<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-12261
---------------------
SUPERIOR TELECOM INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 58-2248978
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1790 BROADWAY
NEW YORK, NEW YORK 10019-1412
(Address of principal (Zip code)
executive offices)
</TABLE>
Registrant's telephone number, including area code 212-757-3333
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 Days. Yes /X/ No / /
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
<TABLE>
<S> <C>
Class Outstanding at December 16, 1996
--------------------------- ------------------------------
Common Stock, $.01 Par Value 12,924,048
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the requirements of Form 10-Q and therefore do
not include all information and footnotes required by generally accepted
accounting principles. However, in the opinion of management, all adjustments
(which, except as disclosed elsewhere herein, consist only of normal recurring
accruals) necessary for a fair presentation of the results of operations for the
relevant periods have been made. Results for the interim periods are not
necessarily indicative of the results to be expected for the year.
2
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1996 1996
---------- -----------
(NOTE 1) (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................................................. $ 351 $ 3,051
Accounts receivable (less allowance for doubtful accounts of: April, $166; October
$171)................................................................................ 53,689 43,079
Inventories............................................................................ 57,726 37,962
Other current assets................................................................... 6,142 5,956
---------- -----------
Total current assets............................................................... 117,908 90,048
Property, plant, and equipment, net...................................................... 76,528 76,327
Long-term investments and other assets................................................... 1,215 5,231
Goodwill (less accumulated amortization: April, $3,256; October, $3,983)................. 48,414 47,687
---------- -----------
Total assets....................................................................... $ 244,065 $ 219,293
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt...................................................... $ 484 $ 413
Accounts payable....................................................................... 46,253 31,883
Accrued expenses....................................................................... 12,445 18,915
---------- -----------
Total current liabilities.......................................................... 59,182 51,211
---------- -----------
Long-term debt, less current portion..................................................... 11,540 124,071
---------- -----------
Other long-term liabilities.............................................................. 7,951 7,951
---------- -----------
Due to Alpine and affiliate.............................................................. 113,736 --
---------- -----------
Preferred stock of subsidiary............................................................ -- 20,000
---------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, April 1996; DNE Systems, Inc. and Superior Telecommunications, Inc....... 1 --
Common stock, October 31, 1996; Superior TeleCom Inc.$0.01 par value, authorized
25,000,000 shares; issued 12,024,048 shares.......................................... -- 120
Capital in excess of par value......................................................... 42,254 14,041
Cumulative translation adjustment...................................................... (214) 70
Retained earnings...................................................................... 9,615 1,829
---------- -----------
Total stockholders' equity......................................................... 51,656 16,060
---------- -----------
Total liabilities and stockholders' equity......................................... $ 244,065 $ 219,293
---------- -----------
---------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWO MONTHS ONE MONTH
THREE MONTHS ENDED ENDED
OCTOBER 31, SEPTEMBER 30, OCTOBER 31,
1995 1996 1996
--------------- --------------- --------------
(NOTE 1)
<S> <C> <C> <C>
Net sales............................... $109,076 $87,201 $35,725
Cost of goods sold...................... 98,036 72,777 29,564
--------------- ------- -------
Gross profit........................ 11,040 14,424 6,161
Selling, general and administrative..... 3,388 2,703 1,800
Amortization of goodwill................ 390 289 142
--------------- ------- -------
Operating income.................... 7,262 11,432 4,219
Interest income......................... 1 -- 1
Interest (expense)...................... (4,509) (2,715) (1,007)
Preferred stock dividends of
subsidiary............................ -- -- (97)
Other income (expense), net............. (4) (9) (4)
--------------- ------- -------
Income before income taxes and
extraordinary item................ 2,750 8,708 3,112
Provision for income taxes.............. (1,179) (3,590) (1,283)
--------------- ------- -------
Net income before extraordinary
item.............................. 1,571 5,118 1,829
Extraordinary gain on early
extinguishment of debt................ 166 -- --
--------------- ------- -------
Net income.......................... $ 1,737 $ 5,118 $ 1,829
--------------- ------- -------
--------------- ------- -------
Income per share of common stock:
Net income before extraordinary
item................................ $ 0.26 $ 0.85 $ 0.22
Extraordinary gain on early
extinguishment of debt.............. 0.03 -- --
--------------- ------- -------
Net income per share of common
stock............................. $ 0.29 $ 0.85 $ 0.22
--------------- ------- -------
--------------- ------- -------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
4
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS ONE MONTH
ENDED ENDED ENDED
OCTOBER 31, SEPTEMBER 30, OCTOBER 31,
1995 1996 1996
----------- ------------- -----------
(NOTE 1)
<S> <C> <C> <C>
Net sales................................................................ $ 208,400 $ 211,025 $ 35,725
Cost of goods sold....................................................... 187,857 178,224 29,564
----------- ------------- -----------
Gross profit........................................................... 20,543 32,801 6,161
