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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED APRIL 30, 1998
OR
/ / 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
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SUPERIOR TELECOM INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-2248978
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
1790 BROADWAY 10019-1412
NEW YORK, NEW YORK (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code 212-757-3333
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Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $.01 per share New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
At July 24, 1998, the registrant had 16,173,078 shares of common stock, par
value $.01 per share, outstanding, and the aggregate market value of the
outstanding shares of voting stock held by non-affiliates of the registrant on
such date was approximately $300.8 million based on the closing price of $37.313
per share of such common stock on such date.
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DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Company's Annual Meeting of Stockholders in Part III
of this Form 10-K.
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PART I
ITEM. 1. BUSINESS
GENERAL
Superior TeleCom Inc. (together with its subsidiaries, unless the context
otherwise requires, the "Company") is a leading manufacturer of copper
telecommunications wire and cable products for the local loop segment of the
telecommunications network in the United States and Canada (hereinafter referred
to as North America). The Company also develops and manufactures data
communications and other electronic equipment, including multiplexers, for
defense, government and commercial applications.
All references herein to fiscal 1996, fiscal 1997 and fiscal 1998 mean the
years ended April 28, April 30 and April 30 of such years, respectively.
The Company was incorporated in Delaware in July 1996. Its principal
executive offices are located at 1790 Broadway, New York, New York 10019-1417
and its telephone number is (212) 757-3333.
BUSINESS OVERVIEW
The Company conducts its copper telecommunications wire and cable products
business through its wholly owned subsidiary, Superior Telecommunications Inc.
("Superior"). The Company has led the North American consolidation in the copper
telecommunications wire and cable industry by acquiring the U.S. and Canadian
copper telecommunications wire and cable business (the "Alcatel Business") of
Alcatel NA Cable Systems, Inc. and Alcatel Canada Wire, Inc. (collectively,
"Alcatel NA") in May 1995 and substantially all of the machinery, equipment and
inventory of the Vancouver, B.C. copper telecommunications wire and cable
business of BICC Phillips, Inc. in November 1995. Through these acquisitions, as
well as through internal capacity expansion, the Company increased its annual
production capacity from 28 billion conductor feet ("bcf") in one plant to an
aggregate of more than 105 bcf in four geographically dispersed plants.
Due to the industry-wide consolidation that has occurred over the past four
years, the number of manufacturers has declined and the size of those remaining
has increased. As a result, the Company has become a key supplier of copper wire
and cable to the regional Bell operating companies ("RBOCs") and to the two
largest independent telephone companies. The Company believes that it will
continue to be able to compete effectively as its major customers consolidate
their vendor base in order to stabilize their sources of supply and ensure
timely delivery of quality products on a consistent and long-term basis. The
Company estimates that its share of the North American copper telephone cable
and wire market was approximately 40% for fiscal 1998.
RECENT DEVELOPMENTS
On May 5, 1998, the Company acquired 51% of the issued and outstanding
shares of common stock of Cables of Zion United Works Ltd. ("Cables of Zion")
for approximately $24 million in cash. Cables of Zion is an Israel-based cable
and wire manufacturer whose common stock is traded on the Tel Aviv Stock
Exchange. In connection with the acquisition, the Company obtained a two-year
option to purchase an additional 19% interest in Cables of Zion at the same
purchase price per share (as adjusted for inflation). Cables of Zion
manufactures and sells fiber and copper telecommunications products and power
cables to customers in the Israeli and European markets.
REORGANIZATION, PUBLIC OFFERING AND STOCK DIVIDEND
The Company was incorporated in July 1996 as a wholly-owned subsidiary of
The Alpine Group, Inc. ("Alpine"). On October 2, 1996, Alpine completed a
reorganization (the "Reorganization") whereby all of the issued and outstanding
common stock of two of Alpine's wholly-owned subsidiaries, Superior and DNE
Systems, Inc. ("DNE"), were contributed to the Company. As part of the
Reorganization, Alpine caused
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Superior and DNE to declare dividends on their common stock in an aggregate
amount of $117.1 million. Superior also issued to Alpine 20,000 shares of its 6%
Cumulative Preferred Stock (the "Superior Preferred Stock"). Concurrently with
the Reorganization, the Company entered into a new revolving credit facility
(the "Bank Credit Facility") under which it borrowed $154.0 million with the
proceeds used to repay the net amount of the intercompany debt owed to Alpine
($87.9 million) and to pay to Alpine $63.8 million of the aforementioned
declared dividends.
On October 17, 1996, the Company completed an initial public offering (the
"Offering") of 7,500,000 shares of its common stock (as adjusted retroactively
for a five-for-four stock split effected in January 1998), $0.01 par value (the
"Common Stock"), at $12.80 per share, the net proceeds of which were used to pay
the remainder of the declared dividends and to reduce the amount outstanding
under the Bank Credit Facility. In November 1996, the underwriters of the
Offering exercised their overallotment option to purchase an additional
1,125,000 shares of Common Stock (as adjusted for the aforementioned stock
split) at $12.80 per share. The Company used the net proceeds of approximately
$13.3 million to repurchase 562,500 shares of its Common Stock (as adjusted for
the aforementioned stock split) for approximately $8.1 million, with the balance
applied to reduce the amount outstanding under the Bank Credit Facility. The
repurchased shares of Common Stock were then transferred to Alpine in exchange
for $8.1 million in liquidation amount of the Superior Preferred Stock. As a
result of the Offering and the foregoing exchange, Alpine's ownership interest
in the Company declined to 50.1%.
In connection with the Reorganization, the Company entered into an agreement
(as amended and extended to date, the "Services Agreement") with Alpine.
Pursuant to the Services Agreement, Alpine provides certain financial, audit and
accounting, corporate finance and strategic planning, legal, treasury, insurance
and administrative services to the Company for a per annum fee of $2.7 million,
in addition to reimbursement of incidental costs and expenses incurred in
connection with Alpine's provision of such services. Such annual fee is
estimated to reflect commercially reasonable costs for the services provided.
On February 2, 1998 the Company effected a five-for-four stock split by
paying a stock dividend on its Common Stock at the rate of one share of Common
Stock for each four shares held of record at the close of business on January
23, 1998. All references to shares of Common Stock (except shares authorized)
and to per share information in the Company's Annual Report on Form 10-K for the
fiscal year ended April 30, 1998 have been adjusted to give effect to this stock
split on a retroactive basis.
TELECOMMUNICATIONS WIRE AND CABLE
INDUSTRY OVERVIEW
Copper wire and cable are the most widely-used medium for voice and data
transmission in the local loop portion of the telecommunications infrastructure
operated by the local exchange carriers ("LECs"), which include the RBOCs and
the independent telephone operating companies. The Company believes that copper
will continue to be the transmission medium of choice in the local loop due to
factors such as: the installed base of copper cable and associated switches,
connectors and other accessory components represents an investment of over $150
billion that must be maintained by the LECs; the lower installation and
maintenance costs of copper compared to optical fiber and other media;
technological advances, such as integrated services digital networks ("ISDN")
and various digital subscriber line ("xDSL") technologies, including
high-bit-rate digital subscriber lines ("HDSL") and asymmetric digital
subscriber lines ("ADSL"), that increase the bandwidth of the installed local
loop copper network, and thus allow the continued use of copper as the
transmission medium for the expanded voice, data, video and multi-media uses
demanded by customers; the increasing demand by consumers for affordable
enhanced services, which, because of technological advances, can be supported by
the copper-based local loop; and the increasing demand for affordable multiple
residential access lines.
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Demand for copper telecommunications wire and cable is dependent on several
factors, including: the rate at which new access lines are installed in homes
and businesses; the level of infrastructure spending for items such as
road-widenings and bridges, which generally necessitates replacement of existing
utilities, including telephone cable; and the level of general maintenance
spending by the LECs. The installation of new access lines is, in turn,
partially dependent on the level of new home construction and expansion of
business and, increasingly in recent years, on demand for additional telephone
lines and lines dedicated to facsimile machines and computer modems which are
used for, among other purposes, business communications and access to the
Internet.
A substantial majority of Superior's products sold in North America are
purchased by the RBOCs and other major domestic telephone companies. Prior to
the break-up of AT&T in 1984, AT&T was the sole supplier of copper
telecommunications wire and cable products to the RBOCs. However, after the
break-up of AT&T, the RBOC market became open to all suppliers. It is estimated
that the RBOCs purchase approximately 65% of the copper telecommunications
distribution wire and cable purchased by U.S. telephone companies, the two major
independent telephone holding companies (GTE Corporation and Sprint Corporation)
purchase approximately 19% and over 1,000 small local telephone operating
companies purchase the remainder.
The Company believes it is well-positioned to take advantage of the rapid
changes in the telecommunications industry as the demand for voice, data and
video services over the local loop increases dramatically and new technologies
and products are developed to enable the local loop to satisfy that demand.
INSTALLED BASE. The local loop is the segment of the telecommunications
network that connects the customer's premises to the nearest telephone company
switching center or central office. It comprises approximately 173 million
residential and business access lines in the United States. The installed base
of copper wire and cable and associated switches, connectors and other accessory
components utilized in the local loop represents an investment of over $150
billion that must be maintained by the LECs. Although other media, such as fiber
optic cable, are used for trunk lines between central offices, substantially all
local loop lines and systems continue to be copper-based. Local loop lines are
continually maintained and replaced, providing a steady demand for copper wire
and cable.
The Company believes that in the local loop, copper-based networks require
significantly lower installation and maintenance costs and are easier to repair
than other alternative networks (such as fiber optics). Installation of fiber
optic systems is both capital and labor intensive, and deployment of fiber optic
systems generally has been limited to trunk and feeder lines and wide area
network configurations, where the density of voice and data traffic and the
resulting high level of transmission rates required, make such systems cost
efficient.
TECHNOLOGICAL ADVANCES. Copper dominance in the local loop continues to be
supported by technological advances that expand the use and bandwidth of the
installed local loop copper network. These advances include ISDN and xDSL
technologies, including HDSL, ADSL and very high digital subscriber line
("VDSL"). These technologies, together with regulatory developments and
increased competition among service providers, have accelerated the demand for
and the introduction of new high speed and bandwidth-intensive
telecommunications services, such as integrated voice and data, broadcast and
conference quality video, Internet and on-line data services access, high speed
local area network ("LAN") to LAN connectivity, collaborative network processing
and other specialized, bandwidth-intensive applications, which have allowed
telecommunications carriers, private network owners and end-user consumers to
economically and efficiently utilize the existing copper wire and cable network.
The most recent technological advance is xDSL technology. xDSL technology,
which includes ADSL and HDSL, has increased the bandwidth capacity of copper
networks in the local loop through sophisticated digital multiplexing and
modulation techniques. xDSL technology currently expands the bandwidth
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transmission capacity over twisted pair copper wire in the local loop from
56,000 bits per second ("bps") to over 8 million bps, depending on distance.
ADSL transmits interactive video and data services, including video on
demand, on-line shopping, banking and other data services, as well as Internet
access, over the existing copper-based local loop, requiring substantially less
investment of capital and labor than alternatives such as fiber optic or hybrid
fiber optic/coaxial cable systems. VDSL is similar technology to ADSL and
operates at even higher bit rates over shorter distances. ADSL is asymmetric in
that it is high bandwidth in one direction and lower bandwidth in the other.
This arrangement is intended primarily to support one way high bandwidth
applications, such as the provision of broadcast quality video into the home. It
is easily installed and portable, relatively inexpensive and can be provided
through the existing copper-based network to a substantial majority of existing
subscribers.
HDSL, as opposed to ADSL, derives its name from the high bandwidth that is
transmitted in both directions over the copper-based network. HDSL provides
advanced digital voice, data and video services with a high level of signal
quality to local loop customers over the existing copper infrastructure, while
tripling the distance a digital signal can travel without the need for
amplification or repeaters. In contrast to fiber optic cable systems, HDSL uses
a minimal amount of power on the remote end of the line, making the traditional
power supplied by copper telecommunications wire sufficient for its use. In
corporate campuses of office buildings, several satellite locations can be
linked with HDSL quickly and inexpensively using existing copper wire or
broadband service.
ISDN is a set of digital transmission signaling protocols and interfaces
that provides end-to-end digital connectivity to support a wide range of
services. ISDN service over the existing copper local loop is expanding due to
the increased demand for digital telecommunications applications such as remote
office connectivity and Internet access. The Company believes that
globally-standardized ISDN service has become a vehicle for digital network
services, including Internet access, and that it currently supports the
continued use of copper-based networks in the local loop.
While these rapid and significant technological advances continue to
increase the use and bandwidth of the copper local loop network, optical fiber
is gradually being deployed in the feeder plant as a funnel to support the high
bandwidth digital copper loops. Over the past year, the Company has developed an
optical fiber cable product line which includes local loop feeder cables, LAN
cables and long haul interoffice cables for both indoor premise and outside
plant applications. While the Company's manufacturing capability for fiber optic
cables is currently limited and sales of these products in fiscal 1998 were not
material, the aforementioned acquisition of Cables of Zion is anticipated to
provide the Company with an established source for additional fiber optic cable
manufacturing capacity.
DEMAND FOR NEW SERVICES. Technological advances, regulatory developments
and increased competition among service providers have accelerated the demand
for and introduction of new bandwidth intensive telecommunication services.
These services include integrated voice and data, broadcast and conference
quality video, Internet and on-line data services access, high speed LAN to LAN
connectivity, collaborative network processing and other specialized,
bandwidth-intensive applications.
DEMAND FOR MULTIPLE RESIDENTIAL ACCESS LINES. An increasing number of U.S.
households are installing additional access lines for multiple telephone lines,
facsimile machines, access to the Internet, home offices and other purposes.
Additional access lines increase the demand for copper telecommunications wire
and cable in the local loop.
