<PAGE>
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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, 1997
/ / 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 10019-1412
NEW YORK, NEW YORK (Zip code)
(Address of principal
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 9, 1997
- --------------------------- ------------------------------
Common Stock, $.10 Par Value 12,933,305
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed 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. These financial
statements should be read in conjunction with the summary of significant
accounting policies and the notes to the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended April
30, 1997.
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1997 1997
---------- -----------
<S> <C> <C>
(NOTE 1) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.............................................................. $ 1,052 $ 4,469
Accounts receivable (less allowance for doubtful accounts of:
April, $174; October $169)........................................................... 48,099 59,235
Inventories............................................................................ 56,262 44,125
Other current assets................................................................... 4,554 4,279
---------- -----------
Total current assets............................................................... 109,967 112,108
Property, plant and equipment, net....................................................... 77,023 75,658
Long-term investments and other assets................................................... 4,666 4,175
Goodwill (less accumulated amortization; April, $4,826; October, $5,691)................. 46,452 45,625
---------- -----------
Total assets..................................................................... $ 238,108 $ 237,566
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................................... $ 43,594 $ 48,016
Accrued expenses....................................................................... 18,326 20,760
Current portion of long-term debt...................................................... 430 129
---------- -----------
Total current liabilities.......................................................... 62,350 68,905
Long-term debt, less current portion..................................................... 120,862 91,609
Other long-term liabilities.............................................................. 10,868 12,583
---------- -----------
Total liabilities................................................................ 194,080 173,097
---------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; authorized 25,000,000 shares; issued: April, 12,926,536
shares; October, 12,933,305 shares................................................... 129 130
Capital in excess of par value......................................................... 27,340 27,468
Cumulative translation adjustment...................................................... (831) (749)
Retained earnings...................................................................... 17,390 37,620
---------- -----------
Total stockholders' equity......................................................... 44,028 64,469
---------- -----------
Total liabilities and stockholders' equity....................................... $ 238,108 $ 237,566
---------- -----------
---------- -----------
</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 ENDED
SEPTEMBER 30, OCTOBER 31, OCTOBER 31,
1996 1996 1997
------------- ----------- -------------
<S> <C> <C> <C>
(NOTE 1)
Net sales.............................................................. $ 87,201 $ 35,725 $ 139,212
Cost of goods sold..................................................... 72,777 29,564 113,870
------------- ----------- -------------
Gross profit......................................................... 14,424 6,161 25,342
Selling, general and administrative expense............................ 2,703 1,800 5,483
Amortization of goodwill............................................... 289 142 430
------------- ----------- -------------
Operating income..................................................... 11,432 4,219 19,429
Interest (expense)..................................................... (2,715) (1,007) (2,204)
Other income (expense), net............................................ (9) (100) (12)
------------- ----------- -------------
Income before income taxes........................................... 8,708 3,112 17,213
Provision for income taxes............................................. (3,590) (1,283) (6,711)
------------- ----------- -------------
Net income........................................................... $ 5,118 $ 1,829 $ 10,502
------------- ----------- -------------
------------- ----------- -------------
Net income per share of common stock................................... $ 0.22 $ 0.79
----------- -------------
----------- -------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIVE MONTHS ONE MONTH SIX MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, OCTOBER 31, OCTOBER 31,
1996 1996 1997
------------- ----------- -----------
<S> <C> <C> <C>
(NOTE 1)
Net sales................................................................ $ 211,025 $ 35,725 $ 270,445
Cost of goods sold....................................................... 178,224 29,564 220,761
------------- ----------- -----------
Gross profit........................................................... 32,801 6,161 49,684
Selling, general and administrative expense.............................. 6,591 1,800 10,854
Amortization of goodwill................................................. 721 142 860
------------- ----------- -----------