Selling, general and administrative...................................... 6,687 6,591 1,800
Amortization of goodwill................................................. 764 721 142
----------- ------------- -----------
Operating income....................................................... 13,092 25,489 4,219
Interest income.......................................................... 349 -- 1
Interest (expense)....................................................... (8,590) (6,973) (1,007)
Preferred stock dividends of subsidiary.................................. -- -- (97)
Other income (expense), net.............................................. 24 (62) (4)
----------- ------------- -----------
Income before income taxes and extraordinary item...................... 4,875 18,454 3,112
Provision for income taxes............................................... (1,630) (7,368) (1,283)
----------- ------------- -----------
Net income before extraordinary item................................... 3,245 11,086 1,829
Extraordinary (loss)on early extinguishment of debt...................... (2,645) -- --
----------- ------------- -----------
Net income............................................................. $ 600 $ 11,086 $ 1,829
----------- ------------- -----------
----------- ------------- -----------
Income (loss) per share of common stock:
Net income before extraordinary item................................... $ 0.54 $ 1.84 $ 0.22
Extraordinary (loss) on early extinguishment of debt................... (0.44) -- --
----------- ------------- -----------
Net income per share of common stock................................. $ 0.10 $ 1.84 $ 0.22
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
5
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED OCTOBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN FOREIGN
------------------------- EXCESS RETAINED CURRENCY
SHARES AMOUNT OF PAR EARNINGS TRANSLATION TOTAL
------------ ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at incorporation
(see Note 1).......................... 6,024,048 $ 60 $ -- $ -- $ -- $ 60
Foreign currency translation............ 70 70
Dividends paid on common stock.......... (117,129) (117,129)
Initial public offering of common
stock................................. 6,000,000 60 88,220 88,280
Capital contribution (see Note 1)....... 42,950 42,950
Net income for the month ended October
31, 1996.............................. 1,829 1,829
------------ ----- ----------- ----------- ----- -----------
Balance at October 31, 1996............. 12,024,048 $ 120 $ 14,041 $ 1,829 $ 70 $ 16,060
------------ ----- ----------- ----------- ----- -----------
------------ ----- ----------- ----------- ----- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS ONE MONTH
ENDED ENDED ENDED
OCTOBER 31, SEPTEMBER 30, OCTOBER 31,
1995 1996 1996
----------- ------------- -----------
(NOTE 1)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income before extraordinary item.................................. $ 3,245 $ 11,086 $ 1,829
Adjustments to reconcile income to cash provided by operations:
Depreciation and amortization....................................... 4,040 3,700 753
Amortization of deferred financing costs............................ 333 20 90
Other, net.......................................................... 186 66 --
Change in assets and liabilities:
Accounts receivable................................................. 1,482 409 10,201
Inventories......................................................... 16,483 19,218 546
Other current assets................................................ 1,483 460 (274)
Other assets........................................................ 77 2 15
Accounts payable and accrued expenses............................... 6,408 (5,041) (2,859)
Other liabilities................................................... 80 57 --
----------- ------------- -----------
Cash flows provided by operating activities............................. 33,817 29,977 10,301
----------- ------------- -----------
Cash flows from investing activities:
Acquisitions, net of cash acquired.................................... (103,083) -- --
Net proceeds from sale of common stock................................ -- -- 88,280
Capital expenditures.................................................. (1,934) (2,745) (640)
Other................................................................. 1,088 35 37
----------- ------------- -----------
Cash flows provided by (used for) investing activities.................. (103,929) (2,710) 87,677
----------- ------------- -----------
Cash flows from financing activities:
Borrowings (repayments) under revolving credit facilities, net........ $ (16,086) $ -- $ 113,382
Capitalized financing costs........................................... (3,215) -- (4,050)
Borrowings from (repayments to) Alpine, net........................... 97,750 (26,768) (86,968)
Dividends on common stock............................................. -- -- (117,129)
Repayments of long-term debt.......................................... (147,743) (216) (796)
Long-term borrowings.................................................. 140,000 -- --
----------- ------------- -----------
Cash flows provided by (used for) financing activities.................. 70,706 (26,984) (95,561)
Net increase in cash and cash equivalents............................... 594 283 2,417
Cash and cash equivalents at beginning of period........................ 273 351 634
----------- ------------- -----------
Cash and cash equivalents at end of period.............................. $ 867 $ 634 $ 3,051
----------- ------------- -----------
Supplemental disclosures:
Taxes paid............................................................ 61 569 467
----------- ------------- -----------
Interest paid......................................................... 8,697 7,610 408
----------- ------------- -----------
Non-cash investing and financing activities:
Acquisition of business:
Assets, net of cash acquired........................................ $ 126,127
Liabilities assumed................................................. (23,044)
-----------
Net cash paid....................................................... $ (103,083)
-----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
7
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
REORGANIZATION
Superior TeleCom Inc. ("Superior TeleCom" or the "Company") was incorporated
in July 1996 as a wholly owned subsidiary of The Alpine Group, Inc. ("Alpine").