BUSINESS STRATEGY
The Company believes that the ongoing alignment of productive capacity with
market demand, technological developments that have enhanced the ability of
end-users to utilize the existing copper wire and cable telecommunications
infrastructure for high speed data, video and imaging transmissions,
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industry consolidation and the Company's emphasis on new products will continue
to strengthen the Company's competitive position, profitability and cash flow.
The Company's strategy in the telecommunications products business is to:
(i) respond to the current and changing needs of its customers' communications
networks and continue to expand its business in the local loop by continuing to
develop, manufacture and sell a full line of telecommunications wire and cable
products (including twisted pair, fiber optic and hybrid products); (ii)
continue to expand its product lines to include transmission media such as data
cable, including unshielded twisted pair ("UTP") with enhanced product
capabilities and fiber optic cable for LAN applications; (iii) take advantage of
strategic acquisition opportunities in data cable, the local loop and its other
markets; and (iv) continue to expand its presence in international markets
through additional acquisitions and the establishment of joint ventures or
similar arrangements in select markets or with selected partners.
PRODUCTS
Superior manufactures a wide variety of telecommunications wire and cable
products. Cable is the transmission medium in the part of the local loop from a
local telephone company's central office to a subscriber's property line,
whereas wire is the transmission medium that begins at the subscriber's property
line and runs to the subscriber's access device, which may be either outside or
on-premises. The Company's copper-based products include distribution cable,
service wire and premises wire products, ranging in size from a single twisted
pair wire to a 4,200 pair cable. These products are variously configured for
aerial and underground use in the local loop and for on-premise applications.
The basic unit of virtually all copper telecommunications wire and cable is
the "twisted pair," a pair of insulated conductors twisted around each other.
Both conductors in the pair are used to complete the telecommunications
connection. Twisted pairs are bundled together to form telecommunications wire
and cable.
Superior's copper telecommunications cable products range in size and are
differentiated by design variations, depending on where the cable is to be
installed. Cable products used for direct underground burial are designed to be
water resistant and are filled with compounds to prevent moisture from
penetrating the cable structure. The individual copper wires in these cables
utilize either a solid polyethylene or polypropylene insulation or cellular
polyethylene covered with a solid polyethylene skin. Cable products used for
underground duct or aerial applications, where water penetration is not a major
concern, are designed with solid polyethylene insulation and no filling
compound. The copper telecommunications cable products normally have metallic
shields for mechanical protection and electromagnetic shielding of the copper
wires, as well as an outer polyethylene jacket.
Superior's service wire products range in size from a single twisted pair to
a six-pair product. Similar to copper cable products, service wire products are
designed for both direct burial and aerial applications and are also
manufactured in a variety of designs, including a number of different metallic
shield configurations and several different jacketing materials.
Superior's copper telecommunications wire for interior use, or premises
wire, generally ranges in size from a single twisted pair to a 100-pair product.
Premises wire is used within buildings to connect telecommunications devices
(telephones, facsimile machines and computer modems) to the telecommunications
network and in commercial buildings to establish LANs.
One element of the Company's strategy in the wire and cable business is to
expand into performance-enhanced wire and cable products that provide
opportunities for growth both within and outside the Company's basic market. The
Company has developed, or is in the process of developing, a number of new
products, including (i) hybrid products combining twisted-pair copper wires with
coaxial or fiber optic cable for distribution service and (ii) fiber optic
cables used for trunking and feeder applications in the local loop and for
trunking and distribution applications in LANs, either as indoor (premises),
outside
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plant cables or transition cables between inside and outside plant. The outside
plant cables can be used in a variety of installations such as aerial, buried
and underground conduit and can be configured with two to 144 fibers which are
typically single mode fibers. These cables can be sold to traditional customers
such as LECs as well as new customers, such as competitive local exchange
carriers (CLECs), inter-exchange carriers (IXCs) and competitive access
providers (CAPs). The indoor and LAN cables contain from one to 144 fibers,
which are typically multimode fibers, and are used in plenum, riser and
horizontal applications within buildings primarily for the datacomm market.
These cables are sold to distributors and contractors as well as to existing
customers.
MARKETING AND DISTRIBUTION
During fiscal 1998, 87.9% of Superior's net sales were to the RBOCs and the
two major independent telephone companies, 9.9% of net sales were primarily to
other telephone companies and data product distributors in North America and the
remaining 2.2% of net sales were made outside of North America.
Superior sells to the RBOCs and the two major independent telephone
companies on a direct basis through a sales force of six salespersons. The
remainder of Superior's products is sold through distributors, original
equipment manufacturers and sales representatives and agents. The Company
believes that there will be further opportunity for international expansion of
its wire and cable marketing and distribution either through export sales,
additional acquisitions, joint ventures or similar arrangements.
Superior's sales to the major telephone operating companies are generally
pursuant to multi-year supply agreements in which the customer agrees to have
Superior supply certain of the customer's wire or cable needs as the primary
supplier during the term of the agreement. Prior to awarding a contract,
customers forecast their needs and manufacturers, such as Superior, bid and
quote prices based upon the forecasted order amount, although customers are not
obligated to purchase the forecasted amount or any minimum amount. Superior
currently has multi-year agreements with respect to certain of its wire and
cable products with all of the RBOCs and with the two major independent
telephone companies. During fiscal 1998, sales to GTE Corporation, Bell
Atlantic, Sprint Corporation, SBC Corporation, and BellSouth Corporation
accounted for 19.4%, 19.0%, 17.3%, 16.2% and 13.3% of Superior's net sales,
respectively. No other single customer accounted for more than 10% of Superior's
net sales. Additionally, as is customary in the industry, the Company's sales to
customers other than large telephone companies are primarily on the "spot"
market on the basis of short-term purchase orders. In recent years these sales
have declined as a proportion of total sales.
MANUFACTURING
Copper rod is the base component for Superior's copper wire and cable
products. The manufacturing processes for these products require that the copper
rod be drawn and insulated. Superior purchases copper rod of 5/16 inch diameter
from third-party suppliers. Superior then "draws" the conductor to one of four
American Wire Gauges ("AWGs"). Wire drawing is the process of reducing the
conductor diameter by pulling the copper rod through a converging die until the
specified AWG is attained. Since the reduction is limited by the breaking
strength of the conductor, this operation is repeated several times internally
within the machine. Individual copper conductors are then typically insulated
with plastic compounds through an extrusion process. Extrusion involves the
feeding, melting and pumping of a compound through a die to shape it in final
form as it is applied to insulate the conductor. Superior uses five primary
types of insulating material compounds: high density polyethylene, high density
cellular polyethylene foam, flame retardant polyethylene, fluoropolymers and
polyvinyl chloride. Superior purchases these insulating compounds from a variety
of suppliers.
Superior's copper products also require that the conductors be "twisted" so
that two insulated single conductors are combined to create a twisted pair.
Superior's copper products are often "cabled" or "stranded" so that multiple
twisted pairs of insulated conductors are combined to form larger units of
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multiple pair cables. Typically, cabling or stranding is done only on large
(I.E., 25 or more) numbers of pairs. Smaller numbers of pairs are not cabled,
but are sent directly for jacketing.
Superior's copper wire and cable products are then "jacketed" or covered
through the application of filling and flooding compounds and shielding tapes to
the twisted pair. Products to be installed underground are protected by metallic
shielding (e.g., aluminum and steel) for electrical and mechanical isolation and
by plastic compounds of polyvinyl chloride or polyethylene for protection
against water and other sources of corrosion and interference. After the wire
and cable products are fabricated, they are packaged and shipped either directly
to customers or to distributors.
Fiber optic cables share some of the copper cable manufacturing processes,
methods and procedures such as jacketing and shielding or armoring. Generally,
there are two broad categories of fiber optic cable designs: loose tube and
tight buffered. In loose tube construction, a plastic tube is loosely extruded
over a number of optical fibers and several of these loose tube bundles can be
arranged around a central strength member. This unit may then be armored and
jacketed in a process similar to that used for copper cables. Tight buffered
cables typically have an aramid yarn tightly wrapped around each optical fiber
for strength, and the fibers are then bundled together and jacketed. Tight
buffered cables are generally intended for indoor installations for high speed
data and LAN applications.
RAW MATERIALS
The principal raw materials used by Superior in the manufacture of its
copper wire and cable products are copper, aluminum, bronze, steel and plastics
such as polyethylene and polyvinyl chloride. These raw materials are available
from several sources and Superior has not experienced any shortages in the
recent past.
The cost of copper, the most significant raw material used by Superior in
its wire and cable business, has been subject to considerable volatility over
the years. However, this volatility has not had, nor is it expected to have, an
impact on Superior's profitability due to customers' contractual arrangements
that provide for the pass-through of changes in copper costs through price
revisions (typically quarterly). Nevertheless, sharp increases in the price of
copper can reduce demand if telephone companies decide to defer their purchases
of copper telecommunications wire and cable products until copper prices
decline.
From time to time, particular plastics have been difficult to obtain but,
with the exception of Teflon-- used for UTP production, which is in short
supply, none of these shortages has required Superior to limit production. The
inability of Superior to obtain sufficient quantities of raw materials could
adversely affect its operating results.
FOREIGN SALES
The Company's copper telecommunications wire and cable business has a plant
in Winnipeg, Manitoba that supplies both the Canadian and U.S. markets.
Superior's net export sales during fiscal 1998 to customers outside North
America were $10.9 million, or 2.2% of net sales, of which the majority was to
customers in Latin America.
COMPETITION
The copper telecommunications wire and cable business is very competitive.
Superior has three major domestic competitors in the copper telecommunications
wire and cable business: Cable Systems International, Inc.; General Cable
Corporation, a public company and formerly a subsidiary of Wassall, plc; and
Essex International, Inc., a public company. Competition in this market is based
on price, service and quality. Because several RBOCs have adopted policies of
limiting the number of their suppliers and requiring that these suppliers
provide additional services, the degree of competition based on service has
increased.
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DATA COMMUNICATIONS AND ELECTRONICS
DNE designs and manufactures data communications equipment, integrated
access devices and other electronic equipment for defense, government and
commercial applications. It is the largest supplier to the U.S. defense forces
of data and voice multiplexers used in tactical secure military applications.
Multiplexers are integrated access devices that combine several
information-carrying channels into one line, thereby permitting simultaneous
multiple voice and data communications over a single line. During fiscal 1998,
DNE achieved sales of $5.5 million of commercial versions of its military
multiplexer to both domestic companies and a multinational manufacturing company
for commercial paging services. DNE also produces military avionic products,
including switches, dimmers, relays and other electronic controllers, sensors
and aerial refueling amplifiers.
The Company has reduced its dependence on the defense market in recent years
primarily by taking advantage of opportunities to manufacture equipment on a
contract basis. The Company provides contract manufacturing services for
subassembly equipment to original equipment manufacturers in the technology
industry and NASA. The Company expects to expand its contract manufacturing
services business for its existing commercial customers and to add additional
commercial customers in the future. In fiscal 1998, DNE's sales to customers
other than departments of the U.S. government accounted for 46.7% of DNE's
sales, compared to 35.4% in fiscal 1997 and 33.6% in fiscal 1996.
RESEARCH AND DEVELOPMENT
In response to the changing requirements of the telecommunications industry,
Superior established a product development center during the fourth quarter of
fiscal 1997. This 39,000 square foot facility is located in Kennesaw, Georgia
(within 15 miles of Superior's corporate headquarters) and is dedicated to
defining and creating new wire and cable systems that meet the needs of the
evolving communications networks. Recent projects include the development of
single mode and multimode fiber optic cable products for use in LANs as well as
telephone networks. While not material to consolidated sales, initial sales and
shipments of these products did begin in fiscal 1998.
Superior also has development projects underway for performance enhanced
copper-based wire products that are designed to meet the existing and future
needs of the telephone companies. Several of these projects have been undertaken
in conjunction with Superior's telephone company customers and include the
development of composite cables that incorporate copper twisted pair wire and
coaxial cable or optical fibers in a single cable construction. Superior is also
developing extensions of its UTP product line for certain LAN data transmission
applications.
The Company believes its ability to capitalize on new product offerings will
be enhanced by the establishment of its product development center. Further, the
Company intends to continue to explore and exploit new product development
opportunities to meet the needs of its customers.
In order to compete for contracts, DNE frequently invests its own funds in
research and development in order to determine the financial and practical
feasibility of manufacturing products. DNE is continuing its development of an
integrated multiplexer with expanded capabilities for use in both the commercial
and military markets.
Aggregate research and development expense of Superior and DNE during fiscal
1996, 1997 and 1998 amounted to $1.4 million, $2.2 million and $3.0 million,
respectively.
Although the Company holds certain trademarks, licenses and patents, none is
considered to be material to its business.
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EMPLOYEES
As of April 30, 1998, the Company employed 1,676 people, including 1,550 in
the telecommunications wire and cable business and 126 in the data
communications and electronics business.
Approximately 420 persons employed at the Company's Winnipeg and
Elizabethtown plants are represented by unions.
The Company considers relations with its employees to be satisfactory.
ENVIRONMENTAL MATTERS
Superior's and DNE's manufacturing operations are subject to extensive and
evolving federal, foreign, state and local environmental and land use laws and
regulations relating to, among other things, the storage, handling, disposal,
emission, transportation and discharge of hazardous substances, materials and
waste products and often imposing stringent permitting requirements. Compliance
with these laws and regulations has not been material to the operations,
business or financial results of either company and has not had a material
effect upon their respective capital expenditures, earnings or competitive
position. However, violation of, or non-compliance with, such laws, regulations
or permit requirements, even if inadvertent, could result in an adverse impact
on the operations, business or financial results of the Company.
Operations of Superior and DNE have resulted in releases of hazardous
substances or wastes at sites currently or formerly owned or operated by such
companies. Superior is presently involved in investigatory and remedial
activities at a site under the oversight of state governmental authorities which
is not expected to have any material adverse effect on the Company.
