<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 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)
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)
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.
CLASS OUTSTANDING AT DECEMBER 11, 1998
--------------------------- ------------------------------
Common Stock, $.10 Par Value 16,057,832
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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>
APRIL 30, OCTOBER 31,
1998 1998
--------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 9,866 $ 12,734
Accounts receivable (less allowance for doubtful accounts of: April
1998, $177; October 1998, $182).................................. 41,108 61,974
Inventories........................................................ 43,190 58,679
Other current assets............................................... 6,683 10,285
--------- -----------
Total current assets............................................. 100,847 143,672
Property, plant and equipment, net..................................... 83,121 126,588
Long-term investments and other assets................................. 3,792 10,086
Goodwill (less accumulated amortization; April 1998, $6,518; October
1998, $7,333)........................................................ 44,483 45,161
--------- -----------
Total assets..................................................... $ 232,243 $ 325,507
--------- -----------
--------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 43,815 $ 58,265
Accrued expenses................................................... 18,361 28,939
Current portion of long-term debt.................................. 139 6,868
--------- -----------
Total current liabilities........................................ 62,315 94,072
Long-term debt, less current portion................................... 74,883 96,222
Minority interest in subsidiary........................................ -- 16,283
Other long-term liabilities............................................ 12,839 19,827
--------- -----------
Total liabilities................................................ 150,037 226,404
--------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; authorized 25,000,000 shares;
16,170,666 and 16,226,532 shares issued at April 30, 1998 and
October 31, 1998, respectively................................... 162 162
Capital in excess of par value..................................... 27,528 28,355
Accumulated other comprehensive income............................. (1,528) (4,218)
Retained earnings.................................................. 56,044 80,921
--------- -----------
82,206 105,220
Shares of common stock in treasury, at cost; October 1998, 168,700
shares........................................................... -- (6,117)
--------- -----------
Total stockholders' equity....................................... 82,206 99,103
--------- -----------
Total liabilities and stockholders' equity..................... $ 232,243 $ 325,507
--------- -----------
--------- -----------
</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
OCTOBER 31,
--------------------
1997 1998
--------- ---------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Net sales............................................................... $ 139,212 $ 146,097
Cost of goods sold...................................................... 113,870 112,625
--------- ---------
Gross profit........................................................ 25,342 33,472
Selling, general and administrative expenses............................ 5,483 7,911
Amortization of goodwill................................................ 430 438
--------- ---------
Operating income.................................................... 19,429 25,123
Interest (expense)...................................................... (2,234) (2,034)
Other income (expense), net............................................. 18 (155)
--------- ---------
Income before income taxes and minority interest.................... 17,213 22,934
Provision for income taxes.............................................. (6,711) (8,928)
--------- ---------
Income before minority interest..................................... 10,502 14,006
Minority interest in earnings of subsidiary............................. -- (264)
--------- ---------
Net income.......................................................... $ 10,502 $ 13,742
--------- ---------
--------- ---------
Basic net income per share.............................................. $ 0.65 $ 0.86
--------- ---------
--------- ---------
Diluted net income per share............................................ $ 0.63 $ 0.83
--------- ---------
--------- ---------
</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)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31,
--------------------
1997 1998
--------- ---------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Net sales............................................................... $ 270,445 $ 302,971