Operating income....................................................... 25,489 4,219 37,970
Interest (expense)....................................................... (6,973) (1,007) (4,625)
Other income (expense), net.............................................. (62) (100) 32
------------- ----------- -----------
Income before income taxes............................................. 18,454 3,112 33,377
Provision for income taxes............................................... (7,368) (1,283) (13,147)
------------- ----------- -----------
Net income............................................................. $ 11,086 $ 1,829 $ 20,230
------------- ----------- -----------
------------- ----------- -----------
Net income per share of common stock..................................... $ 0.22 $ 1.52
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED OCTOBER 31, 1997
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL FOREIGN
------------------------- IN EXCESS CURRENCY RETAINED
SHARES AMOUNT OF PAR TRANSLATION EARNINGS TOTAL
------------ ----------- ----------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1997............................ 12,926,536 $ 129 $ 27,340 $ (831) $ 17,390 $ 44,028
Foreign currency translation......................... 82 82
Employee stock purchase plan......................... 3,919 1 82 83
Exercise of stock options............................ 2,850 -- 46 46
Net income for the six months ended October 31,
1997............................................... 20,230 20,230
------------ ----- ----------- ----- --------- ---------
Balance at October 31, 1997.......................... 12,933,305 $ 130 $ 27,468 $ (749) $ 37,620 $ 64,469
------------ ----- ----------- ----- --------- ---------
------------ ----- ----------- ----- --------- ---------
</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>
FIVE MONTHS ONE MONTH SIX MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, OCTOBER 31, OCTOBER 31,
1996 1996 1997
------------- ----------- -----------
<S> <C> <C> <C>
(NOTE 1)
Cash flows from operating activities:
Net income............................................................. $ 11,086 $ 1,829 $ 20,230
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization...................................... 3,700 753 4,965
Amortization of deferred financing costs........................... 20 90 521
Change in assets and liabilities:
Accounts receivable.................................................. 409 10,201 (11,136)
Inventories.......................................................... 19,218 546 12,137
Other current and non current assets................................. 462 (259) 245
Accounts payable and accrued expenses................................ (5,041) (2,859) 7,106
Other, net........................................................... 123 -- (198)
------------- ----------- -----------
Cash flows provided by operating activities.............................. 29,977 10,301 33,870
------------- ----------- -----------
Cash flows from investing activities:
Net proceeds from sale of common stock................................. -- 88,280 --
Capital expenditures................................................... (2,745) (640) (5,990)
Net proceeds from sale of assets....................................... -- -- 4,962
Other.................................................................. 35 37 --
------------- ----------- -----------
Cash flows provided by (used for) investing activities................... (2,710) 87,677 (1,028)
------------- ----------- -----------
Cash flows from financing activities:
Borrowings (repayments) under revolving credit facilities, net......... -- 113,382 (25,657)
Capitalized financing costs............................................ -- (4,050) --
Repayments to Alpine, net.............................................. (26,768) (86,968) --
Dividends on common stock.............................................. -- (117,129) --
Repayments of long-term borrowings..................................... (216) (796) (3,897)
Other.................................................................. -- -- 129
------------- ----------- -----------
Cash flows (used for) financing activities............................... (26,984) (95,561) (29,425)
------------- ----------- -----------
Net increase in cash and cash equivalents................................ 283 2,417 3,417
Cash and cash equivalents at beginning of period......................... 351 634 1,052
------------- ----------- -----------
Cash and cash equivalents at end of period............................... $ 634 $ 3,051 $ 4,469
------------- ----------- -----------
------------- ----------- -----------
Supplemental disclosures:
Cash paid for interest................................................. $ 7,610 $ 408 $ 4,445
------------- ----------- -----------
------------- ----------- -----------
Cash paid for income taxes............................................. $ 569 $ 467 $ 12,853
------------- ----------- -----------
------------- ----------- -----------
</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, 1997
(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") was 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 6% Cumulative Preferred Stock (the "Superior Preferred Stock"),
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"), the net proceeds of which were used to repay
the intercompany debt of $87.9 million owed by Superior and DNE to Alpine and to
pay to Alpine $63.8 million of the aforementioned dividend.
OFFERING
In October 1996, the Company sold 6,000,000 shares of its common stock (the
"Common Stock") through an initial public offering (the "Offering"). 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 on 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 Common Stock.
