<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-12261
------------------------
SUPERIOR TELECOM INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 58-2248978
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1790 BROADWAY 10019-1412
NEW YORK, NEW YORK (Zip code)
(Address of principal
executive offices)
</TABLE>
Registrant's telephone number, including area code 212-757-3333
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 Days. Yes _X_ No ___
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
<TABLE>
<CAPTION>
Class Outstanding at March 17, 1998
- ------------------------------- -------------------------------
<S> <C>
Common Stock, $.10 Par Value 16,168,266
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements have been prepared
in accordance with the requirements of Form 10-Q and, therefore, do not include
all information and footnotes required by generally accepted accounting
principles. However, in the opinion of management, all adjustments (which,
except as disclosed elsewhere herein, consist only of normal recurring accruals)
necessary for a fair presentation of the results of operations for the relevant
periods have been made. Results for the interim periods are not necessarily
indicative of the results to be expected for the year. These financial
statements should be read in conjunction with the summary of significant
accounting policies and the notes to the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended April
30, 1997.
2
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1997 1998
---------- -----------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.............................................................. $ 1,052 $ 1,879
Accounts receivable (less allowance for doubtful accounts of:
April, $174; January, $172).......................................................... 48,099 45,336
Inventories............................................................................ 56,262 45,919
Other current assets................................................................... 4,554 4,918
---------- -----------
Total current assets............................................................... 109,967 98,052
Property, plant and equipment, net....................................................... 77,023 76,519
Long-term investments and other assets................................................... 4,666 3,965
Goodwill (less accumulated amortization; April, $4,826;January, $6,080).................. 46,452 44,788
---------- -----------
Total assets..................................................................... $ 238,108 $ 223,324
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................................... $ 43,594 $ 37,375
Accrued expenses....................................................................... 18,326 16,334
Current portion of long-term debt...................................................... 430 129
---------- -----------
Total current liabilities.......................................................... 62,350 53,838
Long-term debt, less current portion..................................................... 120,862 86,069
Other long-term liabilities.............................................................. 10,868 12,490
---------- -----------
Total liabilities................................................................ 194,080 152,397
---------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; authorized 25,000,000 shares; issued: April, 12,926,536
shares; January, 16,168,266 shares................................................... 129 162
Capital in excess of par value......................................................... 27,340 27,475
Cumulative translation adjustment...................................................... (831) (1,759)
Retained earnings...................................................................... 17,390 45,049
---------- -----------
Total stockholders' equity......................................................... 44,028 70,927
---------- -----------
Total liabilities and stockholders' equity....................................... $ 238,108 $ 223,324
---------- -----------
---------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
JANUARY 31, JANUARY 31,
1997 1998
------------- -------------
<S> <C> <C>
Net sales........................................................................... $ 97,391 $ 113,661
Cost of goods sold.................................................................. 79,964 91,981
------------- -------------
Gross profit...................................................................... 17,427 21,680
Selling, general and administrative expense......................................... 4,046 5,568
Amortization of goodwill............................................................ 434 428
------------- -------------
Operating income.................................................................. 12,947 15,684
Interest income..................................................................... 16 52
Interest (expense).................................................................. (2,370) (1,731)
Other income (expense), net......................................................... (214) 34
------------- -------------
Income before income taxes........................................................ 10,379 14,039
Provision for income taxes.......................................................... (4,247) (5,599)
------------- -------------
Net income........................................................................ $ 6,132 $ 8,440
------------- -------------
------------- -------------
Net income per share of common stock:
Basic............................................................................. $ 0.38 $ 0.52
------------- -------------
------------- -------------
Diluted........................................................................... $ 0.38 $ 0.51
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIVE MONTHS FOUR MONTHS NINE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, JANUARY 31, JANUARY 31,
1996 1997 1998
------------- ------------ ------------
<S> <C> <C> <C>
(NOTE 1)
