<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 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
------------------------
SUPERIOR TELECOM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 58-2248978
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
1790 BROADWAY
NEW YORK, NEW YORK 10019-1412
(Address of principal (Zip code)
executive offices)
</TABLE>
Registrant's telephone number, including area code 212-757-3333
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 Days. Yes _X_ No ___
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
<TABLE>
<S> <C>
Outstanding at September 11,
Class 1998
- ----------------------------- --------------------------------
Common Stock, $.10 Par Value 16,081,728
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements have been prepared
in accordance with the requirements of Form 10-Q and, therefore, do not include
all information and footnotes required by generally accepted accounting
principles. However, in the opinion of management, all adjustments (which,
except as disclosed elsewhere herein, consist only of normal recurring accruals)
necessary for a fair presentation of the results of operations for the relevant
periods have been made. Results for the interim periods are not necessarily
indicative of the results to be expected for the year. These financial
statements should be read in conjunction with the summary of significant
accounting policies and the notes to the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended April
30, 1998.
2
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JULY 31,
APRIL 30, 1998
1998 (UNAUDITED)
---------- -----------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Current assets:
Cash and cash equivalents.............................................................. $ 9,866 $ 10,809
Accounts receivable (less allowance for doubtful accounts of: April 1998, $177; July
1998, $181).......................................................................... 41,108 64,404
Inventories............................................................................ 43,190 47,282
Other current assets................................................................... 6,683 8,843
---------- -----------
Total current assets................................................................. 100,847 131,338
Property, plant and equipment, net....................................................... 83,121 125,284
Long-term investments and other assets................................................... 3,792 9,928
Goodwill (less accumulated amortization; April 1998, $6,518; July 1998, $6,924).......... 44,483 45,854
---------- -----------
Total assets......................................................................... $ 232,243 $ 312,404
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................................... $ 43,815 $ 58,049
Accrued expenses....................................................................... 18,361 32,706
Current portion of long-term debt...................................................... 139 6,914
---------- -----------
Total current liabilities............................................................ 62,315 97,669
Long-term debt, less current portion..................................................... 74,883 84,941
Minority interest in subsidiary.......................................................... -- 16,794
Other long-term liabilities.............................................................. 12,839 20,831
---------- -----------
Total liabilities.................................................................... 150,037 220,235
---------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; authorized 25,000,000 shares; 16,170,666 and 16,173,078
shares issued at April 30, 1998 and July 31, 1998, respectively...................... 162 162
Capital in excess of par value......................................................... 27,528 27,614
Accumulated other comprehensive income................................................. (1,528) (2,529)
Retained earnings...................................................................... 56,044 68,193
---------- -----------
82,206 93,440
Shares of common stock in treasury, at cost; July 1998, 36,100 shares.................. -- (1,271)
---------- -----------
Total stockholders' equity........................................................... 82,206 92,169
---------- -----------
Total liabilities and stockholders' equity......................................... $ 232,243 $ 312,404
---------- -----------
---------- -----------
</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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JULY 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
(IN THOUSANDS, EXCEPT
SHARE DATA)
Net sales.............................................................................. $ 131,233 $ 156,874
Cost of goods sold..................................................................... 106,891 122,578
---------- ----------
Gross profit....................................................................... 24,342 34,296
Selling, general and administrative expenses........................................... 5,371 8,457
Amortization of goodwill............................................................... 430 446
---------- ----------
Operating income................................................................... 18,541 25,393
Interest (expense)..................................................................... (2,440) (2,456)
Other income (expense), net............................................................ 63 (316)
---------- ----------
Income before income taxes and minority interest................................... 16,164 22,621
Provision for income taxes............................................................. (6,436) (9,098)
---------- ----------
Income before minority interest.................................................... 9,728 13,523
Minority interest in earnings of subsidiary............................................ -- (364)
---------- ----------
Net income......................................................................... $ 9,728 $ 13,159
---------- ----------
---------- ----------
Basic net income per share............................................................. $ 0.60 $ 0.81
---------- ----------
---------- ----------
Diluted net income per share........................................................... $ 0.59 $ 0.79
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK CAPITAL IN OTHER TREASURY STOCK
------------------------- EXCESS COMPREHENSIVE RETAINED --------------------
SHARES AMOUNT OF PAR INCOME EARNINGS SHARES AMOUNT TOTAL
------------ ----------- ----------- -------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Balance at April 30, 1998..... 16,170,666 $ 162 $ 27,528 $ (1,528) $ 56,044 -- $ -- $ 82,206