The Company used the net proceeds of approximately $13.3 million to repurchase
450,000 shares of Common Stock for approximately $8.1 million, with the balance
applied to reduce the amount outstanding under the Credit Facility. The
repurchased shares of Common Stock were then transferred to Alpine in exchange
for $8.1 million in principal amount of the Superior Preferred Stock. On
February 12, 1997, Superior redeemed at face value an additional $11.3 million
principal amount of the Superior Preferred Stock. The remaining $0.6 million of
Superior Preferred Stock held by Alpine at April 30, 1997 and October 31, 1997
is included in other long-term liabilities in the accompanying consolidated
balance sheets. After completion of these transactions, Alpine still retained
voting control over the Company; however, its ownership interest has been
reduced to 50.1%.
BASIS OF PRESENTATION
The following financial statements included herein are for the period
subsequent to the Reorganization: (i) balance sheets of the Company at April 30,
1997 and October 31, 1997, (ii) statements of operations for the one month ended
October 31, 1996 and the three and six months ended October 31, 1997, (iii)
statement of stockholders' equity for the six months ended October 31, 1997 and
(iv) statements of cash flows for the one month ended October 31, 1996 and the
six months ended October 31, 1997. For comparative purposes, the combined
financial statements of the predecessor companies, Superior and DNE, prior to
the Reorganization, have also been included herein. These financial statements
consist of the combined statements of operations of Superior and DNE for the two
and five months ended September 30, 1996 and the statement of cash flows for the
five months ended September 30, 1996.
8
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
(UNAUDITED)
2. INVENTORIES
The components of inventories are:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1997 1997
--------- -----------
<S> <C> <C>
Raw materials......................................................... $ 10,352 $ 9,516
Work in process....................................................... 10,556 9,158
Finished goods........................................................ 35,354 25,451
--------- -----------
$ 56,262 $ 44,125
--------- -----------
--------- -----------
</TABLE>
3. NET INCOME PER SHARE
Net income per share is determined by dividing net income by the applicable
weighted average common and common share equivalents outstanding. Stock options
are considered to be common share equivalents. The number of shares used in
computing net income per share for the one month ended October 31, 1996 was
8,151,446, and for the three and six months ended October 31, 1997 was
13,348,300 and 13,300,109, respectively.
9
<PAGE>
ITEM 2. 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 (i) copper wire and cable for the telecommunications
industry and (ii) data communication and other electronic products and systems
for defense, governmental and commercial applications.
RESULTS OF OPERATIONS
PRESENTATION OF RESULTS OF OPERATIONS
The following comparative table includes unaudited operating statement data
for the Company on an industry segment basis. Such data is presented on an
historical basis for the three and six months ended October 31, 1997 and on a
pro forma basis for the three and six months ended October 31, 1996. Management
believes the pro forma data presented herein for the three and six months ended
October 31, 1996 provide comparability among historical periods and facilitates
an analysis of trends in the Company's operations and profitability. Such pro
forma data include (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 unaudited
consolidated financial statements), as if such transactions had occurred on May
1, 1996. Such pro forma adjustments are more fully described in the footnotes
accompanying the following comparative table.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------------ ------------------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
----------- ----------- ----------- -----------
<CAPTION>
(PROFORMA) (HISTORICAL) (PROFORMA) (HISTORICAL)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales:
Telecommunications wire and cable........................ $ 116,887 $ 131,394 $ 234,856 $ 258,114
Data communications and electronics...................... 6,039 7,818 11,894 12,331
----------- ----------- ----------- -----------
Consolidated......................................... 122,926 139,212 246,750 270,445
Gross profit:
Telecommunications wire and cable........................ $ 18,949 $ 22,976 $ 35,808 $ 46,011