Cost of goods sold...................................................... 220,761 235,203
--------- ---------
Gross profit........................................................ 49,684 67,768
Selling, general and administrative expenses............................ 10,854 16,368
Amortization of goodwill................................................ 860 884
--------- ---------
Operating income.................................................... 37,970 50,516
Interest (expense)...................................................... (4,674) (4,270)
Other income (expense), net............................................. 81 (691)
--------- ---------
Income before income taxes and minority interest.................... 33,377 45,555
Provision for income taxes.............................................. (13,147) (18,026)
--------- ---------
Income before minority interest..................................... 20,230 27,529
Minority interest in earnings of subsidiary............................. -- (628)
--------- ---------
Net income.......................................................... $ 20,230 $ 26,901
--------- ---------
--------- ---------
Basic net income per share.............................................. $ 1.25 $ 1.67
--------- ---------
--------- ---------
Diluted net income per share............................................ $ 1.23 $ 1.62
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED OCTOBER 31, 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>
Balance at April 30, 1998.... 16,170,666 $ 162 $ 27,528 $ (1,528) $ 56,044 -- $ -- $ 82,206
Exercise of stock options.... 51,121 -- 662 662
Employee stock purchase
plan....................... 4,745 -- 165 165
Purchase of treasury stock... (168,700) (6,117) (6,117)
Cash dividend declared
($0.125 per share)......... (2,024) (2,024)
Total comprehensive income
(Note 3)................... (2,690) 26,901 24,211
------------ ----- ----------- ------- --------- ---------- --------- ---------
Balance at October 31,
1998....................... 16,226,532 $ 162 $ 28,355 $ (4,218) $ 80,921 (168,700) $ (6,117) $ 99,103
------------ ----- ----------- ------- --------- ---------- --------- ---------
------------ ----- ----------- ------- --------- ---------- --------- ---------
</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)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31,
--------------------
1997 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................ $ 20,230 $ 26,901
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization....................................... 4,965 6,283
Amortization of deferred financing costs............................ 521 552
Minority interest in earnings of subsidiary......................... -- 628
Change in assets and liabilities, net of effects from company
acquired:
Accounts receivable............................................... (11,136) (1,350)
Inventories....................................................... 12,137 (2,762)
Other current and non current assets.............................. 245 (1,451)
Accounts payable and accrued expenses............................. 7,106 702
Other, net........................................................ (198) (451)
--------- ---------
Cash flows provided by operating activities............................. 33,870 29,052
--------- ---------
Cash flows from investing activities:
Acquisition, net of cash acquired..................................... -- (22,625)
Capital expenditures.................................................. (5,990) (12,339)
Net proceeds from sale of assets...................................... 4,962 1,739
--------- ---------
Cash flows used for investing activities................................ (1,028) (33,225)
--------- ---------
Cash flows from financing activities:
(Repayments) borrowings under revolving credit facilities, net........ (25,657) 14,278
Repayments of long-term borrowings.................................... (3,897) (68)
Dividends on common stock............................................. -- (2,024)
Purchase of treasury stock............................................ -- (6,117)
Other................................................................. 129 972
--------- ---------
Cash flows (used for) provided by financing activities.................. (29,425) 7,041
--------- ---------
Net increase in cash and cash equivalents............................... 3,417 2,868
Cash and cash equivalents at beginning of period........................ 1,052 9,866
--------- ---------
Cash and cash equivalents at end of period.............................. $ 4,469 $ 12,734
--------- ---------
--------- ---------
Supplemental disclosures:
Cash paid for interest................................................ $ 4,445 $ 3,549
--------- ---------
--------- ---------
Cash paid for income taxes............................................ $ 12,583 $ 17,442
--------- ---------
--------- ---------
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.
