent years, on demand for second telephone
lines and lines dedicated to facsimile machines and computer modems, which are
used for, among other purposes, business communications and access to the
Internet.
Based on the most recently available data published by the U.S. Department
of Commerce, the Company estimates that domestic production of copper
telecommunications distribution wire and cable was $1.2 billion in 1994. A
substantial majority of Superior's products sold in the United States are
purchased by the RBOCs and other domestic telephone companies. Prior to the
break-up of AT&T in 1984, it was the sole supplier of copper telecommunications
wire and cable products to its operating companies. However, after the break-up,
the RBOC market became open to all suppliers. It is estimated that the seven
RBOCs
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purchase approximately 60% of the copper telecommunications distribution wire
and cable purchased by U.S. telephone companies, while the two major independent
telephone holding companies (GTE Corporation and North Supply (Sprint)
Corporation) purchase approximately 21% and over 1,200 small local telephone
operating companies purchase the remainder.
The Company believes it is well-positioned to take advantage of the rapid
changes in the telecommunications industry as the demand for voice, data and
video services over the local loop increases dramatically and new technologies
and products are developed to enable the local loop to satisfy that demand.
Installed Base. The local loop is the segment of the telecommunications
network that connects the customer's premises to the nearest telephone company
wire center or central office. It comprises approximately 160 million
residential and business access lines in the United States. The installed base
of copper wire and cable in the local loop represents an investment of over $150
billion that must be maintained by the RBOCs and other local telephone
companies. Although other media, such as fiber optic cable, are used for trunk
lines between central offices, substantially all local loop lines continue to be
copper-based. Local loop lines are continually maintained and replaced,
providing a steady demand for copper wire and cable.
Lower Installation Costs and Ease of Repair. The Company believes that in
the local loop, copper has significantly lower installation costs and is easier
to repair than other media primarily because it does not require an additional
power source and other electronics. Installation of fiber optic cable is both
capital and labor intensive, and deployment of fiber optic cable generally has
been limited to trunk and feeder lines and wide area loop configurations.
Technological Advances. Copper dominance in the local loop continues to be
supported by technological advances that expand the use and bandwidth of the
installed local loop copper network. These advances include ISDN and DSL
technologies, including HDSL and ADSL. These technologies permit
telecommunications carriers, private network owners and end-user consumers to
employ the existing copper wire and cable infrastructure for high speed and
bandwidth-intensive applications.
ISDN is a set of digital transmission signaling protocols and interfaces
that provides end-to-end digital connectivity to support a wide range of
services. ISDN service over the existing copper local loop is rapidly expanding
due to the increased demand for digital telecommunications applications such as
remote office connectivity and Internet access. The Company believes that
globally-standardized ISDN service will become a widely-used vehicle for digital
network services, including Internet access, and that it will support the
continued dominance of copper wire and cable in the local loop.
Another technological advance is DSL technology. DSL technology, which
includes ADSL and HDSL, has increased the bandwidth capacity of copper wire and
cable products in the local loop through sophisticated multiplexing and
modulation techniques. DSL technology currently expands the bandwidth capacity
of twisted pair copper wire in the local loop from 1.5 million bits per second
("bps") (over a T-1 line) to over 6 million bps.
ADSL transmits interactive video and data services including video on
demand, on-line shopping, banking and other data services, as well as Internet
access, over the existing copper-based local loop, requiring substantially less
investment of capital and labor than alternatives such as installing fiber optic
or hybrid fiber optic/coaxial cable products in the local loop. ADSL is
asymmetric in that it is high bandwidth in one direction and lower bandwidth in
the other. This arrangement is primarily intended to support one way high
bandwidth applications, such as the provision of broadcast quality video into
the home. It is easily installed and portable, relatively inexpensive compared
to fiber optic or coaxial cable, and can be deployed for an individual user
anywhere in the network in a short time period.
HDSL, as opposed to ADSL, derives its name from the high bandwidth that is
transmitted in both directions over twisted pair copper wire. HDSL provides
advanced digital voice, data and video services to local loop customers with a
high level of signal quality over the existing copper infrastructure while
doubling the distance a digital signal can travel without the need for
amplification or repeaters. In contrast to fiber
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optic cable applications, HDSL uses a minimal amount of power on the remote end
of the line, making the traditional power supplied by copper telecommunications
wire sufficient for its use. In corporate campuses of office buildings, several
satellite locations can be linked with HDSL quickly and inexpensively, using
existing copper wire to produce the equivalent of fiber optic quality
transmission.
Demand for New Services. Technological advances, regulatory developments
and increased competition among service providers have accelerated the demand
for and introduction of new bandwidth intensive telecommunication services.
These services include integrated voice and data, broadcast and conference
quality video, Internet and on-line data services access, high speed LAN to LAN
connectivity, collaborative network processing and other specialized,
bandwidth-intensive applications.
Demand for Multiple Residential Access Lines. An increasing number of U.S.
households are installing additional access lines for multiple telephone lines,
facsimile machines, access to the Internet, home offices and other purposes.
Additional access lines increase the demand for copper telecommunications wire
and cable in the local loop.
BUSINESS STRATEGY
The Company believes that the ongoing alignment of productive capacity with
market demand, technological developments that have enhanced the ability of
end-users to utilize the existing copper wire and cable telecommunications
infrastructure for high speed data, video and imaging transmissions, industry
consolidation and the Company's emphasis on new, higher margin products will
strengthen the Company's competitive position, profitability and cash flow.
The Company's strategy in the telecommunications products business is to (i)
respond to the current and changing needs of its customers' communications
networks and continue to expand its business in the local loop by continuing to
develop, manufacture and sell a full line of copper wire and cable products;
(ii) expand its product lines to include transmission media such as data cable,
including UTP products, and hybrid wire products, including coaxial/copper wire
and fiber optic/copper wire combinations; (iii) take advantage of strategic
acquisition opportunities in data cable, the local loop and its other markets;
and (iv) expand its international business through increased export sales and
the establishment of joint ventures or similar arrangements.
PRODUCTS
Through Superior, the Company manufactures a wide variety of copper
telecommunications wire and cable products. Cable is the transmission medium in
the part of the local loop from a local telephone company's central office to a
subscriber's property line; wire is the transmission media that begins at the
subscriber's property line and runs to the subscriber's access device, and may
be either outside or on-premises. The Company's products include distribution
cable and wire and premises wire products, ranging in size from a single twisted
pair wire to a 4,200 pair cable. These products are variously configured for
aerial and underground use in the local loop and for on-premise applications.
The basic unit of virtually all copper telecommunications wires and cables
is the "twisted pair," a pair of insulated wires twisted around each other. Both
wires in the pair are used to complete the telecommunications connection.
Twisted pairs are bundled together to form telecommunications wires and cables.
In calculating bcf, the length of each wire in a twisted pair is counted.
Superior's copper telecommunications cable products range in size and are
differentiated by design variations depending on where the cable is to be
installed. Cable products used for direct underground burial are designed to be
water resistant and are filled with compounds to prevent moisture from getting
into the cable structure. The individual copper wires in these cables utilize
either a solid polyethylene or polypropylene insulation or cellular polyethylene
covered with a solid polyethylene skin. Cable products used for underground duct
or aerial applications, where water penetration is not a major concern, are
37
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designed with solid polyethylene insulation and no filling compound. The copper
telecommunications cable products normally have metallic shields for mechanical
protection and electromagnetic shielding of the copper wires, as well as an
outer polyethylene jacket.
Superior's distribution wire products range in size from a single twisted
pair to a six-pair product. Similar to copper cable products, distribution wire
products are designed for both direct burial and aerial applications and are
also manufactured in a variety of designs, including a number of different
metallic shield configurations and several different jacketing materials.
Superior's copper telecommunications wire for interior use, or premises
wire, generally ranges in size from a single twisted pair to a four-pair
product. Premises wire is used within buildings to connect telecommunications
devices (telephones, facsimile machines and computer modems) to the
telecommunications network and, in commercial buildings, to establish LANs. All
of Superior's premises wire has been listed by Underwriters' Laboratories, which
is required by most local building codes. Construction of premises wire differs
from distribution wire and cable.
An important element of the Company's strategy in the wire and cable
business is to expand into performance-enhanced copper-based wire products that
provide opportunities for higher growth and higher margins than the Company's
current product lines. The Company will attempt to sell a broader range of wire
and cable products to its existing customers. As described below, the Company
has introduced and is in the process of introducing a number of new products in
this regard.
In fiscal 1995, Superior introduced a line of UTP copper wire products
designed for high-speed data transmission across private networks. The Company
believes that UTP, which was first introduced into the market in the early 1990s
as an alternative to fiber optic cable, has become the medium of choice for
private data network communications due to its (i) significant installation and
maintenance cost advantages over fiber optic cable and (ii) its performance
capabilities, which are sufficient to address a substantial portion of the
market for private data networks requiring high-speed transmission rates.
The Company also has recently developed or is in the process of developing a
number of other new products, including (i) hybrid products combining
twisted-pair copper wires with coaxial or fiber optic cable for distribution
service, (ii) aerial drop non-metallic support products, which utilize
fiberglass yarn and twisted-pair copper wires for distribution service and (iii)
riser products, which are copper wires used inside high-rise buildings or
telephone central offices for vertical connections providing voice and data
transmissions. Sales to date of these products have not been material.
MARKETING AND DISTRIBUTION
For the twelve months ended July 28, 1996, 88.2% of Superior's net sales
were to the RBOCs and the two major independent telephone companies, 10.7% were
sold to other telephone companies in the United States and Canada, construction
companies and others and the remaining 1.1% were sold outside the United States
and Canada.
Superior sells to the RBOCs and the two major independent telephone
companies on a direct basis through a sales force of five salespersons. The
remainder of Superior's products are sold through distributors, original
equipment manufacturers and sales representatives and agents. The Company
believes that there will be opportunities for international expansion of its
wire and cable business, either through export sales or the establishment of
joint ventures or similar arrangements.
Superior's sales to telephone companies are generally pursuant to multi-year
supply agreements in which the customer agrees to have Superior supply certain
of the customer's wire or cable needs as the primary supplier during the term of
the agreement. Prior to awarding a contract, customers forecast their needs and
manufacturers such as Superior bid and quote prices based upon the forecasted
order amount, although customers are not obligated to purchase the forecasted
amount or any minimum amount. Superior currently has multi-year agreements with
respect to certain of its wire and cable products with six of the
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seven RBOCs and with two major independent telephone companies. For the twelve
months ended July 28, 1996, sales to Bell South Corporation, North Supply
Corporation (Sprint), GTE Corporation, SBC Corporation and NYNEX Corporation
accounted for 20.4%, 17.0%, 16.3%, 13.5% and 12.8% of Superior's net sales,
respectively. No other single customer accounted for more than 10% of Superior's
net sales. Additionally, as is customary in the industry, the Company's sales to
customers other than large telephone companies are primarily on the "spot"
market on the basis of short-term purchase orders. In recent years these sales
have declined as a proportion of total sales.
MANUFACTURING
Copper rod is the base component for most of Superior's wire and cable
products. The manufacturing processes for these products require that the copper
rod be drawn and insulated. Superior purchases copper rod of 5/16" diameter from
third-party suppliers. Superior then "draws" the wire to one of four American
wire gauges ("AWGs"). Wire drawing is the process of reducing the conductor
diameter by pulling the copper rod through a converging die until the specified
AWG is attained. Since the reduction is limited by the breaking strength of the
conductor, this operation is repeated several times internally within the
machine. As the wire becomes smaller, less pulling force is required. Therefore,
machines operating in specific size ranges are required. Take-up containers or
spools are generally large, allowing one person to operate several machines.
Individual copper wires are then typically insulated with plastic compounds
through an extrusion process. Extrusion involves the feeding, melting and
pumping of a compound through a die to shape it in final form as it is applied
to insulate the wire. Superior uses five primary types of insulating material
compounds: high density polyethylene, high density cellular polyethylene foam,
flame retardant polyethylene, fluoropolymers and polyvinyl chloride. Superior
purchases these insulating compounds from a variety of suppliers.
Superior's products also require that the wire be "twisted" so that two
insulated single conductors are combined to create a twisted pair. Superior's
products are often "cabled" or "stranded" so that multiple twisted pairs of
insulated wires are combined to form larger units of multiple pair cables.
Typically, cabling or stranding is done only on large (I.E., 25 or more) numbers
of pairs. Smaller numbers of pairs (I.E., fewer than 25) are not cabled, but are
sent directly for jacketing.
Once insulated, Superior's copper wire and cable products are "jacketed" or
covered through the application of filling, flooding and shielding compounds to
the insulated wire. Products to be installed underground are protected by
metallic shielding (E.G., aluminum and steel) for electrical and mechanical
isolation and by plastic compounds of polyvinyl chloride or polyethylene for
protection against water and other sources of corrosion and interference. After
the wire and cable products are fabricated, they are packaged and shipped either
directly to customers or to distributors.
RAW MATERIALS
The principal raw materials used by Superior in the manufacture of its wire
and cable products are copper, aluminum, bronze, steel and plastics such as
polyethylene and polyvinyl chloride. These raw materials are available from
several sources and Superior has not experienced any shortages in the recent
past.
The cost of copper, the most significant raw material used by Superior in
its wire and cable business, has been subject to considerable volatility over
the past several years. However, this volatility has not had, nor is it expected
to have, an impact on Superior's profitability due to customers' contractual
arrangements that provide for the pass-through of changes in copper costs
through price revisions. Nevertheless, sharp increases in the price of copper
can reduce demand if telephone companies decide to defer their purchases of
copper telecommunications wire and cable products until copper prices decline.
The production of UTP products is dependent upon teflon, which is currently
manufactured by only two producers and is in short supply. As a result, Superior
is currently evaluating alternative production methods in order to increase the
quantity of production per pound of teflon or to eliminate its requirement.
Until this
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<PAGE>
is resolved or the supply of teflon increases, Superior will have to limit its
production of UTP. From time to time, particular plastics have been difficult to
obtain, but in recent years none of these shortages has required Superior to
limit production. The inability of Superior to obtain sufficient quantities of
raw materials could adversely affect its operating results.
FOREIGN SALES
The Company's telecommunications wire and cable business has a plant in
Winnipeg, Manitoba that supplies both the Canadian and U.S. markets. Superior's
net sales for the twelve months ended July 28, 1996 to customers outside the
United States and Canada were $4.4 million, or 1.1% of sales, of which the
majority were in Latin America.
COMPETITION
The copper telecommunications wire and cable business is very competitive.
Superior has three major domestic competitors in the copper telecommunications
wire and cable business: Cable Systems International, Inc., General Cable
Corporation, a subsidiary of Wassall, plc; and Essex Group Incorporated, a
subsidiary of BCP/Essex Holding, Inc. Competition in this market is based on
price, service and quality. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations--Results of Operations." Because
several RBOCs have adopted policies of limiting the number of their suppliers
and requiring that these suppliers provide additional services, the degree of
competition based on service is increasing.
DATA COMMUNICATIONS AND ELECTRONICS
Through DNE, the Company designs and manufactures data communications
equipment, integrated access devices and other electronic equipment for defense,
government and commercial applications. It the largest supplier to the U.S.
defense forces of data and voice multiplexers used in tactical secure military
applications. Multiplexers are integrated access devices that combine several
information-carrying channels into one line, thereby permitting simultaneous
multiple voice and data communications over a single line. DNE also produces
military avionic products, including switches, dimmers, relays and other
electronic controllers, sensors and refueling amplifiers.
The Company is considering the expansion of its data communications products
business by developing commercial versions of its integrated access devices and
marketing them to the telecommunications industry, including the Company's
telecommunications wire and cable customers. Such development efforts
potentially could require a significant investment of capital. The Company has
developed and begun marketing a data and voice multiplexer product for the
commercial market.
The Company has reduced its dependence on the defense market in recent years
primarily by taking advantage of opportunities to manufacture equipment on a
contract basis. The Company provides contract manufacturing services for
subassembly equipment to approximately five original equipment manufacturers in
the technology industry and NASA. The Company expects to expand its contract
manufacturing services business for its existing commercial customers and to add
additional commercial customers in the future, while sales to NASA are not
expected after the current contract expires in fiscal 1997. In fiscal 1996,
DNE's sales to customers other than departments of the U.S. government accounted
for 33.6% of DNE's sales, compared to 17.7% in fiscal 1995.
RESEARCH AND DEVELOPMENT
In response to the changing requirements of the telecommunications industry,
Superior has focused its recent product development activities on performance
enhanced copper-based wire products that are designed to meet the existing and
future needs of the telephone companies. Several of these projects have been
undertaken in conjunction with Superior's telephone company customers and
include the development of composite cables that include copper twisted pair
wire and coaxial cable or optical fibers in a single cable construction.
Superior is currently developing shielded twisted pair products and the retail
packaging of certain of its products for on-premise use as well as extensions of
its UTP products, such as patch cords for
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use in connecting Superior products within premises and 25-pair UTP cables for
certain data transmission applications. The Company expects to explore new
product development opportunities to meet the evolving needs of its customers.
In response to the evolving product needs of its customers, the Company
intends to spend approximately $2.0 million in fiscal 1997 for the establishment
and operation of a product development center. The purpose of this center will
be to design, develop and test new telecommunications wire and cable products,
including hybrid coaxial and fiber optic cable and wire products.
In order to compete for contracts, DNE frequently invests its own funds on
research and development in order to determine the financial and practical
feasibility of manufacturing the products. DNE is currently in the process of
developing a new multiplexer for secure communications for a U.S. government
agency.
PROPERTIES
The Company conducts its operations primarily at the facilities described
below:
<TABLE>
<CAPTION>
SQUARE
LOCATION PRODUCTS FOOTAGE LEASED/OWNED
- ----------------------------------- ----------------------------- --------- ------------------------
<S> <C> <C> <C>
Brownwood, Texas................... Telecommunications 328,000 Leased (expires 2013)
distribution wire and cable
and premise wire
Tarboro, North Carolina............ Telecommunications 295,000 Owned
distribution wire and cable
Winnipeg, Manitoba................. Telecommunications 190,000 Owned
distribution wire and cable
and premise wire
Elizabethtown, Kentucky............ Telecommunications 163,000 Owned
distribution cable
Wallingford, Connecticut........... Data communications 155,000 Owned
and electronics
Atlanta, Georgia................... Corporate offices 20,000 Leased (expires 2001)
</TABLE>
Depending on product mix, aggregate capacity in the Company's four
telecommunications wire and cable facilities ranges from 85 bcf to 92 bcf. Each
of these facilities is operating at utilization rates of between 90% and 95%.
Facilities in this segment are suitable and adequate for the businesses being
conducted. Capital spending plans for the operations in this segment are
primarily designed to keep up with current technology and to increase capacity
in existing product lines.
The Company's data communications and electronics facility in Wallingford is
adequate and suitable for the businesses being conducted and operates at a
utilization rate of between 50% and 60%. It is subject to a $4.7 million
mortgage.
Pursuant to the Services Agreement, Alpine will share approximately 2,000
square feet of the Company's 20,000 square foot Atlanta, Georgia executive and
administrative office space. Pursuant to such agreement, the Company will share
a portion of Alpine's 5,375 square feet New York executive office. See "Certain
Transactions and Relationships--Services Agreement."
EMPLOYEES
As of April 28, 1996, the Company employed 1,678 people, including 1,485 in
the telecommunications wire and cable business and 193 in the data
communications and electronics business.
Approximately 412 persons employed at the Company's Winnipeg and
Elizabethtown plants are represented by unions.
The Company considers relations with its employees to be satisfactory.