Net sales............................................................. $ 211,025 $ 133,116 $ 384,106
Cost of goods sold.................................................... 178,224 109,528 312,742
------------- ------------ ------------
Gross profit........................................................ 32,801 23,588 71,364
Selling, general and administrative expense........................... 6,591 5,846 16,422
Amortization of goodwill.............................................. 721 576 1,288
------------- ------------ ------------
Operating income.................................................... 25,489 17,166 53,654
Interest income....................................................... -- 17 83
Interest (expense).................................................... (6,973) (3,377) (6,387)
Other income (expense), net........................................... (62) (315) 66
------------- ------------ ------------
Income before income taxes.......................................... 18,454 13,491 47,416
Provision for income taxes............................................ (7,368) (5,530) (18,746)
------------- ------------ ------------
Net income.......................................................... $ 11,086 $ 7,961 $ 28,670
------------- ------------ ------------
------------- ------------ ------------
Net income per share of common stock:
Basic............................................................... $ 0.54 $ 1.77
------------ ------------
------------ ------------
Diluted............................................................. $ 0.54 $ 1.72
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JANUARY 31, 1998
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN FOREIGN
------------------------- EXCESS CURRENCY RETAINED
SHARES AMOUNT OF PAR TRANSLATION EARNINGS TOTAL
------------ ----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1997........................... 12,926,536 $ 129 $ 27,340 $ (831) $ 17,390 $ 44,028
Foreign currency translation........................ (928) (928)
Employee stock purchase plan........................ 5,245 1 121 122
Exercise of stock options........................... 2,850 -- 46 46
Partial stock split................................. 3,233,635 32 (32) --
Cash dividend ($0.0625 per share)................... (1,011) (1,011)
Net income for the nine months ended January 31,
1998.............................................. 28,670 28,670
------------ ----- ----------- ----------- --------- ---------
Balance at January 31, 1998......................... 16,168,266 $ 162 $ 27,475 $ (1,759) $ 45,049 $ 70,927
------------ ----- ----------- ----------- --------- ---------
------------ ----- ----------- ----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIVE MONTHS FOUR MONTH NINE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, JANUARY 31, JANUARY 31,
1996 1997 1998
------------- ----------- ------------
<S> <C> <C> <C>
(NOTE 1)
Cash flows from operating activities:
Net income........................................................... $ 11,086 $ 7,961 $ 28,670
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization.................................... 3,700 3,169 7,489
Amortization of deferred financing costs......................... 20 332 790
Change in assets and liabilities:
Accounts receivable................................................ 409 18,241 (2,276)
Inventories........................................................ 19,218 (9,565) 10,218
Other current and non current assets............................... 462 271 (461)
Accounts payable and accrued expenses.............................. (5,041) (509) (2,935)
Other, net......................................................... 123 -- (252)
------------- ----------- ------------
Cash flows provided by operating activities............................ 29,977 19,900 41,243
------------- ----------- ------------
Cash flows from investing activities:
Capital expenditures............................................... (2,745) (3,299) (9,605)
Net proceeds from sale of assets................................... -- -- 5,116
Other.............................................................. 35 1,969 --
------------- ----------- ------------
Cash flows used for investing activities............................... (2,710) (1,330) (4,489)
------------- ----------- ------------
Cash flows from financing activities:
Net proceeds from sale of common stock............................. -- 101,642 --
Borrowings (repayments) under revolving credit facilities, net..... -- 115,629 (31,164)
Capitalized financing costs........................................ -- (4,203) --
Repayments to Alpine, net.......................................... (26,768) (92,694) --
Dividends on common stock.......................................... -- (117,129) (1,011)
Repayments of long-term borrowings................................. (216) (2,067) (3,930)
Purchase of treasury stock......................................... -- (8,055) --
Other.............................................................. -- -- 178
------------- ----------- ------------
Cash flows (used for) financing activities............................. (26,984) (6,877) (35,927)
------------- ----------- ------------
Net increase in cash and cash equivalents.............................. 283 11,693 827
Cash and cash equivalents at beginning of period....................... 351 634 1,052
------------- ----------- ------------
Cash and cash equivalents at end of period............................. $ 634 $ 12,327 $ 1,879
------------- ----------- ------------
------------- ----------- ------------
Supplemental disclosures:
Cash paid for interest............................................. $ 7,610 $ 1,058 $ 5,888
------------- ----------- ------------
------------- ----------- ------------
Cash paid for income taxes......................................... $ 569 $ 2,284 $ 17,475
------------- ----------- ------------
------------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
REORGANIZATION
Superior TeleCom Inc. ("Superior TeleCom" or the "Company") was incorporated
in July 1996 as a wholly owned subsidiary of The Alpine Group, Inc. ("Alpine").