7
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 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 October 31, 1998, the components of inventories were
as follows:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1998 1998
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials........................................... $ 8,672 $ 14,059
Work in process......................................... 8,170 11,761
Finished goods.......................................... 26,348 32,859
--------- -----------
$ 43,190 $ 58,679
--------- -----------
--------- -----------
</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 six months ended October 31,
1997 and 1998 were as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net income................................................ $ 20,230 $ 26,901
Foreign currency translation adjustment................... 82 (2,690)
--------- ---------
Comprehensive income.................................. $ 20,312 $ 24,211
--------- ---------
--------- ---------
</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 Israeli-based cable and wire
manufacturer whose common stock is traded on the Tel Aviv Stock Exchange, for
approximately $25 million. 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
8
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 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 six months ended
October 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 six months ended October 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>
SIX MONTHS ENDED
OCTOBER 31, 1997
PRO FORMA
--------------------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C>
Net sales................................................................................... $ 315,136
Income before income taxes and minority interest............................................ 34,219
Net income.................................................................................. 20,141
Net income per diluted share of common stock................................................ $ 1.23
--------
--------
</TABLE>
9
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
(UNAUDITED)
5. EARNINGS PER SHARE
The computation of basic and diluted earnings per share for the three and
six months ended October 31, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31,
--------------------------------------------------------------------
1997 1998
--------------------------------- ---------------------------------
PER PER
NET SHARE NET SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
--------- --------- ----------- --------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per common share............................... $ 10,502 16,162 $ 0.65 $ 13,742 16,069 $ 0.86
Dilutive impact of stock options.............................. 380 472
--------- --------- ----- --------- --------- -----
Diluted earnings per common share............................. $ 10,502 16,542 $ 0.63 $ 13,742 16,541 $ 0.83
--------- --------- ----- --------- --------- -----
--------- --------- ----- --------- --------- -----
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED OCTOBER 31,
--------------------------------------------------------------------
1997 1998
--------------------------------- ---------------------------------
PER PER
NET SHARE NET SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
--------- --------- ----------- --------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per common share............................... $ 20,230 16,161 $ 1.25 $ 26,901 16,121 $ 1.67
Dilutive impact of stock options.............................. 335 468
--------- --------- ----- --------- --------- -----
Diluted earnings per common share............................. $ 20,230 16,496 $ 1.23 $ 26,901 16,589 $ 1.62
--------- --------- ----- --------- --------- -----
--------- --------- ----- --------- --------- -----
</TABLE>
6. SUBSEQUENT EVENT
On October 21, 1998, the Company entered into a definitive merger agreement
with Essex International Inc. ("Essex"), a New York Stock Exchange listed
company, pursuant to which the Company committed to acquire all of the
outstanding common shares and options of Essex for an aggregate consideration of
approximately $936 million. The consideration consists of approximately $769
million in cash and approximately $167 million in liquidation value of a new
series of 8 1/2% trust convertible exchangeable preferred securities. In
addition, the Company will assume or refinance approximately $405 million of
Essex's existing debt.
On November 27, 1998, the first stage of the acquisition was completed with
the funding of a cash tender offer for approximately 81% of the outstanding
Essex common shares. Upon completion of the second stage of the acquisition, the
remaining 19% of Essex common shares will be converted into the right to receive
0.64 of a share of Superior Telecom's 8 1/2% trust convertible exchangeable
preferred securities with a per share liquidation value of $50.
In connection with the transaction, the Company entered into a $1.15 billion
amended and restated senior credit facility and a $200 million senior
subordinated credit facility. Proceeds from the financing were used to (i) pay
the cash portion of the aforementioned purchase price, (ii) repay certain Essex
indebtedness, (iii) refinance the Company's existing outstanding bank debt, and
(iv) pay related transaction expenses.
10
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
(UNAUDITED)
6. SUBSEQUENT EVENT (CONTINUED)
The acquisition will be accounted for using the purchase method with the
purchase price being allocated based upon the estimated fair value 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 35
years.
7. 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.