ITEM 2. PROPERTIES
The Company conducts its principal operations at the facilities described
below:
<TABLE>
<CAPTION>
SQUARE
LOCATION PRODUCTS FOOTAGE LEASED/OWNED
- ----------------------------------------- ---------------------------------- --------- -----------------------
<S> <C> <C> <C>
Brownwood, Texas......................... Telecommunications service and 328,000 Leased (expires 2013)
premise wire and distribution (subject to five
cable five-year renewals)
Tarboro, North Carolina.................. Telecommunications service wire 295,000 Owned
and distribution cable
Winnipeg, Manitoba....................... Telecommunications service and 190,000 Owned
premise wire and distribution
cable
Elizabethtown, Kentucky.................. Telecommunications distribution 163,000 Owned
cable
Kennesaw, Georgia........................ Telecommunications and premise 39,000 Leased (expires 2002)
wire and cable product development
Wallingford, Connecticut................. Data communications and 65,000 Leased (expires 2007)
electronics
Atlanta, Georgia......................... Corporate offices 30,600 Leased (expires 2001)
</TABLE>
Depending on product mix, aggregate capacity in the Company's four
telecommunications wire and cable facilities currently ranges from 100-105 bcf.
Each of these facilities is operating at utilization rates in excess of 95%.
These facilities are suitable and adequate for the businesses being conducted in
this
9
<PAGE>
segment. Capital spending plans for the operations in this segment are primarily
designed to keep up with current technology and increase capacity in existing
product lines, and for cost reduction initiatives.
The Company's data communications and electronics facility in Wallingford is
adequate and suitable for the business being conducted and operates at a
utilization rate of between 60% and 70%.
ITEM 3. LEGAL PROCEEDINGS
There are no threatened or pending litigations or proceedings that
management believes will have a material adverse effect on the operations,
financial condition or liquidity of the Company.
The Company and certain of its subsidiaries are defendants in lawsuits,
certain of which lawsuits are insured claims arising in the ordinary course of
the operations of the Company and such subsidiaries, and none of which
management believes will have a material adverse effect on the operations,
financial condition or liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of security holders during
the fourth quarter of the fiscal year ended April 30, 1998.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS
(a) Market Information
The Common Stock is listed on the New York Stock Exchange (the "NYSE") under
the symbol SUT. The following table sets forth the high and low daily closing
sales prices for the Common Stock as reported on the NYSE for fiscal 1997 since
October 11, 1996, when the Common Stock was first traded on the NYSE and for
fiscal 1998.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal 1997
Second Quarter (October 11-October 31, 1996)................................................. $ 14.20 $ 12.90
Third Quarter................................................................................ 20.70 13.80
Fourth Quarter............................................................................... 20.10 15.80
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal 1998
First Quarter................................................................................ $ 26.25 $ 17.10
Second Quarter............................................................................... 32.70 23.50
Third Quarter................................................................................ 32.05 26.40
Fourth Quarter............................................................................... 43.00 31.13
</TABLE>
(b) Holders
The Company's transfer agent is American Stock Transfer & Trust Company, 40
Wall Street, New York, New York 10005.
At July 24, 1998, 16,173,078 shares of the Common Stock were issued and
outstanding and there were approximately 2,000 record holders thereof.
(c) Dividends.
On January 15, 1998, the Company's Board of Directors declared a $0.25 per
share cash dividend on the Common Stock payable quarterly at a rate of $0.0625
per share. Payment of each quarterly dividend is subject to approval by the
Board of Directors and certain covenants related to bank facilities. Quarterly
dividends were declared during the Company's third and fourth fiscal quarters
ended January 31, 1998 and April 30, 1998, respectively.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
HISTORICAL FINANCIAL DATA
Set forth below are certain selected historical financial data of the
Company. The financial data includes the combined results of operations of
Superior and DNE on a prospective basis from the date such entities were
acquired by Alpine through April 28, 1996. With respect to Superior, such
acquisition by Alpine occurred in November 1993; thus, the results for Superior
are included for the six-month period ended May 1, 1994 and for the years ended
April 30, 1995, April 28, 1996 and April 30, 1997 and 1998. In addition, the
results of operations of Superior for the years ended April 28, 1996 and April
30, 1997 and 1998 include the operations of the Alcatel Business, which was
acquired by Superior on May 11, 1995. For the year ended April 30, 1997, the
results of operations reflect the combined results of Superior and DNE for the
five-month period prior to the Reorganization and their inclusion as
subsidiaries of the Company combined with the historical results of the Company
for the seven-month period ended April 30, 1997. This information should be read
in conjunction with the Consolidated Financial Statements of the Company and
related notes thereto appearing elsewhere herein and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
selected historical consolidated financial data for, and as of the end of, each
of the fiscal years in the five-year period ended April 30, 1998 are derived
from the audited consolidated financial statements of the Company.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MAY 1, APRIL 30, APRIL 28, APRIL 30, APRIL 30,
1994 1995 1996 1997 1998
--------- ---------- ---------- ---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................. $ 68,510 $ 164,485 $ 410,413 $ 463,840 $ 516,599
Cost of goods sold.................................... 56,250 142,114 362,854 384,271 417,358
--------- ---------- ---------- ---------- ----------
Gross profit........................................ 12,260 22,371 47,559 79,569 99,241
Selling, general and administrative expenses.......... 8,884 11,632 14,223 17,166 22,181
Amortization of goodwill.............................. 2,186 1,124 1,556 1,726 1,715
--------- ---------- ---------- ---------- ----------
Operating income.................................... 1,190 9,615 31,780 60,677 75,345
Interest expense, net................................. (1,742) (3,700) (17,006) (12,869) (7,815)
Preferred stock dividends of subsidiary............... -- -- -- (319) (37)
Other income (expense)................................ (61) 231 55 (24) (32)
--------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations before income
taxes............................................... (613) 6,146 14,829 47,465 67,461
Provision for income taxes............................ (521) (2,240) (6,722) (18,989) (26,786)
--------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations.............. (1,134) 3,906 8,107 28,476 40,675
(Loss) from discontinued operations................... (287) (176) -- -- --
--------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary (loss)........... (1,421) 3,730 8,107 28,476 40,675
Extraordinary (loss) on early extinguishment of
debt................................................ -- -- (2,645) -- --
--------- ---------- ---------- ---------- ----------
Net income (loss)................................... $ (1,421) $ 3,730 $ 5,462 $ 28,476 $ 40,675
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
MAY 1, APRIL 30, APRIL 28, APRIL 30, APRIL 30,
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital............................................ $ 23,558 $ 22,750 $ 58,726 $ 47,617 $ 38,532
Total assets............................................... 115,338 120,127 244,065 238,108 232,243
Total debt, including intercompany......................... 39,095 37,067 125,760 122,089 75,380
Total stockholders' equity................................. 48,123 49,854 51,656 44,028 82,206
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is primarily engaged in the manufacture and sale of copper wire
and cable products for telecommunications applications. These operations are
conducted through the Company's Superior subsidiary and constitute in excess of
95% of consolidated revenues and operating income. The remainder of the
Company's operations are carried out through its other subsidiary, DNE, and
consist of the manufacture and sale of data communications and other electronic
products and systems for defense, governmental and commercial applications.
RESULTS OF OPERATIONS
To facilitate a meaningful comparison between periods, this Management's
Discussion and Analysis focuses on historical information for the year ended
April 30, 1998 and pro forma information for the years ended April 28, 1996 and
April 30, 1997. Comparisons of the Company's historical financial results for
the years ended April 28, 1996 and April 30, 1997 are less relevant to an
understanding of the Company due to the significance of the Reorganization and
Offering in October 1996 and the acquisition of the Alcatel Business on May 11,
1995. Accordingly, the pro forma information in the following table and the
period-to-period comparisons in this Management's Discussion and Analysis are
based on financial data and pro forma adjustments which reflect (i) the combined
historical results of operations of Superior and DNE prior to the Reorganization
and their inclusion as subsidiaries of the Company, (ii) pro forma adjustments
to selling, general and administrative expenses, interest expense and income tax
expense to reflect the impact of the Reorganization and the Offering (see Note 1
to the April 30, 1998 consolidated financial statements), as if such
transactions had occurred on May 1, 1995, and (iii) the historical results of
operations of the Alcatel Business prior to its acquisition by the Company on
May 11, 1995 (including pro forma adjustments related to depreciation,
amortization and selling, general and administrative expenses). The pro forma
adjustments noted above are more fully described in the footnotes accompanying
the following comparative table.
13
<PAGE>
COMBINED UNAUDITED OPERATING DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL, (1)
-------------------------------------
<S> <C> <C> <C>
1996 1997 1998
(PRO FORMA) (PRO FORMA) (HISTORICAL)
----------- ----------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales (1)
Telecommunications wire and cable........................................ $ 391,758 $ 442,486 $ 491,737
Data communications and electronics...................................... 26,176 21,354 24,862
----------- ----------- -----------
Combined net sales..................................................... 417,934 463,840 516,599
----------- ----------- -----------
----------- ----------- -----------
Gross profit (1)
Telecommunications wire and cable........................................ $ 40,267 $ 74,065 $ 91,752
Data communications and electronics...................................... 7,887 5,504 7,489
----------- ----------- -----------
Combined gross profit.................................................. 48,154 79,569 99,241
----------- ----------- -----------
----------- ----------- -----------
Selling, general and administrative expenses (1), (2)
Telecommunications wire and cable........................................ $ 8,408 $ 9,559 $ 12,633
Data communications and electronics...................................... 5,848 5,948 5,633
Corporate (5)............................................................ 2,000 2,491 3,915
----------- ----------- -----------
Combined selling, general and administrative expenses.................. 16,256 17,998 22,181
----------- ----------- -----------
----------- ----------- -----------
Amortization of goodwill (1)
Telecommunications wire and cable........................................ $ 1,570 $ 1,727 $ 1,715
Data communications and electronics...................................... -- -- --
----------- ----------- -----------
Combined amortization of goodwill...................................... 1,570 1,727 1,715
----------- ----------- -----------
----------- ----------- -----------
Operating income (loss)
Telecommunications wire and cable........................................ $ 30,289 $ 62,779 $ 77,404
Data communications and electronics...................................... 2,039 (444) 1,856
Corporate................................................................ (2,000) (2,491) (3,915)
----------- ----------- -----------
Combined operating income.............................................. 30,328 59,844 75,345
----------- ----------- -----------
----------- ----------- -----------
Operating income (loss).................................................... $ 30,328 $ 59,844 $ 75,345
Interest expense, net (3).................................................. (10,160) (9,887) (7,815)
Preferred stock dividends of subsidiary (4)................................ (716) (576) (37)
Other income (expense)..................................................... 55 (25) (32)
----------- ----------- -----------
Income before income taxes............................................... 19,507 49,356 67,461
Provision for income taxes (5)............................................. (8,088) (19,865) (26,786)
----------- ----------- -----------
Net income............................................................... $ 11,419 $ 29,491 $ 40,675
----------- ----------- -----------
----------- ----------- -----------
Net income per diluted share of common stock (6)........................... $ 0.71 $ 1.81 $ 2.46
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
-------------------------------
Supplemental Data:
<S> <C> <C> <C>
Gross margin
Telecommunications wire and cable....................................... 10.3% 16.7% 18.7%
Data communications and electronics..................................... 30.1 25.8 30.1
Combined gross margin................................................. 11.5 17.2 19.2
Operating income margin
Telecommunications wire and cable....................................... 7.7 14.2 15.7
Data communications and electronics................................... 7.8 (2.1) 7.5
Combined operating income margin...................................... 7.3 12.9 14.6
</TABLE>
14
<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
FISCAL YEAR ENDED APRIL,
----------------------------------
<S> <C> <C> <C>
1996 1997 1998
---------- ---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales.................................................................... $ 357,400 $ 431,900 $ 484,900
Gross profit................................................................. 40,267 74,065 91,752
Gross margin percentage...................................................... 11.3% 17.1% 18.9%
</TABLE>
- ------------------------
Notes to Unaudited Pro Forma Operating Data For The Years Ended April 28, 1996
And April 30, 1997:
(1) For the year ended April 28, 1996, 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 Alcatel Business as if the acquisition had been
completed on May 1, 1994.
(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 prior to the Offering.
(3) Reflects the Company's estimated interest expense prior to the Offering
assuming that the balance outstanding under the Bank Credit Facility was
$110.0 million for the period from August 1, 1996 to the date of the
Offering and $115.0 million for all prior fiscal periods.
(4) For periods prior to the Offering, reflects dividends on $11.9 million (face
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 April 30, 1998 consolidated
financial statements).
(5) Income tax expense for periods prior to the Offering has been adjusted to
reflect estimated tax expenses as if the Company had filed a separate
federal income tax return for all periods presented.
(6) Income per share of Common Stock for periods prior to the Offering has been
calculated based upon 16,155,060 split-adjusted shares outstanding, which
assumes completion of the Offering and exercise of the underwriters'
overallotment option (see Note 1 to the April 30, 1998 consolidated
financial statements).
SUPERIOR--RESULTS OF OPERATIONS
Superior achieved substantial growth in revenues and profitability in both
fiscal 1998 and 1997. This growth reflects continued strong demand for copper
telecommunications wire and cable products from the RBOCs and major independent
telephone companies, improving margins relative to product price increases and
product cost reductions, and lower interest charges resulting from debt
reductions associated with strong cash flow generated in fiscal 1998 and fiscal
1997.
In fiscal 1998, Superior's net sales were $491.7 million representing an
increase of $49.3 million, or 11.1%, as compared to fiscal 1997 net sales of
$442.5 million. Comparative fiscal 1997 net sales reflected a
15
<PAGE>
similar trend, increasing by 12.9%, or $50.7 million, as compared to fiscal
1996. The comparative increase in fiscal 1998 and fiscal 1997 net sales adjusted
to a constant copper cost of $1.00 per pound was 12.3% and 20.8%, respectively
(see "Supplemental Data" for Superior included elsewhere herein).