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ENVIRONMENTAL MATTERS
Superior's and DNE's manufacturing operations are subject to numerous
federal, state and local laws and regulations relating to the storage, handling,
emission, transportation and discharge of hazardous materials and waste
products. Compliance with these laws has not been a material cost to either
company and has not had a material effect upon their respective capital
expenditures, earnings or competitive position. Violation of such laws or
regulations, even if inadvertent, could have an adverse impact on the
operations, business or financial results of the Company.
Operations of Superior and DNE have resulted in releases of hazardous
substances at sites currently or formerly owned or operated by such companies.
Superior and DNE are presently involved in investigatory and remedial activities
at two sites under the oversight of state governmental authorities, as described
below, neither of which is expected to have a material adverse effect on the
Company.
Soil and groundwater at Superior's Brownwood, Texas facility has been found
to be contaminated with volatile organic compounds as a result of operations at
the facility which management believes occurred prior to Superior's acquisition
of the facility. Superior is in the process of obtaining approval for a
remediation plan from the Texas Natural Resource Conservation Commission. Based
upon investigations performed to date, the Company believes that the cost of
this remediation will not be in excess of $0.5 million. Pursuant to an agreement
between Superior and the former owner of the facility, Superior has been
reimbursed for approximately 85% of the costs incurred to date in connection
with the investigation and remediation of this facility, and is entitled to
reimbursement of future expenses at percentages ranging from 85% to 25%
(depending on the time at which such expenses are incurred), subject to an
aggregate expense reimbursement of not less than 75%.
In connection with the sale of a facility in Woburn, Massachusetts formerly
owned by and currently under lease to DNE, low levels of volatile organic
compounds were discovered in shallow groundwater. DNE has assumed responsibility
for this contamination pursuant to an indemnity granted to the purchaser of the
facility, which indemnity is in turn guaranteed by Alpine. This facility has
been designated as a non-priority site by the Massachusetts Department of
Environmental Protection ("MDEP") which granted a waiver to Alpine allowing it
to proceed with further investigation and, if necessary, remediation, of the
groundwater contamination without MDEP oversight, subject to certain conditions.
In accordance with the waiver, investigation and remediation efforts must be
completed by August 1997. Based on the results of a Phase II comprehensive site
assessment completed during May 1996, it appears that no remedial activities are
warranted for this site, but approximately $10,000 may be required to perform
MDEP filing and response actions.
LEGAL PROCEEDINGS
There are no threatened or pending litigations or proceedings that
management believes will have a material adverse effect upon the Company.
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MANAGEMENT
Set forth below is certain information concerning the directors, director
nominees and executive officers of the Company (all of whom, other than the
director nominees, were elected to their respective positions with the Company
upon its organization in July 1996) and certain officers of the Company's
subsidiaries. Each director nominee has consented to serve as a director of the
Company upon completion of this Offering. There are no family relationships
among the directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ------------------------ --------- --------------------------------------------------------
<S> <C> <C>
Steven S. Elbaum 47 Chairman of the Board of Directors, President and Chief
Executive Officer
David S. Aldridge 42 Chief Financial Officer
Justin F. Deedy, Jr. 40 Senior Vice President, President of Superior
Edmond Branger 62 Vice President
William Gill, Jr. 46 President of DNE
T. Mike McMillan 47 Senior Vice President of Superior
Harold M. Karp 39 Senior Vice President - Manufacturing of Superior
Tracye C. Gilleland 37 Vice President - Finance of Superior
Terry A. Richards 37 Vice President - Marketing and Sales of Superior
Charles R. Rudd, Jr. 52 Vice President - International of Superior
Daniel P. Vivone 47 Vice President - Finance and Controller of DNE
Eugene P. Connell 58 Director Nominee
Robert J. Levenson 55 Director Nominee
Bragi F. Schut 55 Director
Charles Y.C. Tse 69 Director Nominee
</TABLE>
STEVEN S. ELBAUM has been Chairman of the Board of Directors, President and
Chief Executive Officer of the Company since July 1996. He has also been the
Chairman of the Board of Directors and Chief Executive Officer of Alpine since
1984. He is also a director of Interim Services, Inc., one of the nation's
largest providers of value-added staffing and health care services, PolyVision
Corporation, an information display company, and Humascan, Inc., a developer of
medical testing devices.
DAVID S. ALDRIDGE has been Chief Financial Officer of the Company since July
1996. He has also been the Chief Financial Officer of Alpine since November 1993
and was Chief Financial Officer of Superior from 1985 until its acquisition by
Alpine in November 1993. The services of Mr. Aldridge will be provided to the
Company by Alpine pursuant to the Services Agreement. See "Relationship between
the Company and Alpine."
JUSTIN F. DEEDY, JR. has been Senior Vice President of the Company since
July 1996 and the President of Superior since July 1993. He was Vice President
of Superior from April 1991 through July 1993 and Vice President and General
Manager of Wilcom Products, Inc., formerly a subsidiary of Superior and a
manufacturer of testing equipment for copper wire and fiber optic transmission
equipment, from May 1989 through March 1991.
EDMOND BRANGER has been Vice President of the Company since July 1996.
During the prior five years, he was employed by Alpine and its affiliates in a
variety of capacities, most recently as Vice President-Planning. He has over 25
years of experience in the information processing and telecommunications
industries.
WILLIAM GILL, JR. has been President of DNE since May 1995. He held various
positions at DNE for more than five years prior thereto.
T. MIKE MCMILLAN has been Senior Vice President of Superior since July 1993.
He joined Superior in 1969 and since then has held numerous positions with
Superior, including General Manager of its Brownwood, Texas facility.
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<PAGE>
HAROLD M. KARP has been Senior Vice President-Manufacturing of Superior
since the Alcatel acquisition in May 1995. He was employed by the Alcatel
Business as Vice President and General Manager of Copper Cable and Wire Products
from 1994 to 1995 and as Director-Business Planning and Export/Non-Contract
Sales from 1991 to 1994.
TRACYE C. GILLELAND has been Vice President-Finance of Superior since July
1993. She was Superior's Corporate Controller for eight years prior thereto.
TERRY A. RICHARDS has been Vice President-Marketing and Sales of Superior
since 1993. Prior to that, he was a product manager of Wilcom Products, Inc.
from 1990 to 1993.
CHARLES R. RUDD, JR. has been Vice President-International of Superior since
December 1995. He was employed by the telecommunications products division of
Essex Group, Inc., a producer of electrical wire, cable and insulation products,
as Vice President-International Sales and Marketing from 1994 to 1995 and as
Director-International Business Operations from 1987 to 1994.
DANIEL P. VIVONE has been Vice President-Finance and Controller of DNE since
September 1995. He was DNE's Director of Operations from 1988 to September 1995.
EUGENE P. CONNELL is Chairman of Lynch Interactive Corporation, an owner and
operator of independent telephone companies throughout the United States. From
January 1996 to June 1996, he served as Vice President-Global Markets
Integration of NYNEX Corporation. From October 1992 to January 1996, he served
as President, Chief Executive Officer and Director of NYNEX CableComms Group, a
provider of telecommunications services and cable television in the United
Kingdom. From May 1989 to October 1992, he was Vice President of Marketing and
Technology of New York Telephone Company, a subsidiary of NYNEX Corporation. Mr.
Connell held numerous other positions with New York Telephone Company over the
prior 32 years.
ROBERT J. LEVENSON has been an Executive Vice President and a Director of
First Data Corp., a provider of transaction processing and related services,
since May 1993. Mr. Levenson formerly served as the Senior Executive Vice
President, Chief Operating Officer, member of the Office of the President and a
director of Medco Containment Services, Inc., a provider of managed care
prescription benefits (now a subsidiary of Merck & Co., Inc.), from October 1990
through December 1992. From 1985 until October 1990, Mr. Levenson was a Group
President and a Director of Automatic Data Processing, Inc., a provider of
computerized transaction processing. Mr. Levenson also serves as a director of
Broadway and Seymour, Inc., a software and related services company.
BRAGI F. SCHUT has been Executive Vice President of Alpine since 1986 and a
director of Alpine since 1983. He is also a director of PolyVision Corporation.
CHARLES Y.C. TSE is the former Vice-Chairman and President of international
operations of Warner Lambert Company, a major pharmaceutical and consumer
products company. Mr. Tse is a director of Foster Wheeler Corporation and
Transcell Technologies, Inc. Mr. Tse served as President of The Cancer Research
Institute, Inc. from 1991 to 1992.
BOARD OF DIRECTORS
The Company's Board of Directors currently consists of two persons. Upon
completion of this Offering, the Company will expand the size of the Board of
Directors to six persons, of which a majority will not be officers or employees
of the Company and will not be affiliates of Alpine. Alpine has advised the
Company that it will use its best efforts to ensure that following completion of
this Offering a majority of the members of the Company's Board of Directors will
not be officers or employees of the Company or affiliates of Alpine.
Directors who are employees of the Company will receive no compensation, as
such, for service as members of the Board or its committees. Directors who are
not employees of the Company will receive annual compensation of $15,000, plus
$1,000 for each meeting of the Board of Directors or any committee of the Board
of Directors attended by them (other than with respect to any meetings of any
committee on a day
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<PAGE>
on which the Board of Directors also meets) and will also participate in the
Company's 1996 Stock Option Plan. In addition, all directors will be reimbursed
for expenses incurred in connection with attendance at meetings. See "Management
- -- Executive Compensation -- 1996 Stock Option Plan."
Each director holds office until the next succeeding annual meeting of
stockholders and until his successor has been elected and qualified. Each
officer of the Company holds office for such term as may be prescribed by the
Board of Directors from time to time.
COMMITTEES OF THE BOARD OF DIRECTORS
As soon as practicable after the completion of this Offering, the Board of
Directors will establish an Audit Committee and a Compensation Committee.
The functions of the Audit Committee, which will be comprised solely of
directors who are not affiliated with Alpine, will be to recommend annually to
the Board of Directors the appointment of the independent auditors of the
Company, discuss and review in advance the scope and the fees of the annual
audit and review the results thereof with the independent auditors, review and
approve non-audit services of the independent auditors, review compliance with
existing major accounting and financial reporting policies of the Company,
review the adequacy of the financial organization of the Company and review
management's procedures and policies relating to the adequacy of the Company's
internal accounting controls and compliance with applicable laws relating to
accounting practices. The Audit Committee will also be responsible for the
review and approval of all future agreements between the Company and Alpine,
including amendments to the Services Agreement. The Audit Committee will
establish policies to ensure that the Company's purchase of services from Alpine
are commercially reasonable.
The functions of the Compensation Committee will be to establish the
Company's executive compensation program in order to attract, retain, motivate
and reward qualified persons serving as executive officers of the Company. The
Compensation Committee will make determinations with respect to executive
salaries, bonuses and compensation of each of the Company's executive officers,
except to the extent that any of the foregoing are specified in existing
employment agreements between the Company and such executive officers. The
Compensation Committee will also administer the Company's stock option and other
benefit plans. It is anticipated that the Company's overall compensation
strategy and specific compensation plans will tie a significant portion of an
executive's compensation to the Company's success in meeting specified
performance goals and, through the grant of stock options and other stock-based
awards, to appreciation in the price of the Common Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation policies and decisions, including those relating to salary,
bonuses and benefits of executive officers, have been set or made by the Board
of Directors since the formation of the Company.
EXECUTIVE COMPENSATION
GENERAL
Because the Company is newly-formed, there was no compensation paid to,
deferred or accrued for the benefit of the Company's Chief Executive Officer or
any other executive officer by the Company during the fiscal year ended April
28, 1996. Similarly, no such individual received any other annual compensation,
restricted stock awards, stock appreciation rights, long-term incentive
performance payouts or other compensation from the Company for the fiscal year
ended April 28, 1996.
EMPLOYMENT AGREEMENTS
As soon as practicable after the completion of this Offering, the Company
intends to enter into an agreement with Steven S. Elbaum for his employment by
the Company as Chairman of the Board of Directors, President and Chief Executive
Officer. The agreement is expected to have an indefinite term and
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<PAGE>
provide for an annual base salary of $175,000, as adjusted annually for
increases in the Consumer Price Index, and an annual bonus payable at the
discretion of the Board of Directors. It is expected that the agreement will
contain other customary terms and provisions with respect to termination and
other matters.
Superior has entered into an employment agreement with Mr. Deedy (the "Deedy
Agreement") providing for his employment as President of Superior at an annual
base salary of $181,000, as adjusted annually for increases in the Consumer
Price Index, plus an annual performance-based bonus. The Deedy Agreement may be
terminated by either party on notice, for cause by Superior and upon the
occurrence of certain other events. The Deedy Agreement contains certain
provisions relating to compensation upon his termination. Effective upon
completion of this Offering, the Company will assume the Deedy Agreement.
During Superior's fiscal year ended April 28, 1996, Mr. Deedy received a
salary of $164,035, a bonus of $80,000 and $11,584 of other compensation. In
addition, Mr. Deedy was granted options to purchase 95,700 shares of Alpine
common stock at an exercise price equal to or in excess of the fair market value
at the time of grant. As of April 28, 1996, Mr. Deedy held options to purchase
63,800 shares of Alpine common stock at an exercise price of $5.125 per share,
which options expire May 1, 2005, options to purchase 24,000 shares at an
exercise price of $3.75 per share and options to purchase 7,900 shares at an
exercise price of $5.625 per share, which options expire May 1, 2006, options to
purchase 30,503 shares at an exercise price of $7.85 per share, which options
expire November 10, 2003, and options to purchase 13,525 shares at an exercise
price of $3.25 per share, which options expire May 17, 1998. The options
generally vest over a three-year period. During fiscal 1996, Mr. Deedy exercised
options for 14,780 shares and realized a value of $33,240. The values of Mr.
Deedy's remaining exercisable and unexercisable options were $16,906 and
$23,925, respectively, as of April 28, 1996. Mr. Deedy and Mr. Elbaum are
referred to hereinafter as the "Named Executive Officers." Other than Mr. Deedy
no (i) executive offier of the Company or (ii) executive officer of any of its
subsidiaries who performed policy making functions for the Company received in
excess of $100,000 in compensation in fiscal 1996.
COMPENSATION UNDER PLANS
1996 STOCK OPTION PLAN. The Company has adopted a 1996 Employee Stock
Option Plan (the "Stock Option Plan") for the benefit of certain officers and
other key employees of the Company and its subsidiaries with the purpose of
attracting and retaining executives and other key employees who are important to
the success and growth of the Company and creating a long-term mutuality of
interest between such persons and the stockholders of the Company.
Under the Stock Option Plan, options to purchase an aggregate of not more
than 1,250,000 shares of Common Stock (subject to certain adjustments) may be
granted from time to time to key employees and officers of, advisors and
independent consultants to, the Company or its subsidiaries, and directors who
are neither officers nor employees of the Company or its subsidiaries ("Eligible
Directors"). In general, if options are for any reason cancelled, or expire or
terminate unexercised, the shares covered by such options will again be
available for the grant of options. No options may be granted after 10 years
from the effective date of the Stock Option Plan. It is anticipated that options
held by 10 key employees to purchase an aggregate of 575,000 shares of Common
Stock at an exercise price equal to the initial public offering price will be
outstanding on the closing date of this Offering. The Company intends to grant
to Messrs. Elbaum, Deedy and Aldridge options to purchase 250,000, 100,000 and
50,000 shares of Common Stock, respectively, and to grant options to purchase
25,000 shares of Common Stock to each of Messrs. Branger, Gill, McMillan, Karp,
Richards and Rudd and Ms. Gilleland.
The Stock Option Plan will provide for the grant of incentive stock options
("ISOs") to employees and nonqualified stock options ("NQSOs") to employees,
advisors and independent consultants and directors who are neither officers nor
employees of the Company. In the case of ISOs, the exercise price of an option
may not be less than 100% of the fair market value of a share of Common Stock at
the time of grant (or 110% of such fair market value if the optionee owns more
than 10% of the shares of Common Stock outstanding at
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<PAGE>
the time of grant). In the case of NQSOs, the exercise price of an option may
not be less than 100% of the fair market value of a share of Common Stock at the
time of grant. Unless otherwise provided in the applicable option agreement, all
options granted and not previously exercised will become vested and immediately
exercisable upon a change in control of the Company (as defined in the Stock
Option Plan).
The Stock Option Plan will be administered and interpreted by a committee
(the "Committee") appointed by the Company's Board of Directors consisting of
two or more members of the Company's Board of Directors, each of whom is
intended to be a "disinterested person" as provided by Rule 16b-3 under the
Securities Exchange Act of 1934 (to the extent then required). The Committee
generally is empowered to interpret the Stock Option Plan, prescribe rules and
regulations relating thereto, determine the terms of the option agreements,
amend them (in certain cases only with the consent of the optionee), determine
the individuals to whom options are to be granted, determine the number of
shares subject to each option and the exercise price thereto, and take all
actions in connection with the Stock Option Plan and the options thereunder as
the Committee, in its sole discretion, deems necessary or desirable. Options
will be exercisable for a term determined by the Committee. The Committee may
modify, suspend or terminate the Stock Option Plan; provided, however, that
certain material modifications affecting the Stock Option Plan must be approved
by the Company's stockholders, and any change in the Stock Option Plan that may
adversely affect an optionee's rights under an option previously granted under
the Stock Option Plan requires the consent of the optionee.
Eligible Directors may receive options under the Stock Option Plan in
accordance with the terms thereof. Each Eligible Director will receive an
initial grant of an option to purchase 15,000 shares of Common Stock at an
exercise price equal to the per share price paid for shares purchased in this
Offering. Each year thereafter, other than with respect to the year in which an
Eligible Director receives an initial grant of options, as of the first day of
the month following the annual meeting of stockholders, each Eligible Director
will receive a nonqualified option to purchase 7,500 shares of Common Stock at
an exercise price equal to the fair market value of such shares at the time of
grant.
The options granted to Eligible Directors to purchase shares of Common Stock
will vest evenly in three equal annual installments. Options may be exercised
only after the Eligible Director has served as a director of the Company for at
least one year. In addition, options granted and not previously exercisable will
become vested and fully exercisable immediately upon a "change in control" of
the Company (as defined in the Stock Option Plan).
Each option granted to Eligible Directors will expire upon the tenth
anniversary of the date of grant.
If an Eligible Director terminates his service on the Board of Directors for
any reason, including disability, death, resignation or failure to stand for
reelection, any exercisable option which has not expired may be exercised with
respect to the number of shares of Common Stock which were exercisable on the
date the Eligible Director terminated his service with the Company at any time
during the earlier of (i) the one-year period following such date and (ii) the
remaining term of the option. Any unexpired but unexercisable option shall
terminate and become null and void as of the date the Eligible Director
terminates his service with the Company.
EMPLOYEE STOCK PURCHASE PLAN The Company has adopted an Employee Stock
Purchase Plan (the "Stock Purchase Plan") in which all employees of the Company
who customarily work more than 20 hours per week and at least five months per
year are eligible to participate. The purpose of the Stock Purchase Plan is to
provide employees of the Company with an opportunity to purchase Common Stock
through payroll deductions. The Stock Purchase Plan provides that employees may
utilize 1% to 25% of their "compensation" (as defined in the Stock Purchase
Plan), up to a maximum of $6,250 per calendar quarter, to purchase Common Stock
at a price equal to the lesser of 85% of the fair market value of a share of
Common Stock on
47
<PAGE>
(i) the date immediately preceding the first day of the calendar quarter and
(ii) the last day of such calendar quarter. The Stock Purchase Plan will be
administered by a committee designated by the Board of Directors of the Company
and 250,000 shares of Common Stock are reserved for issuance thereunder.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
SERVICES AGREEMENT
Pursuant to the Services Agreement, Alpine provides certain services to the
Company, including, among other things, assistance with public company
reporting, certain financial reporting functions, legal compliance, banking,
risk management and operational and strategic matters. Pursuant to the Services
Agreement, David S. Aldridge, Alpine's Chief Financial Officer, serves as the
Company's Chief Financial Officer. The Services Agreement provides for the
payment by the Company to Alpine of $0.9 million per year plus reimbursement of
any third party expenses incurred by Alpine. The Company believes that $0.9
million represents a reasonable estimate of the cost of obtaining the services
described above. The Services Agreement will expire on April 30, 1998.