At the date of incorporation, the Company had no operations or material assets
or liabilities. On October 2, 1996, Alpine completed a reorganization (the
"Reorganization") whereby 100% of the common stock of two of Alpine's
subsidiaries, Superior Telecommunications Inc. ("Superior") and DNE Systems,
Inc. ("DNE") were contributed to the Company. Prior to the Reorganization and
pursuant to a recapitalization of Superior and DNE, Superior issued to Alpine
20,000 shares of Superior's 6% Cumulative Preferred Stock ("Superior Preferred
Stock"), par value $1.00 per share, with a liquidation preference of $1,000 per
share and Superior and DNE declared a dividend payable to Alpine of $117.1
million. In conjunction with the Reorganization, the Company borrowed $154.0
million under a new revolving credit facility (the "Credit Facility") (see Note
4), the net proceeds of which were used to repay the net amount of intercompany
debt owed by Superior and DNE to Alpine of $87.9 million and to pay to Alpine
$63.8 million of the aforementioned dividend.
OFFERING
On October 17, 1996, the Company sold 6,000,000 shares of its common stock
through an initial public offering (the "Offering") at $16.00 per share. The
Company used the net proceeds of approximately $88.3 million to repay $34.4
million under the Credit Facility and to pay to Alpine the remaining balance of
the aforementioned dividend declared by Superior and DNE.
In November 1996, the underwriters of the Offering exercised their
overallotment option to purchase an additional 900,000 shares of the Company's
common stock at $16.00 per share. The Company used the net proceeds of
approximately $13.3 million to repurchase 450,000 shares of its common stock for
approximately $8.1 million, with the balance applied to reduce the amount
outstanding under the Credit Facility. The repurchased shares of the Company's
common stock were then transferred to Alpine in exchange for $8.1 million in
principal amount of the Superior Preferred Stock.
As a result of the Offering, Alpine's ownership interest in Superior TeleCom
declined to 50.1%.
BASIS OF PRESENTATION
These financial statements present the balance sheet of the Company at
October 31, 1996 and the statement of operations and stockholders' equity for
the one month period, subsequent to the Reorganization, ended October 31, 1996.
For comparative purposes, the combined financial statements of the predecessor
companies, Superior and DNE, have also been included herein. These financial
statements consist of the combined balance sheet of Superior and DNE at April
30, 1996 and the combined statements of operations of Superior and DNE for the
three and six months ended October 31, 1995 and the two and five months ended
September 30, 1996. These financial statements should be read in conjunction
with the summary of accounting policies and notes to the combined financial
statements of Superior and DNE included in the Company's Registration Statement
filed on Form S-1 on September 12, 1996. Furthermore, these financial statements
reflect all adjustments which, in the opinion of management, are necessary for a
fair presentation of the results of operations for the interim periods
presented.
8
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1996
(UNAUDITED)
2. INVENTORIES
The components of inventories are:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1996 1996
--------- -----------
<S> <C> <C>
Raw materials......................................................... $ 11,086 $ 8,642
Work in process....................................................... 13,216 9,222
Finished goods........................................................ 33,424 20,098
--------- -----------
$ 57,726 $ 37,962
--------- -----------
--------- -----------
</TABLE>
3. INCOME (LOSS) PER SHARE
Income per common share is determined by dividing net income attributable to
common stock by the weighted average number of common shares, and when dilutive,
common share equivalents outstanding. The weighted average number of common and
common equivalent shares outstanding used in computing income per share for the
six months ended October 31, 1995 and the five months ended September 30, 1996
was 6,024,048, and for the one month period ended October 31, 1996 was
8,151,446.
4. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1996 1996
--------- -----------
<S> <C> <C>
Credit Facility(a).................................................... $ -- $ 113,458
Lease finance obligation(b)........................................... 5,853 5,810
Promissory note(c).................................................... 1,170 1,186
Mortgage loan(d)...................................................... 4,996 3,977
Other................................................................. 5 53
--------- -----------
Total debt.......................................................... 12,024 124,484
Less: current portion................................................. 484 413
--------- -----------
Long-term debt...................................................... $ 11,540 $ 124,071
--------- -----------
</TABLE>
The aggregate principal maturities of long-term debt for the five years
subsequent to October 31, 1996 are as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 413
1998.............................................................. 443
1999.............................................................. 477
2000.............................................................. 512
2001.............................................................. 115,186
</TABLE>
- ------------------------
(a) Interest on the Credit Facility 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 October 1997 based on
the ratio of debt to cash flow (as defined). The Credit Facility has a five-
year term with a total commitment of $150.0 million which is reduced by
$25.0 million in October 1999
9
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1996
(UNAUDITED)
4. DEBT (CONTINUED)
and October 2000. Loans under the Credit Facility are guaranteed by the
Company's domestic subsidiaries and are secured by substantially all of the
assets of the Company and by the stock of each of the Company's domestic
subsidiaries.
(b) The lease finance obligations result from the sale/leaseback of two
properties during fiscal 1994 which, because of the Company's continuing
involvement in the form of repurchase options, have been recorded under the
finance method. The lease finance obligations at October 31, 1996 consist
of: (a) $5.0 million related to the sale/leaseback of a Superior
manufacturing facility and (b) $810,000 related to the sale/leaseback of a
manufacturing facility previously owned by DNE.