The increase in net sales in both fiscal 1998 and fiscal 1997 resulted from
a number of factors including: (1) the increased demand in recent years for
copper wire and cable products due to both the growth in new copper-based
telephone access lines and increased maintenance spending by several of
Superior's major telephone company customers; (2) an increase in Superior's
market share in both fiscal 1997 and fiscal 1998 resulting from new multi-year
supply agreements entered into during such periods; and (3) the impact of price
increases instituted during the latter half of fiscal 1996 on substantially all
of Superior's long-term supply agreements (which supply agreements constitute in
excess of 90% of Superior's net sales). To keep pace with the growth in demand
and increased market share, Superior has increased its annual production
capacity (measured in billions of conductor feet or "bcf") from approximately 80
bcf in early fiscal 1995 to more than 105 bcf at the end of fiscal 1998.
Superior intends to further increase its bcf production capability in fiscal
1999 as required to meet additional anticipated product demand and market share
growth (see "Liquidity and Capital Resources" for discussion of fiscal 1999
capital expenditure initiatives).
Along with the increase in revenues in fiscal 1998 and fiscal 1997, Superior
also achieved substantial growth in gross profit and a significant increase in
its gross margin percentage during such fiscal periods. In fiscal 1998, gross
profit increased $17.7 million, or 23.9%, to $91.8 million, as compared to
fiscal 1997 gross profit of $74.1 million. The comparative increase in gross
profit in fiscal 1997 was $33.8 million, or 83.9%, as compared to fiscal 1996.
The gross margin percentage for fiscal 1996, 1997 and 1998 based on (i) net
sales as reported and (ii) net sales adjusted to a constant copper price of
$1.00 per pound (see "Supplemental Data" for Superior) was as follows:
<TABLE>
<CAPTION>
GROSS MARGIN PERCENTAGE
BASED ON:
------------------------
<S> <C> <C>
ADJUSTED
NET SALES NET SALES
----------- -----------
Fiscal 1996................................................................................. 10.3% 11.3%
Fiscal 1997................................................................................. 16.7% 17.1%
Fiscal 1998................................................................................. 18.7% 18.9%
</TABLE>
Superior has generated sequentially improving gross margins for each fiscal
quarter during the past three fiscal years, beginning with the first quarter of
fiscal 1996 (which was the period in which the acquisition of the Alcatel
Business was completed). The increasing gross margin for the past three fiscal
years is attributable to a combination of factors, including: (i) the
aforementioned price increases instituted primarily during the latter half of
fiscal 1996 on substantially all of Superior's existing customer contract
business; (ii) higher market prices on new multi-year supply agreements entered
into in fiscal 1997 and fiscal 1998; (iii) manufacturing cost reductions
resulting from the integration of the Alcatel Business and from capital
expenditures and other cost reduction initiatives focused on production
efficiencies; and (iv) improved cost absorption resulting from higher production
volume.
Selling, general and administrative expenses ("SG&A expenses") increased
from $8.4 million in fiscal 1996 to $9.6 million in fiscal 1997 and to $12.6
million in fiscal 1998. The increase in SG&A expenses in fiscal 1997 and fiscal
1998 was attributable to: (i) costs associated with incremental sales and
marketing staff to support the increased level of sales activity; (ii) expansion
of administrative activities, particularly in the area of information systems,
to support the level of growth and the integration of the Alcatel Business
operations; (iii) in fiscal 1997 and 1998, the expansion of product development
activities, including the establishment and staffing of a product development
facility in the fourth quarter of fiscal 1997; and (iv) in fiscal 1998, an
increase in charges pursuant to the Services Agreement with Alpine (see Note 12
to the Consolidated Financial Statements).
16
<PAGE>
Commensurate with the growth in net sales and gross profit, Superior's
operating income increased substantially in both fiscal 1998 and fiscal 1997.
Operating income in fiscal 1998 was $77.4 million, representing an increase of
23.3%, as compared to fiscal 1997 operating income of $62.8 million. The
comparative growth in fiscal 1997 operating income was $32.5 million, or 107.3%,
as compared to fiscal 1996. During this same period, operating income as a
percentage of net sales increased from 7.7% in fiscal 1996 to 14.2% and 15.7% in
fiscal 1997 and fiscal 1998, respectively.
DNE--RESULTS OF OPERATIONS
During fiscal 1998, DNE experienced significant shipments under its first
major commercial multiplexer project, along with an improvement in
government-related revenues, offset by a decline in contract manufacturing
activities. As a result, DNE's comparative net sales increased $3.5 million in
fiscal 1998 and operating income increased from a loss of $0.4 million in fiscal
1997 to operating income of $1.9 million in fiscal 1998. In fiscal 1997, DNE's
comparative net sales declined by 18.4% as compared to fiscal 1996 primarily as
a result of a slowdown in government purchases of DNE's military and electronic
products. Along with the decline in DNE's fiscal 1997 net sales, operating
income also decreased from $2.0 million in fiscal 1996 to an operating loss of
$0.4 million in fiscal 1997.
CONSOLIDATED RESULTS OF OPERATIONS
The overall growth in sales of Superior's and DNE's products gave rise to an
overall comparative increase in consolidated net sales and operating income in
both fiscal 1998 and fiscal 1997. Fiscal 1998 consolidated net sales were $516.6
million, representing an increase over fiscal 1997 net sales of 11.4%. Fiscal
1997 consolidated net sales of $463.8 million represented an increase of 11.0%
over fiscal 1996 net sales. Consolidated net sales adjusted to a constant copper
cost of $1.00 per pound (see "Supplemental Data" for Superior) reflected a
comparative increase of 12.5% and 18.2% in fiscal 1998 and fiscal 1997,
respectively. The aforementioned increases in net sales and gross profit gave
rise to a consolidated increase in operating income of 26% and 98% in fiscal
1998 and fiscal 1997, respectively.
Net interest expense was $7.8 million for fiscal 1998, or $2.1 million less
than pro forma interest expense for fiscal 1997. As discussed in Note 3 to the
"Combined Unaudited Pro Forma Operating Data" included elsewhere herein, pro
forma interest expense for the periods prior to the Offering (prior to October
17, 1996) was based on (i) an assumed outstanding balance under the Bank Credit
Facility of $110.0-115.0 million with interest calculated at current prevailing
interest rates 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 the Company with a
principal balance of $9.6 million at April 30, 1997. The decrease in interest
expense in fiscal 1998 resulted from a reduction in the weighted average cost of
borrowing, along with a decline in total debt from $121.3 million at April 30,
1997 to $75.0 million at April 30, 1998.
Consolidated income tax expense for the periods prior to the Offering was
calculated assuming that the Company filed a consolidated U.S. federal tax
return (reflecting the combined operations of Superior and DNE). As a result,
consolidated income tax expense reflected a relatively constant effective tax
rate of 39.7%, 40.2%, and 41.5% for fiscal 1998, 1997 and 1996, respectively.
As a result of the substantial increase in consolidated operating income and
the reduction in interest expense, the Company recorded a significant increase
in earnings and earnings per share in both fiscal 1998 and fiscal 1997.
Consolidated net income for fiscal 1998 was $40.7 million (or $2.46 per diluted
share), representing an increase of $11.2 million, or 38%, over pro forma net
income of $29.5 million (or $1.81 per share) for fiscal 1997. Consolidated pro
forma net income in fiscal 1997 increased $18.1 million over fiscal 1996 pro
forma net income of $11.4 million (or $0.71 per share).
17
<PAGE>
SUPPLEMENTAL COMMENTS ON HISTORICAL RESULTS OF OPERATIONS
The pro forma impact of the acquisition of the Alcatel Business and the
Reorganization and Offering did not materially impact net sales and operating
income in either fiscal 1996, 1997 or 1998. Accordingly, the trends in
historical combined net sales and operating income are consistent with
management's discussion of the pro forma results of operations for such periods
included elsewhere herein.
FISCAL 1997 COMPARED TO FISCAL 1996
Comparative historical combined interest expense in fiscal 1997 declined by
$4.4 million to $12.9 million for fiscal 1997 as a result of a reduction in
outstanding debt and a reduction in interest rates associated with such debt,
both of which were attributable to the impact of the Reorganization, the
Offering and associated debt refinancings.
Historical combined net income from continuing operations increased to $28.5
million in fiscal 1997, as compared to $8.1 million in fiscal 1996. This
increase resulted from the substantial increase in operating income combined
with a reduction in interest expense.
FISCAL 1998 COMPARED TO FISCAL 1997
Comparative historical interest expense in fiscal 1998 declined by $4.8
million, from $12.9 million in fiscal 1997 to $8.1 million in fiscal 1998.
Historical net income increased to $40.7 million in fiscal 1998, as compared to
$28.5 million in fiscal 1997. The trends in interest expense and net income in
fiscal 1998 as compared to fiscal 1997 are consistent with management's
discussion of the pro forma results of operations for such periods included
elsewhere herein.
LIQUIDITY AND CAPITAL RESOURCES
For the fiscal year ended April 30, 1998, the Company generated $69.6
million in cash flow from operating activities, consisting of $51.2 million in
income generated from operations (net income plus non-cash charges) plus $18.4
million in cash flow generated from net working capital changes. Cash used by
investing activities amounted to $13.4 million, consisting primarily of capital
expenditures, net of proceeds from sales of assets. Cash used for financing
activities amounted to $47.4 million, the major components of which include the
repayment of $42.3 million under the Bank Credit Facility, the repayment of $4.0
million of long-term borrowings and the payment of $1.0 million of dividends on
Common Stock.
The Company's capital structure at April 30, 1998 consisted of $75.0 million
in debt, $0.6 million in Superior Preferred Stock and $82.2 million in total
stockholders' equity. Included in the Company's debt balance is $69.4 million
outstanding under the Bank Credit Facility. Additional availability under the
Bank Credit Facility amounted to $80.6 million at April 30, 1998. Obligations
under the Bank 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 Bank Credit Facility contains
customary performance and financial covenants.
Over the next twelve months, the Company has no material principal debt
service commitments. However, the Company expects to invest approximately
$18-$23 million in capital expenditures over the next twelve-month period to
facilitate (i) expansion of its existing telephone product production capacity
to meet growing demand and increasing market share, (ii) expansion of its
product line to include fiber, coaxial and additional high performance and
hybrid copper products and (iii) investment in identified cost reduction
projects.
In addition to funding requirements for capital expenditures, on May 5, 1998
the Company completed the acquisition of 51% of the outstanding shares of common
stock of Cables of Zion for approximately $24 million in cash, which was funded
by borrowings under the Bank Credit Facility.
18
<PAGE>
The Company's operations have typically generated substantial operating cash
flows. For the fiscal year ended April 30, 1998, the Company generated $69.6
million in cash flows from operating activities, which is significantly greater
than amounts needed to meet its annual principal debt service and projected
capital commitment requirements. Management anticipates that the Company will
continue to generate more than adequate cash flows from operating activities to
meet the Company's annual commitments. However, should any shortfall arise due
to working capital fluctuations or other factors, the Company believes that cash
and funds available under the Bank Credit Facility (even after considering funds
utilized for the Cables of Zion acquisition) should be sufficient to cover such
shortfall.
YEAR 2000
During fiscal 1998 and 1997, the Company established project teams
responsible for identifying and resolving Year 2000 issues. These efforts
include identification and review of internal operating systems and
applications, and customer projects and services, as well as discussions with
information providers and other key suppliers to the business. Remediation costs
for problems identified thus far are not expected to be material to the
Company's consolidated financial position, liquidity or results of operations.
The Company has established a timetable for resolving Year 2000 issues so as not
to interrupt ongoing operations.
- ------------------------
EXCEPT FOR THE HISTORICAL INFORMATION HEREIN, THE MATTERS DISCUSSED IN THIS
ANNUAL REPORT ON FORM 10-K 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, CHANGING ECONOMIC
CONDITIONS, INCLUDING CHANGES IN SHORT-TERM INTEREST RATES AND FOREIGN EXCHANGE
RATES AND OTHER RISK FACTORS DETAILED IN THE COMPANY'S MOST RECENT FILINGS WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements as of April 30, 1998 and
1997 and for each of the three years in the period ended April 30, 1998 and the
report of the independent public accountants thereon and financial statement
schedules required under Regulation S-X are submitted herein as a separate
section following Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information required by this Item is incorporated herein by reference to
the Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this report (the "Company's Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to
the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to
the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to
the Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1), (a)(2) See the separate section of this report following Item 14 for
a list of financial statements and schedules filed herewith.
(a)(3) Exhibits as required by Item 601 of Regulation S-K are listed in Item
14(c) below.
(b) The Company did not file any Reports on Form 8-K during the fourth
quarter of fiscal 1998.