Data communications and electronics...................... 1,636 2,366 3,154 3,673
----------- ----------- ----------- -----------
Consolidated......................................... 20,585 25,342 38,962 49,684
Gross profit percentage:
Telecommunications wire and cable........................ 16.2% 17.5% 15.2% 17.8%
Data communications and electronics...................... 27.1% 30.3% 26.5% 29.8%
----------- ----------- ----------- -----------
Consolidated......................................... 16.7% 18.2% 15.8% 18.4%
Selling, general and administrative expense:
Telecommunications wire and cable........................ $ 2,650 $ 3,250 $ 4,972 $ 6,401
Data communications and electronics...................... 1,686 1,482 3,252 2,853
Corporate (1)............................................ 500 751 1,000 1,600
----------- ----------- ----------- -----------
Consolidated......................................... 4,836 5,483 9,224 10,854
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------------ ------------------------
1996 1997 1996 1997
----------- ----------- ----------- -----------
(PROFORMA) (HISTORICAL) (PROFORMA) (HISTORICAL)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Amortization of goodwill:
Telecommunications wire and cable........................ $ 431 $ 430 $ 863 $ 860
----------- ----------- ----------- -----------
Operating income (loss):
Telecommunications wire and cable........................ $ 15,868 $ 19,296 $ 29,973 $ 38,750
Data communications and electronics...................... (50) 884 (98) 820
Corporate................................................ (500) (751) (l,000) (1,600)
----------- ----------- ----------- -----------
Consolidated......................................... 15,318 19,429 28,875 37,970
Interest expense (2)....................................... (2,453) (2,204) (4,993) (4,625)
Minority interest (3)...................................... (179) (9) (358) (18)
Other income (expense), net................................ (13) (3) (66) 50
----------- ----------- ----------- -----------
Income before income taxes........................... 12,673 17,213 23,458 33,377
Provision for income taxes (4)............................. (5,141) (6,711) (9,526) (13,147)
----------- ----------- ----------- -----------
Net income........................................... $ 7,532 $ 10,502 $ 13,932 $ 20,230
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share of common stock (5)................... $ 0.58 $ 0.79 $ 1.08 $ 1.52
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
NOTES TO UNAUDITED PRO FORMA OPERATING DATA:
(1) 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 prior to the Offering.
(2) Reflects the Company's estimated interest expense prior to the Offering
assuming a balance outstanding under the Credit Facility of $110.0 million
for the quarter ended October 31, 1996 and $112.5 million for the six months
ended October 31, 1996.
(3) Reflects dividends on $11.9 million (face amount) of Superior Preferred
Stock outstanding subsequent to the Reorganization and Offering (see Note 1
to the accompanying unaudited consolidated financial statements).
(4) Income tax expense has been adjusted for periods prior to the Offering to
reflect estimated tax expense as if the Company had filed a separate federal
income tax return.
(5) Net income per share of Common Stock for periods prior to the Offering has
been calculated based upon 12,924,048 shares outstanding, which assumes
completion of the Offering (see Note 1 to the accompanying unaudited
Condensed Consolidated Financial Statements).
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
11
<PAGE>
indicated periods, provides additional meaningful information concerning
Superior's sales and its gross profit percentage.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
---------------------- ----------------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
---------- ---------- ---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales..................................................... $ 113,152 $ 126,467 $ 224,659 $ 249,809
Gross profit.................................................. 18,949 22,976 35,808 46,011
Gross profit percentage....................................... 16.7% 18.2% 15.9% 18.4%
</TABLE>
SUPERIOR--RESULTS OF OPERATIONS
Superior's net sales for the quarter ended October 1997 were $131.4 million,
representing an increase of $14.5 million, or 12.4%, as compared to the same
period in the prior fiscal year. For the six months ended October 1997,
Superior's net sales were $258.1 million, representing an increase of $23.3
million, or 9.9%, as compared to the same period in the prior fiscal year.