Under the Services Agreement, Alpine shares approximately 2,000 square feet
of the Company's Atlanta office space, and the Company will share a portion of
Alpine's New York office space.
The parties to the Service Agreement have agreed to indemnify each other
against liability arising out of the willful misconduct or gross negligence of
the indemnifying party.
The terms upon which these services will be provided to and by the Company
and the compensation therefor were not determined in arms' length negotiations.
As soon as practicable after the completion of the Offering, the Board of
Directors of the Company will establish an Audit Committee, comprised solely of
directors who are not affiliated with Alpine, which will review and approve all
future agreements between Alpine and the Company and establish policies to
ensure that the Company's purchases of services from Alpine are commercially
reasonable.
PREFERRED STOCK EXCHANGE AGREEMENT
The Company and Alpine have entered into an agreement (the "Preferred Stock
Exchange Agreement") granting Alpine the right to exchange the Superior
Preferred Stock that Alpine will own for preferred stock of the Company having
identical terms. ("TeleCom Preferred Stock"). In addition, pursuant to a
registration rights agreement, Alpine may demand registration under the
Securities Act of the TeleCom Preferred Stock at any time commencing October 31,
1997.
ALPINE FINANCING ARRANGEMENTS
On July 21, 1995, Alpine completed the placement of $153.0 million of 12.25%
Senior Secured Notes (the "Alpine Notes") and entered into an $85.0 million
revolving credit facility (the "Alpine Credit Facility"). The Alpine Notes and
the Alpine Credit Facility were guaranteed by Superior and Adience, Inc.
("Adience"), another subsidiary of Alpine. The Alpine Notes were also secured by
a pledge of the capital stock of Superior and Adience.
An amendment to the indenture relating to the Alpine Notes provides for the
release of the aforementioned pledge and the termination of the Superior
guarantees. Alpine has pledged to the trustee for the benefit of the holders of
the Alpine Notes all of its shares of the Company's Common Stock and the
Superior Preferred Stock. In addition, Alpine's financing arrangements with
Superior and DNE were terminated in connection with the Bank Credit Facility.
See Notes 8 and 16 to the combined financial statements of Superior and DNE.
48
<PAGE>
INTERCOMPANY DEBT
The intercompany debt repaid with the initial borrowings under the Bank
Credit Facility arose in connection with the placement of the Alpine Notes and
the closing of the Alpine Credit Facility. The intercompany debt consisted of
the following:
(1) $88.9 million payable by Superior to Alpine under a note due
2003. The note was subject to certain mandatory prepayment
requirements. Interest was payable semi-annually at an annual rate of
14%.
(2) $10.1 million payable by Superior and DNE to Alpine under
revolving credit facilities due 2000. Interest was payable
monthly at prime rate plus 0.375% or LIBOR plus 2.25%. Borrowings under
the revolving credit facility were subject to a rate borrowing base
determined as a percentage of eligible accounts receivable and inventory.
The revolving credit facility was secured by a pledge of Superior's
accounts receivable and inventory.
(3) $2.3 million payable by DNE to Alpine under a note due 2003.
Interest was payable semi-annually at an annual rate of 14%.
(4) $14.3 million payable by Alpine to Superior. This indebtedness is
a non-interest bearing receivable which arose primarily from
funds advanced by Superior in connection with Alpine's 1995 debt
restructuring.
(5) $0.9 million payable by DNE to Alpine. This indebtedness is a
non-interest bearing receivable which arose primarily due to the
allocation of certain direct expenses, principally related to the
purchase of insurance by Alpine on DNE's behalf.
TAX MATTERS
Superior and DNE currently are included in the consolidated group of
domestic corporations of which Alpine is the common parent for federal income
tax and certain other purposes. Upon consummation of this Offering, the Company
will cease to be included in the consolidated group for federal income tax
purposes of which Alpine is the common parent. Alpine has agreed to indemnify
the Company for any consolidated federal income tax liability (and certain state
and local tax liabilities), including any amounts determined to be due as a
result of redeterminations of the tax liability of Alpine arising from an audit
or otherwise, and certain other liabilities of Alpine or any of its subsidiaries
that the Company is actually required to pay, but only to the extent, if any,
that such liability exceeds the amount of such liability attributable to
Superior, DNE or the Company. The value of this indemnity is dependent upon the
financial condition of Alpine. Neither the Company nor any of its affiliates is
aware of any potential federal income tax liability of the Company or its
subsidiaries (other than the Company's own tax liability) for which the Company
would be liable.
Alpine, the Company and its subsidiaries have entered into a tax allocation
agreement (the "Tax Allocation Agreement") pursuant to which, in general, the
consolidated federal income tax liability (and certain state and local tax
liabilities) will be allocated and assessed among each member of the
consolidated group based on the ratio that each member's tax liability (computed
as though that member filed a separate income tax return) bears to the sum of
the separate return tax liabilities of all members. The Tax Allocation Agreement
also provides for the reimbursement to a member for the utilization of losses,
credits or deductions by other members of the group. The Tax Allocation
Agreement provides that, in general, any consolidated tax liability arising out
of the Reorganization and the Offering and related transactions will be the sole
responsibility of Alpine.
49
<PAGE>
PRINCIPAL STOCKHOLDERS
CAPITAL STOCK OF THE COMPANY
The following table and notes set forth information as of August 1, 1996,
and as adjusted to reflect sale of the shares of Common Stock offered hereby,
with respect to the voting securities of the Company beneficially owned by (i)
each person known by the Company to be the beneficial owner of more than 5% of
the shares of Common Stock, (ii) each director individually, (iii) each Named
Executive Officer individually, and (iv) all executive officers and directors as
a group. The address for Alpine is 1790 Broadway, New York, New York 10019.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THIS PERCENT OF AFTER THIS PERCENT OF COMMON
NAME OF BENEFICIAL OWNER OFFERING COMMON STOCK OFFERING (1) STOCK (1)
- --------------------------------- -------------------- --------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Alpine........................... 6,024,048 100.0% 6,024,048 50.1%
Steven S. Elbaum (2)............. 6,024,048 100.0 6,024,048 50.1
Justin F. Deedy, Jr.............. -- -- -- --
Bragi F. Schut................... -- -- -- --
Directors and officers as a group
(3 individuals) (2)............. 6,024,048 100.0 6,024,048 50.1
</TABLE>
- ------------------------
(1) Assumes no exercise of the Underwriters' over-allotment option.
(2) Includes 6,024,048 shares of Common Stock owned by Alpine. Mr. Elbaum may be
deemed to be the beneficial owner of such shares by virtue of his position
as Chairman of the Board and Chief Executive Officer of Alpine and his
beneficial ownership of 9.6% of the issued and outstanding common stock of
Alpine.
DESCRIPTION OF CAPITAL STOCK
The following brief description of the Company's capital stock does not
purport to be complete and is subject in all respects to applicable Delaware law
and to the provisions of the Company's Certificate of Incorporation and Bylaws,
copies of which will be filed with the Securities and Exchange Commission (the
"Commission").
The authorized capital stock of the Company consists of 25,000,000 shares of
Common Stock, $.01 par value per share, and 1,000,000 shares of Preferred Stock,
$.01 par value per share (the "Preferred Stock"). Immediately following the
consummation of this Offering, there will be 12,024,048 shares of Common Stock
and no shares of Preferred Stock outstanding. The outstanding shares of Common
Stock are, and the shares of Common Stock to be outstanding upon completion of
this Offering will be, validly issued, fully paid and non-assessable.
COMMON STOCK
Each holder of Common Stock is entitled to one vote per share on any issue
requiring a vote at any meeting. Holders of shares of Common Stock do not have
cumulative voting rights in the election of directors. All shares of Common
Stock are non-assessable and, subject to the rights of holders of any series of
Preferred Stock having a preference over the Common Stock, are entitled to share
equally in such dividends as the Board of Directors of the Company may declare
on the Common Stock from sources legally available therefor. The Company intends
to retain any future earnings for use in its business and does not anticipate
paying any cash dividends on the Common Stock in the foreseeable future. See
"Dividend Policy." Upon any liquidation, dissolution or winding up of the
Company, subject to the prior liquidation rights of the holders of any series of
Preferred Stock, the net assets of the Company remaining after payment of
creditors
50
<PAGE>
will be distributed to the holders of Common Stock in proportion to their
interests. Holders of Common Stock do not have preemptive rights to subscribe
for additional shares of Common Stock if additional shares are offered for sale
by the Company.
PREFERRED STOCK
The Board of Directors of the Company is authorized without further
stockholder action to provide for the issuance from time to time of up to
1,000,000 shares of Preferred Stock, in one or more classes or series, with such
powers, designations, preferences and relative, participating, optional or other
special rights, qualifications, limitations or restrictions as will be set forth
in the resolutions adopted by the Board of Directors of the Company providing
for the issue of such classes or series of Preferred Stock. The holders of
Preferred Stock will have no preemptive rights (unless otherwise provided in the
applicable certificate of designation) and will not be subject to future
assessments by the Company. Such Preferred Stock may have voting or other rights
which could adversely affect the rights of holders of the Common Stock. In
addition, the issuance of Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, under
certain circumstances, make it more difficult for a third party to gain control
of the Company, discourage bids for the Common Stock at a premium, or otherwise
adversely affect the market price of the Common Stock. The Company and Alpine
have entered into the Preferred Stock Exchange Agreement granting Alpine the
right to exchange the Superior Preferred Stock that Alpine will own for TeleCom
Preferred Stock. In addition, pursuant to a registration rights agreement,
Alpine may demand registration under the Securities Act of the TeleCom Preferred
Stock at any time commencing October 31, 1997.
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW
PROVISIONS
The Company's Certificate of Incorporation and Bylaws contain several
provisions that may be deemed to have the effect of making more difficult the
acquisition of control of the Company by means of a hostile tender offer, open
market purchases, a proxy contest or otherwise.
The provisions of the Company's Certificate of Incorporation and Bylaws
discussed below are designed to help ensure that holders of Common Stock are
treated fairly and equally in a multi-step acquisition. In addition, they are
intended to encourage persons seeking to acquire control of the Company to
initiate such an acquisition through arms'-length negotiations with the
Company's Board of Directors. The Company's Certificate of Incorporation and
Bylaws may have the effect of discouraging a third party from making a tender
offer or otherwise attempting to obtain control of the Company, even though such
an attempt might be economically beneficial to the Company and its stockholders.
In addition, because the Company's Certificate of Incorporation and Bylaws are
designed to discourage the accumulation of large blocks of the voting shares of
the Company by purchasers whose objective it is to have such stock repurchased
by the Company at a premium, the anti-takeover provisions of the Company's
Certificate of Incorporation and Bylaws could tend to reduce the price of the
voting shares of the Company caused by such accumulations. In addition, these
provisions may also have the effect of precluding a contest for the election of
directors.
STOCKHOLDER MEETINGS. Subject only to the rights of holders of Preferred
Stock, if any, only a majority of the Company's Board of Directors (other than
those directors affiliated with or elected by an Interested Person, as defined
below), the Chairman of the Board, the Vice Chairman or the Chief Executive
Officer of the Company will be able to call an annual or special meeting of
stockholders. In addition, subject only to the rights of Preferred Stock, if
any, stockholders may not take any action by written consent.
RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS. The Company's Certificate of
Incorporation provides that certain business combinations, such as mergers and
stock and asset sales, with an "Interested Person" (typically a beneficial owner
of more than 15% of the outstanding voting shares of the Company's capital
stock, excluding certain persons, including Messrs. Elbaum and Schut (directors
of the Company), their lineal descendants, affiliates and associates, or trusts
for their benefit), be approved by (i) the holders of two-thirds or more of the
voting power of the then outstanding voting shares, voting together as a single
class, and
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<PAGE>
(ii) at least a majority of the voting power of the then outstanding voting
shares, voting as a single class, which are not owned beneficially, directly or
indirectly, by the Interested Person, unless the transaction is approved by a
majority of certain directors or meets certain fair price provisions.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATION AND
PROPOSALS. The Company's Certificate of Incorporation and Bylaws establish
advance notice procedures with regard to stockholder proposals and the
nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as directors.
VOTE REQUIRED TO AMEND OR REPEAL CERTAIN PROVISIONS OF THE COMPANY'S
CERTIFICATE OF INCORPORATION AND BYLAWS. The Company's Certificate of
Incorporation establishes certain supermajority voting requirements to amend or
repeal certain provisions of the Company's Certificate of Incorporation or
Bylaws.
DIRECTOR'S LIABILITY. The Company's Certificate of Incorporation provides
that to the fullest extent permitted by the GCL, a director of the Company shall
not be liable to the Company or its stockholders for monetary damages for breach
of fiduciary duty as a director. Under current Delaware law, liability of a
director may not be limited (i) for any breach of the director's duty of loyalty
to the Company or its stockholders, (ii) for acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (iii) in
respect of certain unlawful dividend payments or stock redemptions or
repurchases, and (iv) for any transaction from which the director derives an
improper personal benefit. The effect of this provision of the Company's
Certificate of Incorporation is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of the fiduciary duty
of care as a director (including breaches resulting from negligent or grossly
negligent behavior) except in the situations described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of the Company
or any stockholder to seek non-monetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. In addition,
the Company's Certificate of Incorporation provides that the Company shall
indemnify its directors and executive officers to the fullest extent permitted
by Delaware law.
SECTION 203 OF THE GCL. The Company as a Delaware corporation, is subject
to Section 203 of the GCL. In general, Section 203 prevents an "interested
stockholder" (defined as a person who is the owner of 15% or more of a
corporation's voting stock, or who, as an affiliate or associate of a
corporation, was the owner of 15% or more of that corporation's voting stock
within the prior three years) from engaging in a "business combination" (as
defined under the GCL) with a Delaware corporation for three years following the
date such person became an interested stockholder unless: (i) before such person
became an interested stockholder the board of directors of the corporation
approved the transaction or the business combination in which the interested
stockholder became an interested stockholder; (ii) upon consummation of the
transaction that resulted in the interested stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
shares owned by persons who are both officers and directors of the corporation
and shares held by certain employee stock ownership plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer); or
(iii) following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of at least two-thirds of the outstanding voting stock of
the corporation not owned by the "interested stockholder." A "business
combination" generally includes mergers, stock or asset sales and other
transactions resulting in a financial benefit to the "interested stockholders."
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Upon consummation of this Offering, the Company's authorized but unissued
capital stock will consist of 12,975,952 shares of Common Stock (12,075,952
shares if the Underwriters' over-allotment option is exercised in full) and
1,000,000 shares of Preferred Stock. All of the foregoing authorized but
unissued
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<PAGE>
shares of capital stock will be available for future issuance without
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes, including issuance pursuant to employee stock options and
other employee plans, director stock options and future public offerings to
raise additional capital or to facilitate corporate acquisitions.
The Company does not presently have any plans to issue additional shares of
Common Stock other than shares of Common Stock which may be issued upon exercise
or options which may be granted in the future to the Company's Directors or
employees.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock will be American Stock
Transfer and Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 12,024,048 shares of
Common Stock outstanding and no shares of Preferred Stock outstanding. Of those
shares, the 6,000,000 shares of Common Stock offered hereby will be available
for immediate sale as of the date of this Prospectus in the public market
without restriction by persons other than "affiliates" of the Company, as that
term is defined in the regulations promulgated under the Securities Act. Alpine
holds an additional 6,024,048 shares which shares will be eligible for sale in
the public markets, subject to the holding period and volume limitations of Rule
144. Sales of substantial amounts of Common Stock in the public market could
have an adverse impact on the market price of the Common Stock.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned "restricted securities"
(defined generally in Rule 144 as securities issued in transactions not
involving a public offering) for at least two years, including persons who may
be deemed to be affiliates of the Company, is entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock (which number, immediately following
this Offering, will be 120,240 shares) and the average weekly trading volume in
the Common Stock during the four calendar weeks preceding the filing of a Form
144 with respect to such sale, provided that the Company has been subject to and
complied with certain reporting requirements under the Exchange Act, and the
sale is made in a "broker's transaction" or in a transaction directly with a
"market-maker," as those terms are used in Rule 144, without the solicitation of
buy orders by the broker or such person and without such person making any
payment to any person other than the broker who executes the order to sell the
shares of Common Stock. A person (or persons whose shares are aggregated) who is
not deemed to have been an affiliate of the Company at any time during the 90
days preceding a sale of restricted securities by such person, and who has
beneficially owned the restricted securities for at least three years (including
the holding period of any prior owner except an affiliate), is entitled to sell
such shares under Rule 144 without regard to the volume limitations and public
information and manner of sale requirements described above. Restricted
securities properly sold in reliance upon Rule 144 are thereafter freely
tradeable without restrictions or registration under the Securities Act, unless
thereafter held by an affiliate of the Company.
The Commission has proposed to amend the holding period required by Rule 144
to permit sales of restricted securities after one year rather than two years
(and two years rather than three years for "non-affiliates" who desire to sell
such shares under Rule 144(k)). If such proposed amendment were enacted, the
restricted securities would become freely tradeable (subject to any applicable
contractual restrictions) at correspondingly earlier dates.
Prior to this Offering, there has been no public market for the Common Stock
of the Company. No predictions can be made of the effect, if any, that the sale
or availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of a substantial amount of
such shares by the existing stockholder or by stockholders purchasing in this
Offering could have a negative impact on the market price of the Common Stock.
53
<PAGE>
UNDERWRITING
Each of the Underwriters named below (the "Underwriters"), for which Furman
Selz LLC, Oppenheimer & Co., Inc. and BT Securities Corporation are acting as
the Representatives, has severally agreed, subject to the terms and conditions
of the Underwriting Agreement, to purchase from the Company the number of shares
of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Furman Selz LLC.................................................................. 1,160,000
Oppenheimer & Co., Inc. ......................................................... 1,155,000
BT Securities Corporation ....................................................... 1,155,000
Bear, Stearns & Co. Inc. ........................................................ 100,000
Alex. Brown & Sons Incorporated.................................................. 100,000
CS First Boston Corporation ..................................................... 100,000
Dean Witter Reynolds Inc. ....................................................... 100,000
Dillon, Read & Co. Inc. ......................................................... 100,000
Donaldson, Lufkin & Jenrette Securities Corporation.............................. 100,000
Goldman, Sachs & Co. ............................................................ 100,000
Hambrecht & Quist LLC............................................................ 100,000
Lehman Brothers Inc.............................................................. 100,000
Morgan Stanley & Co. Incorporated ............................................... 100,000
PaineWebber Incorporated......................................................... 100,000
Prudential Securities Incorporated............................................... 100,000
Schroder Wertheim & Co. Inc. .................................................... 100,000
Advest Inc. ..................................................................... 60,000
Robert W. Baird & Co. Inc........................................................ 60,000
J.C. Bradford & Co. ............................................................. 60,000
Cowen & Company.................................................................. 60,000
Dain Bosworth Incorporated....................................................... 60,000
EVEREN Securities, Inc........................................................... 60,000
Fahnestock & Co. Inc. ........................................................... 60,000
First Albany Corporation......................................................... 60,000
Janney Montgomery Scott Inc...................................................... 60,000
Ladenburg, Thalmann & Co. Inc. .................................................. 60,000
Legg Mason Wood Walker Inc. ..................................................... 60,000
Needham & Company, Inc. ......................................................... 60,000
Raymond James & Associates Inc................................................... 60,000
The Robinson-Humphrey Company, Inc. ............................................. 60,000
SoundView Financial Group, Inc. ................................................. 60,000
Wheat First Securities Inc....................................................... 60,000
Brean Murray, Foster Securities Inc. ............................................ 30,000
Cleary Gull Reiland & McDevitt Inc............................................... 30,000
Coburn & Meredith Inc. .......................................................... 30,000
Dominick & Dominick Inc. ........................................................ 30,000
First Manhattan Co. ............................................................. 30,000
Hoak Securities Corp. ........................................................... 30,000
C.L. King & Associates, Inc. .................................................... 30,000
Pennsylvania Merchant Group Ltd.................................................. 30,000
The Seidler Companies Incorporated............................................... 30,000
----------
Total........................................................................ 6,000,000
----------
----------
</TABLE>
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<PAGE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the shares of Common Stock listed above are subject to the approval
of certain legal matters by counsel and various other conditions. The
Underwriting Agreement also provides that the Underwriters are committed to
purchase all of the shares of Common Stock offered hereby, if any are purchased
(without consideration of any shares that may be purchased through the
Underwriters' over-allotment option).