ITEM 14(C) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ------------------------------------------------------------------------------------------------------
<C> <S>
2(a) Asset Purchase Agreement, dated as of March 17, 1995 by and among Alcatel NA Cable Systems, Inc.,
Alcatel Canada Wire, Inc. Superior Cable Corporation and Superior Teletec Inc. (the "Alcatel
Acquisition Agreement") (incorporated herein by reference to Exhibit 1 to the Current Report on Form
8-K of Alpine dated May 24, 1995)
2(b) Agreement Regarding Certain Employee Benefit Plans, amending the Alcatel Acquisition Agreement, dated
June 10, 1996 (incorporated herein by reference to Exhibit 2(b) to the Annual Report on Form 10-K of
Alpine for the year ended April 30, 1996 (the "1996 Alpine 10-K"))
2(c) Amendment dated May 11, 1995 to Asset Purchase Agreement by and among Alcatel NA Cable Systems, Inc.,
Alcatel Canada Wire, Inc., Superior Cable Corporation and Superior TeleTec Inc. (incorporated herein
by reference to Exhibit 2 to the Current Report on Form 8-K of Alpine dated May 24, 1995)
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ------------------------------------------------------------------------------------------------------
<C> <S>
2(d) Share Purchase Agreement, dated as of May 5, 1998, among CLAL Industries and Investments Ltd., ISAL
Holland B.V. and Halachoh Hane'eman Hashivim Veshmona Ltd. (incorporated herein by reference to
Exhibit 1 to the Current Report on Form 8-K of the Company dated May 5, 1998)
3(a) Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.2 to the
Registration Statement on Form S-1 (Registration No. 333-09933 of the Company, as filed with the
Commission on August 9, 1996 (as amended, the "S-1"))
3(b) Certificate of Amendment, dated July 12, 1996, to the Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.2 to the S-1)
3(c) Certificate of Amendment, dated August 6, 1996, to the Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.3 to the S-1)
3(d) By-laws of the Company (incorporated herein by reference to Exhibit 3.4 to the S-1)
10(a) 1996 Stock Option Plan (incorporated herein by reference to Exhibit 10.7 to the S-1)
10(b) Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.1 to the S-1)
10(c) Stock Purchase Agreement, dated February 14, 1992, by and between Alpine and Dataproducts Corporation,
relating to the purchase of shares of capital stock of DNE (incorporated herein by reference to
Exhibit 1 to the Current Report on Form 8-K of Alpine dated March 2, 1992 (the "March 1992 Alpine
8-K"))
10(d) Loan Agreement, dated as of February 13, 1992, by and among Alpine, DNE and the Connecticut
Development Authority (incorporated herein by reference to Exhibit 3 to the March 1992 Alpine 8-K)
10(e) Agreement and Plan of Merger by and between Alpine and Superior TeleTec Inc., dated as of June 17,
1993 and amended on September 24, 1993 (incorporated herein by reference to Exhibit 2 to Form S-4
(Registration No. 33-9978) of Alpine, as filed with the Commission on October 5, 1993)
10(f) Lease Agreement by and between ALP(TX) QRS 11-28, Inc., and Superior TeleTec Transmission Products,
Inc., dated as of December 16, 1993 (incorporated herein by reference to Exhibit (i) to the Quarterly
Report on Form 10-Q of Alpine for the Quarter ended January 31, 1994)
10(g) First Amendment to Lease Agreement, dated as of May 10, 1995, by and between ALP (TX) QRS 11-28, Inc.
and Superior TeleTec Inc. (incorporated herein by reference to Exhibit 10(o) to the Annual Report on
Form 10-K of Alpine for the year ended April 30, 1995 (the "1995 Alpine 10-K"))
10(h) Second Amendment to Lease Agreement, dated as of July 21, 1995, by and between ALP(TX) QRS H-28, Inc.
and Superior Telecommunications Inc. (incorporated herein by reference to Exhibit 10(x) to the 1995
Alpine 10-K)
10(i) Third Amendment to Lease Agreement, dated as of October 2, 1996, by and between ALP (TX) QRS 11-28,
Inc. and Superior (incorporated herein by reference to Exhibit 10.8 to the S-1)
10(j) [First Amendment], dated as of October 2, 1996, to Guaranty and Surety Agreement among the Company,
Alpine and ALP (TX) QRS 11-28, Inc. (incorporated herein by reference to Exhibit 10.12 to the S-1)
10(k) Note Purchase Agreement by and among Alpine, Superior TeleTec, Inc., Superior Cable Corporation and
Nomura International Trust Company (incorporated herein by reference to Exhibit 3 to Alpine's Current
Report on Form 8-K dated May 24, 1995)
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ------------------------------------------------------------------------------------------------------
<C> <S>
10(l) Purchase Agreement, dated as of July 14, 1995, by and among Alpine, Adience, Inc., Superior, Superior
Cable Corporation, Merrill Lynch & Co., Nomura Securities International, Inc. and First Albany
Corporation (incorporated herein by reference to Exhibit 10(p) to the 1995 Alpine 10-K)
10(m) Employment Agreement, dated April 26, 1996, between Superior and Justin F. Deedy, Jr. (incorporated
herein by reference to Exhibit 10.3 to the S-1)
10(n) Employment Agreement, dated as of October 17, 1996, between the Company and Steven S. Elbaum
(incorporated herein by reference to Exhibit 10(14) to the Quarterly Report on Form 10-Q of the
Company for the Quarter ended January 31, 1997)
10(o) Letter Agreement between the Company and Alpine, dated October 8, 1996, relating to a capital
contribution by Alpine to the Company (incorporated herein by reference to Exhibit 10.2 to the S-1)
10(p) Letter Agreement between the Company and Alpine, dated October 2, 1996, relating to tax
indemnification (incorporated herein by reference to Exhibit 10.5 to the S-1)
10(q) Tax Allocation Agreement among Alpine, the Company and its subsidiaries, dated as of October 2, 1996
(incorporated herein by reference to Exhibit 10.9 to the S-1)
10(r) Exchange Agreement between the Company and Alpine, dated October 2, 1996 (incorporated herein by
reference to Exhibit 10.10 to the S-1)
10(s) Services Agreement, dated October 2, 1996, between the Company and Alpine (incorporated herein by
reference to Exhibit 10.4 to the S-1)
10(t) Amendment No. 1, dated as of May 1, 1997, to the Services Agreement (incorporated herein by reference
to Exhibit 10(t) to the Company's Annual Report on Form 10-K for the year ended April 30, 1997)
10(u) Revolving Credit Agreement among the Company, each domestic subsidiary of the Company, certain lending
institutions and Bankers Trust Company, dated as of October 2, 1996 (incorporated herein by reference
to Exhibit 10.6 to the S-1)
10(v) Registration Rights Agreement, dated October 2, 1996, between the Company and Alpine (incorporated
herein by reference to Exhibit 10.11 to the S-1)
10(w)* Amendment No. 2, dated as of May 1, 1998, to the Services Agreement
21* List of Subsidiaries
23(a)* Consent of Arthur Andersen LLP
27* Financial Data Schedule
</TABLE>
- ------------------------
* Filed herewith.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) 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.
Dated: July 28, 1998
SUPERIOR TELECOM INC.
BY: /S/ STEVEN S. ELBAUM
-----------------------------------------
Steven S. Elbaum
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chairman of the Board,
/s/ STEVEN S. ELBAUM President, Chief
- ------------------------------ Executive Officer and July 28, 1998
Steven S. Elbaum Director (principal
executive officer)
Chief Financial Officer and
/s/ DAVID S. ALDRIDGE Treasurer (principal
- ------------------------------ financial and accounting July 28, 1998
David S. Aldridge officer)
/s/ EUGENE P. CONNELL Director
- ------------------------------ July 28, 1998
Eugene P. Connell
/s/ ROBERT J. LEVENSON Director
- ------------------------------ July 28, 1998
Robert J. Levenson
/s/ CHARLES Y.C. TSE Director
- ------------------------------ July 28, 1998
Charles Y.C. Tse
/s/ BRAGI F. SCHUT Director
- ------------------------------ July 28, 1998
Bragi F. Schut
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of independent public accountants............................................................ F-2
Consolidated balance sheets of Superior TeleCom Inc. and subsidiaries as of April 30, 1997 and
1998.............................................................................................. F-3
Combined statements of operations of Superior Telecommunications Inc. and subsidiary and DNE
Systems, Inc. and subsidiaries for the year ended April 28, 1996 and for the five months ended
October 1, 1996 and consolidated statements of operations of Superior TeleCom Inc. and
subsidiaries for the seven months ended April 30, 1997 and for the year ended April 30, 1998...... F-4
Combined statements of stockholder's equity of Superior Telecommunications Inc. and subsidiary and
DNE Systems, Inc. and subsidiaries for the year ended April 28, 1996 and for the five months ended
October 1, 1996 and consolidated statements of stockholders' equity of Superior TeleCom Inc. and
subsidiaries for the seven months ended April 30, 1997 and for the year ended April 30, 1998...... F-5 -- F-6
Combined statements of cash flows of Superior Telecommunications Inc. and subsidiary and DNE
Systems, Inc. and subsidiaries for the year ended April 28, 1996 and for the five months ended
October 1, 1996 and consolidated statements of cash flows of Superior TeleCom Inc. and
subsidiaries for the seven months ended April 30, 1997 and for the year ended April 30, 1998...... F-7 -- F-8
Notes to consolidated financial statements.......................................................... F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders of
Superior TeleCom Inc.:
We have audited the accompanying consolidated balance sheets of Superior
TeleCom Inc. and subsidiaries as of April 30, 1997 and 1998 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the seven months ended April 30, 1997 and for the year ended April 30, 1998. We
have also audited the combined statements of operations, stockholder's equity,
and cash flows of Superior Telecommunications Inc. and subsidiary and DNE
Systems, Inc. and subsidiaries (collectively referred to as the "Companies" as
contributed to Superior TeleCom Inc. in connection with the Reorganization as
discussed in Note 1) for the year ended April 28, 1996 and for the five months
ended October 1, 1996. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Companies as of April
30, 1997 and April 30, 1998 and the results of their operations and their cash
flows for the year ended April 28, 1996, the five months ended October 1, 1996,
the seven months ended April 30, 1997, and the year ended April 30, 1998 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
June 2, 1998
F-2
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30, APRIL 30,
1997 1998
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 1,052 $ 9,866
Accounts receivable (less allowance for doubtful accounts of $174 in 1997 and $177 in
1998)................................................................................. 48,099 41,108
Inventories............................................................................. 56,262 43,190
Other current assets.................................................................... 4,554 6,683
---------- ----------
Total current assets.................................................................. 109,967 100,847
Property, plant and equipment, net........................................................ 77,023 83,121
Other assets.............................................................................. 4,666 3,792
Goodwill, net............................................................................. 46,452 44,483
---------- ----------
Total assets.......................................................................... $ 238,108 $ 232,243
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 43,594 $ 43,815
Accrued expenses........................................................................ 17,529 18,003
Current portion of long-term debt....................................................... 430 139
Due to Alpine........................................................................... 797 358
---------- ----------
Total current liabilities............................................................. 62,350 62,315
Long-term debt, less current portion...................................................... 120,862 74,883
Other long-term liabilities............................................................... 10,868 12,839
---------- ----------
Total liabilities..................................................................... 194,080 150,037
---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; authorized 25,000,000 shares; 12,926,536 and 16,170,666
shares issued and outstanding in 1997 and 1998, respectively............................ 129 162
Capital in excess of par value............................................................ 27,340 27,528
Cumulative translation adjustment......................................................... (831) (1,528)
Retained earnings......................................................................... 17,390 56,044
---------- ----------
Total stockholders' equity.............................................................. 44,028 82,206
---------- ----------
Total liabilities and stockholders' equity............................................ $ 238,108 $ 232,243
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FIVE SEVEN
YEAR MONTHS MONTHS YEAR
ENDED ENDED ENDED ENDED
APRIL 28, OCTOBER 1, APRIL 30, APRIL 30,
1996 1996 1997 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(NOTE 1) (NOTE 1) (NOTE 1)
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales........................................................ $ 410,413 $ 211,025 $ 252,815 $ 516,599
Cost of goods sold............................................... 362,854 178,224 206,047 417,358
---------- ---------- ---------- ----------
Gross profit................................................... 47,559 32,801 46,768 99,241
Selling, general and administrative expenses..................... 14,223 6,591 10,575 22,181
Amortization of goodwill......................................... 1,556 721 1,005 1,715
---------- ---------- ---------- ----------
Operating income............................................... 31,780 25,489 35,188 75,345
Interest income.................................................. 349 -- 38 275
Interest expense................................................. (17,355) (6,973) (5,934) (8,090)
Other income (expense), net...................................... 55 (62) (281) (69)
---------- ---------- ---------- ----------
Income before income taxes and extraordinary (loss)............ 14,829 18,454 29,011 67,461
Provision for income taxes....................................... (6,722) (7,368) (11,621) (26,786)
---------- ---------- ---------- ----------
Income before extraordinary (loss)............................. 8,107 11,086 17,390 40,675
Extraordinary (loss) on early extinguishment of debt............. (2,645) -- -- --
---------- ---------- ---------- ----------
Net income..................................................... $ 5,462 $ 11,086 $ 17,390 $ 40,675
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per share of common stock:
Basic.......................................................... $ 1.13 $ 2.52
---------- ----------
---------- ----------
Diluted........................................................ $ 1.12 $ 2.46
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED APRIL 28, 1996, FIVE MONTHS ENDED OCTOBER 1, 1996, SEVEN
MONTHS ENDED APRIL 30, 1997, AND YEAR ENDED APRIL 30, 1998
<TABLE>
<CAPTION>
SUPERIOR SUPERIOR
DNE TELECOMMUNICATIONS TELECOM
SYSTEMS, INC. INC. INC.
COMMON STOCK COMMON STOCK COMMON STOCK
-------------------------- ------------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE DATA)
Balance at April 30, 1995.................. 750 $ 1 1,000 $ -- -- $ --
Contribution from Alpine.......................
Transfer of Posterloid to Alpine...............
Foreign currency translation...................
Net income for the year ended April 28, 1996...
--
--- ----------- --- --------- -----
Balance at April 28, 1996.................. 750 1 1,000 -- -- --
6% Cumulative Preferred Stock, $1,000
liquidation preference, issued by Superior
Telecommunications Inc.......................
Foreign currency translation...................
Net income for the five months ended October 1,
1996.........................................
--
--- ----------- --- --------- -----
Balance at October 1, 1996................. 750 1 1,000 -- -- --
October 2, 1996 Reorganization (Note 1)........ (750) (1) (1,000) -- 6,024,048 60
Dividends paid on common stock.................
Initial public offering of common stock........ 6,900,000 69
Purchase of treasury stock.....................
Exchange of treasury stock for preferred stock
of subsidiary................................
Employee stock purchase plan................... 2,488 --
Foreign currency translation...................
Net income for the seven months ended April 30,
1997.........................................