Employee stock purchase
plan........................ 2,412 -- 86 86
Purchase of treasury stock.... (36,100) (1,271) (1,271)
Cash dividend declared
($0.0625 per share)......... (1,010) (1,010)
Total comprehensive income
(Note 3).................... (1,001) 13,159 12,158
------------ ----- ----------- ------- --------- --------- --------- ---------
Balance at July 31, 1998...... 16,173,078 $ 162 $ 27,614 $ (2,529) $ 68,193 (36,100) $ (1,271) $ 92,169
------------ ----- ----------- ------- --------- --------- --------- ---------
------------ ----- ----------- ------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JULY 31,
----------------------
<S> <C> <C>
1997 1998
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................................................. $ 9,728 $ 13,159
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization......................................................... 2,425 3,166
Amortization of deferred financing costs.............................................. 261 271
Minority interest in earnings of subsidiary........................................... -- 364
Change in assets and liabilities, net of effects from company acquired
Accounts receivable................................................................. (9,307) (3,780)
Inventories......................................................................... 3,635 8,635
Other current and non current assets................................................ (319) 556
Accounts payable and accrued expenses............................................... 6,512 4,896
Other, net.......................................................................... 221 299
---------- ----------
Cash flows provided by operating activities............................................... 13,156 27,566
---------- ----------
Cash flows from investing activities:
Acquisition, net of cash acquired....................................................... -- (22,625)
Capital expenditures.................................................................... (2,521) (5,573)
Net proceeds from sale of assets........................................................ 4,375 517
---------- ----------
Cash flows provided by (used for) investing activities.................................... 1,854 (27,681)
---------- ----------
---------- ----------
Cash flows from financing activities:
(Repayments) borrowings under revolving credit facilities, net.......................... (11,359) 2,869
Repayments of long-term borrowings...................................................... (3,865) --
Dividends on common stock............................................................... -- (1,010)
Purchase of treasury stock.............................................................. -- (1,271)
Other................................................................................... 43 470
---------- ----------
Cash flows (used for) provided by financing activities.................................... (15,181) 1,058
---------- ----------
Net (decrease) increase in cash and cash equivalents...................................... (171) 943
Cash and cash equivalents at beginning of period.......................................... 1,052 9,866
---------- ----------
Cash and cash equivalents at end of period................................................ $ 881 $ 10,809
---------- ----------
---------- ----------
Supplemental disclosures:
Cash paid for interest.................................................................. $ 2,359 $ 1,877
---------- ----------
Cash paid for income taxes.............................................................. $ 4,235 $ 3,461
---------- ----------
Noncash investing activities:
Assets, net of cash acquired............................................................ $ 83,636
Liabilities assumed..................................................................... (44,728)
Minority interest in subsidiary......................................................... (16,283)
----------
Net cash paid........................................................................... $ (22,625)
----------
----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Superior TeleCom Inc. and its majority owned
subsidiaries ("Superior TeleCom" or the "Company"). Certain reclassifications
have been made to the prior period presentation to conform to the current period
presentation.
2. INVENTORIES
At April 30, 1998 and July 31, 1998, the components of inventories were as
follows:
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
1998 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Raw materials........................................................... $ 8,672 $ 12,024
Work in process......................................................... 8,170 12,239
Finished goods.......................................................... 26,348 23,019
--------- ---------
$ 43,190 $ 47,282
--------- ---------
--------- ---------
</TABLE>
3. COMPREHENSIVE INCOME
As of May 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." The adoption of
this Statement had no impact on the Company's net income or stockholders'
equity. SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. SFAS 130 requires that all changes in
equity during a period (except those resulting from investment by shareholders
and distribution to shareholders) be reported in the Company's financial
statements, and displayed with the same prominence as other financial statement
presentations. Financial statements for prior periods will be reclassified as
required.
The components of comprehensive income for the three months ended July 31,
1997 and 1998 were as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Net income............................................................... $ 9,728 $ 13,159
Foreign currency translation adjustment.................................. 199 (1,001)
--------- ---------
Comprehensive income..................................................... $ 9,927 $ 12,158
--------- ---------
--------- ---------
</TABLE>
4. ACQUISITION
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 $25 million in cash. The Company has a two-year option to 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 was accounted for using the purchase method, and accordingly,
the results of operations of Cables of Zion are included in the
7
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1998
(UNAUDITED)
4. ACQUISITION (CONTINUED)
Company's consolidated financial statements on a prospective basis from the date
of acquisition. The purchase price was allocated based upon the estimated fair
values of assets and liabilities at the date of acquisition and is subject to
adjustment. The excess of the purchase price over the net assets acquired was
$2.2 million and is being amortized on a straight-line basis over 30 years.