11
<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 three and six months ended October 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 and six months ended October 31, 1997 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
---------------------- ----------------------
<S> <C> <C> <C> <C>
1997 1998 1997 1998
---------- ---------- ---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales:
Telecommunications wire and cable.............................. $ 131,394 $ 141,603 $ 258,114 $ 293,438
Data communications and electronics............................ 7,818 4,494 12,331 9,533
---------- ---------- ---------- ----------
Consolidated............................................... 139,212 146,097 270,445 302,971
Gross profit:
Telecommunications wire and cable.............................. $ 22,976 $ 31,520 $ 46,011 $ 64,097
Data communications and electronics............................ 2,366 1,952 3,673 3,671
---------- ---------- ---------- ----------
Consolidated............................................... 25,342 33,472 49,684 67,768
Gross profit percentage:
Telecommunications wire and cable.............................. 17.5% 22.3% 17.8% 21.8%
Data communications and electronics............................ 30.3 43.4 29.8 38.5
Consolidated............................................... 18.2 22.9 18.4 22.4
Selling, general and administrative expenses:
Telecommunications wire and cable.............................. $ 3,250 $ 5,638 $ 6,401 $ 11,358
Data communications and electronics............................ 1,482 1,374 2,853 2,853
Corporate...................................................... 751 899 1,600 2,157
---------- ---------- ---------- ----------
Consolidated............................................... 5,483 7,911 10,854 16,368
Amortization of goodwill:
Telecommunications wire and cable.............................. $ 430 $ 438 $ 860 $ 884
---------- ---------- ---------- ----------
Operating income:
Telecommunications wire and cable.............................. $ 19,296 $ 25,444 $ 38,750 $ 51,855
Data communications and electronics............................ 884 578 820 818
Corporate...................................................... (751) (899) (1,600) (2,157)
---------- ---------- ---------- ----------
Consolidated............................................... $ 19,429 $ 25,123 $ 37,970 $ 50,516
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
12
<PAGE>
SUPPLEMENTAL DATA FOR THE 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 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 SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
-------------------- --------------------
1997 1998 1997 1998
--------- --------- --------- ---------
(DOLLARS IN (DOLLARS IN
THOUSANDS) THOUSANDS)
<S> <C> <C> <C> <C>
Net sales........................................... $ 126,467 $ 151,886 $ 249,809 $ 312,287
Gross profit........................................ 22,976 31,520 46,011 64,097
Gross profit percentage............................. 18.2% 20.8% 18.4% 20.5%
</TABLE>
SUPERIOR--RESULTS OF OPERATIONS
Superior's net sales for the quarter ended October 1998 were $141.6 million,
representing an increase of $10.2 million, or 7.8%, as compared to the same
period in the prior fiscal year. For the six months ended October 1998,
Superior's net sales were $293.4 million, representing an increase of $35.3
million, or 13.7%, as compared to the same period in the prior fiscal year.
Adjusted to a constant copper value of $1.00 per pound, Superior's comparative
percentage increase in net sales for the quarter and six months ended October
1998 was 20.1% and 25.0%, respectively (see "Superior Supplemental Data"
included in the industry segment operating statement data). The increase in net
sales on a constant copper value basis for the quarter and six months ended
October 1998 included $16.6 million and $39.5 million, respectively, in net
sales contributed by Cables of Zion. Additionally, Superior's North American
operations experienced a comparative increase in net sales for the quarter and
six months ended October 1998 of $8.8 million and $23.0 million, respectively,
(representing an increase of 6.9% and 9.2% respectively). The comparative
increase in Superior's North American net sales for both the three month and six
month periods ended October 1998 is due to continued increased demand for copper
wire and cable products resulting from the growth in copper-based telephone
access lines and increased maintenance spending by several of Superior's major
telephone company customers.
Superior's gross profit increased by $8.5 million, or 37.2%, to $31.5
million for the quarter ended October 1998 as compared to the same period in the
prior fiscal year. For the six months ended October 1998, Superior's gross
profit increased by $18.1 million, or 39.3%, to $64.1 million as compared to the
same period in the prior fiscal year. The comparative increase in gross profit
for the quarter and six months ended October 1998 included $2.5 million and $6.3
million, respectively, in incremental gross profit contribution by Cables of
Zion, as well as an increase of $6.1 million and $11.8 million, respectively, in
the comparative gross profit generated by Superior's North American operations.
Superior's gross margin, based on actual sales, was 22.3% for the quarter ended
October 1998 and 21.8% for the six months ended October 1998, as compared to
17.5% and 17.8%, respectively, for the quarter and six months ended October
1997. Adjusted to a constant copper sales value of $1.00 per pound, Superior's
gross margin increased to 20.8% and 20.5%, respectively, for the quarter and six
months ended October 1998, as compared to 18.2% and 18.4%, respectively, for the
quarter and six months ended October 1997. 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.