Adjusted to a constant copper cost of $1.00 per pound, the comparative
percentage increases in net sales for the three and six month periods ended
October 1997 were 11.8% and 11.2%, respectively (see "Supplemental Data for the
Superior Telecommunications Wire and Cable Segment" included in the industry
segment operating statement data). The increase in net sales for the quarter and
six months ended October 1997 resulted primarily from increased demand for
copper wire and cable products due to continuing growth in new copper-based
telephone access lines and an increase in maintenance spending by several of
Superior's major telephone company customers. The growth in access lines is
believed to be the result of increased demand for support of computer, facsimile
and internet connections. Also contributing to the growth in net sales was an
increase in shipments pursuant to a new multi-year supply agreement entered into
during the early portion of fiscal 1997. In order to keep pace with the growth
in demand and increased market share, Superior has been increasing its
production capacity and, more recently, supplementing its inventory requirements
with product purchased from other wire and cable manufacturers. The Company
expects to continue to increase its production capacity over the next 12 months,
to a level that will be sufficient to provide internally for anticipated product
demand levels.
Superior's gross profit increased by $4.0 million, or 21.3%, to $23.0
million for the quarter ended October 1997, as compared to the same period in
the prior fiscal year. For the six months ended October 1997, Superior's gross
profit was $46.0 million, representing an increase of $10.2 million, or 28.5%,
as compared to the same period in the prior fiscal year. Superior's gross profit
percentage, based on actual net sales, was 17.5% for the quarter ended October
1997 and 17.8% for the six months ended October 1997, as compared to 16.2% for
the quarter ended October 1996 and 15.2% for the six months ended October 1996.
Adjusted to a constant copper cost of $1.00 per pound, the gross profit
percentage increased to 18.2% and 18.4%, respectively, for the quarter and six
months ended October 1997, as compared to 16.7% and 15.9%, respectively, for the
quarter and six months ended October 1996. The comparative increase in
Superior's gross profit percentage was attributable to a combination of factors,
including manufacturing cost reductions resulting from production efficiencies,
improved cost absorption resulting from higher sales volume, generally higher
comparative market prices and the impact of product and customer mix; offset to
some degree by lower product margins associated with the sale of product
purchased from other cable manufacturers.
Superior's SG&A expense for the quarter ended October 1997 was $3.3 million,
representing an increase of $0.6 million, or 22.6%, as compared to SG&A expense
of $2.7 million for the same period in the prior fiscal year. For the six months
ended October 1997, Superior's SG&A expense was $6.4 million, representing an
increase of $1.4 million, or 28.7%, as compared to the same period in the prior
fiscal year. The increase in SG&A expense for the quarter and six months ended
October 1997 was attributable primarily to costs associated with the incremental
staff required to support the increased level of sales
12
<PAGE>
activity and the expansion of product development activities, including the
establishment and staffing of a product development facility during the fourth
quarter of fiscal 1997.
Superior's operating income for the quarter ended October 1997 was $19.3
million, representing an increase of $3.4 million, or 21.6%, as compared to the
quarter ended October 1996. For the six months ended October 1997, Superior's
operating income was $38.8 million, representing an increase of $8.8 million, or
29.3%, as compared to the same period in the prior fiscal year. The substantial
comparative increase in operating income resulted from higher net sales and the
improvement in gross profit percentage.
DNE--RESULTS OF OPERATIONS
For the quarter ended October 1997, DNE's net sales were $7.8 million,
representing an increase of $1.8 million, or 29.5%, as compared to the same
period in the prior fiscal year. For the six months ended October 1997, DNE's
net sales were $12.3 million, representing an increase of $0.4 million, or 3.7%,
as compared to the same period in the prior fiscal year. The current period
increase in net sales was the result of significant shipments under DNE's first
major commercial multiplexer project, along with an improvement in government
related revenues, partially offset by a decline in DNE's contract manufacturing
activities.
DNE's gross profit percentage increased to 30.3% for the quarter ended
October 1997 and to 29.8% for the six months ended October 1997, as compared to
27.1% and 26.5% for the three and six month periods ended October 1996,
respectively. The increase in gross profit percentage was attributable to the
higher margin associated with the aforementioned commercial multiplexer sales
and the increase in higher margin government related revenues.
DNE reduced SG&A expense by $0.2 million, or 12.1%, in the October 1997
quarter and by $0.4 million, or 12.3%, in the October 1997 six month period, as
compared to the same periods in the prior fiscal year. Such reductions were
attributable to an operational reorganization and cost reduction initiatives.