(c) The promissory note relates to the acquisition of certain wire and cable
manufacturing assets on November 28, 1995. The note does not bear interest
and is due on December 31, 1996.
(d) The mortgage loan is payable by DNE to the Connecticut Development
Authority. The loan is collateralized by DNE's real estate, machinery and
equipment. The loan is payable March 2002 and is subject to a 20-year
amortization schedule. 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.
5. STOCK OPTIONS
The Company adopted the 1996 Employee Stock Option Plan (the "Stock Option
Plan") on October 10, 1996. Under the Stock Option Plan, the Company has
1,250,000 shares of common stock reserved for issuance. The shares may be
granted from time to time to key employees, officers, advisors and independent
consultants, and non-employee directors of the Company or its subsidiaries. The
Stock Option Plan provides for both grants of incentive and non-incentive stock
options. No options may be granted after 10 years from the effective date of the
Stock Option Plan.
As of October 31, 1996, the Company had granted 710,000 options pursuant to
the Stock Option Plan each of which has a per share exercise price of $16.00
On October 10, 1996, the Company adopted an Employee Stock Purchase Plan
(the "Stock Purchase Plan") in which all employees of the Company who 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
deduction. The Stock Purchase Plan provides that employees may utilize 1% to 25%
of their gross compensation, up to a maximum of $25,000 per year, 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 either (i) the date immediately preceding the first day
of each calendar quarter and (ii) the last day of each calendar quarter. There
are 250,000 shares of common stock reserved for issuance under the Stock
Purchase Plan.
6. RELATED PARTY
Concurrently with the completion of the Reorganization, the Company entered
into a services agreement (the "Services Agreement") with Alpine whereby Alpine
agreed to provide 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 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
10
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1996
(UNAUDITED)
6. RELATED PARTY (CONTINUED)
represents a reasonable estimate of the cost of obtaining the services described
above. The Services Agreement will expire on April 30, 1998.
At October 31, 1996, $1.9 million was owed by the Company to Alpine, of
which $0.1 million was for services provided pursuant to the Services Agreement
and $1.8 million was for unreimbursed third party expenses incurred by Alpine in
connection with the Credit Facility and the Offering.
7. 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 form 85% to 25%
(depending on the time at which such expenses are incurred), subject to an
aggregate expense reimbursement of not less than 75%.
The Company is subject to other legal proceedings and claims which have
primarily arisen in the ordinary course of business and have not been
financially adjudicated.
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
Company's financial position, liquidity or results of operations.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company, through its two subsidiaries, Superior Telecommunications Inc.
("Superior") and DNE Systems, Inc. ("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.
As used herein "fiscal 1996" refers to the fiscal year ended April 30, 1996
and "fiscal 1997" refers to the fiscal year ending April 30, 1997.
RESULTS OF OPERATIONS
PRESENTATION OF RESULTS OF OPERATIONS
The following comparative table includes operating statement data for the
Company on an industry segment basis. Such data is presented on a pro forma
basis for the three and six months ended October 31, 1996 and 1995, which
management believes provides comparability among historical periods and
facilities the analysis of trends in the Company's operations and profitability.
Such pro forma data includes: (i) the combined historical results of operations
of Superior and DNE prior to the Reorganization and their inclusion as
subsidiaries of the Company, and (ii) pro forma adjustments to selling, general
and administrative expense, interest expense and income tax expense to reflect
the impact of the Reorganization and the Offering (see Note 1 to the
accompanying consolidated financial statements), as if such transactions
occurred on May 1, 1995. Such pro forma adjustments are more fully described in
the footnotes accompanying the following comparative table.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA OPERATING DATA
------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
-------------------- --------------------
1995 1996 1995 1996
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales
Telecommunications wire and cable(1).............................. $ 102,957 $ 116,887 $ 204,537 $ 234,856
Data communications and electronics............................... 6,119 6,039 11,384 11,894
--------- --------- --------- ---------
Consolidated.................................................... 109,076 122,926 215,921 246,750
Gross profit
Telecommunications wire and cable(1).............................. $ 9,180 $ 18,949 $ 17,685 $ 35,808
Data communications and electronics............................... 1,860 1,636 3,453 3,154
--------- --------- --------- ---------
Consolidated.................................................... 11,040 20,585 21,138 38,962
Gross margin percentage
Telecommunications wire and cable................................. 8.9% 16.2% 8.7% 15.2%
Data communications and electronics............................... 30.4% 27.1% 30.3% 26.5%
--------- --------- --------- ---------
Consolidated.................................................... 10.1% 16.7% 9.8% 15.8%
Selling, general and administrative
Telecommunications wire and cable(1).............................. $ 1,889 $ 2,650 $ 3,638 $ 4,972
Data communications and electronics............................... 1,499 1,686 3,082 3,252
Corporate(2)...................................................... 500 500 1,000 1,000
--------- --------- --------- ---------
Consolidated.................................................... 3,888 4,836 7,720 9,224
Amortization of goodwill