PRO FORMA FINANCIAL DATA
Unaudited condensed pro forma results of operations for the three months
ended July 31, 1997, which give effect to the Cables of Zion acquisition as if
the transaction had occurred on May 1, 1997, are presented below. The pro forma
results of operations of Cables of Zion for the three months ended July 31, 1998
are not presented below since the results of operations for the five-day period
from May 1, 1998 through the acquisition date are not material to the Company's
consolidated results of operations. The pro forma amounts reflect
acquisition-related purchase accounting adjustments, including adjustments to
depreciation and amortization expense and interest expense on acquisition debt
and certain other adjustments, together with related income tax effects. The pro
forma financial information does not purport to be indicative of either the
results of operations that would have occurred if the acquisition had taken
place at the beginning of the period presented or of the future results of
operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JULY 31, 1997
PRO FORMA
--------------------
<S> <C>
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
Net sales............................................................... $ 153,873
Income before income taxes and minority interest........................ 16,285
Net income.............................................................. 9,666
Net income per diluted share of common stock............................ $ 0.59
--------
--------
</TABLE>
5. EARNINGS PER SHARE
The computation of basic and diluted earnings per share for the three months
ended July 31, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
1997 1998
--------------------------------- ---------------------------------
NET PER SHARE NET PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
--------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Basic earnings per common share................... $ 9,728 16,159 $ 0.60 $ 13,159 16,171 $ 0.81
--------- ----- --------- -----
--------- ----- --------- -----
Dilutive impact of stock options.................. 290 465
--------- ---------
Diluted earnings per common share................. $ 9,728 16,449 $ 0.59 $ 13,159 16,636 $ 0.79
--------- --------- ----- --------- --------- -----
--------- --------- ----- --------- --------- -----
</TABLE>
8
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1998
(UNAUDITED)
6. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
This Statement, which will be effective for the Company as of April 30, 1999,
establishes standards for the way enterprises report information about operating
segments in annual financial statements and requires that enterprises report
selected information about operating segments in interim financial reports.
In June 1998, 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.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Superior TeleCom Inc. ("Superior TeleCom" or "the Company"), through its two
subsidiaries, Superior Telecommunications Inc. ("Superior") and DNE Systems,
Inc. ("DNE"), is engaged in the manufacture and sale of (i) wire and cable
products principally for the local loop segment of the telecommunications
network and (ii) data communication and other electronic equipment, including
multiplexers, for defense, governmental and commercial applications. The results
of operations of Superior for the quarter ended July 31, 1998 include the
operations of Cables of Zion United Works Ltd. ("Cables of Zion"), a 51%
interest of which was acquired by Superior on May 5, 1998 (see Note 4 to the
accompanying unaudited Condensed Consolidated Financial Statements). Cables of
Zion is an Israeli-based manufacturer of cable and wire products including fiber
optic cable and high, medium and low voltage copper cable for electrical and
power transmission.