13
<PAGE>
Superior's SG&A expense for the quarter ended October 1998 was $5.6 million,
representing an increase of $2.4 million, or 73.5%, as compared to the same
period in the prior fiscal year. For the six months ended October 1998,
Superior's SG&A expense was $11.4 million, representing an increase of $5.0
million, or 77.4%, as compared to the same period in the prior fiscal year. The
increase for the quarter and six months ended October 1998 was due primarily to
the inclusion of $1.5 million and $3.3 million, respectively, in SG&A expense
from Cables of Zion and an increase of $0.9 million and $1.6 million,
respectively, in Superior's North American SG&A expense. The increase in
Superior's North American SG&A expense resulted from 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 October 1998 was $25.4
million, representing an increase of $6.1 million, or 31.9%, as compared to the
same period in the prior fiscal year. For the six months ended October 1998,
Superior's operating income was $51.9 million, representing an increase of $13.1
million, or 33.8%, 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 operations of
Cables of Zion beginning in the first quarter of fiscal 1999, partially offset
by higher Superior North American SG&A expenses.
DNE--RESULTS OF OPERATIONS
For the quarter ended October 1998, DNE's net sales were $4.5 million,
representing a decrease of $3.3 million, or 42.5%, as compared to the same
period in the prior fiscal year. For the six months ended October 1998, DNE's
net sales were $9.5 million, representing a decrease of $2.8 million, or 22.7%,
as compared to the same period in the prior fiscal year. The comparative
decrease in net sales in the current fiscal year resulted from the completion of
a substantial commercial multiplexer contract during the comparable period in
the prior fiscal year, partially offset by an increase in shipments to various
government agencies of a new generation multiplexer during the current fiscal
year.
DNE's gross profit decreased by $0.4 million, or 17.5%, to $2.0 million for
the quarter ended October 1998 as compared to the same period in the prior
fiscal year. For the six months ended October 1998, DNE's gross profit was
unchanged compared to the same period in the prior fiscal year. DNE's gross
margin increased to 43.4% for the quarter ended October 1998 and to 38.5% for
the six months ended October 1998, as compared to 30.3% and 29.8%, respectively,
for the quarter and six months ended October 1997. The increase in gross margin
was attributable to favorable product mix resulting from the increase in
government related shipments, as well as the benefit of manufacturing cost
reductions.
DNE's SG&A expense for the quarter and six months ended October 1998 was
comparable to the same periods in the prior fiscal year.
DNE generated operating income of $0.6 million and $0.8 million,
respectively, during the quarter and six months ended October 1998, as compared
to $0.9 million and $0.8 million, respectively, for the same periods in the
prior fiscal year. The comparative decline in operating income in the current
year fiscal periods was attributable to reduced net sales, partially offset by
improving gross margins.
CONSOLIDATED RESULTS OF OPERATIONS
The acquisition of Cables of Zion and the growth in copper adjusted net
sales at Superior North America for the quarter and six months ended October
1998 resulted in comparative consolidated copper adjusted net sales increasing
by $22.1 million, or 16.5%, and by $59.7 million, or 22.8%, respectively, as
compared to the quarter and six months ended October 1997. The increase in net
sales, along with improving gross margin, gave rise to a consolidated
comparative increase in gross profit of $8.1 million, or 32.1%, for the quarter
ended October 1998 as compared to the quarter ended October 1997, and of $18.1
million, or 36.4%, for the six months ended October 1998 as compared to the six
months ended October 1997.
14
<PAGE>
Consolidated SG&A expense for the quarter ended October 1998 was $7.9
million, representing an increase of $2.4 million, or 44.3%, as compared to the
same period in the prior fiscal year. For the six months ended October 1998,
consolidated SG&A expense was $16.4 million, representing an increase of $5.5
million, or 50.8%, 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 October 1998 was $25.1
million, representing an increase of $5.7 million, or 29.3%, as compared to the
same period in the prior fiscal year. For the six months ended October 1998,
consolidated operating income was $50.5 million, representing an increase of
$12.5 million, or 33.0%, as compared to the same period in the prior fiscal
year. The increase in operating income was the result of the contribution from
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.