Telecommunications wire and cable(1).............................. $ 340 $ 431 $ 778 $ 863
--------- --------- --------- ---------
Operating income
Telecommunications wire and cable................................. $ 6,901 $ 15,868 $ 13,269 $ 29,973
Data communications and electronics............................... 361 (50) 371 (98)
Corporate......................................................... (500) (500) (1,000) (1,000)
--------- --------- --------- ---------
Consolidated.................................................... 6,762 15,318 12,640 28,875
Interest expense(3)................................................. (2,540) (2,453) (5,080) (4,993)
Minority interest(4)................................................ (179) (179) (358) (358)
Other income (expense).............................................. (4) (13) 24 (66)
--------- --------- --------- ---------
Income before tax............................................... 4,039 12,673 7,226 23,458
Provision for income taxes(5)....................................... (1,687) (5,141) (3,033) (9,526)
--------- --------- --------- ---------
Net income...................................................... $ 2,352 $ 7,532 $ 4,193 $ 13,932
--------- --------- --------- ---------
--------- --------- --------- ---------
Income per share of common stock(6)................................. $ 0.18 $ 0.58 $ 0.32 $ 1.08
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
12
<PAGE>
Supplemental data for the Superior Telecommunications wire and cable
segment:
Copper is a significant raw material component of Superior's finished
products. Fluctuations in the price of copper affect per unit product pricing
and related revenues. However, the cost of copper has not had a material impact
on Superior's profitability due to contractually mandated copper-based price
adjustments contained in Superior's customer sales contracts. The Company
believes that the following supplemental comparative data, which is based upon a
constant copper cost of $1.00 per pound for the indicated periods provides
additional meaningful information concerning Superior's sales and its gross
margin percentage.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA OPERATING DATA
------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
-------------------- --------------------
1995 1996 1995 1996
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET SALES....................................................... $ 92,369 $ 113,152 $ 184,765 $ 224,659
GROSS PROFIT.................................................... 9,180 18,949 17,685 35,808
GROSS MARGIN-PERCENTAGE......................................... 9.9% 16.7% 9.6% 15.9%
</TABLE>
- ------------------------
Notes to unaudited pro forma operating data:
(1) For the six months ended October 1995, net sales, gross profit, selling,
general and administrative expenses and amortization of goodwill have been
increased by $7.5 million, $0.6 million, $33,000 and $14,000, respectively,
to reflect the acquisition of the North American wire and cable operations
of Alcatel N.A. (the "Alcatel Business") as if the acquisition had been
completed on May 1, 1995. This acquisition was actually completed on May 11,
1995.
(2) Reflects estimated additional general and administrative expenses associated
with the Company's status as an independent public company of $2.0 million
on an annualized basis; including $0.2 million for the three months ended
October 1995 and 1996, and $0.5 million for the six months ended October
1995 and 1996 which would have been payable pursuant to the Services
Agreement (see Note 6 to the accompanying consolidated financial
statements).
(3) Reflects the Company's estimated interest expense assuming that the balance
outstanding under the Credit Facility was $110.0 million for the three
months ended October 1996 and $115.0 million for all prior periods.
(4) Reflects dividends on $11.9 million (principal amount) of Superior Preferred
Stock which remained outstanding subsequent to the Reorganization, the
Offering and the exercise of the Underwriters overallotment option (see Note
1 to the accompanying consolidated financial statements).
(5) Income tax expense has been adjusted to reflect estimated tax expense as if
the Company had filed a separate federal income tax return for all periods
presented.
(6) Income per share of common stock has been calculated based upon 12,924,048
shares outstanding which assumes completion of the Offering and exercise of
the underwriters' overallotment option (see Note 1 to the accompanying
consolidated financial statements).
NET SALES
Consolidated net sales for the three months ended October 1996 were $122.9
million, representing an increase of $13.9 million, or 12.7%, over consolidated
net sales of $109.1 million for the same period in fiscal 1996. For the six
months ended October 1996, consolidated net sales were $246.8 million,
representing a $30.8 million, or 14.3%, increase over consolidated net sales of
$215.9 million for the October 1995 six month period.
Superior's net sales of $116.9 million for the three months ended October
1996 were $13.9 million, or 13.5%, greater than net sales of $103.0 million for
the same period in fiscal 1996. For the six months ended October 1996, net sales
were $234.9 million, representing a $30.3 million, or 14.8%, increase over net
sales of $204.5 million for the October 1995 six month period. Adjusted for the
impact of lower copper prices in fiscal 1997 (see "Supplemental Data" included
in the industry segment operating statement data), the increase in net sales for
the October 1996 three month and six month periods would have been $20.8 million
and $39.9 million, respectively. Approximately $16.8 million and $31.0 million,
respectively,
13
<PAGE>
of the copper-adjusted increase in net sales for the three months and six month
periods ended October 1996, resulted from increased sales volume of Superior's
wire and cable products which was attributable to (1) additional sales volume
under new multi-year supply agreements entered into in the latter half of the
1996 fiscal year, and (2) the continued increase in demand for copper wire and
cable products due to growth in new copper-based access lines and increased
maintenance spending by several of Superior's major telephone company customers.