At the date of incorporation, the Company had no operations or material assets
or liabilities. On October 2, 1996, Alpine completed a reorganization (the
"Reorganization") whereby 100% of the common stock of two of Alpine's
subsidiaries, Superior Telecommunications Inc. ("Superior") and DNE Systems,
Inc. ("DNE") was contributed to the Company. Prior to the Reorganization and
pursuant to a recapitalization of Superior and DNE, Superior issued to Alpine
20,000 shares of 6% Cumulative Preferred Stock (the "Superior Preferred Stock"),
with a liquidation preference of $1,000 per share and Superior and DNE declared
a dividend payable to Alpine of $117.1 million. In conjunction with the
Reorganization, the Company borrowed $154.0 million under a new revolving credit
facility (the "Credit Facility"), the net proceeds of which were used to repay
intercompany debt of $87.9 million owed by Superior and DNE to Alpine and to pay
to Alpine $63.8 million of the aforementioned dividend.
OFFERING
In October 1996, the Company sold 6,000,000 shares of its common stock (the
"Common Stock") through an initial public offering (the "Offering"). The Company
used the net proceeds of approximately $88.3 million to repay $34.4 million
under the Credit Facility and to pay to Alpine the remaining balance on the
aforementioned dividend declared by Superior and DNE.
In November 1996, the underwriters of the Offering exercised their
overallotment option to purchase an additional 900,000 shares of Common Stock.
The Company used the net proceeds of approximately $13.3 million to repurchase
450,000 shares of Common Stock for approximately $8.1 million, with the balance
applied to reduce the amount outstanding under the Credit Facility. The
repurchased shares of Common Stock were then transferred to Alpine in exchange
for $8.1 million in principal amount of the Superior Preferred Stock. On
February 12, 1997, Superior redeemed at face value an additional $11.3 million
principal amount of the Superior Preferred Stock. The remaining $0.6 million of
Superior Preferred Stock held by Alpine at April 30, 1997 and January 31, 1998
is included in other long-term liabilities in the accompanying consolidated
balance sheets. After completion of these transactions, Alpine still retained
voting control over the Company; however, its ownership interest has been
reduced to 50.1%.
BASIS OF PRESENTATION
The following financial statements included herein are for the period
subsequent to the Reorganization: (i) balance sheets at April 30, 1997 and
January 31, 1998, (ii) statements of operations for the three and four months
ended January 31, 1997 and the three and nine months ended January 31, 1998,
(iii) statement of stockholders' equity for the nine months ended January 31,
1998 and (iv) statements of cash flows for the four months ended January 31,
1997 and the nine months ended January 31, 1998. For comparative purposes, the
combined financial statements of the predecessor companies, Superior and DNE,
prior to the Reorganization, have also been included herein. These financial
statements consist of the combined statement of operations of Superior and DNE
for the five months ended September 30, 1996 and the statement of cash flows for
the five months ended September 30, 1996.
8
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
(UNAUDITED)
2. INVENTORIES
The components of inventories are:
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1997 1998
--------- -----------
<S> <C> <C>
Raw materials......................................................... $ 10,352 $ 8,028
Work in process....................................................... 10,556 8,586
Finished goods........................................................ 35,354 29,305
--------- -----------
$ 56,262 $ 45,919
--------- -----------
--------- -----------
</TABLE>
3. EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, 1998 JANUARY 31, 1998
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------------------------
<CAPTION>
NET PER SHARE NET NET PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
--------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share................................... $ 8,440 16,167 $ 0.52 $ 28,670 16,162 $ 1.77
--------- ----- --------- -----
--------- ----- --------- -----
Dilutive impact of stock options........................... 544 499
--------- ---------
Diluted earnings per share................................. $ 8,440 16,711 $ 0.51 $ 28,670 16,661 $ 1.72
--------- --------- ----- --------- --------- -----
--------- --------- ----- --------- --------- -----
<CAPTION>
THREE MONTHS ENDED FOUR MONTHS ENDED
JANUARY 31, 1997 JANUARY 31, 1997
--------------------------------- ---------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------------------------
NET PER SHARE NET NET PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
--------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share................................... $ 6,132 16,123 $ 0.38 $ 7,961 14,784 $ 0.54
--------- ----- --------- -----
--------- ----- --------- -----
Dilutive impact of stock options........................... 189 85
--------- ---------
Diluted earnings per share................................. $ 6,132 16,312 $ 0.38 $ 7,961 14,869 $ 0.54
--------- --------- ----- --------- --------- -----
--------- --------- ----- --------- --------- -----
</TABLE>
Basic earnings per common share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Diluted earnings per common share were determined assuming that stock options
outstanding were converted under the treasury stock method. The Company has
adopted SFAS No. 128, "Earnings per Share," effective with its quarter ended
January 31, 1998. As a result, the Company's reported earnings per share for the
periods ended January 31, 1997 were restated.