Consolidated interest expense for the quarter and six months ended October
1998 declined to $2.0 million and $4.3 million, respectively, as compared to
$2.2 million and $4.7 million, respectively, for the same periods in the prior
fiscal year. The reduction in comparative current fiscal year interest expense
was achieved despite an increase in acquisition debt related to the Cables of
Zion acquisition, and reflects the impact of lower interest rates as well as the
benefit of overall debt reduction achieved through strong operating cash flow
generated during the last twelve month period.
For the quarter and six months ended October 1998, the provision for income
taxes was $8.9 million and $18.0 million, respectively, as compared to a
provision for income taxes of $6.7 million and $13.1 million, respectively, for
the same periods in the prior fiscal year. The effective tax rate for the
quarter and six months ended October 1998 was 38.9% and 39.6%, respectively,
which compares to an effective tax rate of 39.0% and 39.4%, respectively, for
the quarter and six months ended October 1997.
For the quarter and six months ended October 1998, a minority interest
charge of $0.3 million and $0.6 million, respectively, was recorded; with such
charge representing minority stockholders' interest in net income of Cables of
Zion.
Consolidated net income for the quarter ended October 1998 was $13.7
million, or $0.83 per diluted share, representing an increase of $3.2 million,
or 30.9%, over consolidated net income of $10.5 million, or $0.63 per diluted
share, for the quarter ended October 1997. For the six months ended October
1998, consolidated net income was $26.9 million, or $1.62 per diluted share,
representing an increase of $6.7 million, or 33.0%, over consolidated net income
of $20.2 million, or $1.23 per diluted share, for the six months ended October
1997.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended October 31, 1998, the Company generated $29.1
million in cash flows from operating activities consisting of $34.4 million in
income generated from operations (net income plus non-cash charges) less $5.3
million in cash flows used for net working capital changes. The major working
capital changes included a $2.8 million increase in inventories, a $1.4 million
increase in accounts receivable and a $1.5 million increase in other assets,
offset by a $0.7 million increase in accounts payable and accrued expenses. Cash
used for investing activities amounted to $33.2 million consisting principally
of $25.0 million in cash paid for the acquisition of Cables of Zion and $12.3
million in capital expenditures. Cash provided by financing activities amounted
to $7.0 million, consisting principally of $14.2 million in net borrowings under
the Company's $150.0 million revolving credit facility (the "Credit Facility"),
offset by a dividend payment of $2.0 million and $6.1 million used for the
purchase of treasury stock.
At October 31, 1998, the Company had $83.6 million outstanding under its
existing Credit Facility. On November 27, 1998, the Company, in conjunction with
the Essex acquisition (See Footnote 6 to the accompanying consolidated financial
statement), entered into a $1.15 billion amended and restated credit agreement
("Credit Agreement") and a $200 million senior subordinated credit agreement
("Senior Notes"). The Credit Agreement consists of a $500 million term loan A, a
$425 million term loan B, and a $225 million revolving credit facility. Proceeds
from the financing were used to (i) pay $769 million, representing the cash
portion of the Essex acquisition price, (ii) refinance approximately $84 million
under Superior's existing Credit Facility, (iii) refinance approximately $280
million of Essex's existing credit facilities, and (iv) pay related transaction
expenses. Subsequent to the acquisition and refinancing, the Company expects to
have approximately $150 million of undrawn availability under the revolving
credit facility. Obligations under the Credit Agreement and the Senior Notes are
secured by substantially all of the assets of the Company and its subsidiaries
and by the stock of the Company's subsidiaries. The Credit Agreement and Senior
Notes contain customary performance and financial covenants.
On completion of the Essex acquisition and related refinancing, the Company
expects to have total outstanding debt amounting to approximately $1.2 billion.