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public initially at the public
offering price set forth on the cover of this Prospectus and to certain dealers
at such price less a concession not in excess of $.67 per share. The
Underwriters may allow, and such selected dealers may reallow, a concession not
in excess of $.10 per share to certain other dealers. After the initial public
offering of the shares, the public offering price and other selling terms may be
changed by the Representatives.
Prior to the offering made hereby, there has been no public market for the
Common Stock. Accordingly, the initial public offering price has been determined
by negotiation between the Company and the Representatives. Among the factors
considered were the Company's results of operations, current financial
condition, estimates of the business potential and prospects of the Company, the
market for the Company's products, the experience of the Company's management,
the economics of the industry in general, the general condition of the equities
market and other relevant factors. There can be no assurance that any active
trading market will develop for the Common Stock or as to the price at which the
Common Stock may trade in the public market from time to time subsequent to the
offering made hereby.
The Company has granted the Underwriters an option, exercisable during the
30-day period after the date of this Prospectus, to purchase up to 900,000
additional shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus, less underwriting discounts and commissions. To
the extent the Underwriters exercise this option, each Underwriter will have a
firm commitment, subject to certain conditions, to purchase such number of
additional shares of Common Stock as is proportionate to such Underwriter's
initial commitment to purchase shares from the Company. The Underwriters may
exercise such option solely to cover over-allotments, if any, incurred in
connection with the sale of shares of Common Stock offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including under the Securities Act, or to contribute to payments
that the Underwriters may be required to make in respect thereof.
The Company and the holders of 6,024,048 shares of Common Stock in the
aggregate, including Alpine and each officer and director of the Company have
agreed, subject to certain exceptions, not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or securities exchangeable or
exercisable for or convertible into shares of Common Stock (other than, in the
case of the Company, the granting of options pursuant to the Company's stock
option plan) for a period of 180 days from the date of the Underwriting
Agreement, without the prior written consent of Furman Selz LLC.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
BT Securities Corporation has provided investment banking services to Alpine
and is acting as Dealer Manager in connection with the tender offer for and
solicitation of consent of the holders of the Alpine Notes, for which services
it will receive customary compensation. Bankers Trust Company, an affiliate of
BT Securities Corporation, acted as Administrative Agent in connection with the
Bank Credit Facility and received customary compensation.
The Common Stock has been authorized for listing on the New York Stock
Exchange under the symbol "SUT."
55
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
Common Stock offered hereby will be passed upon for the Company by Proskauer
Rose Goetz & Mendelsohn LLP, New York, New York. Certain legal matters relating
to this Offering will be passed upon for the Underwriters by Stroock & Stroock &
Lavan, New York, New York.
EXPERTS
The combined financial statements of Superior and DNE (which have been
reorganized as the Company), as of April 30, 1995 and April 28, 1996 and for
each of the three fiscal years in the period ended April 28, 1996, the combined
financial statements of the Alcatel Business as of December 31, 1993 and 1994
and for each of the three years in the period ended December 31, 1994, and the
balance sheet of the Company as of September 11, 1996, included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included in reliance upon the authority of
said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to the
Common Stock offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus, which is part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules filed therewith. For further information with respect
to the Company and the Common Stock offered hereby, reference is hereby made to
the Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any contract
or other document are not necessarily complete, and in each instance reference
is made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the principal office of the
Commission, 450 Fifth Street, N.W., Washington, DC 20549, the New York Regional
Office located at 7 World Trade Center, Suite 1300, New York, New York 10048,
and the Chicago Regional Office located at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and copies of all or any part thereof may be obtained
at prescribed rates from the Commission's Public Reference Section at its
principal office. They are also available through the Commission's World Wide
Web site (http://www.sec.gov).
56
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
SUPERIOR TELECOM INC. PAGE
---
Report of independent public accountants......................................... F-2
Balance sheet at September 11, 1996.............................................. F-3
Notes to balance sheet........................................................... F-4
COMBINED FINANCIAL STATEMENTS OF SUPERIOR TELECOMMUNICATION INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES (TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
AUDITED COMBINED FINANCIAL STATEMENTS
Report of independent public accountants......................................... F-5
Combined balance sheets as of April 30, 1995 and April 28, 1996.................. F-6
Combined statements of operations for the years ended May 1, 1994, April 30, 1995
and April 28, 1996.............................................................. F-7
Combined statements of stockholder's equity for the years ended May 1, 1994,
April 30, 1995 and April 28, 1996............................................... F-8
Combined statements of cash flows for the years ended May 1, 1994, April 30,
1995, and April 28, 1996........................................................ F-9
Notes to combined financial statements........................................... F-10
UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
Condensed combined balance sheets as of April 28, 1996 and July 28, 1996......... F-24
Condensed combined statements of operations for the three months ended July 29,
1995 and July 28, 1996.......................................................... F-25
Condensed combined statement of cash flows for the three months ended July 29,
1995 and July 28, 1996.......................................................... F-26
Condensed combined statement of stockholder's equity for the three months ended
July 28, 1996................................................................... F-27
Notes to condensed combined financial statements................................. F-28
THE ALCATEL BUSINESS
AUDITED COMBINED FINANCIAL STATEMENTS
Report of independent public accountants......................................... F-30
Combined balance sheets at December 31, 1993 and 1994............................ F-31
Combined statements of operations for the years ended December 31, 1992, 1993 and
1994............................................................................ F-32
Combined statements of changes in owners' investment for the years ended December
31, 1992, 1993 and 1994......................................................... F-33
Combined statements of cash flows for the years ended December 31, 1992, 1993 and
1994............................................................................ F-34
Notes to combined financial statements........................................... F-35
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: The Alpine Group, Inc.
We have audited the accompanying balance sheet of Superior TeleCom Inc. (a
Delaware corporation) as of September 11, 1996. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Superior TeleCom Inc. as of
September 11, 1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
October 2, 1996
Atlanta, Georgia
F-2
<PAGE>
SUPERIOR TELECOM INC.
BALANCE SHEET
SEPTEMBER 11, 1996
ASSETS
<TABLE>
<S> <C>
Cash............................................................. $ 60,240
---------
Total assets................................................. $ 60,240
---------
---------
STOCKHOLDER'S EQUITY
Common stock, $.01 par value; authorized 25,000,000 shares, issued
6,024,048......................................................... $ 60,240
---------
Total stockholder's equity................................... $ 60,240
---------
---------
</TABLE>
F-3
<PAGE>
SUPERIOR TELECOM INC.
NOTE TO BALANCE SHEET
SEPTEMBER 11, 1996
1. ORGANIZATION AND NATURE OF BUSINESS
Superior TeleCom Inc. ("Superior TeleCom") was incorporated under the laws
of the State of Delaware on July 17, 1996. The purpose of incorporating Superior
TeleCom was to enable The Alpine Group, Inc. ("Alpine"), Superior TeleCom's
parent company and only stockholder, to complete a reorganization whereby two
subsidiaries of Alpine, Superior Telecommunications Inc. ("Superior") and DNE
Systems, Inc. ("DNE") will be contributed to Superior TeleCom. As of July 17,
1996 and to October 2, 1996, Superior TeleCom has not conducted any operations
or had any cash flows subsequent to the $60,240 initial capitalization by
Alpine. There were no commitments and contingencies at September 11, 1996.
In September 1996, Superior TeleCom filed an amendment to a registration
statement with the Securities and Exchange Commission in which it disclosed
Alpine's intention to cause Superior TeleCom to complete an offering of
6,000,000 shares of common stock (or approximately 49.9% of the outstanding
shares after such offering) assuming no exercise of the underwriters'
over-allotment option (the "Offering"). On October 2, 1996, Alpine contributed
all of the common stock of both Superior and DNE to Superior TeleCom and caused
Superior and DNE to declare dividends on their common stock in an aggregate
amount of $117.1 million. Superior also issued to Alpine 20,000 shares of 6%
Cumulative Preferred Stock par value $1.00 per share with a liquidation
preference of $1,000 per share.
On October 2, 1996, Superior TeleCom entered into a five-year revolving
credit facility (the "Bank Credit Facility") under which it borrowed $154.7
million to repay the net amount of the intercompany debt owed to Alpine (which
was $87.9 million), and to pay to Alpine $63.8 million of the declared
dividends. It is management intention to use part of the net proceeds of the
Offering to pay the remainder of the declared dividends. Under the Bank Credit
Facility, up to $175.0 million is available, however, on completion of the
Offering the facility will be reduced to $150.0 million.
F-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: The Alpine Group, Inc.
We have audited the accompanying combined balance sheets of Superior
Telecommunications Inc. and subsidiary and DNE Systems, Inc. and subsidiaries
(collectively referred to as the "Companies" and to be contributed to Superior
TeleCom Inc. in connection with the reorganization as discussed in Note 16) as
of April 30, 1995 and April 28, 1996, and the related combined statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended April 28, 1996. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Companies as of April 30, 1995 and April 28, 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
April 28, 1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
New York, New York
September 11, 1996 (except with
respect to the matter discussed
in Note 16, as to which the
date is October 2, 1996)
F-5
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
APRIL 30, APRIL 28,
1995 1996
---------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................................................... $ 273 $ 351
Accounts receivable (less allowance for doubtful accounts of $59 in 1995 and $166 in
1996).................................................................................. 23,272 53,689
Inventories............................................................................. 25,695 57,726
Other current assets.................................................................... 1,732 6,142
---------- ----------
Total current assets.................................................................. 50,972 117,908
---------- ----------
Property, plant and equipment, net........................................................ 30,044 76,528
Goodwill, net............................................................................. 32,412 48,414
Long-term investments and other assets.................................................... 6,699 1,215
---------- ----------
Total assets.......................................................................... $ 120,127 $ 244,065
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt....................................................... $ 2,758 $ 484
Accounts payable........................................................................ 20,147 46,253
Accrued expenses........................................................................ 5,317 12,445
---------- ----------
Total current liabilities............................................................. 28,222 59,182
---------- ----------
Due to Alpine and affiliate............................................................... 525 113,736
---------- ----------
Long-term debt, less current portion...................................................... 33,784 11,540
---------- ----------
Other long-term liabilities............................................................... 7,742 7,951
---------- ----------
Commitments and contingencies
Stockholder's equity:
Common stock, Superior Telecommunications Inc., $.01 par value; authorized 10,000
shares; issued 1,000 shares............................................................ -- --
Common stock, DNE Systems, Inc. $1.00 par value; authorized 100,000 shares; issued 750
shares................................................................................. 1 1
Capital in excess of par value.......................................................... 45,700 42,254
Cumulative translation adjustment....................................................... -- (214)
Retained earnings....................................................................... 4,153 9,615
---------- ----------
Total stockholder's equity............................................................ 49,854 51,656
---------- ----------
Total liabilities and stockholder's equity............................................ $ 120,127 $ 244,065
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------
MAY 1, APRIL 30, APRIL 28,
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Net sales...................................................................... $ 68,510 $ 164,485 $ 410,413
Cost of goods sold............................................................. 56,250 142,114 362,854
--------- ---------- ----------
Gross profit............................................................... 12,260 22,371 47,559
Selling, general, and administrative expense................................... 8,884 11,632 14,223
Amortization of goodwill....................................................... 2,186 1,124 1,556
--------- ---------- ----------
Operating income........................................................... 1,190 9,615 31,780
Interest income................................................................ 137 -- 349
Interest expense............................................................... (1,879) (3,700) (17,355)
Other income (expense), net.................................................... (61) 231 55
--------- ---------- ----------
Income (loss) from continuing operations before income taxes............... (613) 6,146 14,829
Provision for income taxes..................................................... (521) (2,240) (6,722)
--------- ---------- ----------
Income (loss) from continuing operations................................... (1,134) 3,906 8,107
(Loss) from discontinued operations............................................ (287) (176) --
--------- ---------- ----------
Income (loss) before extraordinary item.................................... (1,421) 3,730 8,107
Extraordinary item -- (loss) on early extinguishment of debt................... -- -- (2,645)
--------- ---------- ----------
Net income (loss).......................................................... $ (1,421) $ 3,730 $ 5,462
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-7
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE THREE YEARS ENDED APRIL 28, 1996
<TABLE>
<CAPTION>
SUPERIOR
DNE SYSTEMS, INC.
TELECOMMUNICATIONS INC.
COMMON SHARES COMMMON SHARES CAPITAL IN CUMULATIVE
-------------------------- -------------------------- EXCESS OF RETAINED TRANSLATION
SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS ADJUSTMENT
----------- ------------- ----------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Balance at April 30, 1993.......... 750 $ 1 $ 3,071 $ 1,844
Acquisition of Superior............ 1,000 55,712
Superior dividend.................. (14,568)
Transfer of Posterloid from
Alpine............................ 3,485
Net (loss) for the year ended May
1, 1994........................... (1,421)
-- --
--- ----- ----------- ----------- -----
Balance at May 1, 1994......... 750 1 1,000 47,700 423
DNE dividend....................... (2,000)
Net income for the year ended April
30, 1995.......................... 3,730
-- --
--- ----- ----------- ----------- -----
Balance at April 30, 1995...... 750 1 1,000 45,700 4,153
Contribution from Alpine........... 100
Transfer of Posterloid to Alpine... (3,546)
Cumulative translation
adjustment........................ $ (214)
Net income for the year ended April
28, 1996.......................... 5,462
-- --
--- ----- ----------- ----------- -----
Balance at April 28, 1996.......... 750 $ 1 1,000 $ 42,254 $ 9,615 $ (214)
-- --
-- --
--- ----- ----------- ----------- -----
--- ----- ----------- ----------- -----
<CAPTION>
TOTAL
---------
<S> <C>
Balance at April 30, 1993.......... $ 4,916
Acquisition of Superior............ 55,712
Superior dividend.................. (14,568)
Transfer of Posterloid from
Alpine............................ 3,485
Net (loss) for the year ended May
1, 1994........................... (1,421)
---------
Balance at May 1, 1994......... 48,124
DNE dividend....................... (2,000)
Net income for the year ended April
30, 1995.......................... 3,730
---------
Balance at April 30, 1995...... 49,854
Contribution from Alpine........... 100
Transfer of Posterloid to Alpine... (3,546)
Cumulative translation
adjustment........................ (214)
Net income for the year ended April
28, 1996.......................... 5,462
---------
Balance at April 28, 1996.......... $ 51,656
---------
---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-8
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------
MAY 1, APRIL 30, APRIL 28,
1994 1995 1996
---------- --------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Cash flows from operating activities:
Net income (loss) from continuing operations................................ $ (1,421) $ 3,730 $ 8,107
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization............................................. 4,259 4,586 8,451
Amortization of deferred financing costs.................................. 124 253 360
Change in assets and liabilities:
Accounts receivable....................................................... (3,409) (5,480) (2,709)
Inventories............................................................... 2,157 (3,303) 742
Other assets.............................................................. (120) (145) 808
Accounts payable.......................................................... 533 6,667 11,220
Accrued expenses and other liabilities.................................... (873) 1,046 89
Other, net................................................................ 749 90 170
---------- --------- -----------
Cash provided by operating activities......................................... 1,999 7,444 27,238
---------- --------- -----------
Cash flows from investing activities:
Acquisition, net of cash acquired........................................... -- -- (103,409)
Capital expenditures........................................................ (1,560) (1,782) (4,339)
Acquisition of BICC assets.................................................. -- -- (5,447)
Other....................................................................... (3,683) 43 1,419
---------- --------- -----------
Cash (used for) investing activities.......................................... (5,243) (1,739) (111,776)
---------- --------- -----------
Cash flows from financing activities:
Borrowings (repayments) under revolving credit facilities, net.............. 7,268 (1,181) (17,623)
Borrowings from (repayments to) Alpine, net................................. (169) 141 112,571
Long-term borrowings........................................................ 16,911 -- 141,170
Dividends paid to Alpine.................................................... (17,450) (2,000) --
Repayment of long-term borrowings........................................... (3,771) (3,439) (148,237)
Capitalized financing costs................................................. -- -- (3,365)
Other....................................................................... (422) 370 100
---------- --------- -----------
Cash provided by (used for) financing activities.............................. 2,367 (6,109) 84,616
---------- --------- -----------
Net increase (decrease) in cash and cash equivalents.......................... (877) (404) 78
Cash and cash equivalents at beginning of period.............................. 1,554 677 273
---------- --------- -----------
Cash and cash equivalents at end of period.................................... $ 677 $ 273 $ 351
---------- --------- -----------
---------- --------- -----------
Supplemental disclosures:
Cash interest paid during the period (including interest paid to Alpine).... $ 2,490 $ 4,709 $ 18,620
---------- --------- -----------
---------- --------- -----------
Cash income taxes paid during the period.................................... $ -- $ 228 $ 237
---------- --------- -----------
---------- --------- -----------
Non-cash investing and financing activities:
Acquisition of business:
Assets, net of cash acquired.............................................. $ 126,127
Liabilities assumed....................................................... (22,718)
-----------
Net cash paid........................................................... $ 103,409
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-9
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND NATURE OF BUSINESS
Superior Telecommunications Inc. and its wholly-owned subsidiary Superior
Cable Corporation (together referred to as "Superior") and DNE Systems, Inc. and
its wholly-owned subsidiaries DNE Technologies, Inc. and DNE Manufacturing and
Service Company (together referred to as "DNE") were wholly-owned subsidiaries
of The Alpine Group, Inc. ("Alpine"). Concurrently with Superior TeleCom Inc.'s
("Superior TeleCom") entering into the new bank credit facility and prior to the
completion of this Offering of common stock described elsewhere in this
prospectus, Alpine will contribute all of the outstanding common stock of
Superior and DNE to Superior TeleCom for the purpose of completing the
transactions more fully described in Note 16. The accompanying combined
financial statements of Superior and DNE present their combined assets,
liabilities, revenue, expenses and cash flows as if Superior and DNE existed as
a separate corporation during the periods presented which reflects the
acquisition of Superior in November 1993, as discussed in Note 5. The combined
companies are referred to as the "Companies" in the accompanying combined
financial statements.
Superior is engaged in the manufacture and sale of copper wire and cable for
the telecommunications industry and DNE is engaged in the manufacture and sale
of data communication and other electronic products and systems for defense,
government and commercial application.