RESULTS OF OPERATIONS
PRESENTATION OF RESULTS OF OPERATIONS
The following provides financial information about each business segment for
the three months ended July 31, 1997 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JULY 31,
----------------------
<S> <C> <C>
1997 1998
---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net sales:
Superior............................................................ $ 126,720 $ 151,835
DNE................................................................. 4,513 5,039
---------- ----------
Consolidated...................................................... 131,233 156,874
Gross profit:
Superior............................................................ $ 23,035 $ 32,577
DNE................................................................. 1,307 1,719
---------- ----------
Consolidated...................................................... 24,342 34,296
Gross profit percentage:
Superior............................................................ 18.2% 21.5%
DNE................................................................. 29.0 34.1
Consolidated...................................................... 18.5 21.9
Selling, general and administrative expense:
Superior............................................................ $ 3,151 $ 5,720
DNE................................................................. 1,371 1,479
Corporate........................................................... 849 1,258
---------- ----------
Consolidated...................................................... 5,371 8,457
Amortization of goodwill:
Superior............................................................ $ 430 $ 446
Operating income (loss):
Superior............................................................ $ 19,454 $ 26,411
DNE................................................................. (64) 240
Corporate........................................................... (849) (1,258)
---------- ----------
Consolidated...................................................... $ 18,541 $ 25,393
---------- ----------
---------- ----------
</TABLE>
10
<PAGE>
SUPERIOR SUPPLEMENTAL DATA:
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 are based upon
a constant copper cost of $1.00 per pound for the indicated periods, provide
additional meaningful information concerning Superior's sales and its gross
profit percentage.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JULY 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Net sales............................................................. $ 123,344 $ 160,406
Gross profit.......................................................... 23,035 32,577
Gross profit percentage............................................... 18.7% 20.3%
</TABLE>
SUPERIOR--RESULTS OF OPERATIONS
Superior's net sales for the quarter ended July 1998 were $151.8 million,
representing an increase of $25.1 million, or 19.8%, as compared to the same
period in the prior fiscal year. Adjusted to a constant copper value of $1.00
per pound, the comparative increase in net sales was $37.1 million, or 30.0%
(see "Superior Supplemental Data" included in the industry segment operating
statement data). Superior's current period increase in net sales was due to the
inclusion of $21.9 million in net sales contributed by Cables of Zion and
continuing strong demand for copper wire and cable products in Superior's North
America operations ("Superior North America"). On a constant copper value basis,
Superior North America's net sales increased by $14.2 million, or 11.5%, as
compared to the same period in the prior fiscal year. The increase in Superior
North America's net sales resulted primarily from the ongoing growth in
copper-based telephone access lines and increased maintenance spending by
several major telephone company customers. To keep pace with the growth in
demand and increased market share, Superior has been increasing its internal
production capacity. During the prior fiscal year, Superior North America
increased its production capacity by approximately 10% (on a billion conductor
feet basis). During the July 1998 fiscal quarter, Superior achieved further
production capacity expansion, with total planned capacity expansion for fiscal
1999 of approximately 15% as compared to the end of fiscal 1998. Notwithstanding
these recent production capacity expansions, demand levels have exceeded
available capacity and, as a result, Superior has, and will continue to purchase
product from third party suppliers to meet such demand.
Superior's gross profit increased by $9.5 million, or 41.4%, to $32.6
million for the quarter ended July 1998 as compared to the same period in the
prior fiscal year. The comparative increase in gross profit included $3.8
million in incremental gross profit contribution by Cables of Zion, as well as a
$5.8 million, or 25.0%, increase in the comparative gross profit generated by
Superior North America. Superior's gross margin, based on actual sales, was
21.5% for the quarter ended July 1998 as compared to 18.2% for the same period
in the prior fiscal year. Adjusted to a constant copper sales value of $1.00 per
pound, gross margin increased from 18.7% in the prior year quarter is to 20.3%
in the quarter ended July 1998. The increase in gross margin was attributable to
manufacturing cost reductions resulting from production efficiencies, lower raw
material prices, product and customer mix and improved cost absorption resulting
from increased production volumes. The increase in gross margin was partially
offset by lower margin product sales at Cables of Zion.
Superior's SG&A expense for the quarter ended July 1998 was $5.7 million
representing an increase of $2.6 million as compared to the same period in the
prior fiscal year. The increase was due primarily to
11
<PAGE>
the inclusion of $1.9 million in SG&A expense from Cables of Zion and an
increase of $0.7 million in Superior North America SG&A expense associated with
the expansion of product development activities and incremental staff required
to support the increased level of activity.
Superior's operating income for the quarter ended July 1998 was $26.4
million representing an increase of $7.0 million, or 35.8%, as compared to the
same period in the prior fiscal year. The substantial comparative increase in
operating income resulted from higher net sales, improved margins, and the
inclusion of the results of operation of Cables of Zion beginning in the quarter
ended July 1998.
DNE--RESULTS OF OPERATIONS
For the quarter ended July 1998, DNE's net sales were $5.0 million,
representing an increase of $0.5 million, or 11.7%, as compared to the same
period in the prior fiscal year. The increase in net sales resulted from an
increase in DNE's contract manufacturing activities and an improvement in
government-related sales of multiplexer products.
DNE's gross margin increased to 34.1% for the quarter ended July 1998 as
compared to 29.0% for the quarter ended July 1997. The increase in gross margin
was attributable to improved pricing in the contract manufacturing business and
favorable product mix in the government-related business.
DNE's SG&A expense for the quarter ended July 1998 was comparable to prior
periods, increasing by $0.1 million as compared to the same period in the prior
fiscal year.