Management anticipates that over the next twelve months, the Company will
generate sufficient operating cash flows to service annual principal debt
service and expected capital expenditures. However, should any shortfall arise
due to working capital fluctuations and other factors, cash and funds
availability under the revolving credit facility should be sufficient to cover
such a 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.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
THE MERGER AGREEMENT AND THE OFFER
On October 21, 1998, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with SUT Acquisition Corp., a newly formed
Delaware corporation and a subsidiary of the Company ("SUT Acquisition"), and
Essex International Inc., a Delaware corporation ("Essex"). Under the terms of
the Merger Agreement, SUT Acquisition commenced a cash tender offer (the
"Offer"), on October 28, 1998, to acquire up to 22,562,135 shares of common
stock of Essex (the "Shares") at a price of $32.00 per Share. On November 27,
1998, following the expiration of the Offer, the Company, through SUT
Acquisition, accepted for purchase 22,562,135 Shares (representing approximately
81% of the Shares outstanding as of October 20, 1998), on a pro rata basis, that
had been validly tendered and not withdrawn in the Offer.
In accordance with the Merger Agreement, a special meeting of Essex's
stockholders will be convened to vote to adopt the Merger Agreement, which
provides that SUT Acquisition will be merged with and into Essex (the "Merger"),
with the result that Essex will be an indirect, wholly-owned subsidiary of the
Company. It is expected that, following the Merger, the business and operations
of Essex will continue to be conducted substantially as they are currently
conducted.
THE CREDIT AGREEMENT
In connection with the Offer, on November 27, 1998, Superior/Essex Corp., a
newly formed Delaware corporation and a wholly-owned subsidiary of the Company
("Superior/Essex"), Essex Group, Inc., a Michigan corporation and a subsidiary
of Essex ("Essex Group"), and the Company and certain subsidiaries of the
Company and Essex, as guarantors (collectively, the "Guarantors"), entered into
an Amended and Restated Credit Agreement (the "Credit Agreement") among
Superior/Essex and Essex Group, as borrowers, the Guarantors, various lenders,
Merrill Lynch & Co., as documentation agent ("Merrill"), Fleet National Bank, as
syndication agent ("Fleet"), and Bankers Trust Company, as administrative agent
("Bankers Trust"). The Credit Agreement provides for total borrowings of up to
$1.15 billion. Total borrowings of approximately $948.0 million under the Credit
Agreement were used to pay a portion of the consideration required to consummate
the Offer (including the refinancing of certain indebtedness of the Company and
Essex Group) and to pay related fees and expenses.
The Credit Agreement is comprised of two tranches of term loans and a
revolving credit facility. Interest on amounts outstanding under the Credit
Agreement is based upon either (i) the Federal Funds Rate, Bankers Trust's prime
lending rate or an adjusted certificate of deposit rate or (ii) the rate in the
Eurodollar market for deposits in dollars or the rate in the London market for
deposits in pounds sterling plus, in each case, an applicable margin, a variable
component which, in certain circumstances, is subject to adjustment based on the
leverage ratio maintained by Superior/Essex and its subsidiaries. The two
tranches of term loans have five and one-half and seven year terms and the
revolving credit facility has a five and one-half year term. Each of the term
loans requires periodic mandatory amortization payments.
The obligations of each of Superior/Essex and Essex Group under the Credit
Agreement are unconditionally guaranteed by the other party and their respective
obligations are guaranteed by certain of their respective subsidiaries as well
as by the Company. The indebtedness incurred under the Credit Agreement is
secured by a first priority lien on substantially all the assets of the Company,
Superior/Essex, Essex Group and their subsidiaries.
THE SUBORDINATED CREDIT AGREEMENT
Concurrently with the execution of the Credit Agreement, Superior/Essex also
entered into the $200,000,000 Senior Subordinated Credit Agreement (the
"Subordinated Credit Agreement") among
17
<PAGE>
Superior/Essex, as borrower, the Company and certain subsidiaries of the Company
(including Essex and Essex Group), as guarantors, various lenders, Fleet, as
syndication agent, and Bankers Trust, as administrative agent. Proceeds of the
Subordinated Credit Agreement were used to finance the Offer, to refinance
certain existing indebtedness of the Company and Essex and to pay related fees
and expenses.