These combined financial statements include transactions with Alpine
relating to insurance and tax sharing arrangements, intercompany borrowings, as
well as for other administrative services (see Note 8).
The financial information included herein may not necessarily reflect the
financial position, results of operations or cash flows of the Companies in the
future or what the financial position, results of operations or cash flows of
the Companies would have been if they were combined as a separate stand-alone
company during the periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONTRACT REVENUE RECOGNITION
Revenues related to certain of DNE's government long-term contracts and
programs, are recognized by the percentage of completion method measured on the
basis of costs incurred to estimated total costs which approximates contract
performance to date. Recognized revenue is that percentage of total contractual
revenue that incurred costs to date bear to estimated total costs after giving
effect to the most recent estimates of costs to complete. Contracts in progress
are reviewed monthly and sales and earnings are adjusted in current accounting
periods based on revisions in contract value and estimated costs at completion.
Provisions for estimated losses on contracts are recorded when identified.
CASH AND CASH EQUIVALENTS
All highly liquid investments purchased with a maturity at acquisition of 90
days or less are considered to be cash equivalents.
INVENTORIES
Inventories, other than inventoried costs relating to DNE's long-term
contracts, are stated at the lower of cost or market, using the first-in,
first-out (FIFO) method. Inventoried costs relating to DNE's long-term contracts
and programs are stated at actual production cost, including factory overhead,
initial tooling and other related nonrecurring costs, reduced by the cost
related to revenue recognized. Included in the
F-10
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
accompanying combined balance sheet are DNE inventories amounting to $137,000
and $708,000 at April 30, 1995 and April 28, 1996, respectively, relating to
contracts and programs having production cycles longer than one year.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are provided over
the estimated useful lives of the assets using the straight-line method. The
estimated lives are as follows:
<TABLE>
<S> <C>
5-30
Building and improvements................................ years
3-12
Machinery and equipment.................................. years
</TABLE>
Maintenance and repairs are charged to expense as incurred. Long term
improvements are capitalized as additions to property, plant and equipment. Upon
retirement, or other disposal, the asset cost and related accumulated
depreciation are removed from the accounts and the net amount, less any
proceeds, is charged or credited to income.
GOODWILL
The excess of the purchase price over the net identifiable assets of
businesses acquired is amortized ratably over periods not exceeding 30 years.
Accumulated amortization of goodwill at April 30, 1995 and April 28, 1996 was
$1.4 million and $3.1 million, respectively. Goodwill is allocated to specific
assets or product lines and reviewed periodically to assess recoverability from
future operations using undiscounted cash flows, in accordance with the
provisions of Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Impairments would be recognized in operating results, if the anticipated
cash flows from an asset (undiscounted and excluding interest) are less than the
asset's carrying value. During fiscal 1994, DNE expensed $1,511,000 relating to
the remaining unamortized balance of an intangible asset associated with a
product line which was not forecasted to generate sufficient cash flows to
recover the carrying value of such intangible asset.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of Superior's foreign
subsidiary is measured using local currency as the functional currency. Assets
and liabilities of operations denominated in foreign currencies are translated
into U.S. dollars at exchange rates in effect at year-end, while revenues and
expenses are translated at average exchange rates prevailing during the year.
The resulting translation gains and losses are charged directly to cumulative
translation adjustment, a component of stockholder's equity, and are not
included in net income until realized through sale or liquidation of the
investment.
CONCENTRATION OF CREDIT RISK
Superior's revenues constitute 93.6% of the Companies' total revenues for
fiscal 1996. During fiscal 1994, 1995 and 1996 sales to the six regional Bell
operating companies and three major independent telephone companies represented
74%, 78% and 90% of Superior's net sales, respectively (see Note 14). At April
30, 1995 and April 28, 1996, accounts receivable from these customers amounted
to $14.0 million and $41.9 million, respectively.
F-11
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Superior and DNE file a consolidated Federal income tax return with Alpine
and its other subsidiaries. However, income taxes have been provided in the
Companies statements of operations as if the Companies were separate taxable
entities and filed separate Federal income tax returns.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Raw materials........................................................ $ 9,483 $ 11,086
Work in process...................................................... 7,228 13,216
Finished goods....................................................... 8,984 33,424
--------- ---------
$ 25,695 $ 57,726
--------- ---------
--------- ---------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Land................................................................. $ 1,123 $ 2,965
Building and improvements............................................ 9,253 18,678
Machinery and equipment.............................................. 25,264 67,276
--------- ---------
35,640 88,919
Less: accumulated depreciation....................................... 5,596 12,391
--------- ---------
$ 30,044 $ 76,528
--------- ---------
--------- ---------
</TABLE>
Depreciation expense for the years ended May 1, 1994 and 1995 and April 28,
1996 was $1.9 million, $3.4 million and $6.7 million, respectively.
5. ACQUISITIONS
ALCATEL ACQUISITION
On May 11, 1995, Superior completed the acquisition (the "Alcatel
Acquisition") of the U.S. and Canadian copper wire and cable business (the
"Alcatel Business") of Alcatel NA Cable System, Inc. and Alcatel Canada Wire,
Inc. (collectively, "Alcatel NA"). In connection with the acquisition, Superior
sold
F-12
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. ACQUISITIONS (CONTINUED)
$140.0 million aggregate principal amount of notes (the "Alcatel Acquisition
Notes"). The Alcatel Acquisition Notes were subsequently redeemed with the
proceeds of funds advanced by Alpine (see Note 8). The following reflects the
allocation of the purchase price of the net assets of the Alcatel Business based
upon the fair values of such assets (in thousands):
<TABLE>
<S> <C>
Acquisition cost.................................................. $ 103,409
Less: historical book value of net assets at May 11, 1995......... (80,909)
Write-up of property, plant and equipment......................... (5,718)
Accrual of Alcatel employee relocation and severance costs........ 500
---------
Acquisition goodwill.............................................. $ 17,282
---------
---------
</TABLE>
The acquisition cost of $103.4 million included $102.9 million paid in cash
to Alcatel NA and acquisition expenses of $500,000.
The Alcatel Acquisition has been accounted for using the purchase method,
and, accordingly, the results of operations of the Alcatel Business are included
in Superior's results on a prospective basis from the date of acquisition.
Goodwill is being amortized on a straight line basis over 30 years.
Unaudited condensed pro forma results of operations which give effect to the
acquisition of the Alcatel Business as if it had occurred on May 1, 1994 are
presented below. The pro forma results of operations for the year ended April
30, 1995 include the results of the Alcatel Business for the 12-month period
ended March 31, 1995. The pro forma amounts reflect acquisition related purchase
accounting adjustments, including adjustments to depreciation and amortization
expense. The pro forma financial information does not purport to be indicative
of either the results of operations that would have occurred had the
acquisitions taken place at the beginning of the periods presented or of future
results of operations.
<TABLE>
<CAPTION>
PRO FORMA (UNAUDITED)
----------------------
1995 1996
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Net sales.................................................................... $ 368,663 $ 417,934
Income from continuing operations before income taxes........................ 9,023 15,377
Income from continuing operations before extraordinary item.................. 4,934 8,655
(Loss) from discontinued operations.......................................... (176) --
Extraordinary (loss) on early extinquishment of debt......................... -- (2,645)
Net income................................................................... 4,758 6,010
</TABLE>
SUPERIOR ACQUISITION
On November 9, 1993, Superior's former parent company merged with and into
Alpine resulting in Superior being a wholly owned subsidiary of Alpine. Alpine
paid approximately $19.2 million in cash (including approximately $2.2 million
in merger-related expenses), issued 4,467,610 shares of its common stock and
assumed existing stock options as consideration for the merger.
The merger was accounted for using the purchase method and, accordingly,
Superior's results of operations have been included in the Companies' combined
results on a prospective basis from the date of the merger. The total purchase
price for acquiring Superior (including merger related expenses) amounted
F-13
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. ACQUISITIONS (CONTINUED)
to approximately $55.7 million and was allocated to the fair market value of
Superior's assets and liabilities as of the merger date resulting in goodwill of
approximately $35.3 million. Goodwill is being amortized on a straight line
basis over 30 years.
6. DISCONTINUED OPERATIONS
On October 1, 1993, DNE transferred all of the outstanding capital stock of
Posterloid Corporation ("Posterloid"), then a wholly owned subsidiary of Alpine,
for $1.8 million in cash plus a contingent earnout. The transfer was accounted
for as a reorganization of entities under common control and the excess of the
book value of the net assets transferred over cash exchanged (amounting to $3.5
million) was recorded as a capital contribution in the accompanying Combined
Statement of Stockholder's Equity.
On May 1, 1995, DNE transferred Posterloid back to Alpine for $1.3 million
in cash. The transfer was accounted for as a reorganization of entities under
common control and the excess of the book value of the net assets transferred
over cash received ($3.5 million) was recorded as a return of capital in the
accompanying Combined Statement of Stockholder's Equity. Posterloid's results of
operations from the transfer date through April 30, 1995 have been reflected as
a loss from discontinued operations in the accompanying Combined Statements of
Operations.
7. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Lease finance obligations (a)........................................ $ 5,968 $ 5,853
Promissory note (b).................................................. -- 1,170
Revolving credit loans (c)........................................... 17,161 --
Term loan (c)........................................................ 5,386 --
Mortgage loan (d).................................................... 5,296 4,996
Subordinated note (e)................................................ 2,469 --
Other................................................................ 262 5
--------- ---------
Total debt........................................................... 36,542 12,024
Less: Current portion............................................ 2,758 484
--------- ---------
Long-term debt....................................................... $ 33,784 $ 11,540
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(a) The lease finance obligations result from the sale/leaseback of two
properties during fiscal 1994 which, because of the Companies' continuing
involvement in the form of repurchase options, were recorded under the
finance method. The lease finance obligations at April 28, 1996 consist of:
(a) $5.0 million related to the sale/leaseback of Superior's manufacturing
facility, and (b) $853,000 related to the sale/ leaseback of a manufacturing
facility owned by DNE.
The Superior sale/leaseback transaction included a sales price of $5.0
million and net cash proceeds (after fees and expenses) of $4.5 million. The
term of the leaseback is twenty years, with five additional option terms (at
Superior's election) of five years each. Superior has a one time option to
repurchase the property during the eleventh year of the lease term at the
greater of the property's Fair Market Value (as defined in the lease) or
$5.0 million plus related ancillary costs. Annual lease payments are
F-14
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. DEBT (CONTINUED)
approximately $630,000 and are subject to adjustments based on changes in
short-term interest rates (monthly) and increases in the consumer price
index (on a tri-annual basis). Until the repurchase option expires or is
exercised, all lease payments will be reflected as interest expense. The
related asset, which is being depreciated over its estimated useful life,
has a net carrying value of $6.9 million as of April 28, 1996 and is
classified as property, plant and equipment in the accompanying balance
sheet.
The DNE sale/leaseback transaction included a sales price of $1.3 million
and a lease term of nine years. DNE has an option to repurchase the property
during the fourth and fifth years of the lease term for $1.3 million plus
ancillary costs; however, the lessor may elect to terminate the lease in
lieu of accepting such repurchase offer. Annual lease payments are $177,900
and are subject to annual adjustments based on increases in the consumer
price index. As of April 28, 1996, remaining total lease payments amounted
to $1.1 million, of which $853,000 will be applied against principal and
$208,500 will be recorded as interest expense. The related asset, which is
being depreciated over the term of the lease and has a net carrying value of
$785,000 as of April 28, 1996, is classified in long-term investments and
other assets in the accompanying balance sheet.
(b) The promissory note is payable to BICC Phillips, Inc. from which Superior
acquired certain wire and cable manufacturing assets on November 28, 1995.
The note does not bear interest and is due on December 31, 1996.
(c) The revolving credit loans and term loan represented borrowings by Superior
and DNE under credit facilities which were repaid in full during fiscal
1996. The Superior credit facility, which included a $28.0 million revolving
credit facility and a $5.4 million term loan, was repaid from the proceeds
of the Alcatel Acquisition Notes (see Note 5).
The DNE credit facility, which provided for a revolving credit facility of
up to $3.5 million, was repaid by DNE from the proceeds of funds advanced by
Alpine in July 1995 (see Note 8).
(d) The mortgage loan is payable by DNE to the Connecticut Development Authority
("CDA"). The loan is guaranteed by Alpine and collateralized by DNE's real
estate, machinery and equipment. The loan is payable in March 2002 and is
subject to a 20-year amortization schedule. However, DNE may be required to
make additional payments of principal based upon annual retained net cash
earnings (as defined). Based upon retained net cash earnings in fiscal 1996,
DNE is obligated to make a payment of $143,000 in August 1996. The interest
rate is 7.25% through February 28, 1999 and the higher of 7.25% or the yield
on U.S. Treasury securities with the same maturity thereafter. The mortgage
loan contains covenants which limit the ability of DNE to pay dividends and
incur indebtedness.
(e) The subordinated promissory note payable to the previous owners of DNE was
redeemed in August, 1995 at a discount which resulted in recording an
extraordinary gain, net of taxes of $166,000.
At April 28, 1996, the fair value of the Companies debt is estimated to be
$12.2 million, which estimate is based on quoted market prices for the same or
similar issues or on current rates offered for debt of the same remaining
maturities.
F-15
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. DEBT (CONTINUED)
The aggregate maturities of long-term debt for the five years subsequent to
April 28, 1996 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- --------------------------------------------------------------------- ---------------
<S> <C>
(IN THOUSANDS)
1997................................................................. $ 484
1998................................................................. 361
1999................................................................. 388
2000................................................................. 418
2001................................................................. 449
</TABLE>
8. RELATED PARTY TRANSACTIONS
On July 21, 1995, Alpine completed the placement of $153.0 million of 12.25%
Senior Secured Notes (the "Alpine Notes") and entered into an $85.0 million
revolving credit facility (the "Credit Facility"). The Alpine Notes and the
Credit Facility are guaranteed by Superior and Adience, Inc. ("Adience"),
another subsidiary of Alpine. The Alpine Notes are also secured by a pledge of
the capital stock of Superior and Adience.
In connection with the placement of the Senior Notes and the closing of the
Credit Facility, the Companies entered into financing arrangements with Alpine
whereby Alpine advanced funds to the Companies. The proceeds of the funds
advanced by Alpine were used (a)to redeem the Alcatel Acquisition Notes plus
accrued interest (see Note 5), (b) to repay DNE's revolving credit facility and
the subordinated promissory note due to DNE's former parent (see Note 7), and
(c) to fund working capital requirements. At April 28, 1996 the due to Alpine
and affiliates in the accompanying Combined Balance Sheets included notes
payable in the amount of $126.1 million related to such financing arrangements.
Such notes payable to Alpine include:
(1) $88.9 million note payable by Superior due 2003 (subject to certain
mandatory prepayment requirements), with interest payable
semi-annually at an annual rate of 14%.
(2) $35.0 million in borrowings under revolving credit facilities between
Alpine, Superior and DNE due 2000. Interest is payable monthly at
prime plus 0.375% or LIBOR plus 2.25%. Borrowings under the revolving credit
facility are subject to a borrowing base determined as a percentage of
eligible accounts receivable and inventory. The revolving credit facility is
secured by a pledge of Superior's accounts receivable and inventory.
(3) $2.2 million promissory note payable by DNE due in 2003 with interest
payable semiannually at an annual rate of 14%.
Also included in the due to Alpine and affiliates is an amount of $2.0
million owed by Superior Cable Corporation, Superior's Canadian subsidiary to
Adience's Canadian subsidiary. The advance bears interest at 8%.
Further included in the due to Alpine and affiliates is a non-interest
bearing receivable from Alpine which arose primarily from funds advanced by
Superior in connection with Alpine's debt restructuring.
In connection with the redemption of the Alcatel Acquisition Notes, Superior
recorded a $2.8 million extraordinary loss, net of taxes, on the early
extinguishment of debt.
F-16
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
Total interest expense charged during fiscal 1996 by Alpine under the
aforementioned financing arrangements amounted to $12.7 million.
Alpine allocates certain direct expenses to the Companies, the most
significant of which is insurance expense which is allocated based upon
projected payrolls, property values and forecasted losses. Such allocated
expenses totaled $1.9 million during fiscal 1996 and were applied as a reduction
in amounts due to Alpine. Alpine also provides, on a limited basis, other
indirect administrative services to the Companies such as treasury and cash
management, tax planning and risk management which were not allocated to the
Companies.
During fiscal 1994 and 1995 DNE was charged $360,000 and $111,000,
respectively for certain incremental indirect costs associated with compliance
with certain contractual arrangements. No such amounts in fiscal 1996 were
significant.
9. DEFINED CONTRIBUTION PLANS
The Companies sponsor several defined contribution plans covering
substantially all U.S. employees. The plans provide for limited company matching
of participants' contributions. Company contributions to these plans amounted to
$227,000, $396,000 and $403,000 for the years ended May 1, 1994, and April 30,
1995 and April 28, 1996, respectively.
10. DEFINED BENEFIT RETIREMENT PLANS
During fiscal 1996, certain employees of Superior participated in various
defined benefit retirement plans sponsored by Alcatel NA. These plans generally
provide for payment of benefits, commencing at retirement between the ages of 55
and 65, based on the employee's length of service and earnings. In connection
with the Alcatel acquisition, Superior is evaluating alternative retirement
planning options and, in substantially all cases, participation in these plans
has been frozen. Expense recorded for fiscal year 1996 service under these plans
was approximately $304,000.
During fiscal 1996, Superior also sponsored a defined benefit pension plan
for employees of one of its manufacturing facilities previously owned by
Alcatel. Benefits under that plan, which were also based on length of service
and earnings, were frozen effective December 31, 1995 and the plan was replaced
with a defined contribution plan. The amount charged to pension expense for
fiscal year 1996 under the plan was $138,000. The accrued pension liability
related to this plan was $67,000 at April 28, 1996 and is included in accrued
liabilities in the accompanying balance sheet.
In addition, Superior sponsored a defined benefit pension plan for employees
of its Canadian manufacturing facility also previously owned by Alcatel.
Benefits under the plan are based on length of service. The amount charged for
pension expense for fiscal year 1996 under the plan was $58,000.
The following table shows the plan's funded status at April 28, 1996:
<TABLE>
<S> <C>
Accumulated benefit obligation (100% vested).................... $2,105,000
Fair value of plan assets....................................... 2,388,000
Projected benefit obligation.................................... 2,314,000
Plan assets in excess of projected benefit obligation........... 74,000
Unrecognized net gain........................................... (74,000)
</TABLE>
F-17
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
10. DEFINED BENEFIT RETIREMENT PLANS (CONTINUED)
A discount rate of 8% and an expected long-term rate of return on assets of
8% were assumed for the above actuarial calculations.
11. POSTRETIREMENT HEALTH CARE BENEFITS
The Companies' current policy for postretirement health care benefits
provides certain employees and their spouses upon reaching normal or early
retirement and upon achieving certain minimum service requirements, a fixed
monthly benefit for the purchase of company-sponsored health care insurance. The
amount of the fixed monthly benefit will not be increased in the future,
notwithstanding medical-based inflation cost increases.