On January 15, 1998, the Company's Board of Directors 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 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's Board of Directors 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
9
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
(UNAUDITED)
approval by the Board of Directors. The first quarterly cash dividend, totaling
approximately $1.0 million, was paid on February 2, 1998 to shareholders of
record on January 23, 1998, on a post stock split basis.
The effect of the SFAS No. 128 accounting change, as well as the stock
split, on previously reported earnings per share (EPS) data was as follows:
<TABLE>
<CAPTION>
THREE MONTHS FOUR MONTHS
ENDED ENDED
JANUARY 31, JANUARY 31,
1997 1997
------------- -------------
<S> <C> <C>
Primary EPS, as previously reported.............................. $ 0.47 $ 0.67
Effect of stock split............................................ (0.09) (0.13)
Effect of SFAS No. 128........................................... -- --
------ ------
Basic EPS, as restated........................................... $ 0.38 $ 0.54
------ ------
------ ------
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company, through its two subsidiaries, Superior and DNE, is engaged in
the manufacture and sale of (i) copper wire and cable for the telecommunications
industry and (ii) data communication and other electronic products and systems
for defense, governmental and commercial applications.
RESULTS OF OPERATIONS
PRESENTATION OF RESULTS OF OPERATIONS
The following comparative table includes unaudited operating statement data
for the Company on an industry segment basis. Such data is presented on a
historical basis for the three months ended January 31, 1997 and the three and
nine months ended January 31, 1998 and on a pro forma basis for the nine months
ended January 31, 1997. Management believes the pro forma data presented herein
for the nine months ended January 31, 1997 provide comparability among
historical periods and facilitate an analysis of trends in the Company's
operations and profitability. Such pro forma data include (i) the combined
historical results of operations of Superior and DNE prior to the Reorganization
and their inclusion as subsidiaries of the Company and (ii) pro forma
adjustments to selling, general and administrative expense, interest expense and
income tax expense to reflect the impact of the Reorganization and the Offering
(see Note 1 to the accompanying unaudited Condensed Consolidated Financial
Statements), as if such transactions had occurred on May 1, 1996. Such pro forma
adjustments are more fully described in the footnotes accompanying the following
comparative table.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
------------------------ ------------------------
<S> <C> <C> <C> <C>
1997 1998 1997 1998
----------- ----------- ----------- -----------
<CAPTION>
(PROFORMA)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales:
Telecommunications wire and cable........................ $ 92,872 $ 107,499 $ 327,728 $ 365,613
Data communications and electronics...................... 4,519 6,162 16,413 18,493
----------- ----------- ----------- -----------
Consolidated......................................... 97,391 113,661 344,141 384,106
Gross profit:
Telecommunications wire and cable........................ $ 16,447 $ 19,489 $ 52,255 $ 65,500
Data communications and electronics...................... 980 2,191 4,134 5,864
----------- ----------- ----------- -----------
Consolidated......................................... 17,427 21,680 56,389 71,364
Gross profit percentage:
Telecommunications wire and cable........................ 17.7% 18.1% 15.9% 17.9%
Data communications and electronics...................... 21.7% 35.6% 25.2% 31.7%
----------- ----------- ----------- -----------
Consolidated......................................... 17.9% 19.1% 16.4% 18.6%
Selling, general and administrative (SG&A) expense:
Telecommunications wire and cable........................ $ 2,227 $ 2,914 $ 7,199 $ 9,315
Data communications and electronics...................... 1,335 1,487 4,587 4,340
Corporate................................................ 484 1,167 1,484(1) 2,767
----------- ----------- ----------- -----------
Consolidated......................................... 4,046 5,568 13,270 16,422
Amortization of goodwill:
Telecommunications wire and cable........................ $ 434 $ 428 $ 1,297 $ 1,288
----------- ----------- ----------- -----------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
------------------------ ------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
(PROFORMA)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating income (loss):
Telecommunications wire and cable........................ $ 13,786 $ 16,147 $ 43,759 $ 54,897
Data communications and electronics...................... (355) 704 (453) 1,524
Corporate................................................ (484) (1,167) (l,484) (2,767)
----------- ----------- ----------- -----------
Consolidated......................................... 12,947 15,684 41,822 53,654