The Subordinated Credit Agreement is a general unsecured obligation of
Superior/Essex which ranks PARI PASSU in right of payment with all future senior
subordinated indebtedness and senior to all other subordinated indebtedness. The
Subordinated Credit Agreement is guaranteed by the Company and by certain
subsidiaries of the Company (including Essex Group) on a joint and several
basis. The Subordinated Credit Agreement matures in 2006 and is prepayable at
the option of Superior/Essex at any time. Mandatory prepayments are required
from: (i) the net proceeds from issuances of debt to the extent not required to
repay senior indebtedness (i.e., the Credit Agreement) and (ii) the net proceeds
from equity issuances (with certain exceptions).
Interest on the Subordinated Credit Agreement is payable quarterly. For the
first six months after the borrowing date, interest is based upon LIBOR plus
4.25% and, if LIBOR rate loans are not available, the alternate base rate (the
higher of prime or 1/2 of 1% over the Federal Funds Rate) plus 3.25%. Upon the
six month anniversary of the borrowing date, interest is based upon LIBOR plus
4.50% and, if LIBOR rate loans are not available, the alternate base rate plus
3.50%. Upon the 12 month anniversary of the borrowing date, interest is based
upon LIBOR plus 5.00% and, if LIBOR rate loans are not available, the alternate
base rate plus 4.00%. After the 12 month anniversary of the borrowing date, the
interest rate will increase by 0.25% per quarter, but the maximum interest rate
will be LIBOR plus 5.50% and, if LIBOR rate loans are not available, the
alternate base rate plus 4.50%.
Financial statements required by Item 7 of Form 8-K will be filed on Form
8-K/A not later than 60 days after the date hereof.
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- ----------------- -------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of October 21, 1998, by and among Superior TelCom Inc.,
SUT Acquisition Corp. and Essex International Inc. (incorporated herein by reference to Exhibit
(c)(1) to the Tender Offer Statement on Schedule 14D-1 filed by Superior TeleCom Inc. and SUT
Acquisition Corp. on October 28, 1998).
10.1 Amended and Restated Credit Agreement, dated as of November 27, 1998, among Superior/Essex Corp.,
Essex Group, Inc., the guarantors named therein, various lenders, Merrill Lynch & Co., as
documentation agent, Fleet National Bank, as syndication agent, and Bankers Trust Company, as
administrative agent (incorporated herein by reference to Exhibit 99.7 to the Schedule 13D/A
filed by The Alpine Group, Inc., Superior TeleCom Inc., Superior/Essex Corp. and SUT Acquisition
Corp. on December 7, 1998 (the "Schedule 13D")).
10.2 Senior Subordinated Credit Agreement, dated as of November 27, 1998, among Superior/ Essex Corp.,
as borrower, Superior TeleCom Inc., as Parent, the subsidiary guarantors named therein, various
lenders, Fleet Corporate Finance, Inc., as syndication agent, and Bankers Trust Company, as
administrative agent (incorporated herein by reference to Exhibit 99.8 to the Schedule 13D).
27* Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None.
- ------------------------
* filed herewith
19
<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
Chief Financial Officer
Date: December 14, 1998
20
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 12,734
<SECURITIES> 0
<RECEIVABLES> 62,156
<ALLOWANCES> 182
<INVENTORY> 58,679
<CURRENT-ASSETS> 143,672
<PP&E> 164,085
<DEPRECIATION> 37,497
<TOTAL-ASSETS> 325,507
<CURRENT-LIABILITIES> 94,072
<BONDS> 0
0
0
<COMMON> 162
<OTHER-SE> 98,941
<TOTAL-LIABILITY-AND-EQUITY> 325,507
<SALES> 302,971
<TOTAL-REVENUES> 302,971
<CGS> 235,203
<TOTAL-COSTS> 235,203
<OTHER-EXPENSES> 691
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<INCOME-PRETAX> 45,555
<INCOME-TAX> 18,026
<INCOME-CONTINUING> 26,901
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