The accumulated postretirement health care benefit obligation, which is
included in long-term liabilities in the accompanying balance sheet, consisted
of the following at April 30, 1995 and April 28, 1996:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Retirees................................................................ $ 733 $ 427
Fully eligible active plan participants................................. 164 284
Other active plan participants.......................................... 596 571
--------- ---------
1,493 1,282
Unrealized net gain from past experience and change in assumptions...... -- 211
--------- ---------
$ 1,493 $ 1,493
--------- ---------
--------- ---------
</TABLE>
Net periodic postretirement benefit cost includes the following components
for fiscal 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
----- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Service cost for benefits earned................................................. $ 24 $ 45 $ 45
Interest cost on accumulated postretirement benefit obligation................... 37 118 117
--- --------- ---------
$ 61 $ 163 $ 162
--- --------- ---------
--- --------- ---------
</TABLE>
An increase in the health care cost trend assumptions would not change the
annual exposure or obligation amounts as the employer cost is effectively
capped.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 6.5%, 8.0% and 7.75% for fiscal years
ended May 1, 1994, April 30, 1995 and April 28, 1996, respectively.
12. INCOME TAXES
For Federal income tax purposes, the Companies' taxable income is included
as part of the Alpine consolidated Federal return. The Companies do, however,
file separate state income tax returns. The Companies account for income taxes
on a stand alone basis, as if they filed a separate Federal return, with any
current Federal income taxes due being reflected as a payable to Alpine.
F-18
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES (CONTINUED)
U.S. income tax expense (benefit) for fiscal 1994, 1995 and 1996 consists of
the following:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Current:
Federal................................................................... $ 166 $ 1,830 $ 7,131
State..................................................................... 23 320 891
--------- --------- ---------
$ 189 $ 2,150 $ 8,022
--------- --------- ---------
Deferred:
Federal................................................................... $ 288 $ 78 $ (1,160)
State..................................................................... 44 12 (140)
--------- --------- ---------
332 90 (1,300)
--------- --------- ---------
Total income tax expense.................................................... $ 521 $ 2,240 $ 6,722
--------- --------- ---------
--------- --------- ---------
</TABLE>
Due to losses incurred, no foreign income taxes were recorded for the year
ended April 28, 1996.
A reconciliation of income tax expense reported in the accompanying
statements of operations to the amount of income tax expense that would result
from applying the Federal statutory rate of 34% to income from continuing
operations before income taxes for the fiscal periods ended 1994, 1995 and 1996
is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Expected income tax expense at Federal statutory tax rate................... $ (208) $ 2,089 $ 5,042
Non deductible goodwill amortization........................................ 147 382 382
State income tax expense; net of Federal tax benefit........................ 44 219 496
Net tax loss of foreign subsidiary.......................................... -- -- 327
Other, net.................................................................. 538 (450) 475
--------- --------- ---------
$ 521 $ 2,240 $ 6,722
--------- --------- ---------
--------- --------- ---------
</TABLE>
Statement of Financial Accounting Standards No 109, "Accounting for Income
Taxes," requires the recognition of deferred tax assets and liabilities for both
the expected future tax impact of temporary differences arising from assets and
liabilities whose tax basis are different from financial statement amounts, and
for the expected future tax benefit to be derived from tax loss carryforwards.
The statement also requires that a valuation allowance be established if it is
more likely than not that all or a portion of deferred tax assets will not be
realized. Realization of the future tax benefits is dependent on the ability to
generate
F-19
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES (CONTINUED)
taxable income within the carryforward period and the periods in which net
temporary differences reverse. Items that result in deferred tax assets
(liabilities) and the related valuation allowance at April 30, 1995 and April
28, 1996 are as follows:
<TABLE>
<CAPTION>
CURRENT LONG-TERM
-------------------- --------------------
1995 1996 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Depreciation and amortization.................................. $ -- $ -- $ (8,452) $ (8,753)
Sale / leaseback............................................... -- -- 1,760 1,735
Accruals not currently deductible for tax...................... 555 1,536 691 626
Inventory reserves............................................. 626 915 -- --
Inventory cost capitalization.................................. 264 719 -- --
Tax net operating loss carryforwards........................... -- -- -- 550
Other.......................................................... 15 -- -- --
--------- --------- --------- ---------
1,460 3,170 (6,001) (5,842)
Less: Valuation allowance...................................... (255) (471) (138) (492)
--------- --------- --------- ---------
Total deferred income tax asset (liability).................... $ 1,205 $ 2,699 $ (6,139) $ (6,334)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
At April 28, 1996, future minimum lease payments under non-cancelable
operating leases are as follows:
<TABLE>
<CAPTION>
REAL AND
PERSONAL
FISCAL YEAR PROPERTY
-------------
<S> <C>
(IN
THOUSANDS)
1997........................................................................... $ 573
1998........................................................................... 400
1999........................................................................... 380
2000........................................................................... 371
2001........................................................................... 320
Thereafter..................................................................... 53
------
$ 2,097
------
------
</TABLE>
Rent expense under cancelable and non-cancelable operating leases was
$288,000, $555,000 and $668,000 for the years ended May 1, 1994, April 30, 1995,
and April 28, 1996, respectively.
Approximately 28% of Superior's total labor force is covered by collective
bargaining agreements. One collective bargaining agreement representing 11% of
Superior's total labor force will expire within one year.
During fiscal 1995, DNE was awarded a $600,000 grant from the Connecticut
Department of Economic Development (DED) in connection with a five year contract
award from National Aeronautics and Space Administration (NASA). The grant
requires that the Company maintain its operation in Connecticut for a period of
ten years, or refund the grant if a relocation out of Connecticut occurs within
the specified period. This grant is being recorded as a reduction of cost of
revenues as earned. At April 28, 1996, $150,000 has yet to be earned.
F-20
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Soil and groundwater at Superior's Brownwood, Texas facility has been found
to be contaminated with volatile organic compounds as a result of operations at
the facility which management believes occurred prior to Superior's acquisition
of the facility. Superior is in the process of obtaining approval for a
remediation plan from the Texas Natural Resource Conservation Commission.
Pursuant to an agreement between Superior and the former owner of the facility,
Superior has been reimbursed for approximately 85% of the costs incurred to date
in connection with the investigation and remediation of this facility, and is
entitled to reimbursement of future expenses at percentages ranging from 85% to
25% (depending on the time at which such expenses are incurred), subject to an
aggregate expense reimbursement of not less than 75%. Based upon investigations
performed to date, the Company has accrued an amount of $84,000 consisting of an
assessment that the remediation costs will total approximately $335,000 offset
by a receivable of $251,000 from the former owner.
In connection with the sale of a facility in Woburn, Massachusetts formerly
owned by and currently under lease to DNE, low levels of volatile organic
compounds were discovered in shallow groundwater. DNE has assumed responsibility
for this contamination pursuant to an indemnity granted to the purchaser of the
facility, which indemnity is in turn guaranteed by Alpine. This facility has
been designated as a non-priority site by the Massachusetts Department of
Environmental Protection ("MDEP") which granted a waiver to Alpine allowing it
to proceed with further investigation and, if necessary, remediation, of the
groundwater contamination with MDEP oversight, subject to certain conditions. In
accordance with the waiver, investigation and remediation efforts must be
completed by August 1997. Based on the results of a Phase II comprehensive site
assessment completed during May 1996, it appears that no remedial activities are
warranted for this site, but approximately $10,000 may be required to perform
MDEP filing and response actions.
The Companies are subject to other legal proceedings and claims which have
primarily arisen in the ordinary course of business and have not been finally
adjudicated.
Two executives of Superior and DNE have employment contracts which generally
provide minimum base salaries aggregating approximately $0.5 million, cash
bonuses based on the Superior and DNE achievement of certain performance
objectives, discretionary stock options and restricted stock grants of Alpine,
and certain retirement and other employee benefits. Further, in the event of
termination or voluntary resignation for "good reason" accompanied by a change
in control of Alpine, as defined, such employment agreements provide for
severance payments equal to two times annual cash compensation and bonus, and
the continuation for stipulated periods of other benefits, as defined.
In the opinion of management, based on its examination of such matters and
discussions with counsel, the ultimate resolution of all pending or threatened
litigation, claims and assessments will have no material adverse affect upon the
Companies financial position, liquidity or results of operations.
14. SEGMENT INFORMATION
The Companies conduct business in two segments: telecommunications wire and
cable products (through Superior, acquired in November 1993, and the Alcatel
Business, acquired in May 1995), and data communications and electronics
(through DNE).
F-21
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
14. SEGMENT INFORMATION (CONTINUED)
The following provides financial information about each business segment:
<TABLE>
<CAPTION>
MAY 1, APRIL 30, APRIL 28,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Net sales (a):
Telecommunications wire and cable................................ $ 46,857 $ 136,578 $ 384,237
Data communications and electronics.............................. 21,653 27,907 26,176
---------- ---------- ----------
$ 68,510 $ 164,485 $ 410,413
---------- ---------- ----------
---------- ---------- ----------
Operating income (loss):
Telecommunications wire and cable................................ $ 1,625 $ 8,016 $ 29,741
Data communications and electronics.............................. (435) 1,599 2,039
---------- ---------- ----------
$ 1,190 $ 9,615 $ 31,780
---------- ---------- ----------
---------- ---------- ----------
Identifiable assets at year end:
Telecommunications wire and cable................................ $ 95,027 $ 98,497 $ 226,045
Data communications and electronics.............................. 15,340 16,836 18,020
---------- ---------- ----------
$ 110,367 $ 115,333 $ 244,065
---------- ---------- ----------
---------- ---------- ----------
Depreciation and amortization expense:
Telecommunications wire and cable................................ $ 1,562 $ 3,714 $ 7,719
Data communications and electronics.............................. 2,697 872 732
---------- ---------- ----------
$ 4,259 $ 4,586 $ 8,451
---------- ---------- ----------
---------- ---------- ----------
Capital expenditures:
Telecommunications wire and cable (b)............................ $ 420 $ 1,388 $ 9,337
Data communications and electronics.............................. 1,140 394 449
---------- ---------- ----------
$ 1,560 $ 1,782 $ 9,786
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
(a) (i) Two customers accounted for $41.0 million and $21.9 million or 30% and
16%, respectively, of net sales in fiscal 1995 and five customers
accounted for $82.7 million, $65.0 million, $61.7 million, $49.1
million and $48.1 million or 22%, 17%, 16%, 13% and 13% of net sales in
fiscal 1996 in the telecommunications wire and cable segment.
(ii) The data communications and electronics segment has historically been
dependent on government funding of programs in which it participates.
Significant changes in the levels of funding for such programs could
have a material adverse effect on the segment. Sales to agencies of the
U.S. government were $18.7 million, $23.2 million and $17.4 million or
86.4%, 82.3% and 66.4% of net sales of this segment for fiscal 1994,
1995 and 1996, respectively.
(b) During fiscal 1996, Superior acquired certain Canadian assets of BICC
Phillips for $5.4 million, which amount is reflected in capital
expenditures.
F-22
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1995 QUARTER ENDED
-----------------------------------------------------------
JULY 31 OCTOBER 31 JANUARY 31 APRIL 30 YEAR
--------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Net sales......................................... $ 39,330 $ 40,552 $ 38,266 $ 46,337 $ 164,485
Gross profit...................................... 5,685 5,278 5,068 6,340 22,371
Operating income.................................. 2,604 1,874 2,016 3,121 9,615
Income from continuing operations................. 1,160 403 626 1,717 3,906
(Loss) from discontinued operations............... -- -- -- (176) (176)
--------- ----------- ----------- ---------- ----------
Net income........................................ $ 1,160 $ 403 $ 626 $ 1,541 $ 3,730
--------- ----------- ----------- ---------- ----------
--------- ----------- ----------- ---------- ----------
<CAPTION>
FISCAL 1996 QUARTER ENDED
-----------------------------------------------------------
JULY 31 OCTOBER 31 JANUARY 31 APRIL 28 YEAR
--------- ----------- ----------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales......................................... $ 99,324 $ 109,076 $ 91,185 $ 110,828 $ 410,413
Gross profit...................................... 9,503 11,040 10,901 16,115 47,559
Operating income.................................. 5,830 7,262 7,020 11,668 31,780
Income before extraordinary item.................. 1,674 1,571 1,617 3,245 8,107
Income (loss) from extraordinary item............. (2,811) 166 -- -- (2,645)
--------- ----------- ----------- ---------- ----------
Net income (loss)................................. $ (1,137) $ 1,737 $ 1,617 $ 3,245 $ 5,462
--------- ----------- ----------- ---------- ----------
--------- ----------- ----------- ---------- ----------
</TABLE>
16. SUBSEQUENT EVENT
In September 1996, Superior TeleCom filed an amendment to a registration
statement with the Securities and Exchange Commission in which it disclosed
Alpine's intention to cause Superior TeleCom to complete an offering of
6,000,000 shares of common stock (or approximately 49.9% of the outstanding
shares after such offering) assuming no exercise of the underwriters'
over-allocation option (the "Offering"). On October 2, 1996, Alpine contributed
all of the common stock of both Superior and DNE to Superior TeleCom and caused
Superior and DNE to declare dividends on their common stock in an aggregate
amount of $117.1 million. Superior also issued to Alpine 20,000 shares of 6%
Cumulative Preferred Stock par value $1.00 per share with a liquidation
preference of $1,000 per share.
On October 2, 1996, Superior TeleCom entered into a five-year revolving
credit facility (the "Bank Credit Facility") under which it borrowed $154.7
million to repay the net amount of the intercompany debt owed to Alpine (which
was $87.9 million), and to pay to Alpine $63.8 million of the declared
dividends. It is management intention to use part of the net proceeds of the
Offering to pay the remainder of the declared dividends. Under the Bank Credit
Facility, up to $175.0 million is available, however, on completion of the
Offering the facility will be reduced to $150.0 million. Interest will be
payable monthly based upon prime rate plus 0.5% or Eurodollar rate plus 1.5%;
the variable components of these rates after the first anniversary of the
closing of the facilities are subject to periodic adjustment based on Superior
TeleCom's debt to EBITDA ratio on a trailing twelve month basis. The initial
rate of interest is expected to be approximately 7.5%. Obligations under the
Bank Credit Facility are guaranteed by each of Superior TeleCom's direct and
indirect domestic subsidiaries and secured by all the common stock, equipment,
property, inventory and accounts receivable of each direct and indirect
subsidiary (but only 65% of the common stock of Superior's Canadian subsidiary).
F-23
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
CONDENSED COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JULY 28,
APRIL 28, 1996
1996 (UNAUDITED)
---------- ----------- PRO FORMA
JULY 28,
1996
(UNAUDITED)
-----------
(SEE NOTE
4)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents................................................ $ 351 $ 139 $ --
Accounts receivable (less allowance for
doubtful accounts; April, $166; July, $63............................... 53,689 53,223 53,223
Inventories.............................................................. 57,726 47,737 47,737
Other current assets..................................................... 6,142 5,999 5,999
---------- ----------- -----------
Total current assets................................................... 117,908 107,098 106,959
---------- ----------- -----------
Property, plant and equipment, net....................................... 76,528 76,143 76,143
Goodwill (less accumulated amortization: April, $3,114;
July, $3,546)........................................................... 48,414 47,897 47,897
Long-term investments and other assets................................... 1,215 1,222 1,222
---------- ----------- -----------
Total assets........................................................... $ 244,065 $ 232,360 $ 232,221
---------- ----------- -----------
---------- ----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt........................................ $ 484 $ 364 $ 364
Accounts payable......................................................... 46,253 39,348 156,334
Accrued expenses......................................................... 12,445 12,777 12,777
---------- ----------- -----------
Total current liabilities.............................................. 59,182 52,489 169,475
---------- ----------- -----------
Due to Alpine and affiliate................................................ 113,736 102,914 102,914
---------- ----------- -----------
Long-term debt, less current portion....................................... 11,540 11,475 11,475
---------- ----------- -----------
Other long-term liabilities................................................ 7,951 8,050 8,050
---------- ----------- -----------
Commitments and contingencies
Stockholder's equity:
Common stock, Superior Telecommunications Inc.,
$.01 par value; authorized 10,000 shares; issued 1,000 shares........... -- -- --
Common stock, DNE Systems, Inc. $1.00 par value;
authorized 100,000 shares; issued 750 shares............................ 1 1 1
Capital in excess of par value........................................... 42,254 42,254 42,254
Cumulative translation adjustment........................................ (214) (406) (406)
Retained earnings........................................................ 9,615 15,583 (101,542)
---------- ----------- -----------
Total stockholder's equity............................................. 51,656 57,432 (59,693)
---------- ----------- -----------
Total liabilities and stockholder's equity............................. $ 244,065 $ 232,360 $ 232,221
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed combined
financial statements.
F-24
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOMINC.)
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
JULY 29, JULY 28,
1995 1996
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Net sales........................................................................... $ 99,324 $ 123,824
Cost of goods sold.................................................................. 89,821 105,447
---------- ----------
Gross profit.................................................................... 9,503 18,377
Selling, general, and administrative expense........................................ 3,299 3,888
Amortization of goodwill............................................................ 374 432
---------- ----------
Operating income................................................................ 5,830 14,057
Interest income..................................................................... 348 --
Interest expense.................................................................... (4,081) (4,258)
Other income (expense), net......................................................... 28 (53)
---------- ----------
Income (loss) from continuing operations before income taxes.................... 2,125 9,746
Provision for income taxes.......................................................... (451) (3,778)
---------- ----------
Income (loss) from continuing operations........................................ 1,674 5,968
(Loss) from discontinued operations................................................. -- --
---------- ----------
Income (loss) before extraordinary item......................................... 1,674 5,968
Extraordinary item -- (loss) on early extinguishment of debt........................ (2,811) --
---------- ----------
Net income (loss)............................................................... $ (1,137) $ 5,968
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed combined
financial statements.
F-25
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
JULY 29, JULY 28,
1995 1996
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income from continuing operations.................................................. $ 1,674 $ 5,968
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization........................................................ 1,963 2,251
Amortization of deferred financing costs............................................. 320 12
Change in assets and liabilities:
Accounts receivable.................................................................. (764) 466
Inventories.......................................................................... 10,499 9,989
Other assets......................................................................... 295 112
Accounts payable..................................................................... 10,056 (6,905)
Accrued expenses and other liabilities............................................... (1,309) 332
Other, net........................................................................... 196 67
----------- ----------
Cash provided by operating activities.................................................... 22,930 12,292
----------- ----------
Cash flows from investing activities:
Acquisition, net of cash acquired...................................................... (93,324) --
Capital expenditures................................................................... (1,204) (1,511)
Other.................................................................................. 1,350 (84)
----------- ----------
Cash (used for) investing activities..................................................... (93,178) (1,595)
----------- ----------
Cash flow from financing activities:
Borrowings (repayments) under revolving credit facilities, net......................... (16,014) --
Borrowings from (repayments to) Alpine, net............................................ 95,228 (10,961)
Long-term borrowings................................................................... 140,000 22
Dividends paid to Alpine............................................................... -- --
Repayment of long-term borrowings...................................................... (145,499) (207)
Capitalized financing costs............................................................ (3,215) --
Other.................................................................................. -- --
----------- ----------
Cash provided by (used for) financing activities......................................... 70,500 (11,146)
----------- ----------
Net increase (decrease) in cash and cash equivalents..................................... 252 (449)
Cash and cash equivalents at beginning of period......................................... 273 588
----------- ----------
Cash and cash equivalents at end of period............................................... $ 525 $ 139
----------- ----------
----------- ----------
Supplemental disclosures:
Cash interest paid during the period (including interest paid to Alpine)............... $ 4,709 $ 4,258
----------- ----------
----------- ----------
Cash paid during the period for income taxes........................................... $ 318 $ 418
----------- ----------
----------- ----------
Non-cash investing and financing activities:
Acquisition of business:
Assets, net of cash acquired......................................................... $ 126,127 $ --
Deferred purchase consideration...................................................... (9,909)
Liabilities assumed.................................................................. (22,894) --
----------- ----------
Net cash paid...................................................................... $ (93,324) --
----------- ----------
----------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed combined
financial statements.