Interest expense, net...................................... (2,354) (1,679) (7,347)(2) (6,304)
Minority interest.......................................... (179) (10) (537)(3) (28)
Other income (expense), net................................ (35) 44 (102) 94
----------- ----------- ----------- -----------
Income before income taxes........................... 10,379 14,039 33,836 47,416
Provision for income taxes................................. (4,247) (5,599) (13,773)(4) (18,746)
----------- ----------- ----------- -----------
Net income........................................... $ 6,132 $ 8,440 $ 20,063 $ 28,670
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share of common stock:
Basic.................................................... $ 0.38 $ 0.52 $ 1.24(5) $ 1.77
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted.................................................. $ 0.38 $ 0.51 $ 1.24(5) $ 1.72
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
NOTES TO UNAUDITED PRO FORMA OPERATING DATA:
(1) Reflects estimated additional general and administrative expenses associated
with the Company's status as an independent public company of $2.0 million
on an annualized basis prior to the Offering.
(2) Reflects the Company's estimated interest expense prior to the Offering
assuming a balance outstanding under the Credit Facility of $111.7 million
for the nine months ended January 31, 1997.
(3) Reflects dividends on $11.9 million (face amount) of Superior Preferred
Stock outstanding subsequent to the Reorganization and Offering (see Note 1
to the accompanying unaudited Condensed Consolidated Financial Statements).
(4) Reflects the Company's estimate of income tax expense as if the Company had
filed a separate federal income tax return prior to the Offering.
(5) Net income per diluted share of Common Stock for the pro forma period has
been calculated based upon 16,207,395 shares outstanding, which assumes
completion of the Offering and the five-for-four stock split effective
January 23, 1998 (see Notes 1 and 3 to the accompanying unaudited Condensed
Consolidated Financial Statements).
SUPPLEMENTAL DATA FOR THE SUPERIOR TELECOMMUNICATIONS WIRE AND CABLE SEGMENT
Copper is a significant raw material component of Superior's finished
products. Fluctuations in the price of copper affect per unit product pricing
and related revenues. However, the cost of copper has not had a material impact
on Superior's profitability due to contractually mandated copper-based price
adjustments contained in Superior's customer sales contracts. The Company
believes that the following supplemental comparative data, which is based upon a
constant copper cost of $1.00 per pound for the
12
<PAGE>
indicated periods, provides additional meaningful information concerning
Superior's sales and its gross profit percentage.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
---------------------- ----------------------
<S> <C> <C> <C> <C>
1997 1998 1997 1998
---------- ---------- ---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales..................................................... $ 93,220 $ 105,476 $ 317,879 $ 355,286
Gross profit.................................................. 16,447 19,489 52,255 65,500
Gross profit percentage....................................... 17.6% 18.5% 16.4% 18.4%
</TABLE>
SUPERIOR--RESULTS OF OPERATIONS
Superior's net sales for the quarter ended January 1998 were $107.5 million,
representing an increase of $14.6 million, or 15.7%, as compared to the same
period in the prior fiscal year. For the nine months ended January 1998,
Superior's net sales were $365.6 million, representing an increase of $37.9
million, or 11.6%, as compared to the same period in the prior fiscal year.
Adjusted to a constant copper cost of $1.00 per pound, the comparative
percentage increases in net sales for the three and nine months ended January
Telecommunications Wire and Cable Segment" included in the industry segment
operating statement data). The increase in comparative net sales that the
Company has experienced in the first three quarters of fiscal 1998 has resulted
primarily from increased demand for copper wire and cable products due to
continuing growth in new copper-based telephone access lines and an increase in
maintenance spending by several of Superior's major telephone company customers.
The growth in access lines is believed to be the result of increased demand for
support of computer, facsimile and internet connections. Additionally,
comparative net sales for the quarter ended January 31, 1998, which is typically
a seasonally slow period, were favorably impacted by the tightness in supply of
telephone wire and cable products, resulting in customer orders and shipment
patterns reflecting less seasonality. Severe weather conditions in the
Northeastern sector also resulted in an increase in demand for replacement wire
and cable products in the January 1998 fiscal quarter. To a lesser degree, the
growth in net sales in fiscal 1998 has been favorably impacted by a modest
increase in market share under long term customer contracts.