As a result of the increase in net sales and gross profit percentage and the
reduction in SG&A expense, DNE generated operating income of $0.9 million during
the quarter ended October 1997 and $0.8 million for the six months ended October
1997 which was an improvement over DNE's approximately break even operating
income in the same periods of the prior fiscal year.
CONSOLIDATED RESULTS OF OPERATIONS
The growth in sales at both Superior and DNE for the quarter ended October
1997 resulted in comparative consolidated net sales increasing by 13.2% to
$139.2 million, as compared to the quarter ended October 1996. For the six
months ended October 1997, the Company's consolidated net sales increased by
9.6% to $270.4 million, as compared to net sales for the six months ended
October 1996. The increase in net sales, along with an increase in gross profit
percentage, gave rise to a comparative consolidated increase in gross profit of
$4.8 million, or 23.1%, for the quarter ended October 1997 and $10.7 million, or
27.5%, for the six months ended October 1997.
Consolidated SG&A expense for the quarter ended October 1997 was $5.5
million, reflecting an increase of $0.6 million, or 13.4%, as compared to pro
forma SG&A expense for the quarter ended October 1996. For the six months ended
October 1997, the Company's consolidated SG&A expense was $10.9 million,
representing an increase of $1.6 million, or 17.7%, as compared to the same
period in the prior fiscal year. The increase was attributable to higher SG&A
expense at Superior and an increase in corporate SG&A expense resulting
primarily from an increase in amounts charged to the Company for certain
corporate services pursuant to a Services Agreement with Alpine.
13
<PAGE>
Consolidated operating income increased 26.8%, to $19.4 million for the
quarter ended October 1997 as compared to pro forma operating income for the
quarter ended October 1996. For the six months ended October 1997, the Company's
consolidated operating income was $38.0 million, representing an increase of
31.5%, as compared to the same period in the prior fiscal year. The comparative
growth in operating income resulted from an increase in consolidated gross
profit, partially offset by the aforementioned increase in consolidated SG&A
expense.
Consolidated interest expense for the quarter ended October 1997 was $2.2
million, or $0.2 million less than pro forma interest expense for the
comparative period of fiscal 1996. For the six months ended October 1997,
Superior's consolidated interest expense was $4.6 million, representing a
decrease of $0.4 million, as compared to the same period in the prior fiscal
year. The average balance outstanding under the Company's Credit Facility for
the three and six months ended October 31, 1997 was $94.9 million and $100.6
million, respectively, as compared to $110.0 million and $112.5 million,
respectively, for the three and six months ended October 31, 1996 (see Note 2 to
the "Unaudited Pro Forma Operating Data" included elsewhere herein).
Pro forma consolidated income tax expense for the three and six months ended
October 31, 1996 was calculated assuming that the Company filed a combined U.S.
Federal tax return, reflecting the combined operations of Superior and DNE (see
Note 4 to the "Unaudited Pro Forma Operating Data" included elsewhere herein).
As a result, consolidated income tax expense reflects an effective tax rate of
40.6% and 39.0% for the quarters ended October 1996 and 1997, respectively, and
40.6% and 39.4% for the six months ended October 1997 and 1996, respectively.
Consolidated net income for the quarter ended October 1997 was $10.5
million, or $0.79 per share, representing an increase of $3.0 million, or 39.4%,
over pro forma net income of $7.5 million, or $0.58 per share, for the quarter
ended October 1996. Consolidated net income for the six months ended October
1997 was $20.2 million, or $1.52 per share, representing an increase of $6.3
million, or 45.2%, over pro forma net income of $13.9 million, or $1.08 per
share, for the six months ended October 1996. This increase in net income
resulted primarily from the increase in operating income described above.
SUPPLEMENTAL COMMENTS ON COMPARATIVE ACTUAL RESULTS OF OPERATIONS
Set forth below is a supplemental discussion addressing the comparison of
the actual results of the Company for the three and six months ended October 31,
1997, as compared to the actual results of the Company (and its predecessors) as
combined for the one month period ended October 31, 1996 and the two and five
month periods ended September 30, 1996 (see Note 1 to the accompanying Condensed
Consolidated Financial Statements).