The remaining increase in net sales of approximately $4.0 million and $8.9
million for the three months and six month period ended October 1996,
respectively, resulted from non-copper based price increases instituted in the
latter half of the 1996 fiscal year.
DNE's net sales for the three months ended October 1996 were $6.0 million,
which were substantially equivalent to net sales of $6.1 million for the same
period in fiscal 1996. For the six months ended October 1996, net sales were
$11.9 million, representing a $0.5 million, or 4.5%, increase over net sales of
$11.4 million for the October 1995 six month period. Sales in DNE's contract
manufacturing service operations increased by $0.8 million and $2.1 million,
respectively, for the three month and six month periods ended October 31, 1996,
offset however by a decline in sales of military avionic products.
GROSS PROFIT
Consolidated gross profit for the three months ended October 1996 was $20.6
million, representing an increase of $9.5 million, or 86.5%, over consolidated
gross profit of $11.0 million for the same period in fiscal 1996. For the six
months ended October 1996, consolidated gross profit increased by $17.8 million,
or 84.3%, to $39.0 million as compared to $21.1 million for the October 1996 six
month period.
Superior's gross profit increased by $9.8 million, or 106.4%, to $18.9
million for the three months ended October 1996, as compared to $9.2 million for
the same period in fiscal 1996. For the six months ended October 1996, gross
profit increased by $18.1 million, or 102.5%, to $35.8 million as compared to
$17.7 million for the October 1995 six month period. Superior's gross margin
based on actual net sales, increased to 16.2% and 15.2%, respectively, for the
three and six month periods ended October 1996, as compared to 8.9% and 8.7%,
respectively, for the three and six month periods ended October 1995. (see
"Supplemental Data" previously referred to for comprative period-to-period gross
margin adjusted to reflect constant copper pricing) Superior's gross margin
improvement in the current fiscal year reflects a continuing trend of steadily
improving margins that began in fiscal 1996, after the completion of Superior's
acquisition of the Alcatel Business. Improvements in gross margin achieved
during the 1996 fiscal year were principally the result of increased selling
prices instituted pursuant to a majority of Superior's multi-year supply
agreements and, to a lesser degree, production efficiencies resulting from
higher production levels and cost savings from completion of the integration of
the Alcatel Business operations. The continued improvement in gross margin in
fiscal 1997 is primarily due to manufacturing cost reductions and other
production efficiencies that have been achieved during the first six months of
fiscal 1997.
DNE's gross profit was $1.6 million for the three months ended October 1996,
representing a decline of $0.2 million, or 12.0%, as compared to $1.8 million
for the same period in fiscal 1996. For the six months ended October 1996, gross
profit was $3.2 million representing a decline of $0.3 million, or 8.7%, as
compared to $3.5 million for the October 1995 six month period. DNE's gross
margin for the three month and six month periods ended October 1996 decreased to
27.1% and 26.5%, respectively, from 30.4% and 30.3% for the three months and six
months ended October 1995, respectively. The decline in gross margin resulted
primarily from increasing contract manufacturing sales, which have a lower gross
margin than DNE's other operations.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSE
Consolidated SG&A expense for the three months ended October 1996 was $4.8
million, representing an increase of $0.9 million, or 24.4%, over SG&A expense
of $3.9 million for the same period in fiscal 1996. For the six months ended
October 1996, consolidated SG&A expense was $9.2 million, representing an
increase of $1.5 million, or 19.5%, over consolidated SG&A expense of $7.7
million for the same period in fiscal 1996.
Superior's SG&A expense for the three months ended October 1996 was $2.7
million, representing an increase of $0.8 million, or 40.3%, over SG&A expense
of $1.9 million for the same period in fiscal 1996. For the six months ended
October 1996, SG&A expense was $5.0 million, representing an increase of
14
<PAGE>
$1.3 million, or 36.7%, over SG&A expense of $3.6 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 month and six month periods ended October
1996 was $1.7 million and $3.3 million, respectively, as compared to $1.5
million and $3.1 million in the corresponding periods of fiscal 1996. This
increase was attributable to an increase in contract manufacturing sales expense
as well as an increase in engineering expenses related to product development
and increased bid and proposal activity.
OPERATING INCOME
Consolidated operating income for the three months ended October 1996 was
$15.3 million, representing an increase of $8.6 million, or 126.5%, as compared
to consolidated operating income of $6.8 million for the same period in fiscal
1996. For the six months ended October 1996, consolidated operating income was
$28.9 million, representing an increase of $16.2 million, or 128.4%, over
consolidated operating income of $12.6 million for the same period in fiscal
1996. This comparative increase was wholly attributable to Superior's operations
where increased net sales and gross margins gave rise to an increase in
operating income of $9.0 million (130% increase) and a $16.7 million (126%
increase), respectively, for the three month and six month periods ended October
1996.