In order to keep pace with the growth in demand and increased market share,
Superior has a continuing program to increase its production capacity to a level
that will be sufficient to provide internally for anticipated product demand
levels. However, when required, inventory is supplemented with product purchased
from other wire and cable manufacturers. The Company expects to continue to
increase its production capacity over the next 9-12 months, to a level that will
be sufficient to provide internally for anticipated product demand levels.
Superior's gross profit increased by $3.0 million, or 18.5%, to $19.5
million for the quarter ended January 1998, as compared to the same period in
the prior fiscal year. For the nine months ended January 1998, Superior's gross
profit was $65.5 million, representing an increase of $13.2 million, or 25.3%,
as compared to the same period in the prior fiscal year. Superior's gross profit
percentage, based on actual net sales, was 18.1% for the quarter ended January
1998 and 17.9% for the nine months ended January 1998, as compared to 17.7% for
the quarter ended January 1997 and 15.9% for the nine months ended January 1997.
Adjusted to a constant copper cost of $1.00 per pound, the gross profit
percentage increased to 18.5% and 18.4%, respectively, for the quarter and nine
months ended January 1998, as compared to 17.6% and 16.4%, respectively, for the
quarter and nine months ended January 1997. The comparative increase in
Superior's gross profit percentage was attributable to a combination of factors,
including manufacturing cost reductions resulting from production efficiencies,
improved cost absorption resulting from higher sales volume, generally higher
comparative market prices and the impact of product mix (particularly in the
quarter ended January 31, 1998).
Superior's SG&A expense for the quarter ended January 1998 was $2.9 million,
representing an increase of $0.7 million, or 30.8%, as compared to SG&A expense
of $2.2 million for the same period in
13
<PAGE>
the prior fiscal year. For the nine months ended January 1998, Superior's SG&A
expense was $9.3 million, representing an increase of $2.1 million, or 29.4%, as
compared to the same period in the prior fiscal year. The increase in SG&A
expense for the quarter and nine months ended January 1998 was attributable
primarily to costs associated with the incremental staff required to support the
increased level of sales activity and the expansion of product development
activities, including the establishment and staffing of a product development
facility during the fourth quarter of fiscal 1997.
Superior's operating income for the quarter ended January 1998 was $16.1
million, representing an increase of $2.4 million, or 17.1%, as compared to the
quarter ended January 1997. For the nine months ended January 1998, Superior's
operating income was $54.9 million, representing an increase of $11.1 million,
or 25.5%, as compared to the same period in the prior fiscal year. The
substantial comparative increase in operating income resulted from higher net
sales and the improvement in gross profit percentage.
DNE--RESULTS OF OPERATIONS
For the quarter ended January 1998, DNE's net sales were $6.2 million,
representing an increase of $1.6 million, or 36.4%, as compared to the same
period in the prior fiscal year. For the nine months ended January 1998, DNE's
net sales were $18.5 million, representing an increase of $2.1 million, or
12.7%, as compared to the same period in the prior fiscal year. The fiscal 1998
comparative increase in net sales was the result of significant shipments under
DNE's first major commercial multiplexer project, along with an improvement in
government-related revenues, offset by a decline in DNE's contract manufacturing
activities.
DNE's gross profit percentage increased to 35.6% for the quarter ended
January 1998 and to 31.7% for the nine months ended January 1998, as compared to
21.7% and 25.2% for the three and nine months ended January 1997, respectively.
The increase in gross profit percentage was attributable to the higher margin
associated with the aforementioned commercial multiplexer sales and the increase
in higher margin government-related revenues.
DNE's SG&A expense in the current fiscal year was comparable to prior
periods, increasing by $0.2 million in the January 1998 quarter and decreasing
by $0.2 million in the January 1998 nine month period, as compared to the same
periods in the prior fiscal year.
As a result of the increase in net sales and gross profit percentage, DNE
generated operating income of $0.7 million during the quarter ended January 1998
and $1.5 million for the nine months ended January 1998, which was an
improvement over DNE's operating losses of $0.4 million and $0.5 million,
respectively, in the same periods of the prior fiscal year.