--
--- ----------- --- --------- -----
Balance at April 30, 1997.................. -- $ -- -- $ -- 12,926,536 $ 129
--
--
--- ----------- --- --------- -----
--- ----------- --- --------- -----
<CAPTION>
CAPITAL TREASURY
IN EXCESS CUMULATIVE STOCK
OF PAR TRANSLATION RETAINED ----------------------
VALUE ADJUSTMENT EARNINGS SHARES AMOUNT TOTAL
----------- ------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1995.................. $ 45,700 $ -- $ 4,153 -- $ -- $ 49,854
Contribution from Alpine....................... 100 100
Transfer of Posterloid to Alpine............... (3,546) (3,546)
Foreign currency translation................... (214) (214)
Net income for the year ended April 28, 1996... 5,462 5,462
----------- ----- ----------- --------- ----------- ---------
Balance at April 28, 1996.................. 42,254 (214) 9,615 -- -- 51,656
6% Cumulative Preferred Stock, $1,000
liquidation preference, issued by Superior
Telecommunications Inc....................... (20,000) (20,000)
Foreign currency translation................... 111 111
Net income for the five months ended October 1,
1996......................................... 11,086 11,086
----------- ----- ----------- --------- ----------- ---------
Balance at October 1, 1996................. 22,254 (103) 20,701 -- -- 42,853
October 2, 1996 Reorganization (Note 1)........ 20,599 103 (20,701) -- -- 60
Dividends paid on common stock................. (117,129) (117,129)
Initial public offering of common stock........ 101,573 101,642
Purchase of treasury stock..................... (450,000) (8,055) (8,055)
Exchange of treasury stock for preferred stock
of subsidiary................................ 450,000 8,055 8,055
Employee stock purchase plan................... 43 43
Foreign currency translation................... (831) (831)
Net income for the seven months ended April 30,
1997......................................... 17,390 17,390
----------- ----- ----------- --------- ----------- ---------
Balance at April 30, 1997.................. $ 27,340 $ (831) $ 17,390 -- $ -- $ 44,028
----------- ----- ----------- --------- ----------- ---------
----------- ----- ----------- --------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED APRIL 28, 1996, FIVE MONTHS ENDED OCTOBER 1, 1996, SEVEN
MONTHS ENDED APRIL 30, 1997, AND YEAR ENDED APRIL 30, 1998
<TABLE>
<CAPTION>
SUPERIOR
TELECOM
INC. CAPITAL
COMMON STOCK IN EXCESS CUMULATIVE
------------------------- OF PAR TRANSLATION RETAINED
SHARES AMOUNT VALUE ADJUSTMENT EARNINGS TOTAL
------------ ----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE DATA)
Balance at April 30, 1997............... 12,926,536 $ 129 $ 27,340 $ (831) $ 17,390 $ 44,028
Employee stock purchase plan................ 7,333 1 174 175
Exercise of stock options................... 3,162 46 46
Partial stock split......................... 3,233,635 32 (32) --
Cash dividend declared ($0.125 per share)... (2,021) (2,021)
Foreign currency translation................ (697) (697)
Net income for the year ended April 30,
1998...................................... 40,675 40,675
------------ ----- ----------- ----------- --------- ---------
Balance at April 30, 1998............... 16,170,666 $ 162 $ 27,528 $ (1,528) $ 56,044 $ 82,206
------------ ----- ----------- ----------- --------- ---------
------------ ----- ----------- ----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR FIVE MONTHS SEVEN MONTHS YEAR
ENDED ENDED ENDED ENDED
APRIL 28, OCTOBER 1, APRIL 30, APRIL 30,
1996 1996 1997 1998
---------- ----------- ------------- ---------
<S> <C> <C> <C> <C>
(NOTE 1) (NOTE 1) (NOTE 1)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Income before extraordinary loss............................ $ 8,107 $ 11,086 $ 17,390 $ 40,675
Adjustments to reconcile income before extraordinary loss to
cash provided by operating activities:
Depreciation and amortization............................. 8,451 3,700 5,595 10,045
Amortization of deferred financing costs.................. 360 20 589 1,059
(Benefit) provision for deferred taxes.................... (1,300) 342 1,077 (545)
Change in assets and liabilities, net of effects from
acquisition of business:
Accounts receivable..................................... (2,709) (2,434) 8,024 1,971
Inventories............................................. 742 19,218 (17,754) 12,998
Other current and noncurrent assets..................... 808 512 731 (213)
Accounts payable and accrued expenses................... 11,309 (7,048) 9,473 4,756
Other, net.............................................. 1,470 (310) 682 (1,158)
---------- ----------- ------------- ---------
Cash flows provided by operating activities................... 27,238 25,086 25,807 69,588
---------- ----------- ------------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired.......................... (103,409) -- -- --
Capital expenditures........................................ (4,339) (2,745) (7,062) (18,488)
Acquisition of BICC assets.................................. (5,447) -- -- --
Net proceeds from sale of assets............................ -- -- 2,534 5,113
Other....................................................... 1,419 35 -- --
---------- ----------- ------------- ---------
Cash flows used for investing activities...................... (111,776) (2,710) (4,528) (13,375)
---------- ----------- ------------- ---------
Cash flows from financing activities:
Net proceeds from sale of common stock...................... -- -- 101,642 --
Borrowings (repayments) under revolving credit facilities,
net....................................................... (17,623) -- 111,657 (42,307)
Debt issuance costs......................................... (3,365) -- (4,122) --
Borrowings from (repayments to) Alpine, net................. 112,571 (21,875) (91,064) (439)
Long-term borrowings, net................................... 141,170 -- -- --
Repayments of long-term borrowings.......................... (148,237) (218) (2,171) (3,963)
Dividends paid on common stock.............................. -- -- (117,129) (1,011)
Purchase of treasury stock.................................. -- -- (8,055) --
Redemption of subsidiary preferred stock.................... -- -- (11,300) --
Other....................................................... 100 -- (319) 321
---------- ----------- ------------- ---------
Cash flows provided by (used for) financing activities...... 84,616 (22,093) (20,861) (47,399)
---------- ----------- ------------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR FIVE MONTHS SEVEN MONTHS YEAR
ENDED ENDED ENDED ENDED
APRIL 28, OCTOBER 1, APRIL 30, APRIL 30,
1996 1996 1997 1998
---------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
(NOTE 1) (NOTE 1) (NOTE 1)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net increase in cash and cash equivalents..................... $ 78 $ 283 $ 418 $ 8,814
Cash and cash equivalents at beginning of period.............. 273 351 634 1,052
---------- ------ ------------- ---------
Cash and cash equivalents at end of period.................... $ 351 $ 634 $ 1,052 $ 9,866
---------- ------ ------------- ---------
---------- ------ ------------- ---------
Supplemental disclosures:
Cash paid for interest...................................... $ 18,620 $ 7,610 $ 5,086 $ 7,402
---------- ------ ------------- ---------
---------- ------ ------------- ---------
Cash paid for income taxes.................................. $ 237 $ 569 $ 13,251 $ 29,440
---------- ------ ------------- ---------
---------- ------ ------------- ---------
Non-cash investing and financing activities:
Exchange of common stock for subsidiary preferred stock:
Preferred stock acquired.................................. $ (8,055)
-------------
-------------
Treasury stock issued..................................... $ (8,055)
-------------
-------------
Acquisition of business:
Assets, net of cash acquired.............................. $ 126,127
Liabilities assumed....................................... (22,718)
----------
Net cash paid........................................... $ 103,409
----------
----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Superior TeleCom Inc. ("Superior TeleCom" or the "Company") manufacturers
and sells telecommunications wire and cable products through its subsidiary
Superior Telecommunications Inc. ("Superior") and data communications and
electronics products and systems through its subsidiary DNE Systems, Inc.
("DNE"). Superior, whose revenues comprise greater than 95% of consolidated
revenues, is a major manufacturer of copper telecommunication wire and cable
products for the local loop segment of the telecommunications network. DNE
develops and manufactures data communications and other equipment, including
multiplexers for defense, government and commercial applications and provides
contract manufacturing services to the electronics industry.
REORGANIZATION
Superior TeleCom 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 and DNE, were contributed to the
Company in exchange for 6,024,048 shares of the Company's common stock. 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") (see Note 6), 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
In October 1996, the Company sold 7,500,000 shares of its common stock (the
"Common Stock") through an initial public offering (the "Offering") at $12.80
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 1,125,000 shares of Common Stock
at $12.80 per share. The Company used the net proceeds of approximately $13.3
million to repurchase 562,500 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 Superior Preferred
Stock. On February 12, 1997, Superior redeemed, at face value, an additional
$11.3 million in principal amount of Superior Preferred Stock. The remaining
$0.6 million of Superior Preferred Stock held by Alpine is included in other
long-term liabilities in the accompanying consolidated balance sheet. After
giving effect to the exercise of the overallotment option and the subsequent
repurchase and exchange of Common Stock, Alpine retained voting control over the
Company; however, its ownership interest was reduced to 50.1%.
F-9
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION
These financial statements present the consolidated balance sheets of the
Company at April 30, 1997 and 1998 and the related consolidated statements of
operations, stockholders' equity and cash flows for the seven month period from
October 2, 1996 (the date of the Reorganization) through April 30, 1997 and for
the year ended April 30, 1998. For comparative purposes, the combined financial
statements of the predecessor companies, Superior and DNE, have also been
included herein for periods prior to the Reorganization. These financial
statements consist of the combined statements of operations, stockholder's
equity and cash flows of Superior and DNE for the 12 months ended April 28, 1996
and the five month period from May 1, 1996 through October 1, 1996. For fiscal
1997 financial statement disclosures, the combined five month period ended
October 1, 1996 and the consolidated seven month period ended April 30, 1997
have been aggregated for comparative purposes. All significant intercompany
accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
All highly liquid investments purchased with a maturity at acquisition of 90
days or less are considered to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market, using the first-in,
first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are provided over
the estimated useful lives of the assets using the straight-line method. The
estimated lives are as follows:
<TABLE>
<S> <C>
Building and improvements..................................... 5 to 30
years
Machinery and equipment....................................... 3 to 12
years
</TABLE>
Maintenance and repairs are charged to expense as incurred. Long-term
improvements are capitalized as additions to property, plant and equipment. Upon
retirement or other disposal, the asset cost and related accumulated
depreciation are removed from the accounts and the net amount, less any
proceeds, is charged or credited to income.
GOODWILL
The excess of the purchase price over the net identifiable assets of
businesses acquired is amortized ratably over periods not exceeding 30 years.
Accumulated amortization of goodwill at April 30, 1997 and April 30, 1998 was
$4.8 million and $6.5 million, respectively. Superior TeleCom periodically
reviews goodwill to assess recoverability from future operations using
undiscounted cash flows. Impairments would be recognized in operating results if
a permanent diminution in value occurred.
F-10
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of a foreign subsidiary are
measured using local currency as the functional currency. Assets and liabilities
denominated in foreign currencies are translated into U.S. dollars at exchange
rates in effect at fiscal year-end. The resulting translation gains and losses
(net of income tax expense) are charged directly to cumulative translation
adjustment, a component of stockholders' equity and are not included in net
income until realized through sale or liquidation of the investment. Revenues
and expenses are translated at average exchange rates prevailing during the
fiscal year. Foreign currency exchange gains and losses incurred on foreign
currency transactions are included in income as they occur.
EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income by the
weighted average number of shares of common stock outstanding for the period
subsequent to the Reorganization. Diluted earnings per common share is
determined assuming the conversion of outstanding stock options under the
treasury stock method.
CONCENTRATION OF CREDIT RISK
Superior's revenues constitute 95% of consolidated revenues for fiscal 1998.
During fiscal 1996, 1997 and 1998, sales to the regional Bell operating
companies and major independent telephone companies represented 88%, 91% and 88%
of Superior's net sales, respectively. At April 30, 1997 and April 30, 1998,
accounts receivable from these customers amounted to $43.0 million and $35.9
million, respectively.
INCOME TAXES
For U.S. federal income tax purposes, Superior's and DNE's combined taxable
income for fiscal 1996 and for the five months ended October 1, 1996 (the date
of the Reorganization) was included as part of the Alpine consolidated U.S.
federal return. Superior and DNE filed separate state income tax returns during
such periods. For financial reporting purposes, Superior and DNE's provision for
income taxes was determined on a stand-alone basis, as if they filed a separate
U.S. federal return, with any current U.S. federal income taxes due being
reflected as a payable to Alpine. The Company filed (or will file) a separate
consolidated U.S. federal income tax return for the periods ended April 30, 1997
and 1998.
USE OF ESTIMATES
Superior TeleCom's consolidated financial statements are prepared in
accordance with generally accepted accounting principles, which require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1997 consolidated
financial statements to conform with the 1998 presentation.
F-11
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." These statements, which will be effective for the
Company's fiscal year beginning May 1, 1998, expand or modify disclosures and
will have no impact on the Company's consolidated financial position, results of
operations or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement, which will be effective for
the Company's fiscal year beginning May 1, 2000, establishes accounting and
reporting standards for derivative instruments and requires recognition of all
derivatives as either assets or liabilities in the statement of financial
position and measurement of those instruments at fair value. The Company does
not believe the effect of adoption will be material.
The Company adopted SFAS No. 128, "Earnings per Share," in fiscal 1998. In
accordance with SFAS No. 128, the Company has disclosed, for all periods
presented subsequent to the Offering, both basic earnings per share and diluted
earnings per share. The Company has restated previously reported earnings per
share in accordance with the provisions of SFAS No. 128.
The Company has also adopted SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," effective April 30, 1998. This
statement revises disclosures and has no impact on the Company's consolidated
financial position, results of operations or cash flows.
2. INVENTORIES
At April 30, 1997 and 1998, the components of inventories are as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Raw materials........................................................... $ 10,352 $ 8,672
Work in process......................................................... 10,556 8,170
Finished goods.......................................................... 35,354 26,348
--------- ---------
$ 56,262 $ 43,190
--------- ---------
--------- ---------
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
At April 30, 1997 and 1998, property, plant and equipment consist of the
following:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Land.................................................................... $ 3,065 $ 2,851
Buildings and improvements.............................................. 19,024 17,003
Machinery and equipment................................................. 74,342 89,540
--------- ---------
96,431 109,394
Less accumulated depreciation........................................... 19,408 26,273
--------- ---------
$ 77,023 $ 83,121
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Depreciation expense for fiscal years 1996, 1997 and 1998 was $6.7 million,
$7.6 million and $8.3 million, respectively.