INTEREST EXPENSE
Consolidated interest expense on a pro forma basis for the three months
ended October 1996 was $2.5 million or $87,000 less than pro forma interest
expense for the comparable period of fiscal 1996. For the six months ended
October 1996, pro forma interest expense was $5.0 million, or $87,000 less than
pro forma interest expense for the six months ended October 1995. As discussed
in note 3 to the "unaudited pro forma operating data", included elsewhere
herein, pro forma interest expense is based on (i) an assumed outstanding
balance under Superior's $150 million revolving credit facility of $110.0
million for the three months ended October 1996 ($115.0 million for all prior
periods) with interest calculated at the current prevailing interest rate of
7.0%, and after giving effect to the amortization of deferred loan fees and
other bank fees associated with the credit facility, and (ii) interest expense
at contractual rates on other outstanding debt of Superior and DNE with a
principal balance of $11.0 million at October 1996.
INCOME TAX EXPENSE
Consolidated income tax expense on a pro forma basis for the three and six
month periods ended October 1996 and 1995 was calculated assuming that the
Company filed a separate consolidated Federal tax return (reflecting the
consolidated operations of Superior and DNE) in fiscal 1996 and fiscal 1997,
resulting in an effective tax rate of 41.7% and 41.9% for the three and six
months ended October 1995, respectively, and 40.6% for both the three and six
month periods ended October 1996.
NET INCOME
Consolidated pro forma net income for the three months ended October 1996
was $7.5 million ($0.58 per share on a pro forma basis), representing an
increase of $5.2 million, or 220.2%, over pro forma net income of $2.4 million
($0.18 per share on a pro forma basis) for the three months ended October 1995.
For the six months ended October 1996, consolidated pro forma net income was
$13.9 million ($1.08 per share on a pro forma basis), representing an increase
of $9.7 million, or 232.3%, over pro forma net income of $4.2 million, ($0.32
per share on a pro forma basis), for the six months ended October 1995. This
increase in net income was driven by the substantial increase in operating
income which is more fully described above.
15
<PAGE>
SUPPLEMENTAL COMMENTS ON ACTUAL RESULTS OF OPERATIONS
GENERAL
The following table sets forth, for the periods indicated, supplemental data
reflecting the Company's actual results of operations for the one month period
ended October 1996, presented in conjunction with the combined historical
results of operations of the Company's predecessors, Superior and DNE, for
periods prior to October 1996. For comparative purposes, the historical results
for the three and six month periods ended October 1996 include the two month and
five month periods ended September 1996 combined with the one month period ended
October 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
-------------------------- --------------------------
1995 1996 1995 1996
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales............................................... $ 109,076 $ 122,926 $ 208,400 $ 246,750
Gross profit............................................ 11,040 20,585 20,543 38,962
Gross margin............................................ 10.1% 16.8% 9.9% 15.8%
Selling, general and administrative..................... 3,388 4,503 6,687 8,391
Operating income........................................ 7,262 15,651 13,092 29,708
Interest expense........................................ (4,509) (3,722) (8,590) (7,980)
Provision for income taxes.............................. (1,179) (4,873) (1,630) (8,651)
Net income.............................................. 1,571 6,947 3,245 12,915
</TABLE>
The financial information presented in the table above for net sales, gross
profit, gross margin, selling, general and administrative, and operating income
are the same as the data presented in the "unaudited pro forma operating data"
included elsewhere herein, except for pro forma adjustments explained in
footnotes (1) and (2) to such pro forma operating data. Accordingly, the
discussion of the comparative changes and trends for the actual and historical
combined amounts referred to above have been addressed in the discussion
accompanying the pro forma operating data included elsewhere herein.
INTEREST EXPENSE
Interest expense for the three months ended October 1996 was $3.7 million,
representing a decrease of $0.8 million, or 17.5%, compared to interest expense
of $4.5 million for the same period in fiscal 1996. For the six months ended
October 1996 interest expense was $8.0 million, representing a decrease of $0.6
million, or 7.1%, compared to $8.6 million for the same period in fiscal 1996.
The decrease in interest expense resulted from a decline in net debt outstanding
over the comparative periods resulting from the significant growth in operating
cash flows during fiscal 1996 and the first six months of fiscal 1997.
PROVISION FOR INCOME TAXES
For the three and six month periods ended October 1996, provision for income
taxes was $4.9 million and $8.7 million, respectively, as compared to a
provision for income taxes of $1.2 million and $1.6 million for the three and
six month periods ended October 1995. The effective tax rate for the three and
six month periods ended October 1996 was 42.8% and 40.1%, respectively, as
compared to the effective tax rate of 42.9% and 33.4% for the three and six
month periods ended October 1995. The lower effective tax rate for the six
months ended October 1995 relates primarily to the availability of certain tax
loss carryforwards to offset a portion of the Federal income tax liability, as
well as a reduced state tax liability for such period.