CONSOLIDATED RESULTS OF OPERATIONS
The growth in sales at both Superior and DNE for the quarter ended January
1998 resulted in comparative consolidated net sales increasing by 16.7% to
$113.7 million, as compared to the quarter ended January 1997. For the nine
months ended January 1998, consolidated net sales increased by 11.6% to $384.1
million, as compared to net sales for the nine months ended January 1997. The
increase in net sales, along with an increase in gross profit percentage, gave
rise to a comparative consolidated increase in gross profit of $4.3 million, or
24.4%, for the quarter ended January 1998 and $15.0 million, or 26.6%, for the
nine months ended January 1998.
Consolidated SG&A expense for the quarter ended January 1998 was $5.6
million, reflecting an increase of $1.5 million, or 37.6%, as compared to
consolidated SG&A expense for the quarter ended January 1997. For the nine
months ended January 1998, consolidated SG&A expense was $16.4 million,
representing an increase of $3.2 million, or 23.8%, as compared to the same
period in the prior fiscal year. The increase was attributable to higher SG&A
expense at Superior and an increase in corporate SG&A expense resulting
primarily from an increase in costs to the Company for corporate services
pursuant to a Services Agreement with Alpine.
14
<PAGE>
Consolidated operating income increased 21.1%, to $15.7 million for the
quarter ended January 1998 as compared to the quarter ended January 1997. For
the nine months ended January 1998, the Company's consolidated operating income
was $53.7 million, representing an increase of 28.3%, as compared to the same
period in the prior fiscal year. The comparative growth in operating income
resulted from an increase in consolidated gross profit, partially offset by the
aforementioned increase in consolidated SG&A expense.
Consolidated interest expense for the quarter ended January 1998 was $1.7
million, or $0.7 million less than interest expense for the comparative period
of fiscal 1997. For the nine months ended January 1998, Superior's consolidated
interest expense was $6.3 million, representing a decrease of $1.0 million, as
compared to pro forma interest expense for the same period in the prior fiscal
year. The decrease in interest expense resulted from a reduction in the weighted
average cost of borrowing, along with a decline in the average balance
outstanding under the Company's Credit Facility, which for the three and nine
months ended January 31, 1998 was $78.9 and $93.4 million, respectively, as
compared to $100.8 million and $111.7, respectively, for the three and nine
months ended January 31, 1997 (see Note 2 to the "Unaudited Pro Forma Operating
Data" included elsewhere herein).
For the quarter and nine months ended January 1998, the provision for income
taxes was $5.6 million and $18.7 million, respectively, compared to a provision
for income taxes of $4.2 million for the quarter ended January 1997 and a pro
forma provision for income taxes of $13.8 million for nine months ended January
1997 (see Note 4 to the "Unaudited Pro Forma Operating Data" included elsewhere
herein). The effective tax rates for the quarter and nine months ended January
1998 were 39.8% and 39.5%, respectively, as compared to 40.9% and 40.7% (pro
forma), respectively, for the quarter and nine months ended January 1997.
Consolidated net income for the quarter ended January 1998 was $8.4 million,
or $0.51 per diluted share, representing an increase of $2.3 million, or 37.6%,
over net income of $6.1 million, or $0.38 per diluted share, for the quarter
ended January 1997. Consolidated net income for the nine months ended January
1998 was $28.7 million, or $1.72 per diluted share, representing an increase of
$8.6 million, or 42.9%, over pro forma net income of $20.1 million, or $1.24 per
diluted share, for the nine months ended January 1997. This increase in net
income resulted primarily from the increase in operating income described above.
SUPPLEMENTAL COMMENTS ON COMPARATIVE ACTUAL RESULTS OF OPERATIONS
Set forth below is a supplemental discussion addressing the comparison of
the actual results of the Company for the nine months ended January 31, 1998, to
the actual results of the Company (and its predecessors) as combined for the
nine months ended January 31, 1997 (see Note 1 to the accompanying unaudited
Condensed Consolidated Financial Statements).
The historical financial information for net sales, gross profit, selling,
general and administrative expense and operating income for the nine months
ended January 31, 1997 and 1998, as presented in the unaudited Condensed
Consolidated Statements of Operations included in the accompanying financial
statements, are the same as the data presented in the "unaudited pro forma
operating data" included elsewhere herein, except for the pro forma adjustment
explained in Note (1) to such pro forma operating data for the nine months ended
January 31, 1997. Accordingly, the comparative changes and trends for the actual
and historical combined amounts referred to above have been addressed in the
discussion accompanying the pro forma operating data included elsewhere herein.