4. ALCATEL ACQUISITION
On May 11, 1995, Superior acquired (the "Alcatel Acquisition") the U.S. and
Canadian copper wire and cable business (the "Alcatel Business") of Alcatel NA
Cable Systems, Inc. and Alcatel Canada Wire, Inc. (collectively, "Alcatel NA")
for $103.4 million.
The Alcatel Acquisition was accounted for using the purchase method, and
accordingly, the results of operations of the Alcatel Business are included in
the Company's consolidated results on a prospective basis from the date of the
acquisition. The purchase price was allocated based upon estimated fair values
of assets and liabilities at the date of acquisition. The excess of the purchase
price over the fair value of the net assets acquired was $17.2 million and is
being amortized on a straight line basis over 30 years.
5. ACCRUED EXPENSES
At April 30, 1997 and 1998, accrued expenses consist of the following:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Accrued wages, salaries and employee benefits........................... $ 7,191 $ 7,697
Other accrued expenses.................................................. 10,338 10,306
--------- ---------
$ 17,529 $ 18,003
--------- ---------
--------- ---------
</TABLE>
6. DEBT
At April 30, 1997 and 1998, long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ---------
<S> <C> <C>
(IN THOUSANDS)
Credit facility (a).................................................... $ 111,657 $ 69,350
Lease finance obligations (b).......................................... 5,801 5,672
Mortgage loan.......................................................... 3,834 --
---------- ---------
Total debt............................................................. 121,292 75,022
Less current portion of long-term debt................................. 430 139
---------- ---------
$ 120,862 $ 74,883
---------- ---------
---------- ---------
</TABLE>
At April 30, 1998, the fair value of Superior TeleCom's debt, based on the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities, approximates
its recorded value.
F-13
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. DEBT (CONTINUED)
The aggregate principal maturities of long-term debt for the five years
subsequent to April 30, 1998 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ------------------------------------------------------------------------------- -------------
<S> <C>
(IN
THOUSANDS)
1999........................................................................... $ 139
2000........................................................................... 150
2001........................................................................... 157
2002........................................................................... 69,507
2003........................................................................... 69
Thereafter..................................................................... 5,000
-------------
$ 75,022
-------------
-------------
</TABLE>
- ------------------------
(a) Interest on the Credit Facility is payable quarterly based upon the
Eurodollar rate plus 0.625% or the base rate (prime) plus 0.5%. The variable
components of these rates are subject to periodic adjustment 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 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 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 April 30, 1998 consist of (a) $5.0 million
related to the sale/leaseback of a Superior manufacturing facility and (b)
$672,000 related to the sale/leaseback of a manufacturing facility
previously owned by DNE. The term of the Superior leaseback is 20 years,
with five additional option terms (at Superior's election) of five years
each. Superior has a one-time option to repurchase the property during the
eleventh year of the lease. Superior's annual lease payments are $630,000,
subject to adjustment. The term of the DNE leaseback is nine years, and
annual lease payments are approximately $169,000, subject to adjustment. DNE
has an option to repurchase the property during the fourth and fifth years
of the lease term.
In fiscal 1996, Superior incurred a charge of $2.6 million, net of tax, for
the early extinguishment of debt related to the refinancing of certain debt
incurred for the Alcatel Acquisition.
The Credit Facility contains certain restrictive covenants, including, among
other things, requirements to maintain certain financial ratios, limitations on
the amount of dividends the Company is allowed to pay and restrictions on
additional indebtedness.
F-14
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. EARNINGS PER SHARE
The computation of basic and diluted earnings per share ("EPS") for the
seven months ended April 30, 1997 and fiscal year ended April 30, 1998 is as
follows:
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
APRIL 30, 1997 YEAR ENDED APRIL 30, 1998
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
NET PER SHARE NET PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
--------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per common share........................... $ 17,390 15,416 $ 1.13 $ 40,675 16,164 $ 2.52
--------- ----- --------- -----
--------- ----- --------- -----
Dilutive impact of stock options.......................... 174 382
--------- ---------
Diluted earnings per common share......................... $ 17,390 15,590 $ 1.12 $ 40,675 16,546 $ 2.46
--------- --------- ----- --------- --------- -----
--------- --------- ----- --------- --------- -----
</TABLE>
On January 15, 1998, the Company declared a five-for-four common stock split
which was effected in the form of a 25% stock dividend paid on February 2, 1998.
As a result, 3,233,635 shares were issued to stockholders of record on January
23, 1998. All references to common shares (except shares authorized and issued
reflected on the consolidated balance sheet) and to per share information in the
consolidated financial statements have been adjusted to reflect the stock split
on a retroactive basis.
On January 15, 1998, the Company declared a $0.25 per common share cash
dividend payable quarterly at a rate of $0.0625 per share. Payment of each
quarterly dividend is subject to approval by the Board of Directors. Cash
dividends, totaling approximately $2.0 million, have been declared during fiscal
1998.
Primary earnings per share, as previously reported, was $1.39 per share for
the seven months ended April 30, 1997. Diluted EPS, as restated for the same
period, was $1.12 per diluted share and was affected $0.27 by the aforementioned
stock split.
8. STOCK BASED COMPENSATION PLANS
The Company sponsors the Superior TeleCom Inc. 1996 Stock Option Plan (the
"Plan") which has 1,562,500 shares of common stock reserved for issuance. There
were 600,934 shares of common stock available under the Plan for granting of
options at April 30, 1998. Participation in the Plan is generally limited to
employees and directors of the Company. The Plan provides for grants of
incentive and nonincentive stock options. Under the Plan, options cannot be
exercised in the first year or after ten years from the date of grant.
The Company also sponsors the Superior TeleCom Employee Stock Purchase Plan
("ESPP") which allows eligible employees the right to purchase common stock of
the Company on a quarterly basis at the lower of 85% of the common stock's fair
market value on the day immediately prior to the first day of a calendar quarter
or on the last day of a calendar quarter. There are 312,500 shares of Superior
TeleCom common stock reserved under the ESPP, of which 3,110 shares and 8,676
shares were issued to employees during fiscal 1997 and 1998, respectively.
Statement No. 123, "Accounting for Stock-Based Compensation," was issued by
the FASB in fiscal 1997 and, if fully adopted, changes the method for
recognition of cost on stock-based plans similar to those of the Company. In
accordance with the provisions of SFAS No. 123, the Company elected to continue
to apply APB Opinion No. 25 in accounting for its stock-based compensation plans
(including options issued under the Plan and its ESPP). Had the Company elected
to recognize compensation expense based on the
F-15
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK BASED COMPENSATION PLANS (CONTINUED)
fair value at the grant date for awards under its stock-based compensation plans
as prescribed by SFAS No. 123, the Company's net income, basic net income per
share of common stock and diluted net income per share of common stock for the
seven months ended April 30, 1997 and for the year ended April 30, 1998 would
approximate the pro forma amounts below:
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED YEAR ENDED
APRIL 30, 1997 APRIL 30, 1998
---------------------- ----------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
AS AS
REPORTED PRO FORMA REPORTED PRO FORMA
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net income......................................................... $ 17,390 $ 16,281 $ 40,675 $ 39,030
Basic net income per share of common stock......................... $ 1.13 $ 1.06 $ 2.52 $ 2.41
Diluted net income per share of common stock....................... $ 1.12 $ 1.06 $ 2.46 $ 2.37
</TABLE>
The effects of applying SFAS No. 123 in the pro forma disclosure are not
necessarily indicative of future amounts, since the estimated fair value of
common stock options is amortized to expense over the vesting period and
additional options may be granted in future years. The fair value for these
options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions for fiscal
1997 and 1998, respectively: dividend yield of 0% and 1%; expected volatility of
44% and 39%; risk-free interest rate of 6.42% and 5.53%; and expected life of
five years and four years. The weighted average per share fair value of options
granted (using the Black-Scholes option-pricing model) during fiscal 1997 and
1998 was $6.15 and $9.24, respectively.
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The following table summarizes stock option activity for fiscal 1997 and
1998:
<TABLE>
<CAPTION>
SHARES WEIGHTED-AVERAGE
OUTSTANDING EXERCISE PRICE
----------- -----------------
<S> <C> <C>
Outstanding at April 28, 1996................................. -- $ --
Exercised................................................... -- --
Canceled.................................................... -- --
Granted..................................................... 934,691 12.85
-----------
Outstanding at April 30, 1997................................. 934,691 12.85
Exercised................................................... (3,875) 12.88
Canceled.................................................... (33,125) 12.86
Granted..................................................... 60,000 26.35
-----------
Outstanding at April 30, 1998................................. 957,691 $ 13.70
-----------
-----------
</TABLE>
F-16
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK BASED COMPENSATION PLANS (CONTINUED)
Information with respect to stock-based compensation plan stock options
outstanding at April 30, 1998 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- --------------------------
WEIGHTED- NUMBER
NUMBER AVERAGE WEIGHTED- EXERCISABLE WEIGHTED-
OUTSTANDING REMAINING AVERAGE AT AVERAGE
AT APRIL 30, CONTRACTUAL EXERCISE APRIL 30, EXERCISE
EXERCISE PRICES 1998 LIFE (IN YEARS) PRICE 1998 PRICE
- ------------------------------------------- --------------- ----------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$12.80..................................... 852,687 8.44 $ 12.80 281,847 $ 12.80
$13.80..................................... 45,004 8.66 13.80 14,788 13.80
$17.60..................................... 22,500 9.00 17.60 -- --
$31.60..................................... 37,500 9.45 31.60 -- --
------- -------------
957,691 8.51 13.70 296,635 12.85
------- -------------
------- -------------
</TABLE>
9. EMPLOYEE BENEFITS
Superior provides for postretirement employee health care and life insurance
benefits for certain employees. Superior established a maximum amount it will
pay per employee; therefore, health care cost trends do not affect the
calculation of the postretirement benefit obligation or its net periodic benefit
cost.
Superior sponsors two defined benefit pension plans for employees of its
Canadian manufacturing facility. These plans generally provide for payment of
benefits, commencing at retirement (between the ages of 55 and 65), based on the
employee's length of service and earnings. Plan assets consist principally of
cash, short-term investments, equities and fixed income instruments.
The change in the projected benefit obligation of the defined benefit
pension plans and the change in the postretirement health care benefits
obligation consisted of the following during fiscal 1997 and 1998:
<TABLE>
<CAPTION>
POSTRETIREMENT
DEFINED BENEFIT HEALTH CARE BENEFITS
PENSION PLANS
-------------------- --------------------
<S> <C> <C> <C> <C>
1997 1998 1997 1998
--------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................................ $ 3,228 $ 3,772 $ 1,282 $ 1,265
Service cost........................................................... 123 134 43 52
Interest cost.......................................................... 256 300 96 129
Plan amendments........................................................ 305 -- -- --
Actuarial loss......................................................... -- 858 -- 607
Benefits paid.......................................................... (140) (137) (156) (59)
--------- --------- --------- ---------
Benefit obligation at end of year...................................... $ 3,772 $ 4,927 $ 1,265 $ 1,994
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
F-17
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFITS (CONTINUED)
The change in plan assets and funded status of the defined benefit pension
plans and postretirement health care benefits consisted of the following during
fiscal 1997 and 1998:
<TABLE>
<CAPTION>
DEFINED BENEFIT POSTRETIREMENT
PENSION PLANS HEALTH CARE BENEFITS
-------------------- --------------------
<S> <C> <C> <C> <C>
1997 1998 1997 1998
--------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Change in plan assets:
Fair value of plan assets at beginning of year........................ $ 3,263 $ 3,568 $ -- $ --
Actual return on plan assets.......................................... 233 751 -- --
Employer contributions................................................ 212 178 156 59
Benefits paid......................................................... (140) (137) (156) (59)
--------- --------- --------- ---------
Fair value of plan assets at end of year.............................. $ 3,568 $ 4,360 $ -- $ --
--------- --------- --------- ---------
--------- --------- --------- ---------
Funded status........................................................... $ (204) $ (567) $ (1,265) $ (1,994)
Unrecognized actuarial (gain) loss...................................... (148) 247 (178) 424
Unrecognized prior service cost......................................... 383 351 -- --
--------- --------- --------- ---------
Prepaid (accrued) benefit cost.......................................... $ 31 $ 31 $ (1,443) $ (1,570)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DEFINED BENEFIT POSTRETIREMENT
PENSION PLANS HEALTH CARE BENEFITS
---------------------- --------------------
<S> <C> <C> <C> <C>
1997 1998 1997 1998
----- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Amounts recognized in the consolidated balance sheets consist of:
Prepaid benefit cost.................................................... $ 31 $ 35 $ -- $ --
Accrued benefit liability............................................... -- (4) (1,443) (1,570)
Additional minimum liability............................................ -- (296) -- --
Intangible asset........................................................ -- 296 -- --
--- --------- --------- ---------
Prepaid (accrued) benefit cost.......................................... $ 31 $ 31 $ (1,443) $ (1,570)
--- --------- --------- ---------
--- --------- --------- ---------
</TABLE>
The actuarial present value of the projected pension benefit obligation and
the postretirement health care benefits obligation at April 30, 1997 and 1998
were determined based upon the following assumptions:
<TABLE>
<CAPTION>
DEFINED BENEFIT
POSTRETIREMENT
PENSION PLANS HEALTH CARE BENEFITS
--------------------- -----------------------
1997 1998 1997 1998
---- ---- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Discount rate................................................................... 8.0% 6.5% 7.75% 7.00%
Expected return on plan assets.................................................. 8.0% 8.0% N/A N/A
</TABLE>
F-18
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFITS (CONTINUED)
The net periodic benefit cost recognized for the defined benefit pension
plans and the postretirement health care benefits include the following
components at April 30, 1997 and 1998:
<TABLE>
<CAPTION>
DEFINED BENEFIT POSTRETIREMENT
HEALTH CARE BENEFITS
PENSION PLANS
-------------------- --------------------
<S> <C> <C> <C> <C>
1997 1998 1997 1998
--------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost.................................................................... $ 123 $ 134 $ 43 $ 52
Interest cost................................................................... 256 300 96 129
Expected return on plan assets.................................................. (254) (281) -- --
Amortization of prior service cost.............................................. -- 23 -- 5
--------- --------- --------- ---------
Net periodic benefit cost....................................................... $ 125 $ 176 $ 139 $ 186
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The Company and its subsidiaries sponsor several defined contribution plans
covering substantially all U.S. employees. The plans provide for limited company
matching of participants' contributions. The Company's contributions during
fiscal 1996, 1997 and 1998 were $403,000, $485,000 and $848,000, respectively.