NET INCOME
For the three and six month periods ended October 1996 net income was $6.9
million and $12.9 million, respectively, as compared to $1.6 million and $3.2
million for the same periods in fiscal 1996. The increase in net income resulted
primarily from the significant increase in operating income as more fully
described in the discussion accompanying the pro forma operating data included
elsewhere herein.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the one month ending October 31, 1996, the Company generated $10.3
million in cash flows from operating activities consisting of $2.7 million in
income generated from operations (net income plus non-cash charges) plus $7.6
million in cash flows generated from net working capital changes. Working
capital changes consisted principally of a $10.2 million reduction in accounts
receivable offset by a $2.9 million reduction in accounts payable and accrued
expenses. Cash provided by investing activities amounted to $87.7 million
consisting principally of $88.3 million in net proceeds from the Offering (see
Note 1 to the accompanying consolidated financial statements). Cash used for
financing activities amounted to $95.6 million including dividends paid by
Superior and DNE to Alpine of $117.1 million, the repayment by Superior and DNE
of $87.0 million in intercompany loans due to Alpine and $4.1 million in
capitalized financing costs, partially offset by $113.4 million in net borrowing
under the Company's Credit Facility.
For the five months ending September 30, 1996, representing the fiscal 1997
period prior to Reorganization, the Company generated $30.0 million in cash
flows from operating activities consisting of $14.9 million in income generated
from operations plus $15.1 million in cash flows generated from net working
capital changes. Working capital changes consisted principally of a $19.2
million reduction in inventories partially offset by a $5.0 million reduction in
accounts payable. Cash used in financing activities amounted to $27.0 million,
consisting principally of $26.8 million in net repayments of borrowings from
Alpine.
The Company's capital structure at October 31, 1996 consisted of $124.5
million in debt, $20.0 million in Superior Preferred Stock (see Note 1 to the
accompanying consolidated financial statements) and $16.1 million in total
stockholders' equity. On a pro forma basis, giving effect to exercise of the
underwriter overallotment option relating to the Offering (see Note 1 to the
accompanying consolidated financial statements), total debt would have been
$119.2 million, the Superior Preferred Stock would have been $11.9 million and
total stockholders' equity would have been $29.5 million. Included in the
Company's debt balance is $113.5 million outstanding under the Company's $150.0
million Credit Facility entered into in conjunction with the Reorganization.
Additional availability under the Credit Facility amounted to $36.5 million
($41.8 million on a pro forma basis, giving effect to the exercise of the
Underwriter overallotment option) at October 31, 1996. Obligations under the
Credit Facility are guaranteed by each of the Company's domestic subsidiaries
and are secured by substantially all of the assets of the Company and by the
stock of each domestic subsidiary. The Credit Facility contains customary
performance and financial covenants.
Over the next twelve months, the Company has annual principal debt service
commitments of approximately $1.6 million and capital expenditures are expected
to approximate $8.0-$8.5 million resulting in total principal debt service and
capital commitments of approximately $9.6-$10.1 million. The Company does not
expect to incur other material commitments over this period.
On a pro forma basis, Superior TeleCom's operations have typically generated
substantial operating cash flows. For the six month period ended October 31,
1996, the Company generated $40.2 million in operating cash flows which are
significantly greater than amounts needed to meet its annual principal debt
service and projected capital commitment requirements. Management anticipates
that Superior TeleCom will continue to generate more than adequate cash flows
from operating activities to meet its annual commitments. However, should any
shortfall arise due to working capital fluctuations or other factors, cash and
funds availability under the Credit Facility should be sufficient to cover such
shortfall.
- ------------------------
Except for the historical information herein, the matters discussed in this
Form 10-Q include forward- looking statements that may involve a number of risks
and uncertainties. Actual results may vary significantly based on a number of
factors, including, but not limited to, risks in product and technology
development, market acceptance of new products and continuing product demand,
the impact of competitive products and pricing, and changing economic
conditions, including changes in short term interest rates and other risk
factors detailed in the Company's most recent filings with the Securities and
Exchange Commission.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS ON SENIOR SECURITIES
(a) None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT 27--FINANCIAL DATA SCHEDULE
(b) Reports on Form 8-K
None
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUPERIOR TELECOM INC.
(Registrant)
<TABLE>
<S> <C> <C>
Date: December 16, 1996 By: /s/ DAVID S. ALDRIDGE
-----------------------------------------
David S. Aldridge
CHIEF FINANCIAL OFFICER
</TABLE>
19
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> OCT-02-1996
<PERIOD-END> OCT-31-1996
<CASH> 3,051
<SECURITIES> 0
<RECEIVABLES> 43,250
<ALLOWANCES> 171
<INVENTORY> 37,962
<CURRENT-ASSETS> 90,048
<PP&E> 92,374
<DEPRECIATION> (16,047)
<TOTAL-ASSETS> 219,293
<CURRENT-LIABILITIES> 51,211
<BONDS> 0
20,000
0
<COMMON> 120
<OTHER-SE> 15,940
<TOTAL-LIABILITY-AND-EQUITY> 219,293
<SALES> 35,725
<TOTAL-REVENUES> 35,725
<CGS> (29,564)
<TOTAL-COSTS> (29,564)
<OTHER-EXPENSES> (4)
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</TABLE>