Comparative historical interest expense declined by $4.0 million to $6.3
million for the nine months ended January 1998. The decline resulted from a
reduction in outstanding debt and a reduction in interest rates associated with
such debt attributable to the impact of the Reorganization, Offering and
associated debt refinancings, and cash provided by operations.
Historical net income increased to $28.7 million for the nine months ended
January 1998, as compared to $19.0 million for the same period in the prior
fiscal year. This increase resulted from the increase in operating income
(described above) combined with the aforementioned reduction in interest
expense.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended January 1998, the Company generated $41.2 million
in cash flows from operating activities consisting of $36.9 million in income
generated from operations (net income plus non-cash charges) plus $4.3 million
in cash flows generated from net working capital changes. Such working capital
changes consisted principally of a $10.3 reduction in inventories, offset by a
$2.2 million increase in accounts receivable and a $3.0 million reduction in
accounts payable and accrued expenses. Cash used for investing activities
amounted to $4.4 million, consisting principally of $5.2 million in net proceeds
from the sale of assets, of which $4.4 million resulted from the sale of a
building owned by DNE, offset by $9.6 million in capital expenditures. Cash used
for financing activities amounted to $35.9 million, consisting principally of
the repayment of debt.
The Company's capital structure at January 31, 1998 consisted of $86.2
million in debt and $70.9 million in total stockholders' equity. Included in the
Company's debt balance is $80.5 million outstanding under the Company's $150.0
million Credit Facility. Additional availability under the Credit Facility
amounted to $69.5 million at January 31, 1998. Obligations under the Credit
Facility are guaranteed by each of the Company's domestic subsidiaries and are
secured by substantially all of the assets of the Company and by the stock of
each domestic subsidiary. The Credit Facility contains customary performance and
financial covenants.
Over the next 12 months, the Company has annual principal debt service
commitments of approximately $0.1 million and expected capital expenditures of
approximately $10-$15 million. The Company does not expect to incur other
material commitments over this period.
Superior's operations have typically generated substantial operating cash
flows, as indicated by the $40.2 million in cash flows from operating activities
generated during the nine months ended January 31, 1998. Management anticipates
that the Company will continue to generate more than adequate cash flows from
operating activities to meet its annual commitments. However, should any
shortfall arise due to working capital fluctuations or other factors, cash and
funds availability under the Credit Facility should be sufficient to cover such
shortfall.
- ------------------------
Except for the historical information herein, the matters discussed in this
Form 10-Q include forward-looking statements that may involve a number of risks
and uncertainties. Actual results may vary significantly based on a number of
factors, including, but not limited to, risks in product and technology
development, market acceptance of new products and continuing product demand,
the impact of competitive products and pricing, and changing economic
conditions, including changes in short term interest rates and other risk
factors detailed in the Company's most recent filings with the Securities and
Exchange Commission.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT 27--FINANCIAL DATA SCHEDULE
(b) Reports on Form 8-K
None
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
SUPERIOR TELECOM INC.
(Registrant)
By: /s/ DAVID S. ALDRIDGE
-----------------------------------------
David S. Aldridge
Date: March 17, 1998 CHIEF FINANCIAL OFFICER
</TABLE>
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 1,879
<SECURITIES> 0
<RECEIVABLES> 45,508
<ALLOWANCES> 172
<INVENTORY> 45,919
<CURRENT-ASSETS> 98,052
<PP&E> 100,884
<DEPRECIATION> 24,365
<TOTAL-ASSETS> 223,324
<CURRENT-LIABILITIES> 53,838
<BONDS> 0
0
0
<COMMON> 162
<OTHER-SE> 70,765
<TOTAL-LIABILITY-AND-EQUITY> 223,324
<SALES> 384,106
<TOTAL-REVENUES> 384,106
<CGS> 312,742
<TOTAL-COSTS> 312,742
<OTHER-EXPENSES> (66)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,387
<INCOME-PRETAX> 47,416
<INCOME-TAX> 18,746
<INCOME-CONTINUING> 28,670
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,670
<EPS-PRIMARY> 1.77
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