10. INCOME TAXES
The Company's provision for income tax expense (benefit) for fiscal years
1996, 1997 and 1998 is comprised of the following:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal......................................................................... $ 7,131 $ 15,121 $ 21,586
State........................................................................... 891 2,128 3,261
Foreign......................................................................... -- 321 2,484
--------- --------- ---------
Total current................................................................. 8,022 17,570 27,331
--------- --------- ---------
Deferred:
Federal......................................................................... (1,160) 72 (900)
State........................................................................... (140) 4 (100)
Foreign......................................................................... -- 1,343 455
--------- --------- ---------
Total deferred................................................................ (1,300) 1,419 (545)
--------- --------- ---------
Total income tax expense...................................................... $ 6,722 $ 18,989 $ 26,786
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-19
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amount computed by applying
the U.S. federal income tax rate of 35% for fiscal years 1996, 1997 and 1998
because of the effect of the following items:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Expected income tax expense at U.S. federal statutory tax rate.................... $ 5,042 $ 16,613 $ 23,611
State income tax expense, net of
U.S. federal tax income benefit................................................... 496 1,386 2,195
Taxes on foreign income at rates which differ from the U.S. federal statutory
rate............................................................................ -- 343 288
Nondeductible goodwill amortization............................................... 382 382 435
Change in valuation allowance..................................................... -- -- (1,100)
Other, net........................................................................ 802 265 1,357
--------- --------- ---------
Provision for income taxes........................................................ $ 6,722 $ 18,989 $ 26,786
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company accounts for income taxes under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax impact of temporary differences arising from assets and
liabilities whose tax bases are different from financial statement amounts. A
valuation allowance is established if it is more likely than not that all or a
portion of deferred tax assets will not be realized. Realization of the future
tax benefits of deferred tax assets is dependent on the Company's ability to
generate taxable income within the carryforward period and the periods in which
net temporary differences reverse.
Items that result in deferred tax assets and liabilities at April 30, 1997
and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Sale leaseback........................................................... $ 1,930 $ 1,930
Accruals not currently deductible for tax................................ 2,201 2,036
Inventory reserves....................................................... 2,730 3,276
Other.................................................................... 171 1,532
--------- ---------
Total deferred tax assets.............................................. 7,032 8,774
Less valuation allowance................................................. 1,100 --
--------- ---------
Net deferred tax assets................................................ 5,932 8,774
--------- ---------
Deferred tax liabilities:
Depreciation and amortization............................................ 10,683 10,988
Other.................................................................... 591 1,261
--------- ---------
Total deferred tax liabilities......................................... 11,274 12,249
--------- ---------
Net deferred income tax liability...................................... $ 5,342 $ 3,475
--------- ---------
--------- ---------
</TABLE>
F-20
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
Total rent expense under cancelable and noncancelable operating leases was
$0.7 million, $0.9 million and $1.4 million for fiscal 1996, 1997 and 1998,
respectively.
At April 30, 1998, future minimum lease payments under noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
REAL AND
PERSONAL
FISCAL YEAR PROPERTY
- ------------------------------------------------------------------------------- -------------
<S> <C>
(IN
THOUSANDS)
1999........................................................................... $ 1,184
2000........................................................................... 1,154
2001........................................................................... 1,097
2002........................................................................... 705
2003........................................................................... 448
Thereafter..................................................................... 1,940
------
$ 6,528
------
------
</TABLE>
Approximately 25% of Superior TeleCom's total labor force is covered by
collective bargaining agreements.
The Company is subject to routine lawsuits incidental to its business. 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 effect upon the
Company's financial position, liquidity or results of operations.
Certain executives of the Company have employment contracts which generally
provide minimum base salaries, cash bonuses based on the Company's achievement
of certain performance objectives, stock options and restricted stock grants of
Alpine, and certain retirement and other employee benefits. Further, in the
event of termination or voluntary resignation for "good reason" accompanied by a
change in control of Alpine, as defined, such employment agreements provide for
severance payments not in excess of two times annual cash compensation and bonus
and the continuation for stipulated periods of other benefits, as defined.
12. RELATED PARTY TRANSACTIONS
The Company and Alpine are parties to a services agreement (the "Services
Agreement") whereby Alpine agrees to provide certain financial, audit and
accounting, corporate finance and strategic planning, legal, treasury, insurance
and administrative services to Superior TeleCom in return for an annual fee in
addition to reimbursement of incidental costs and expenses incurred in
connection with Alpine's provision of such services. Under the Services
Agreement, Superior TeleCom paid Alpine $623,000 during the seven month period
ended April 30, 1997 and $2.7 million during the fiscal year ended April 30,
1998.
13. SUBSEQUENT EVENT
On May 5, 1998, the Company acquired 51% of the common stock of Cables of
Zion United Works Ltd. ("Cables of Zion"), an Israel-based cable and wire
manufacturer whose common stock is traded on the Tel Aviv Stock Exchange, for
approximately $24 million. The Company has a two-year option to
F-21
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SUBSEQUENT EVENT (CONTINUED)
purchase an additional 19% ownership interest in Cables of Zion at the same
purchase price per share paid for its initial 51% investment (as adjusted for
inflation). The acquisition will be accounted for using the purchase method. The
purchase price will be allocated based upon the estimated fair values of assets
and liabilities at the date of acquisition. The excess of the purchase price
over the net assets acquired will be amortized on a straight-line basis over 30
years.
14. SEGMENT INFORMATION
The Company conducts business in two segments: telecommunications wire and
cable products (through Superior) and data communications and electronics
(through DNE).
The following provides financial information about each business segment as
of and for the fiscal years ended April 28, 1996 and April 30, 1997 and 1998:
<TABLE>
<CAPTION>
YEAR ENDED APRIL
----------------------------------
<S> <C> <C> <C>
1996 1997 1998
---------- ---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales(a):
Telecommunications wire and cable.......................................... $ 384,237 $ 442,486 $ 491,737
Data communications and electronics........................................ 26,176 21,354 24,862
---------- ---------- ----------
$ 410,413 $ 463,840 $ 516,599
---------- ---------- ----------
---------- ---------- ----------
Operating income (loss):
Telecommunications wire and cable.......................................... $ 29,741 $ 62,779 $ 77,404
Data communications and electronics........................................ 2,039 (444) 1,856
Corporate.................................................................. -- (1,658) (3,915)
---------- ---------- ----------
$ 31,780 $ 60,677 $ 75,345
---------- ---------- ----------
---------- ---------- ----------
Identifiable assets at year-end:
Telecommunications wire and cable.......................................... $ 226,045 $ 225,286 $ 219,383
Data communications and electronics........................................ 18,020 14,425 11,317
Corporate.................................................................. -- (1,603) 1,543
---------- ---------- ----------
$ 244,065 $ 238,108 $ 232,243
---------- ---------- ----------
---------- ---------- ----------
Depreciation and amortization expense:
Telecommunications wire and cable.......................................... $ 7,719 $ 8,595 $ 9,443
Data communications and electronics........................................ 732 700 602
---------- ---------- ----------
$ 8,451 $ 9,295 $ 10,045
---------- ---------- ----------
---------- ---------- ----------
Capital expenditures:
Telecommunications wire and cable.......................................... $ 9,337 $ 9,294 $ 17,693
Data communications and electronics........................................ 449 513 795
---------- ---------- ----------
$ 9,786 $ 9,807 $ 18,488
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
(a) Five customers in the telecommunications wire and cable segment accounted
for 22%, 17%, 16%, 13% and 13% of net sales in fiscal 1996; five customers
accounted for 19%, 17%, 16%, 14% and 14% of net sales in fiscal 1997; and
five customers accounted for 19%, 19%, 17%, 16% and 13% of net sales in
fiscal 1998.
F-22
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following quarterly financial information represents the operating
results of Superior and DNE through October 1, 1996 (the date of Reorganization)
combined with the consolidated operating results of the Company for the seven
months ended April 30, 1997 (see Note 1). Net income per share of common stock
is provided for the two full quarters, subsequent to the Reorganization, ended
January 31, 1997 and April 30, 1997 and for each of the quarters in the fiscal
year ended April 30, 1998.
<TABLE>
<CAPTION>
FISCAL 1997 QUARTER ENDED
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JULY 31 OCTOBER 31 JANUARY 31 APRIL 30 YEAR
---------- ----------- ----------- ---------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales........................................... $ 123,824 $ 122,926 $ 97,391 $ 119,699 $ 463,840
Gross profit........................................ 18,377 20,585 17,427 23,180 79,569
Operating income.................................... 14,057 15,651 12,947 18,022 60,677
---------- ----------- ----------- ---------- ----------
Net income.......................................... $ 5,968 $ 6,947 $ 6,132 $ 9,429 $ 28,476
---------- ----------- ----------- ---------- ----------
---------- ----------- ----------- ---------- ----------
Basic net income per share of common stock.......... $ 0.38 $ 0.58
----------- ----------
----------- ----------
Diluted net income per share of common stock........ $ 0.38 $ 0.58
----------- ----------
----------- ----------
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1998 QUARTER ENDED
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JULY 31 OCTOBER 31 JANUARY 31 APRIL 30 YEAR
---------- ----------- ----------- ---------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales........................................... $ 131,233 $ 139,212 $ 113,661 $ 132,493 $ 516,599
Gross profit........................................ 24,342 25,342 21,680 27,877 99,241
Operating income.................................... 18,541 19,429 15,684 21,691 75,345
---------- ----------- ----------- ---------- ----------
Net income.......................................... $ 9,728 $ 10,502 $ 8,440 $ 12,005 $ 40,675
---------- ----------- ----------- ---------- ----------
---------- ----------- ----------- ---------- ----------
Basic net income per share of common stock.......... $ 0.60 $ 0.65 $ 0.52 $ 0.74 $ 2.52
---------- ----------- ----------- ---------- ----------
---------- ----------- ----------- ---------- ----------
Diluted net income per share of common stock........ $ 0.59 $ 0.63 $ 0.51 $ 0.72 $ 2.46
---------- ----------- ----------- ---------- ----------
---------- ----------- ----------- ---------- ----------
</TABLE>
F-23
<PAGE>
Exhibit 10(w)
[SUPERIOR TELECOM INC. LETTERHEAD]
As of May 1, 1998
The Alpine Group, Inc.
1790 Broadway, Suite 1500
New York, NY 10019-1412
Re: Services Agreement dated as of October 2, 1996 by and between
The Alpine Group, Inc. and Superior Telecom Inc., as amended by
letter agreement dated as of May 1, 1997 (as so amended the "Agreement")
Gentlemen:
This will memorialize our agreement to extend the captioned Agreement for
a term commencing as of the date hereof and expiring April 30, 1999, it being
understood that in consideration for your rendering the services provided for
under the Agreement, the undersigned shall continue to pay to you the annual
$2,717,000 service fee and other reimbursable amounts as payable thereunder
in the manner provided for under the Agreement.
The terms of this extension have been approved by the Audit Committee of
the Board of Directors of Superior Telecom Inc.
As modified hereby the Agreement is hereby expressly ratified and
confirmed.
If the foregoing conforms with your understanding of the agreement reached
between us, kindly execute a copy of this letter so indicating.
Very truly yours,
Agreed to as of the date first
hereinabove set forth SUPERIOR TELECOM INC.
THE ALPINE GROUP, INC.
By: /s/ Bragi F. Schut By: /s/ Steven S. Elbaum
------------------------------- ----------------------------------
Bragi F. Schut Steven S. Elbaum
Its: Executive Vice President Its: President and
Chief Executive Officer
<PAGE>
Exhibit 21
<TABLE>
<CAPTION>
JURISDICTION
OF
SUBSIDIARY ORGANIZATION
- ------------------------------------------------------- --------------
<S> <C>
Superior Telecommunications Inc....................... Georgia
Superior Cable Corporation............................. Ontario
DNE Systems, Inc. ..................................... Delaware
DNE Technologies, Inc. ................................ Delaware
DNE Manufacturing and Service Company.................. Delaware
</TABLE>
<PAGE>
Exhibit 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated June 2, 1998 included in this Form 10-K,
into Superior TeleCom Inc.'s previously filed Registration Statement
File No. 333-16705.
Arthur Andersen LLP
Atlanta, Georgia
July 24, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<CASH> 9,866
<SECURITIES> 0
<RECEIVABLES> 41,285
<ALLOWANCES> 177
<INVENTORY> 43,190
<CURRENT-ASSETS> 100,847
<PP&E> 109,394
<DEPRECIATION> 26,273
<TOTAL-ASSETS> 232,243
<CURRENT-LIABILITIES> 62,315
<BONDS> 0
0
0
<COMMON> 162
<OTHER-SE> 82,044
<TOTAL-LIABILITY-AND-EQUITY> 232,243
<SALES> 516,599
<TOTAL-REVENUES> 516,599
<CGS> 417,358
<TOTAL-COSTS> 417,358
<OTHER-EXPENSES> 69
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,090
<INCOME-PRETAX> 67,461
<INCOME-TAX> 26,786
<INCOME-CONTINUING> 40,675
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,675
<EPS-PRIMARY> 2.52
<EPS-DILUTED> 2.46
</TABLE>