As a result of the increase in net sales and gross margin, DNE generated
operating income of $0.2 million during the quarter ended July 1998 as compared
to an operating loss of $0.1 million in the same period of the prior fiscal
year.
CONSOLIDATED RESULTS OF OPERATIONS
The acquisition of Cables of Zion and the growth in sales at both Superior
North America and DNE for the quarter ended July 1998 resulted in comparative
consolidated net sales increasing by $25.6 million, or 19.5%, as compared to the
quarter ended July 1997. The acquisition, along with the organic growth in net
sales and an increase in gross margin, gave rise to a consolidated comparative
increase in gross profit of $10.0 million, or 40.9%, for the quarter ended July
1998 as compared to the year earlier quarter.
Consolidated SG&A expense for the quarter ended July 1998 was $8.5 million,
representing an increase of $3.1 million, or 57.5%, as compared to the same
period in the prior fiscal year. The increase in consolidated SG&A expense
resulted primarily from the inclusion of the operations of Cables of Zion, along
with higher SG&A expense at Superior North America and higher corporate expense,
both of which were attributable to the increased size and activity of the
Company.
Consolidated operating income for the quarter ended July 1998 was $25.4
million, representing an increase of $6.9 million, or 37.0%, as compared to the
same period in the prior fiscal year. The increase in operating income was the
result of the contribution from the Cables of Zion's operations and from the
growth in net sales and gross profit in Superior North America's operations,
partially offset by the aforementioned increase in consolidated SG&A expense.
Despite the increase in debt related to the Cables of Zion acquisition
(including $25 million in acquisition debt and $14 million in direct debt at
Cables of Zion), consolidated interest expense for the quarter ended July 1998
was $2.4 million, which was consistent with the same period in the prior fiscal
year. Superior North America's debt at July 31, 1998 was $52 million less than
its debt at July 31, 1997, reflecting the substantial operating cash flow
generated during the past twelve month period.
For the quarter ended July 1998, the provision for income taxes was $9.1
million, as compared to a provision for income taxes of $6.4 million for the
same period in the prior fiscal year. The effective tax rate
12
<PAGE>
for the quarter ended July 1998 was 40.2% which compares with an effective tax
rate of 39.8% for the quarter ended July 1997.
For the quarter ended July 1998, a minority interest charge of $0.4 million
was recorded; with such charge representing minority stockholders' interest in
net income of Cables of Zion.
Consolidated net income for the quarter ended July 1998 was $13.2 million,
or $0.79 per diluted share, representing an increase of $3.4 million, or 35.3%,
over net income of $9.7 million, or $0.59 per diluted share, for the quarter
ended July 1997.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended July 31, 1998, the Company generated $27.6
million in cash flows from operating activities consisting of $16.6 million in
income generated from operations (net income plus non-cash charges) plus $11.0
million in cash flows generated from net working capital changes. The major
working capital changes included an $8.6 million reduction in inventories and a
$4.9 million increase in accounts payable and accrued expenses, offset by a $3.8
million increase in accounts receivable. Cash used for investing activities
amounted to $27.7 million consisting principally of $25.0 million in cash paid
for the acquisition of Cables of Zion and $5.6 million in capital expenditures.
Cash provided by financing activities amounted to $1.1 million, consisting
principally of $2.9 million in net borrowings under the Company's $150.0 million
revolving credit facility (the "Credit Facility"), offset by a dividend payment
of $1.0 million and $1.3 million used for the purchase of treasury stock.
The Company's capital structure at July 31, 1998 consisted of $91.9 million
in debt and $92.2 million in total stockholders' equity. Included in the
Company's debt balance was $72.2 million outstanding under the Company's credit
facility. Availability under the Credit Facility amounted to $76.4 million at
July 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 $6.9 million and expects to invest approximately
$20-$25 million in capital expenditures. The Company typically generates
substantial operating cash flows, as indicated by the $27.6 million in cash
flows from operating activities generated during the quarter ended July 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.
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
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.
13
<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
During the first quarter of 1999, the Company filed a Report on Form 8-K on
May 19, 1998 and a report on 8-K/A on July 20, 1998. The Reports provided
relevant financial and other data related to the acquisition of Cables of
Zion.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUPERIOR TELECOM INC.
By: /s/ DAVID S. ALDRIDGE
-----------------------------------------
David S. Aldridge
Date: September 14, 1998 CHIEF FINANCIAL OFFICER
15
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