The historical financial information for net sales, gross profit, selling,
general and administrative expense and operating income for the three and six
month periods ended October 31, 1996 and 1997, as presented in the Condensed
Consolidated Statements of Operations included in the accompanying financial
statements, are the same as the data presented in the "unaudited pro forma
operating data" included elsewhere herein, except for the pro forma adjustment
explained in Note (1) to such pro forma operating data. Accordingly, 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.
Comparative historical interest expense declined by $1.5 million to $2.2
million for the quarter ended October 1997 and declined by $3.4 million to $4.6
million for the six months ended October 1997. The decline resulted from a
reduction in outstanding debt and a reduction in interest rates associated with
such debt, both of which were attributed to the impact of the Reorganization,
Offering and associated debt refinancings.
Historical net income increased to $10.5 million for the quarter ended
October 1997, as compared to $6.9 million for the quarter ended October 1996,
and to $20.2 million for the six months ended October 1997, as compared to $12.9
million for the same period in the prior fiscal year. This increase resulted
from the substantial increase in operating income (described above) combined
with the aforementioned reduction in interest expense.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended October 1997, the Company generated $33.9 million
in cash flows from operating activities consisting of $25.7 million in income
generated from operations (net income plus non-cash charges) plus $8.2 million
in cash flows generated from net working capital changes. Such working capital
changes consisted principally of an $11.1 million increase in accounts
receivable, offset by a $12.1 million reduction in inventories and a $7.1
million reduction in accounts payable and accrued expenses. Cash used for
investing activities amounted to $1.0 million, consisting principally of $5.0
million in net proceeds from the sale of assets, of which $4.4 million resulted
from the sale of a building owned by DNE, offset by $6.0 million in capital
expenditures. Cash used for financing activities amounted to $29.4 million,
consisting principally of the repayment of debt.
The Company's capital structure at October 31, 1997 consisted of $91.7
million in debt and $64.5 million in total stockholders' equity. Included in the
Company's debt balance is $86.0 million outstanding under the Company's $150.0
million Credit Facility. Additional availability under the Credit Facility
amounted to $64.0 million at October 31, 1997. Obligations under the Credit
Facility are guaranteed by each of the Company's subsidiaries and are secured by
substantially all of the assets of the Company and by the stock of each
subsidiary. The Credit Facility contains customary performance and financial
covenants.
Over the next 12 months, the Company has annual principal debt service
commitments of approximately $0.1 million and expected capital expenditures of
approximately $10-$15 million. The Company does not expect to incur other
material commitments over this period.
Superior's operations have typically generated substantial operating cash
flows, as indicated by the $33.9 million in cash flows from operating activities
generated during the six months ended October 1997. Management anticipates that
the Company 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.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on September 24,
1997 for the purpose of: (i) electing five directors and (ii) ratifying the
selection of auditors for the current fiscal year. Proxies were solicited by
management pursuant to Regulation 14A under the Securities Exchange Act of 1934.
There was no solicitation in opposition to management's proposals and nominees;
and all such proposals were adopted and nominees elected.
With respect to the re-election of Messrs. Steven S. Elbaum, Eugene P.
Connell, Robert J. Levenson, Bragi F. Schut and Charles Y.C. Tse as directors of
the Company, each of them received the affirmative vote of the holders of
12,335,395 shares of Common Stock, representing 99.9% of the shares voted. The
Company's five directors all have terms of office which expire at each Annual
Meeting of Stockholders.
With respect to the election of Arthur Andersen LLP as the Company's
auditors, 12,335,395 shares of Common Stock, representing 99.9% of the shares
voted, were voted in favor of the ratification.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT 27--FINANCIAL DATA SCHEDULE
(b) Reports on Form 8-K
None
16
<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>
Date: December 12, 1997 By: /s/ David S. Aldridge
-------------------------------
David S. Aldridge
Chief Financial Officer
</TABLE>
17
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<PAGE>
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<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> OCT-31-1997
<EXCHANGE-RATE> 1
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0
0
<COMMON> 130
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