F-26
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
CONDENSED COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JULY 28, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SUPERIOR
DNE SYSTEMS, INC.
TELECOMMUNICATIONS, INC.
COMMON SHARES COMMMON SHARES CAPITAL IN CUMULATIVE
-------------------------- ------------------------ EXCESS OF RETAINED TRANSLATION
SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS ADJUSTMENT
----------- ------------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Balance at April 28, 1996.......... 750 $ 1 1,000 $ 42,254 $ 9,615 $ (214)
Cumulative translation
adjustment........................ (192)
Net income for the year ended July
28, 1996.......................... 5,968 --
--
--- ----- --- ----------- ----------- -----
Balance at July 28, 1996........... 750 $ 1 1,000 $ 42,254 $ 15,583 $ (406)
--
--
--- ----- --- ----------- ----------- -----
--- ----- --- ----------- ----------- -----
<CAPTION>
TOTAL
---------
<S> <C>
Balance at April 28, 1996.......... $ 51,656
Cumulative translation
adjustment........................ (192)
Net income for the year ended July
28, 1996.......................... 5,968
---------
Balance at July 28, 1996........... $ 57,432
---------
---------
</TABLE>
The accompanying notes are an integral part of these condensed combined
financial statements.
F-27
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed combined financial statements reflect
all adjustments (which consist only of normal recurring accruals) which, in the
opinion of management, are necessary for a fair presentation of the results of
operations for the interim periods presented. These financial statements should
be read in conjunction with the summary of accounting policies and the notes to
the financial statements included in the Companies' Combined Financial
Statements for the year ended April 28, 1996.
2. INVENTORIES
The components of inventories are:
<TABLE>
<CAPTION>
APRIL 28, JULY 28,
1996 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Raw Material...................................................................... $ 11,086 $ 11,390
Work-in-process................................................................... 13,216 11,290
Finished goods.................................................................... 33,424 25,057
--------- ---------
$ 57,726 $ 47,737
--------- ---------
--------- ---------
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
Soil and groundwater at Superior's Brownwood, Texas facility has been found
to be contaminated with volatile organic compounds as a result of operations at
the facility which management believes occurred prior to Superior's acquisition
of the facility. Superior is in the process of obtaining approval for a
remediation plan from the Texas Natural Resource Conservation Commission. Based
upon investigations performed to date, the Company believes that the cost of
this remediation will not be in excess of $500,000. Pursuant to an agreement
between Superior and the former owner of the facility, Superior has been
reimbursed for approximately 85% of the costs incurred to date in connection
with the investigation and remediation of this facility, and is entitled to
reimbursement of future expenses at percentages ranging from 85% to 25%
(depending on the time at which such expenses are incurred), subject to an
aggregate expense reimbursement of not less than 75%.
In connection with the sale of a facility in Woburn, Massachusetts formerly
owned by and currently under lease to DNE, low levels of volatile organic
compounds were discovered in shallow groundwater. DNE has assumed responsibility
for this contamination pursuant to an indemnity granted to the purchaser of the
facility, which indemnity is in turn guaranteed by Alpine. This facility has
been designated as a non-priority site by the Massachusetts Department of
Environmental Protection ("MDEP") which granted a waiver to Alpine allowing it
to proceed with further investigation and, if necessary, remediation, of the
groundwater contamination with MDEP oversight, subject to certain conditions. In
accordance with the waiver, investigation and remediation efforts must be
completed by August 1997. Based on the results of a Phase II comprehensive site
assessment completed during May 1996, it appears that no remedial activities are
warranted for this site, but approximately $10,000 may be required to perform
MDEP filing and response actions.
The Companies are subject to other legal proceedings and claims which have
primarily arisen in the ordinary course of business and have not been finally
adjudicated.
F-28
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
AND DNE SYSTEMS, INC. AND SUBSIDIARIES
(TO BE REORGANIZED AS SUPERIOR TELECOM INC.)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In the opinion of management, based on its examination of such matters and
discussions with counsel, the ultimate resolution of all pending or threatened
litigation, claims and assessments will have no material adverse affect upon the
Companies financial position, liquidity or results of operations.
4. SUBSEQUENT EVENT
In September 1996, Superior TeleCom filed an amendment to a registration
statement with the Securities and Exchange Commission in which it disclosed
Alpine's intention to cause Superior TeleCom to complete an offering of
6,000,000 shares of common stock (or approximately 49.9% of the outstanding
shares after such offering) assuming no exercise of the underwriters'
over-allotment option (the "Offering"). On October 2, 1996, Alpine contributed
all of the common stock of both Superior and DNE to Superior TeleCom and caused
Superior and DNE to declare dividends on their common stock in an aggregate
amount of $117.1 million. Superior also issued to Alpine 20,000 shares of 6%
Cumulative Preferred Stock par value $1.00 per share with a liquidation
preference of $1,000 per share.
On October 2, 1996, Superior TeleCom entered into a five-year revolving
credit facility (the "Bank Credit Facility") under which it borrowed $154.7
million to repay the net amount of the intercompany debt owed to Alpine (which
was $87.9 million), and to pay to Alpine $63.8 million of the declared
dividends. It is management intention to use part of the proceeds of the
Offering to pay the remainder of the declared dividends. Under the Bank Credit
Facility, up to $175.0 million is available, however, on completion of the
Offering the facility will be reduced to $150.0 million. Interest will be
payable monthly based upon prime rate plus 0.5% or Eurodollar rate plus 1.5%;
the variable components of these rates after the first anniversary of the
closing of the facilities are subject to periodic adjustment based on Superior
TeleCom's debt to EBITDA ratio on a trailing twelve month basis. The initial
rate of interest is expected to be approximately 7.5%. Obligations under the
Bank Credit Facility are expected to be guaranteed by each of Superior Telecom's
direct and indirect subsidiaries and secured by the common stock, equipment,
property, inventory and accounts receivable of each direct and indirect
subsidiary (but only 65% of the common stock of Superior's Canadian subsidiary).
The dividends on the common stock of Superior and DNE discussed above, have
been reflected in the accompanying pro forma balance sheet on page F-24,
excluding the effects of offering proceeds and other transactions occurring
simultaneous with this Offering described above, in accordance with the
Securities and Exchange Commission Staff Accounting Bulletin No. 55.
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Alcatel NA Cable Systems, Inc. and
Alcatel Canada Wire and Cable, Inc.:
We have audited the accompanying combined balance sheets of The Copper Cable
Group of Alcatel NA Cable Systems, Inc. and Alcatel Canada Wire and Cable, Inc.
as of December 31, 1993 and 1994, and the related combined statements of
operations, changes in owners' investment and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Copper Cable Group of
Alcatel NA Cable Systems, Inc. and Alcatel Canada Wire and Cable, Inc. as of
December 31, 1993 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Greensboro, North Carolina,
February 24, 1995
(except for the matter discussed in Note 14,
as to which the date is May 11, 1995).
F-30
<PAGE>
THE COPPER CABLE GROUP OF ALCATEL NA CABLE SYSTEMS, INC. AND
ALCATEL CANADA WIRE AND CABLE, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1993 AND 1994
ASSETS
<TABLE>
<CAPTION>
1993 1994
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash................................................................................. $ 602 $ 3,124
Trade accounts receivable, less allowance for
doubtful accounts of $813 and $457, respectively.................................... 19,171 29,389
Receivables from affiliates (Note 7)................................................. 7,614 1,259
Inventories (Note 4)................................................................. 36,519 36,983
Deferred income taxes (Note 6)....................................................... 7,152 4,123
Other current assets................................................................. 1,474 1,861
---------- ----------
Total current assets............................................................... 72,532 76,739
Property, plant and equipment, net (Note 5)............................................ 45,702 42,247
Intangible asset (Note 8).............................................................. 272 366
---------- ----------
$ 118,506 $ 119,352
---------- ----------
---------- ----------
LIABILITIES AND OWNERS' INVESTMENT
Current liabilities:
Trade accounts payable............................................................... $ 11,386 $ 13,577
Accrued liabilities.................................................................. 17,386 12,184
Income taxes payable (Note 6)........................................................ 664 271
Payables to affiliates (Note 7)...................................................... 31,523 40,663
---------- ----------
Total current liabilities.......................................................... 60,959 66,695
Deferred income taxes (Note 6)......................................................... 4,727 1,440
---------- ----------
Total liabilities.................................................................. 65,686 68,135
Commitments and contingencies (Notes 4, 11 and 13)
Owners' investment..................................................................... 52,820 51,217
---------- ----------
$ 118,506 $ 119,352
---------- ----------
---------- ----------
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these balance sheets.
F-31
<PAGE>
THE COPPER CABLE GROUP OF ALCATEL NA CABLE SYSTEMS, INC. AND
ALCATEL CANADA WIRE AND CABLE, INC.
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
1992 1993 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales.................................................................... $ 228,852 $ 212,610 $ 194,651
Cost of goods sold........................................................... 207,476 189,940 182,264
Restructuring costs (Note 3)................................................. 12,000 0 0
---------- ---------- ----------
Gross margin............................................................. 9,376 22,670 12,387
Selling expenses............................................................. 2,907 2,961 2,415
General and administrative expenses.......................................... 2,767 2,677 2,332
Management fees to affiliates (Note 7)....................................... 3,534 5,907 4,971
Administrative fees to affiliates (Note 7)................................... 3,389 2,179 1,254
---------- ---------- ----------
Income (loss) from operations............................................ (3,221) 8,946 1,415
Interest expense to affiliates, net (Note 7)................................. 1,766 1,944 1,980
---------- ---------- ----------
Income (loss) before provision (benefit) for income taxes.................... (4,987) 7,002 (565)
Provision (benefit) for income taxes (Note 6)................................ (1,069) 2,191 29
---------- ---------- ----------
Net income (loss)............................................................ $ (3,918) $ 4,811 $ (594)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-32
<PAGE>
THE COPPER CABLE GROUP OF ALCATEL NA CABLE SYSTEMS, INC. AND
ALCATEL CANADA WIRE AND CABLE, INC.
COMBINED STATEMENTS OF CHANGES IN OWNERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Balance, December 31, 1991......................................................... $ 54,463
Net loss......................................................................... (3,918)
Currency translation adjustment.................................................. (1,444)
Pension equity adjustment (Note 8)............................................... (28)
---------
Balance, December 31, 1992......................................................... 49,073
Net income....................................................................... 4,811
Currency translation adjustment.................................................. (916)
Pension equity adjustment (Note 8)............................................... (148)
---------
Balance, December 31, 1993......................................................... 52,820
Net loss......................................................................... (594)
Currency translation adjustment.................................................. (1,089)
Pension equity adjustment (Note 8)............................................... 80
---------
Balance, December 31, 1994......................................................... $ 51,217
---------
---------
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-33
<PAGE>
THE COPPER CABLE GROUP OF ALCATEL NA CABLE SYSTEMS, INC. AND
ALCATEL CANADA WIRE AND CABLE, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
1992 1993 1994
--------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................. $ (3,918) $ 4,811 $ (594)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities --
Depreciation................................................................ 5,838 6,208 6,219
Deferred income taxes....................................................... (5,285) 873 (330)
Restructuring costs (Note 3)................................................ 12,000 0 0
(Gain) loss on sale of property, plant and equipment........................ (3) (2) 2
Other....................................................................... (764) (540) (417)
Change in current assets and liabilities --
(Increase) decrease in:
Trade accounts receivable................................................... (6,248) (2,375) (10,218)
Receivables from affiliates................................................. (83) (7,502) 6,355
Inventories................................................................. 1,056 105 (464)
Other current assets........................................................ (322) (533) (387)
Increase (decrease) in:
Trade accounts payable...................................................... 6,145 (5,625) 2,191
Accrued liabilities......................................................... 6,770 (5,230) (5,383)
Income taxes payable........................................................ (2,291) 2,224 (393)
Payables to affiliates...................................................... (5,322) 13,143 9,140
--------- --------- ----------
Net cash provided by operating activities................................. 7,573 5,557 5,721
--------- --------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment.................................... (7,076) (7,569) (4,294)
Proceeds from sales of property, plant and equipment.......................... 319 1,603 1,095
--------- --------- ----------
Net cash used for investing activities.................................... (6,757) (5,966) (3,199)
--------- --------- ----------
Net increase (decrease) in cash................................................. 816 (409) 2,522
Cash, beginning of year......................................................... 195 1,011 602
--------- --------- ----------
Cash, end of year............................................................... $ 1,011 $ 602 $ 3,124
--------- --------- ----------
--------- --------- ----------
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-34
<PAGE>
THE COPPER CABLE GROUP OF ALCATEL NA CABLE SYSTEMS, INC. AND
ALCATEL CANADA WIRE AND CABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1992, 1993 AND 1994
(DOLLARS IN THOUSANDS)
1. ORGANIZATION:
The Copper Cable Group (the "Alcatel Business") is comprised of the
operating divisions of both Alcatel NA Cable Systems, Inc. ("ACS") and its
affiliate, Alcatel Canada Wire and Cable, Inc. ("ACW"), which manufacture and
market copper cable products used in the telecommunications industry. The
Alcatel Business is headquartered in Claremont, North Carolina, and is
controlled by Alcatel Alsthom, a Brussels-based corporation. Various
subsidiaries of Alcatel Alsthom own 100% of the common stock of both ACS and
ACW.
2. SIGNIFICANT ACCOUNTING POLICIES:
Significant accounting policies followed by the Company are as follows:
PRINCIPLES OF COMBINATION
The combined financial statements include the copper cable operations of ACW
which are located in Winnipeg, Manitoba, and the copper cable operations of ACS
which are located in Tarboro, North Carolina; Elizabethtown, Kentucky; Fordyce,
Arkansas and Claremont, North Carolina. The combined financial statements also
include fiber optic cable and data cable operations that are part of the ACW
facility located in Winnipeg, Manitoba. These operations are not material to
Alcatel Business's operating results as presented herein. All of these
operations are managed by ACS management. All significant intercompany accounts
and transactions have been eliminated.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method for all inventories.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated
depreciation and amortization. Expenditures for repairs and betterments which
increase the estimated useful life or capacity of assets are capitalized;
expenditures for repairs and maintenance are charged to operations as incurred.
Gains and losses on routine dispositions are included in operations as general
and administrative expenses.
Depreciation is computed using the straight-line method over the estimated
useful lives of the various classes of assets as follows: land improvements --
10 years; buildings -- 20 to 40 years; machinery and equipment -- 3 to 15 years;
furniture and fixtures -- 10 years and transportation equipment -- 5 years.
INCOME TAXES
The U.S. operations of Alcatel Business are included in the consolidated
federal income tax return of Alcatel USA Corp. Pursuant to an income tax sharing
agreement between ACS and Alcatel USA Corp., U.S. federal income taxes are
determined as if Alcatel Business filed its U.S. federal income tax return as a
separate entity. The Canadian operations of Alcatel Business are included in the
Canadian income tax return of ACW, and Canadian income taxes are determined as
if Alcatel Business filed its Canadian income tax return as a separate entity.
Effective January 1, 1993, the Alcatel Business adopted Financial Accounting
Standards Board Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes", which requires an asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the financial
statement and tax bases of
F-35
<PAGE>
THE COPPER CABLE GROUP OF ALCATEL NA CABLE SYSTEMS, INC. AND
ALCATEL CANADA WIRE AND CABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
(DOLLARS IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
assets and liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. The provision (benefit) for income taxes is the tax payable or
refundable for the period plus or minus the change during the period in deferred
tax assets and liabilities.
The effect of adopting SFAS No. 109 in 1993 was not material.
PENSION PLANS
The Alcatel Business has various noncontributory pension plans which cover
substantially all employees. Plans covering salaried and certain hourly
employees provide pension benefits that are based on employee compensation.
Other plans, covering most hourly employees and union members, generally provide
benefits of stated amounts for each year of service. The costs of the various
plans are provided over the service life of the employees using an actuarial
method which includes amortization of past service costs. The costs of the
various plans are funded by means of deposits with trustees of the plans.
POSTRETIREMENT BENEFITS
The Alcatel Business provides certain health care and life insurance
benefits for eligible retired employees in the U.S. Substantially all salaried
employees become eligible for these benefits if they reach age 55 while working
for the Company and satisfy certain years of service requirements.
Effective January 1, 1993, the Alcatel Business adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions". Under
this statement, the Alcatel Business is required to accrue the estimated cost of
retiree health and life insurance benefits over the years that the employees
render service. The Alcatel Business previously expensed the cost of these
benefits as claims were incurred. The Alcatel Business elected to recognize the
initial accumulated liability, measured as of January 1, 1993, over a 20-year
amortization period as permitted by SFAS No. 106. As a result, the cumulative
effect on prior years of this change in accounting principle was not material.
The effect of this change on 1993 operating results was not significant.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Winnipeg, Manitoba, operations of ACW have
been translated into U.S. dollars at the year-end rate of exchange for asset and
liability accounts and the average rate of exchange for the year for income
statement accounts. Resulting translation gains or losses are included as a
component of owners' investment in the accompanying balance sheet and do not
affect the results of operations. Cumulative currency translation losses were
$2,360 at December 31, 1993, and $3,449 at December 31, 1994.
FINANCIAL INSTRUMENTS
In the normal course of business, the Alcatel Business employs a variety of
off-balance sheet financial instruments to reduce its exposure to changes in
foreign currency exchange rates and commodity prices, including foreign currency
forward exchange contracts and commodity futures contracts.
Realized and unrealized gains and losses on foreign currency forward
exchange contracts that qualify as designated hedges are deferred. Gains and
losses realized on foreign currency transactions that do not qualify as
designated hedges are included in operations.
F-36
<PAGE>
THE COPPER CABLE GROUP OF ALCATEL NA CABLE SYSTEMS, INC. AND
ALCATEL CANADA WIRE AND CABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
(DOLLARS IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Changes in the market values of commodity futures contracts are included as
a component of inventory cost. Gains and losses resulting from changes in the
market value of commodity futures contracts are recognized when the related
inventory is sold.
3. RESTRUCTURING COSTS:
As a result of management's review of its operating strategies and to
improve competitiveness and future profitability, the Alcatel Business recorded
a restructuring charge of $12,000 in December 1992 for expected costs associated
with the planned shut-down of its Fordyce, Arkansas, manufacturing facility. The
charge included provisions for the write-down of fixed assets ($4,750),
relocation of equipment and employees ($2,840), employee severance costs ($910),
employee benefit plan costs ($1,970) and other costs ($1,530).
The Fordyce facility was closed in late 1993. At that time substantially all
132 employees of the facility were terminated. As a result, all of the severance
costs recorded as part of the restructuring charge were expended in 1993 and
1994. Approximately $520 of the employee benefit plan costs were expended in
1993 and 1994. The remaining employee benefit plan costs will be expended when
required by the funding provisions of the Internal Revenue Service and the
Department of Labor regulations. All other components of the restructuring
charge were expended during 1993 and 1994 with the exception of the $4,750
charge to fixed assets, which was a noncash charge to write-down the book value
of those assets to estimated fair value. All fixed assets at the Fordyce
facility have been disposed or relocated to the Alcatel Business's other
manufacturing facilities as of December 31, 1994. As a result of the
restructuring, the Alcatel Business expects to eliminate most of the fixed costs
previously incurred at the Fordyce facility which are estimated to be $2,000
annually.
4. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Raw materials.............................................. $ 4,478 $ 5,747
Work-in-process............................................ 6,645 5,965
Finished goods............................................. 25,396 25,271
--------- ---------
$ 36,519 $ 36,983
--------- ---------
--------- ---------
</TABLE>
At December 31, 1994, the Alcatel Business had contractual commitments for
purchases of copper of approximately $11,100 and for purchases of other raw
materials of approximately $1,100.
F-37
<PAGE>
THE COPPER CABLE GROUP OF ALCATEL NA CABLE SYSTEMS, INC. AND
ALCATEL CANADA WIRE AND CABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
(DOLLARS IN THOUSANDS)
5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Land and improvements...................................... $ 2,725 $ 2,706
Buildings.................................................. 11,663 12,336
Machinery and equipment.................................... 60,029 61,717
Furniture and fixtures..................................... 687 708
Transportation equipment................................... 151 151
Construction-in-progress................................... 1,802 1,943
--------- ---------
77,057 79,561
Less -- Accumulated depreciation........................... (31,355) (37,314)
--------- ---------
$ 45,702 $ 42,247
--------- ---------
--------- ---------
</TABLE>
6. INCOME TAXES:
Provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Current --
U.S.:
Federal............................................ $ 3,489 $ 1,053 $ 609
State.............................................. 727 265 (250)
--------- --------- ---------
4,216 1,318 359
--------- --------- ---------
Deferred --
U.S.:
Federal............................................ (4,440) 737 (659)
State.............................................. (845) 136 329
--------- --------- ---------
(5,285) 873 (330)
--------- --------- ---------
$ (1,069) $ 2,191 $ 29
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-38
<PAGE>
THE COPPER CABLE GROUP OF ALCATEL NA CABLE SYSTEMS, INC. AND
ALCATEL CANADA WIRE AND CABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
(DOLLARS IN THOUSANDS)
6. INCOME TAXES: (CONTINUED)
Provision (benefit) for income taxes differed from the amount computed by
applying the federal statutory income tax rate due to:
<TABLE>
<CAPTION>
1992 1993 1994
---------------------- ---------------------- ------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income taxes at U.S. federal statutory
rate..................................... $ (1,696) (34.0)% $ 2,451 35.0% $ (198) (35.0)%
State income taxes, net of federal income
tax benefit.............................. (77) (1.5) 261 3.7 51 9.0
Canadian losses........................... 934 18.7 29 0.4 242 42.8
Reduction of income tax reserves.......... (264) (5.3) (600) (8.5) (100) (17.7)
Other, net................................ 34 0.7 50 0.7 34 6.0
--------- ----- --------- ----- ----- -----
$ (1,069) (21.4)% $ 2,191 31.3% $ 29 5.1%
--------- ----- --------- ----- ----- -----
--------- ----- --------- ----- ----- -----
</TABLE>
The Alcatel Business's Canadian operations generated losses of $2,741 in
1992, $83 in 1993 and $690 in 1994, which will be available to offset Canadian
taxable income, if any, through 1999. Because of uncertainties regarding
realization of the tax benefit of these losses in the future, valuation
allowances were established to fully reserve the related net deferred tax asset.
The components of the net deferred tax asset were as follows:
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Deferred tax assets --
Accounts receivable....................................... $ 324 $ 160
Inventories............................................... 1,021 856
Self-insurance reserves................................... 283 468
Workers' compensation reserves............................ 836 764
Accrued EPA claims........................................ 112 0
Deferred compensation and other compensation-related
accruals................................................. 3,025 2,016
Canadian loss carry forwards (expiring from 1996 to
1999).................................................... 1,331 1,194
Other reserves............................................ 1,753 454
Less -- Valuation allowance............................... (1,533) (1,789)
--------- ---------
7,152 4,123
Deferred tax liabilities -- Property, plant and equipment... (4,727) (1,440)
--------- ---------
Net deferred tax asset.................................. $ 2,425 $ 2,683
--------- ---------
--------- ---------
</TABLE>
In management's opinion, income tax amounts presented in the accompanying
financial statements would not be materially different if the Alcatel Business
had not been eligible to be included in the consolidated income tax return of
Alcatel USA Corp. or in the income tax return of ACW.
F-39
<PAGE>
THE COPPER CABLE GROUP OF ALCATEL NA CABLE SYSTEMS, INC. AND
ALCATEL CANADA WIRE AND CABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
(DOLLARS IN THOUSANDS)
7. RELATED PARTIES:
In the normal course of business, the Alcatel Business engages in various
arms-length transactions with its affiliates. Inventories purchased from
affiliates, consisting primarily of copper rod purchases from a division of ACW,
totaled $17,183 in 1992, $20,967 in 1993 and $14,532 in 1994 and sales to
affiliates totaled $583 in 1992, and $1,751 in 1993 and $5,530 in 1994.
The Alcatel Business obtains working capital through the treasury function
provided by ACS. To the extent that the Alcatel Business is in a net borrowing
position with ACS, interest expense is allocated to ACS at ACS's effective
borrowing rate. The net borrowing position is calculated as the average monthly
outstanding net payable balance to ACS. Average short-term borrowings during
1992, 1993 and 1994 were $29,433, $52,540 and $44,000, respectively; and the
weighted average interest rates were 6.0%, 3.7% and 4.5%, respectively.
Under agreements with affiliated companies, the Alcatel Business pays
service charges, research and development assessments and other service fees
(management fees). Management fees incurred by the Alcatel Business under these
agreements totaled $3,534 in 1992, $5,907 in 1993 and $4,971 in 1994.
Alcatel NA, Inc. and ACW provide legal, accounting, tax, treasury,
insurance, employee benefits, data processing, transportation and other services
to the Alcatel Business. Expenses that are directly attributable to the Alcatel
Business are charged directly to the Alcatel Business. Expenses that are not
directly attributable to a particular subsidiary or business unit of Alcatel NA,
Inc. or ACW are allocated each month to all subsidiaries and business units
receiving the services. Amounts allocated are based on a particular subsidiary
or business unit's relative percentage of net sales, payroll expenses and
average total assets to the net sales, payroll expenses and average total assets
of all the subsidiaries and business units receiving services. Administrative
fees allocated to the Alcatel Business for these services totaled $3,389 in
1992, $2,179 in 1993 and $1,254 in 1994. Management believes that the
administrative fees for these services would not have been materially different
if they had been incurred directly by the Alcatel Business.
8. EMPLOYEE BENEFIT PLANS:
The Alcatel Business has various noncontributory pension plans which cover
substantially all employees. Financial information related to these plans was
determined by the Alcatel Business's actuary, William M. Mercer Incorporated.
Net pension cost for the U.S. plans is summarized as follows:
<TABLE>
<CAPTION>
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost......................................................... $ 304 $ 286 $ 361
Interest cost........................................................ 186 213 279
Return on plan assets................................................ (86) (267) 17
Other................................................................ (76) 251 (235)
--------- --------- ---------
$ 328 $ 483 $ 422
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-40
<PAGE>
THE COPPER CABLE GROUP OF ALCATEL NA CABLE SYSTEMS, INC. AND
ALCATEL CANADA WIRE AND CABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
(DOLLARS IN THOUSANDS)
8. EMPLOYEE BENEFIT PLANS: (CONTINUED)
The funded status and accrued pension cost for the U.S. plans are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------------
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS
------------- -------------
<S> <C> <C>
Fair value of plan assets.................................... $ 1,492 $ 1,050
Projected benefit obligation................................. 2,389 1,383
------ ------
Projected benefit obligation in excess of plan assets........ (897) (333)
Unrecognized net loss........................................ 378 326
Unrecognized prior service cost.............................. (47) 43
Adjustment required to recognize minimum liability........... 0 (371)
------ ------
Accrued pension cost......................................... $ (566) $ (335)
------ ------
------ ------
Accumulated benefits......................................... $ 1,377 $ 1,383
------ ------
------ ------
Vested benefits.............................................. $ 1,260 $ 1,205
------ ------
------ ------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS
------------- -------------
<S> <C> <C>
Fair value of plan assets.................................... $ 1,994 $ 1,280
Projected benefit obligation................................. 2,032 1,324
------ ------
Projected benefit obligation in excess of plan assets........ (38) (44)
Unrecognized net (gain) loss................................. (212) 154
Unrecognized prior service cost.............................. (43) 34
Adjustment required to recognize minimum liability........... 0 (186)
------ ------
Accrued pension cost......................................... $ (293) $ (42)
------ ------
------ ------
Accumulated benefits......................................... $ 1,306 $ 1,324
------ ------
------ ------
Vested benefits.............................................. $ 1,220 $ 1,224
------ ------
------ ------
</TABLE>
Actuarial assumptions used for the U.S. plans are as follows:
<TABLE>
<CAPTION>
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
Assumed discount rate................................................ 9.0% 8.0% 9.0%
Assumed rate of compensation increase -- salaried plan............... 5.5 5.5 5.0
Expected rate of return on plan assets............................... 8.0 8.0 8.0
-- -- --
-- -- --
</TABLE>
F-41
<PAGE>
THE COPPER CABLE GROUP OF ALCATEL NA CABLE SYSTEMS, INC. AND
ALCATEL CANADA WIRE AND CABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
(DOLLARS IN THOUSANDS)
8. EMPLOYEE BENEFIT PLANS: (CONTINUED)
Net pension cost for the Canadian plans is summarized as follows:
<TABLE>
<CAPTION>
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost........................................................ $ 134 $ 113 $ 106
Interest cost....................................................... 224 224 227
Return on plan assets............................................... (207) (194) (214)
Other............................................................... 13 19 11
--------- --------- ---------
$ 164 $ 162 $ 130
--------- --------- ---------
--------- --------- ---------
</TABLE>
The funded status and accrued pension cost for the Canadian plans are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------------
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS
------------- -------------
<S> <C> <C>
Fair value of plan assets.................................... $ 1,071 $ 1,720
Projected benefit obligation................................. 1,045 1,856
------ ------
Projected benefit obligation exceeded by (in excess) of plan
assets...................................................... 26 (136)
Unrecognized net gain........................................ (109) (130)
Unrecognized prior service cost.............................. 0 320
Adjustment required to recognize minimum liability........... 0 (190)
------ ------
Accrued pension cost......................................... $ (83) $ (136)
------ ------
------ ------
Accumulated benefits......................................... $ 725 $ 1,856
------ ------
------ ------
Vested benefits.............................................. $ 724 $ 1,763
------ ------
------ ------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS
------------- -------------
<S> <C> <C>
Fair value of plan assets.................................... $ 909 $ 1,584
Projected benefit obligation................................. 1,061 1,851
------ ------
Projected benefit obligation in excess of plan assets........ (152) (267)
Unrecognized net loss........................................ 21 34
Unrecognized prior service cost.............................. 0 284
Adjustment required to recognize minimum liability........... 0 (317)
------ ------
Accrued pension cost......................................... $ (131) $ (266)
------ ------
------ ------
Accumulated benefits......................................... $ 740 $ 1,851
------ ------
------ ------
Vested benefits.............................................. $ 739 $ 1,758
------ ------
------ ------
</TABLE>
F-42
<PAGE>
THE COPPER CABLE GROUP OF ALCATEL NA CABLE SYSTEMS, INC. AND
ALCATEL CANADA WIRE AND CABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
(DOLLARS IN THOUSANDS)
8. EMPLOYEE BENEFIT PLANS: (CONTINUED)
Actuarial assumptions used for the Canadian plans are as follows:
<TABLE>
<CAPTION>
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
Assumed discount rate................................................ 8.0% 8.0% 8.0%
Assumed rate of compensation increase -- salaried plan............... 5.8 5.8 5.8
Expected rate of return on plan assets............................... 8.0 8.0 8.0
-- -- --
-- -- --
</TABLE>
The provisions of SFAS No. 87, "Employers' Accounting for Pensions," require
companies with any plans that have an unfunded accumulated benefit obligation to
recognize an additional minimum pension liability, an offsetting intangible
pension asset and, in certain situations, an adjustment to owners' investment,
net of the related deferred tax benefit. In accordance with the provisions of
SFAS No. 87, the combined balance sheets at December 31, 1993 and 1994, include
an intangible pension asset of $272 and $366, an additional minimum pension
liability of $561 and $503 and a cumulative adjustment to owners' investment,
net of the related deferred tax benefit of $176 and $96, respectively.
9. POSTRETIREMENT BENEFIT OBLIGATIONS OTHER THAN PENSIONS:
The Alcatel Business provides certain health care and life insurance
benefits for eligible retired employees in the U.S.. Financial information
related to this plan was determined by the Company's actuaries, William M.
Mercer, Incorporated.
Net periodic postretirement benefit costs include the following components:
<TABLE>
<CAPTION>
1993 1994
----- -----
<S> <C> <C>
Service cost................................................................. $ 38 $ 37
Interest cost................................................................ 36 36
Amortization of the transition obligation.................................... 20 20
--- ---
$ 94 $ 93
--- ---
--- ---
</TABLE>
The funded status and accrued cost for the plan is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1993 1994
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation --
Retirees................................................................ $ 33 $ 31
Fully eligible active plan participants................................. 100 117
Other active participants............................................... 369 321
--------- ---------
Accumulated benefit obligation............................................ 502 469
Unrealized net gain (loss)................................................ (30) 76
Unrecognized transition obligation........................................ (378) (358)
--------- ---------
Accrued postretirement cost............................................... $ 94 $ 187
--------- ---------
--------- ---------
</TABLE>
F-43
<PAGE>
THE COPPER CABLE GROUP OF ALCATEL NA CABLE SYSTEMS, INC. AND
ALCATEL CANADA WIRE AND CABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
(DOLLARS IN THOUSANDS)
9. POSTRETIREMENT BENEFIT OBLIGATIONS OTHER THAN PENSIONS: (CONTINUED)
The accumulated postretirement benefit obligations were computed using an
assumed discount rate of 8.0% in 1993 and 9.0% in 1994. The health care cost
trend rate was assumed to be 13.0% for 1993 and 12.125% for 1994, then the trend
rate was assumed to decline by approximately 1% for each year to 6%, which would
continue for year 2001 and beyond.
If the health care cost trend rate were increased one percent for all future
years, the accumulated postretirement benefit obligation would have increased
20% as of December 31, 1993, and 18% as of December 31, 1994. The effect of this
change on the aggregate of service and interest cost for 1993 would have been an
increase of 23.16% and for 1994 would have been an increase of 20.23%.
10. SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest and income taxes were as follows:
<TABLE>
<CAPTION>
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Interest paid.................................................... $ 1,766 $ 1,944 $ 1,980
Income taxes paid (received)..................................... 6,507 (906) 752
--------- --------- ---------
--------- --------- ---------
</TABLE>
11. FINANCIAL INSTRUMENTS AND CREDIT RISK:
The Alcatel Business's activities are primarily concentrated in the
telecommunications industry. As of December 31, 1994, a substantial portion of
the Alcatel Business's trade accounts receivables were from companies in that
industry.
In 1992, sales to these five customers comprised 0%, 4.9%, 10.1%, 24.0% and
14.3% of net sales. In 1993, sales to these five customers comprised 2.7%,
10.8%, 13.5%, 14.4% and 15.2% of net sales. In 1994, net sales to five customers
comprised 22.7%, 13.5%, 12.8%, 4.6% and .6%, respectively, of net sales.
Approximately 79.5% of net sales in 1992, 80.2% of net sales in 1993 and 81.2%
of net sales in 1994 were to 10 customers. Net export sales approximated 2.4% of
net sales in 1992, 15.5% in 1993 and 12.7% in 1994.
At December 31, 1994, the Alcatel Business had $6,027 of foreign currency
forward exchange contracts outstanding to hedge sales denominated in foreign
currencies. The forward exchange contracts' maturity dates do not exceed 12
months and require the Alcatel Business to exchange U.S. dollars for foreign
currencies at maturity, at rates agreed to at inception of the contracts.
The Alcatel Business enters into futures contracts to hedge certain copper
raw material purchases to minimize costs risks due to market fluctuations. At
December 31, 1994, the Alcatel Business had $2,400 million of copper futures
contracts that fix the price for a small portion of 1995 copper purchases.
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments,"
requires the disclosure of estimated fair values for financial instruments. The
statement requires all entities to disclose the fair value of financial
instruments, both assets and liabilities recognized and not recognized in the
balance sheet, for which it is practicable to estimate fair value. Quoted market
prices, if available, are utilized as an estimate of the fair value of financial
instruments.
COMMODITY FUTURES CONTRACTS
The fair value is estimated by obtaining market rate quotes. The contract
value of $2,400 at December 31, 1994, approximates market value.
F-44
<PAGE>
THE COPPER CABLE GROUP OF ALCATEL NA CABLE SYSTEMS, INC. AND
ALCATEL CANADA WIRE AND CABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
(DOLLARS IN THOUSANDS)
11. FINANCIAL INSTRUMENTS AND CREDIT RISK: (CONTINUED)
FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS
The contract value of $6,027 approximates market value.
12. GEOGRAPHIC AREA INFORMATION:
The Alcatel Business is engaged principally in one line of business --
copper telecommunications cable -- which represents substantially all of the
combined net sales. The following table presents information about the Alcatel
Business by geographic area. There were no material amounts of sales or
transfers among geographic areas.
<TABLE>
<CAPTION>
UNITED
STATES CANADA TOTAL
---------- --------- ----------
<S> <C> <C> <C>
1992 --
Net sales................................................ $ 192,999 $ 35,853 $ 228,852
Pretax loss.............................................. (2,246) (2,741) (4,987)
Assets................................................... 82,964 23,605 106,569
1993 --
Net sales................................................ 177,519 35,091 212,610
Pretax income (loss)..................................... 7,085 (83) 7,002
Assets................................................... 91,789 26,717 118,506
1994 --
Net sales................................................ 164,062 30,589 194,651
Pretax income (loss)..................................... 125 (690) (565)
Assets................................................... 99,465 19,887 119,352
---------- --------- ----------
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</TABLE>
Net export sales included in the United States net sales amounts above were
$5,401 in 1992, $20,772 in 1993 and $18,264 in 1994. Net export sales included
in the Canadian net sales amounts above were $0 in 1992, $12,107 in 1993 and
$6,431 in 1994.
13. CONTINGENCIES:
The Alcatel Business is involved in various litigation arising in the
ordinary course of business. Although the final outcome of these legal matters
cannot be determined, based on the facts presently known, it is management's
opinion that these matters are not significant and that their final resolution
will not have a material adverse effect on the Alcatel Business's financial
position or future results of operations.
14. SUBSEQUENT EVENTS:
In May 1995, ACS and ACW sold substantially all of the assets of the Alcatel
Business other than accounts receivable from affiliates to Superior TeleTec Inc.
("Superior"), a wholly owned subsidiary of The Alpine Group, Inc., and Superior
assumed certain liabilities of the Alcatel Business which did not include
amounts payable to affiliates.
F-45
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY OTHER
THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 8
The Company.................................... 13
Use of Proceeds................................ 15
Dividend Policy................................ 15
Capitalization................................. 16
Dilution....................................... 17
Pro Forma Condensed Combined Financial
Statements.................................... 18
Selected Historical Combined Financial Data of
the Company................................... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 23
Business....................................... 35
Management..................................... 43
Certain Transactions and Relationships......... 48
Principal Stockholders......................... 50
Description of Capital Stock................... 50
Shares Eligible for Future Sale................ 53
Underwriting................................... 54
Legal Matters.................................. 56
Experts........................................ 56
Available Information.......................... 56
Index to Financial Statements.................. F-1
</TABLE>
UNTIL NOVEMBER 5, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
6,000,000 SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
FURMAN SELZ
OPPENHEIMER & CO., INC.
BT SECURITIES CORPORATION
OCTOBER 11, 1996
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